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[Federal Register: May 4, 2010 (Volume 75, Number 85)]
[Proposed Rules]               
[Page 23851-24322]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04my10-32]                         
 

[[Page 23851]]

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Part II

Book 2 of 2 Books

Pages 23851-24362

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 412, 413, et al.

 Medicare Program; Proposed Rule

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412, 413, 440, 441, 482, 485, and 489

[CMS-1498-P]
RIN 0938-AP80

 
Medicare Program; Proposed Changes to the Hospital Inpatient 
Prospective Payment Systems for Acute Care Hospitals and the Long-Term 
Care Hospital Prospective Payment System and Proposed Fiscal Year 2011 
Rates; Effective Date of Provider Agreements and Supplier Approvals; 
and Hospital Conditions of Participation for Rehabilitation and 
Respiratory Care Services Medicaid Program: Accreditation Requirements 
for Providers of Inpatient Psychiatric Services for Individuals Under 
Age 21

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

ACTION: Proposed rule.

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SUMMARY: We are proposing to revise the Medicare hospital inpatient 
prospective payment systems (IPPS) for operating and capital-related 
costs of acute care hospitals to implement changes arising from our 
continuing experience with these systems. In addition, in the Addendum 
to this proposed rule, we describe the proposed changes to the amounts 
and factors used to determine the rates for Medicare acute care 
hospital inpatient services for operating costs and capital-related 
costs. These proposed changes would be applicable to discharges 
occurring on or after October 1, 2010. We also are setting forth the 
proposed update to the rate-of-increase limits for certain hospitals 
excluded from the IPPS that are paid on a reasonable cost basis subject 
to these limits. The proposed updated rate-of-increase limits would be 
effective for cost reporting periods beginning on or after October 1, 
2010.
    We are proposing to update the payment policy and the annual 
payment rates for the Medicare prospective payment system (PPS) for 
inpatient hospital services provided by long-term care hospitals 
(LTCHs). In the Addendum to this proposed rule, we also set forth the 
proposed changes to the payment rates, factors, and other payment rate 
policies under the LTCH PPS. These proposed changes would be applicable 
to discharges occurring on or after October 1, 2010.
    We are proposing changes affecting the Medicare conditions of 
participation for hospitals relating to the types of practitioners who 
may provide rehabilitation services and respiratory care services.
    We are proposing changes affecting the determination of the 
effective date of provider agreements and supplier approvals under 
Medicare.
    Finally, we are proposing to offer psychiatric hospitals, hospitals 
with inpatient psychiatric programs, and psychiatric facilities that 
are not hospitals increased flexibility in obtaining accreditation to 
participate in the Medicaid program. Psychiatric hospitals would have 
the choice of meeting the existing regulatory requirements to 
participate in Medicare as a psychiatric hospital or to obtaining 
accreditation from a national accrediting organization whose 
psychiatric hospital accrediting program has been approved by CMS. 
Hospitals with inpatient psychiatric programs would have the choice of 
meeting the existing regulatory requirements for participation in 
Medicare as a hospital or obtaining accreditation from a national 
accrediting organization whose hospital accreditation program has been 
approved by CMS. In addition, psychiatric facilities that are not 
hospitals would be afforded the flexibility in obtaining accreditation 
by a national accrediting organization whose program has been approved 
by CMS, or by any other accrediting organization with comparable 
standards that is recognized by the State.

DATES: To be assured consideration, comments on this proposed rule must 
be received at one of the addresses provided below, no later than 5 
p.m. Eastern Daylight Time (E.D.T.) on June 18, 2010.

ADDRESSES: When commenting on issues presented in this proposed rule, 
please refer to file code CMS-1498-P. Because of staff and resource 
limitations, we cannot accept comments by facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation at http://www.regulations.gov. Follow the instructions for 
``Comment or Submission'' and enter the file code CMS-1498-P to submit 
comments on this proposed rule.
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address only: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-1498-P, P.O. Box 8011, Baltimore, MD 21244-1850.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address only: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-1498-P, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to either of the following addresses:
    a. Room 445-G, Hubert H. Humphrey Building, 200 Independence 
Avenue, SW., Washington, DC 20201.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    b. 7500 Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Tzvi Hefter, (410) 786-4487, and Ing-
Jye Cheng, (410) 786-4548, Operating Prospective Payment, MS-DRGs, 
Hospital Acquired Conditions (HAC), Wage Index, New Medical Service and 
Technology Add-On Payments, Hospital Geographic Reclassifications, 
Acute Care Transfers, Capital Prospective Payment, Excluded Hospitals, 
Direct and Indirect Graduate Medical Education Payments, 
Disproportionate Share Hospital (DSH), and Critical Access Hospital 
(CAH) Issues.
    Michele Hudson, (410) 786-4487, and Judith Richter, (410) 786-2590, 
Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG 
Relative Weights Issues.

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    Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital 
Demonstration Program Issues.
    James Poyer, (410) 786-2261, Reporting of Hospital Quality Data for 
Annual Payment Update--Program Administration, Validation, and 
Reconsideration Issues.
    Shaheen Halim, (410) 786-0641, Reporting of Hospital Quality Data 
for Annual Payment Update--Measures Issues Except Hospital Consumer 
Assessment of Healthcare Providers and Systems.
    Elizabeth Goldstein, (410) 786-6665 Reporting of Hospital Quality 
Data for Annual Payment Update--Hospital Consumer Assessment of 
Healthcare Providers and Systems Measures Issues.
    Marcia Newton, (410-786-5265) and CDR Scott Cooper (U.S. Public 
Health Service), (410) 786-9465, Hospital Conditions of Participation 
for Rehabilitation Services and Respiratory Therapy Care Issues.
    Marilyn Dahl, (410) 786-8665, Provider Agreement and Supplier 
Approval Issues.
    Melissa Harris, (410) 786-3397 or Adrienne Delozier, (410) 786-
0278, Accreditation of Providers of Inpatient Psychiatric Services to 
Individuals under Age 21 Issues.

SUPPLEMENTARY INFORMATION:
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions at that Web site to 
view public comments.
    Comments received timely will also be available for public 
inspection, generally beginning approximately 3 weeks after publication 
of a document, at the headquarters of the Centers for Medicare & 
Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, 
Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule 
an appointment to view public comments, phone 1-800-743-3951.

Electronic Access

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

Acronyms

3M 3M Health Information System
AAHKS American Association of Hip and Knee Surgeons
AAMC Association of American Medical Colleges
ACGME Accreditation Council for Graduate Medical Education
AHA American Hospital Association
AHIC American Health Information Community
AHIMA American Health Information Management Association
AHRQ Agency for Healthcare Research and Quality
ALOS Average length of stay
ALTHA Acute Long Term Hospital Association
AMA American Medical Association
AMGA American Medical Group Association
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis Related Group System
ARRA American Recovery and Reinvestment Act of 2009, Public Law 111-
5
ASC Ambulatory surgical center
ASCA Administrative Simplification Compliance Act of 2002, Public 
Law 107-105
ASITN American Society of Interventional and Therapeutic 
Neuroradiology
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999, Public 
Law 106-113
BIC Beneficiary Identification Code
BIPA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Benefits Improvement and Protection Act of 2000, 
Public Law 106-554
BLS Bureau of Labor Statistics
CAH Critical access hospital
CARE [Medicare] Continuity Assessment Record & Evaluation 
[Instrument]
CART CMS Abstraction & Reporting Tool
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCR Cost-to-charge ratio
CDAC [Medicare] Clinical Data Abstraction Center
CDAD Clostridium difficile-associated disease
CIPI Capital input price index
CMI Case-mix index
CMS Centers for Medicare & Medicaid Services
CMSA Consolidated Metropolitan Statistical Area
COBRA Consolidated Omnibus Reconciliation Act of 1985, Pub. L. 99-
272
COLA Cost-of-living adjustment
CoP [Hospital] condition of participation
CPI Consumer price index
CRNA Certified Registered Nurse Anesthetist
CY Calendar year
DPP Disproportionate patient percentage
DRA Deficit Reduction Act of 2005, Pub. L. 109-171
DRG Diagnosis-related group
DSH Disproportionate share hospital
ECI Employment cost index
EDB [Medicare] Enrollment Database
EMR Electronic medical record
FAH Federation of Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
FHA Federal Health Architecture
FIPS Federal information processing standards
FQHC Federally qualified health center
FTE Full-time equivalent
FY Fiscal year
GAAP Generally Accepted Accounting Principles
GAF Geographic Adjustment Factor
GME Graduate medical education
HACs Hospital-acquired conditions
HCAHPS Hospital Consumer Assessment of Healthcare Providers and 
Systems
HCFA Health Care Financing Administration
HCO High-cost outlier
HCRIS Hospital Cost Report Information System
HHA Home health agency
HHS Department of Health and Human Services
HICAN Health Insurance Claims Account Number
HIPAA Health Insurance Portability and Accountability Act of 1996, 
Pub. L. 104-191
HIPC Health Information Policy Council
HIS Health information system
HIT Health information technology
HMO Health maintenance organization
HPMP Hospital Payment Monitoring Program
HSA Health savings account
HSCRC [Maryland] Health Services Cost Review Commission
HSRV Hospital-specific relative value
HSRVcc Hospital-specific relative value cost center
HQA Hospital Quality Alliance
HQI Hospital Quality Initiative
HwH Hospital-within-a-hospital
ICD-9-CM International Classification of Diseases, Ninth Revision, 
Clinical Modification
ICD-10-CM International Classification of Diseases, Tenth Revision, 
Clinical Modification
ICD-10-PCS International Classification of Diseases, Tenth Revision, 
Procedure Coding System
ICR Information collection requirement
IHS Indian Health Service
IME Indirect medical education
I-O Input-Output
IOM Institute of Medicine
IPF Inpatient psychiatric facility
IPPS [Acute care hospital] inpatient prospective payment system

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IRF Inpatient rehabilitation facility
LAMCs Large area metropolitan counties
LOS Length of stay
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MA Medicare Advantage
MAC Medicare Administrative Contractor
MCC Major complication or comorbidity
MCE Medicare Code Editor
MCO Managed care organization
MCV Major cardiovascular condition
MDC Major diagnostic category
MDH Medicare-dependent, small rural hospital
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare Provider Analysis and Review File
MEI Medicare Economic Index
MGCRB Medicare Geographic Classification Review Board
MIEA-TRHCA Medicare Improvements and Extension Act, Division B of 
the Tax Relief and Health Care Act of 2006, Pub. L. 109-432
MIPPA Medicare Improvements for Patients and Providers Act of 2008, 
Pub. L. 110-275
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Pub. L. 108-173
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Pub. L. 
110-173
MPN Medicare provider number
MRHFP Medicare Rural Hospital Flexibility Program
MRSA Methicillin-resistant Staphylococcus aureus
MSA Metropolitan Statistical Area
MS-DRG Medicare severity diagnosis-related group
MS-LTC-DRG Medicare severity long-term care diagnosis-related group
NAICS North American Industrial Classification System
NALTH National Association of Long Term Hospitals
NCD National coverage determination
NCHS National Center for Health Statistics
NCQA National Committee for Quality Assurance
NCVHS National Committee on Vital and Health Statistics
NECMA New England County Metropolitan Areas
NP Nurse practitioner
NQF National Quality Forum
NTIS National Technical Information Service
NTTAA National Technology Transfer and Advancement Act of 1991 (Pub. 
L. 104-113)
NVHRI National Voluntary Hospital Reporting Initiative
OACT [CMS'] Office of the Actuary
OBRA 86 Omnibus Budget Reconciliation Act of 1996, Pub. L. 99-509
OES Occupational employment statistics
OIG Office of the Inspector General
OMB Executive Office of Management and Budget
OPM U.S. Office of Personnel Management
O.R. Operating room
OSCAR Online Survey Certification and Reporting [System]
PA Physician assistant
PIP Periodic interim payment
PLI Professional liability insurance
PMSAs Primary metropolitan statistical areas
POA Present on admission
PPACA Patient Protection and Affordable Care Act, Pub. L. 111-148
PPI Producer price index
PPS Prospective payment system
PRM Provider Reimbursement Manual
ProPAC Prospective Payment Assessment Commission
PRRB Provider Reimbursement Review Board
PRTFs Psychiatric residential treatment facilities
PSF Provider-Specific File
PS&R Provider Statistical and Reimbursement (System)
QIG Quality Improvement Group, CMS
QIO Quality Improvement Organization
RCE Reasonable compensation equivalent
RHC Rural health clinic
RHQDAPU Reporting hospital quality data for annual payment update
RNHCI Religious nonmedical health care institution
RPL Rehabilitation psychiatric long-term care (hospital)
RRC Rural referral center
RTI Research Triangle Institute, International
RUCAs Rural-urban commuting area codes
RY Rate year
SAF Standard Analytic File
SCH Sole community hospital
SFY State fiscal year
SIC Standard Industrial Classification
SNF Skilled nursing facility
SOCs Standard occupational classifications
SOM State Operations Manual
SSN Social Security number
SSO Short-stay outlier
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-
248
TEP Technical expert panel
TMA TMA [Transitional Medical Assistance], Abstinence Education, and 
QI [Qualifying Individuals] Programs Extension Act of 2007, Pub. L. 
110-90
UHDDS Uniform hospital discharge data set

Table of Contents

I. Background
    A. Summary
    1. Acute Care Hospital Inpatient Prospective Payment System 
(IPPS)
    2. Hospitals and Hospital Units Excluded From the IPPS
    3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
    4. Critical Access Hospitals (CAHs)
    5. Payments for Graduate Medical Education (GME)
    B. Provisions of the Patient Protection and Affordable Care Act 
(Pub. L. 111-148), as Amended by the Health Care and Education 
Reconciliation Act of 2010 (Pub. L. 111-152)
    C. Major Content of This Proposed Rule
    1. Proposed Changes to MS-DRG Classifications and Recalibrations 
of Relative Weights
    2. Proposed Changes to the Hospital Wage Index for Acute Care 
Hospitals
    3. Other Decisions and Proposed Changes to the IPPS for 
Operating Costs and GME Costs
    4. Proposed FY 2011 Policy Governing the IPPS for Capital-
Related Costs
    5. Proposed Changes to the Payment Rates for Certain Excluded 
Hospitals: Rate-of-Increase Percentages
    6. Proposed Changes to the LTCH PPS
    7. Proposed Changes Relating to Effective Date of Provider 
Agreements and Supplier Approvals
    8. Proposed Changes to Medicare Conditions of Participation 
Affecting Hospital Rehabilitation Services and Respiratory Care 
Services
    9. Proposed Changes to the Accreditation Requirements for 
Medicaid Providers of Inpatient Psychiatric Services for Individuals 
under Age 21
    10. Determining Proposed Prospective Payment Operating and 
Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals
    11. Determining Proposed Prospective Payments Rates for LTCHs
    12. Impact Analysis
    13. Recommendation of Update Factors for Operating Cost Rates of 
Payment for Hospital Inpatient Services
    14. Discussion of Medicare Payment Advisory Commission 
Recommendations
    E. Interim Final Rule With Comment Period That Implemented 
Certain Provisions of the ARRA Relating to Payments to LTCHs and 
LTCH Satellite Facilities
II. Proposed Changes to Medicare Severity Diagnosis-Related Group 
(MS-DRG) Classifications and Relative Weights
    A. Background
    B. MS-DRG Reclassifications
    1. General
    2. Yearly Review for Making MS-DRG Changes
    C. Adoption of the MS-DRGs in FY 2008
    D. Proposed FY 2011 MS-DRG Documentation and Coding Adjustment, 
Including the Applicability to the Hospital-Specific Rates and the 
Puerto Rico-Specific Standardized Amount
    1. Background on the Prospective MS-DRG Documentation and Coding 
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
    2. Prospective Adjustment to the Average Standardized Amounts 
Required by Section 7(b)(1)(A) of Public Law 110-90
    3. Recoupment or Repayment Adjustments in FYs 2010 Through 2012 
Required by Public Law 110-90
    4. Retrospective Evaluation of FY 2008 Claims Data
    5. Retrospective Analysis of FY 2009 Claims Data
    6. Prospective Adjustment for FY 2010 and Subsequent Years 
Authorized by Section 7(b)(1)(A) of Public Law 110-90 and Section 
1886(d)(3)(vi) of the Act
    7. Recoupment or Repayment Adjustment for FY 2010 Authorized by 
Section 7(b)(1)(B) of Public Law 110-90
    8. Background on the Application of the Documentation and Coding 
Adjustment to the Hospital-Specific Rates
    9. Proposed Documentation and Coding Adjustment to the Hospital-
Specific

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Rates for FY 2011 and Subsequent Fiscal Years
    10. Background on the Application of the Documentation and 
Coding Adjustment to the Puerto Rico-Specific Standardized Amount
    11. Proposed Documentation and Coding Adjustment to the Puerto 
Rico-Specific Standardized Amount
    E. Refinement of the MS-DRG Relative Weight Calculation
    1. Background
    a. Summary of FY 2009 Changes and Discussion for FY 2011
    b. Summary of the RAND Corporation Study of Alternative Relative 
Weight Methodologies
    2. Proposals for FY 2011 and Timeline for Changes to the 
Medicare Cost Report
    F. Preventable Hospital-Acquired Conditions (HACs), Including 
Infections
    1. Background
    a. Statutory Authority
    b. HAC Selection
    c. Collaborative Process
    d. Application of HAC Payment Policy to MS-DRG Classifications
    e. Public Input Regarding Selected and Potential Candidate HACs
    f. POA Indicator Reporting
    2. Proposed HAC Conditions for FY 2011
    3. RTI Program Evaluation Summary
    a. Background
    b. Preliminary RTI Analysis on POA Indicator Reporting Across 
Medicare Discharges
    c. Preliminary RTI Analysis on POA Indicator Reporting of 
Current HACs
    d. Preliminary RTI Analysis of Frequency of Discharges and POA 
Indicator Reporting for Current HACs
    e. Preliminary RTI Analysis of Circumstances When Application of 
HAC Provisions Would Not Result in MS-DRG Reassignment for Current 
HACs
    f. Preliminary RTI Analysis of Coding Changes for HAC-Associated 
Secondary Diagnoses for Current HACs
    g. Preliminary RTI Analysis of Estimated Net Savings for Current 
HACs
    h. Previously Considered Candidate HACs--Preliminary RTI 
Analysis of Frequency of Discharges and POA Indicator Reporting
    i. Current and Previously Considered Candidate HACs--RTI Report 
on Evidence-Based Guidelines
    j. Proposals Regarding Current HACs and Previously Considered 
Candidate HACs
    G. Proposed Changes to Specific MS-DRG Classifications
    1. Pre-Major Diagnostic Categories (MDCs
    a. Postsurgical Hypoinsulinemia (MS-DRG 008 (Simultaneous 
Pancreas/Kidney Transplant)
    b. Bone Marrow Transplants
    2. MDC 1 (Nervous System): Administration of Tissue Plasminogen 
Activator (tPA) (rtPA)
    3. MDC 5 (Diseases and Disorders of the Circulatory System): 
Intraoperative Fluorescence Vascular Angiography (IFVA) and X-Ray 
Coronary Angiography in Coronary Artery Bypass Graft Surgery
    a. New MS-DRGs for Intraoperative Fluorescence Vascular 
Angiography (IFVA) With CABG
    b. New MS-DRG for Intraoperative Angiography, by Any Method, 
With CABG
    c. New Procedure Codes
    d. MS-DRG Reassignment of Intraoperative Fluorescence Vascular 
Angiography (IFVA)
    4. MDC 6 (Diseases and Disorders of the Digestive System): 
Gastrointestinal Stenting
    5. MDC 8 (Diseases and Disorders of the Musculoskeletal System 
and Connective Tissue): Pedicle-Based Dynamic Stabilization
    6. MDC 15 (Newborns and Other Neonates With Conditions 
Originating in the Perinatal Period)
    a. Discharges/Transfers of Neonates to a Designated Cancer 
Center or a Children's Hospital
    b. Vaccination of Newborns
    7. Medicare Code Editor (MCE) Changes
    a. Unacceptable Principal Diagnosis Edit: Addition of Code for 
Gastroparesis
    b. Open Biopsy Check Edit
    c. Noncovered Procedure Edit
    8. Surgical Hierarchies
    9. Complication or Comorbidity (CC) Exclusions List
    a. Background
    b. Proposed CC Exclusions List for FY 2011
    10. Review of Procedure Codes in MS-DRGs 981 Through 983, 984 
Through 986, and 987 Through 989
    a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-
DRGs 987 Through 989 to MDCs
    b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984 
Through 986, and 987 Through 989
    c. Adding Diagnosis or Procedure Codes to MDCs
    11. Changes to the ICD-9-CM Coding System, Including Discussion 
of the Replacement of the ICD-9-CM System With the ICD-10-CM and 
ICD-10-PCS Systems in FY 2014
    a. ICD-9-CM Coding System
    b. Code Freeze
    c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on 
Hospital Inpatient Claims
    H. Recalibration of MS-DRG Weights
    I. Proposed Add-On Payments for New Services and Technologies
    1. Background
    2. Public Input Before Publication of a Notice of Proposed 
Rulemaking on Add-On Payments
    3. FY 2011 Status of Technologies Approved for FY 2010 Add-On 
Payments
    a. Spiration[supreg] IBV[supreg] Valve System
    b. CardioWestTM Temporary Total Artificial Heart 
System (CardioWestTM TAH-t)
    4. FY 2011 Applications for New Technology Add-On Payments
    a. Auto Laser Interstitial Thermal Therapy 
(AutoLITTTM) System
    b. LipiScanTM Coronary Imaging System
    c. LipiScanTM Coronary Imaging System With 
Intravascular Ultrasound (IVUS)
III. Proposed Changes to the Hospital Wage Index for Acute Care 
Hospitals
    A. Background
    B. Wage Index Reform
    1. Wage Index Study Required Under the MIEA-TRHCA
    a. Legislative Requirement
    b. Interim and Final Reports on Results of Acumen's Study
    2. FY 2009 Policy Changes in Response to Requirements Under 
Section 106(b) of the MIEA-TRHCA
    a. Reclassification Average Hourly Wage Comparison Criteria
    b. Budget Neutrality Adjustment for the Rural and Imputed Floors
    C. Core-Based Statistical Areas for the Hospital Wage Index
    D. Proposed Occupational Mix Adjustment to the Proposed FY 2011 
Wage Index
    1. Development of Data for the Proposed FY 2011 Occupational Mix 
Adjustment Based on the 2007-2008 Occupational Mix Survey
    2. New 2010 Occupational Mix Survey for the FY 2013 Wage Index
    3. Calculation of the Proposed Occupational Mix Adjustment for 
FY 2011
    E. Worksheet S-3 Wage Data for the Proposed FY 2011 Wage Index
    1. Included Categories of Costs
    2. Excluded Categories of Costs
    3. Use of Wage Index Data by Providers Other Than Acute Care 
Hospitals Under the IPPS
    F. Verification of Worksheet S-3 Wage Data
    G. Method for Computing the Proposed FY 2011 Unadjusted Wage 
Index
    H. Analysis and Implementation of the Proposed Occupational Mix 
Adjustment and the Proposed FY 2011 Occupational Mix Adjusted Wage 
Index
    I. Revisions to the Wage Index Based on Hospital Redesignations 
and Reclassifications
    1. General
    2. Effects of Reclassification/Redesignation
    3. FY 2011 MGCRB Reclassifications
    a. FY 2011 Reclassification Requirements and Approvals
    b. Applications for Reclassifications for FY 2012
    c. Appeals of MGCRB Denials of Withdrawals and Terminations
    4. Redesignations of Hospitals under Section 1886(d)(8)(B) of 
the Act
    5. Reclassifications Under Section 1886(d)(8)(B) of the Act
    6. Reclassifications Under Section 508 of Public Law 108-173
    J. Proposed FY 2011 Wage Index Adjustment Based on Commuting 
Patterns of Hospital Employees
    K. Process for Requests for Wage Index Data Corrections
    L. Labor-Market Share for the Proposed FY 2011 Wage Index
IV. Other Decisions and Proposed Changes to the IPPS for Operating 
Costs and GME Costs
    A. Reporting of Hospital Quality Data for Annual Hospital 
Payment Update
    1. Background
    a. Overview
    b. Hospital Quality Data Reporting Under Section 501(b) of 
Public Law 108-173

[[Page 23856]]

    c. Hospital Quality Data Reporting Under Section 5001(a) of 
Public Law 109-171
    2. Retirement of RHQDAPU Program Measures
    a. Considerations in Retiring Quality Measures From the RHQDAPU 
Program
    b. Proposed Retirement of Quality Measures Under the RHQDAPU 
Program for the FY 2011 Payment Determination and Subsequent Years
    3. Proposed Expansion Plan for Quality Measures for the FY 2012, 
FY 2013, and FY 2014 Payment Determinations
    a. Considerations in Expanding and Updating Quality Measures 
Under the RHQDAPU Program
    b. Proposed RHQDAPU Program Quality Measures for the FY 2012 
Payment Determination
    c. Proposed RHQDAPU Program Quality Measures for the FY 2013 
Payment Determination
    d. Proposed RHQDAPU Program Quality Measures for the FY 2014 
Payment Determination
    4. Possible New Quality Measures for Future Years
    5. Form, Manner, and Timing of Quality Data Submission
    a. Proposed RHQDAPU Program Requirements for FY 2012, FY 2013, 
and FY 2014
    b. Additional Proposed RHQDAPU Program Procedural Requirements 
for FY 2012, FY 2013, and FY 2014 Payment Determinations
    6. RHQDAPU Program Disaster Extensions and Waivers
    7. Proposed Chart Validation Requirements for Chart-Abstracted 
Measures
    a. Proposed Chart Validation Requirements and Methods for the FY 
2012 Payment Determination
    b. Proposed Supplements to the Chart Validation Process for the 
FY 2013 Payment Determination and Subsequent Years
    8. Data Accuracy and Completeness Acknowledgement Requirements 
for the FY 2012 Payment Determination and Subsequent Years
    9. Proposed Public Display Requirements for the FY 2012 Payment 
Determination and Subsequent Years
    10. Proposed Reconsideration and Appeal Procedures for the FY 
2011 Payment Determination
    11. Proposed RHQDAPU Program Withdrawal Deadlines
    12. Electronic Health Records (EHRs)
    a. Background
    b. EHR Testing of Quality Measures Submission
    c. HITECH Act EHR Provisions
    13. Qualification of Registries for RHQDAPU Data Submission
    B. Payment for Transfers of Cases From Medicare Participating 
Acute Care Hospitals to Nonparticipating Hospitals and CAHs
    1. Background
    2. Proposed Policy Change
    C. Technical Change to Regulations
    D. Medicare-Dependent, Small Rural Hospitals (MDHs): Change to 
Criteria
    1. Background
    2. Medicare-Dependency: Counting Medicare Inpatients
    E. Rural Referral Centers (RRCs)
    1. Case-Mix Index (CMI)
    2. Discharges
    F. Indirect Medical Education (IME) Adjustment
    1. Background
    2. IME Adjustment Factor for FY 2011
    3. IME-Related Changes in Other Sections of this Proposed Rule
    G. Payment Adjustment for Medicare Disproportionate Share 
Hospitals (DSHs): Supplemental Security Income (SSI) Fraction
    1. Background
    2. CMS' Current Data Matching Process for the SSI Fraction
    3. Baystate Medical Center v. Leavitt Court Decision
    4. CMS' Proposed Process for Matching Medicare and SSI 
Eligibility Data
    a. Inclusion of Stale Records and Forced Pay Records in the SSI 
Eligibility Data Files
    b. Use of SSNs in the Revised Match Process
    c. Timing of the Match
    5. CMS Ruling
    6. Clarification of Language on Inclusion of Medicare Advantage 
Days in the SSI Fraction of the Medicare DSH Calculation
    H. Payments for Direct Graduate Medical Education (GME) Costs
    1. Background
    2. Identifying ``Approved Medical Residency Programs''
    a. Residents in Approved Medical Residency Programs
    b. Determining Whether an Individual Is a Resident or a 
Physician
    c. Formal Enrollment and Participation in a Program
    3. Electronic Submission of Affiliation Agreements
    I. Certified Registered Nurse Anesthetist (CRNA) Services 
Furnished in Rural Hospitals and CAHs
    J. Rural Community Hospital Demonstration Program
V. Proposed Changes to the IPPS for Capital-Related Costs
    A. Overview
    B. Exception Payments
    C. New Hospitals
    D. Hospitals Located in Puerto Rico
    E. Proposed Changes for FY 2011: MS-DRG Documentation and Coding 
Adjustment
    1. Background on the Prospective MS-DRG Documentation and Coding 
Adjustments for FY 2008 and FY 2009
    2. Retrospective Evaluation of FY 2008 Claims Data
    3. Retrospective Analysis of FY 2009 Claims Data
    4. Proposed Prospective MS-DRG Documentation and Coding 
Adjustment to the National Capital Federal Rate for FY 2011 and 
Subsequent Years
    5. Proposed Documentation and Coding Adjustment to the Puerto 
Rico-Specific Capital Rate
    F. Other Proposed Changes for FY 2011
VI. Proposed Changes for Hospitals Excluded From the IPPS
    A. Excluded Hospitals
    B. Critical Access Hospitals (CAHs)
    1. Background
    2. CAH Optional Method Election for Payment of Outpatient 
Services
    3. Costs of Provider Taxes as Allowable Costs for CAHs
    a. Background and Statutory Basis
    b. Proposed Clarification of Payment Policy for Provider Taxes
VII. Proposed Changes to the Long-Term Care Hospital Prospective 
Payment System (LTCH PPS) for FY 2011
    A. Background of the LTCH PPS
    1. Legislative and Regulatory Authority
    2. Criteria for Classification as a LTCH
    a. Classification as a LTCH
    b. Hospitals Excluded From the LTCH PPS
    3. Limitation on Charges to Beneficiaries
    4. Administrative Simplification Compliance Act (ASCA) and 
Health Insurance Portability and Accountability Act (HIPAA) 
Compliance
    B. Proposed Medicare Severity Long-Term Care Diagnosis-Related 
Group (MS-LTC-DRG) Classifications and Relative Weights
    1. Background
    2. Patient Classifications into MS-LTC-DRGs
    a. Background
    b. Proposed Changes to the MS-LTC-DRGs for FY 2011
    3. Development of the Proposed FY 2011 MS-LTC-DRG Relative 
Weights
    a. General Overview of the Development of the MS-LTC-DRG 
Relative Weights
    b. Development of the Proposed MS-LTC-DRG Relative Weights for 
FY 2011
    c. Data
    d. Hospital-Specific Relative Value (HSRV) Methodology
    e. Treatment of Severity Levels in Developing the Proposed MS-
LTC-DRG Relative Weights
    f. Low-Volume MS-LTC-DRGs
    g. Steps for Determining the Proposed RY 2011 MS-LTC-DRG 
Relative Weights
    C. Proposed Changes to the LTCH Payment Rates and Other Proposed 
Changes to the FY 2011 LTCH PPS
    1. Overview of Development of the LTCH Payment Rates
    2. Market Basket for LTCHs Reimbursed Under the LTCH PPS
    a. Overview
    b. Market Basket Under the LTCH PPS for FY 2011
    c. Proposed Market Basket Update for LTCHs for FY 2011
    d. Proposed Labor-Related Share Under the LTCH PPS for FY 2011
    3. Proposed Adjustment for Changes in LTCHs' Case-Mix Due to 
Changes in Documentation and Coding Practices That Occurred in a 
Prior Period
    a. Background
    b. Evaluation of FY 2009 Claims Data
    c. Proposed FY 2011 Documentation and Coding Adjustment
    D. Proposed Change in Terminology From ``Rate Year'' to ``Fiscal 
Year'' and Other Proposed Changes
VIII. Determination of Effective Date of Provider Agreements and 
Supplier Approvals

[[Page 23857]]

    A. Background
    B. Departmental Appeals Board Decision
    C. Proposed Revisions to Regulations
IX. Proposed Changes to Medicare Conditions of Participation 
Affecting Hospital Rehabilitation Services and Respiratory Care 
Services
X. Proposed Changes to the Accreditation Requirements for Medicaid 
Providers of Inpatient Psychiatric Services for Individuals Under 
Age 21
    A. Background
    B. Proposed Revision of Policy and Regulations
XI. MedPAC Recommendations
XII. Other Required Information
    A. Requests for Data From the Public
    B. Collection of Information Requirements
    1. Legislative Requirement for Solicitation of Comments
    2. Requirements in Regulation Text
    a. ICRs Regarding Withdrawing an Application, Terminating an 
Approved 3 Year Reclassification, or Canceling a Previous Withdrawal 
or Termination (Proposed Revised Sec.  412.273)
    b. ICRs Regarding Condition of Participation: Respiratory Care 
Services (Sec.  482.57)
    3. Additional Information Collection Requirements
    a. Present on Admission (POA) Indicator Reporting
    b. Add-On Payments for New Services and Technologies
    c. Reporting of Hospital Quality Data for Annual Hospital 
Payment Update
    d. Occupational Mix Adjustment to the FY 2011 Index (Hospital 
Wage Index Occupational Mix Survey)
    e. Hospital Applications for Geographic Reclassifications by the 
MGCRB
    f. Direct GME Payments: General Requirements
    C. Response to Comments

Regulation Text

Addendum--Proposed Schedule of Standardized Amounts, Update Factors, 
and Rate-of-Increase Percentages Effective With Cost Reporting Periods 
Beginning on or After October 1, 2010

I. Summary and Background
II. Proposed Changes to the Prospective Payment Rates for Hospital 
Inpatient Operating Costs for Acute Care Hospitals for FY 2011
    A. Calculation of the Adjusted Standardized Amount
    B. Proposed Adjustments for Area Wage Levels and Cost-of-Living
    C. Proposed MS-DRG Relative Weights
    D. Calculation of the Proposed Prospective Payment Rates
III. Proposed Changes to Payment Rates for Acute Care Hospital 
Inpatient Capital-Related Costs for FY 2011
    A. Determination of Federal Hospital Inpatient Capital-Related 
Prospective Payment Rate Update
    B. Calculation of the Proposed Inpatient Capital-Related 
Prospective Payments for FY 2011
    C. Capital Input Price Index
IV. Proposed Changes to Payment Rates for Certain Excluded 
Hospitals: Rate-of-Increase Percentages
V. Proposed Changes to the Payment Rates for the LTCH PPS for FY 
2011
    A. Proposed LTCH PPS Standard Federal Rate for FY 2011
    B. Proposed Adjustment for Area Wage Levels Under the LTCH PPS 
for FY 2011
    C. Proposed Adjustment for LTCH PPS High-Cost Outlier (HCO) 
Cases
    D. Computing the Proposed Adjusted LTCH PPS Federal Prospective 
Payments for FY 2011
VI. Tables
    Table 1A.--Proposed National Adjusted Operating Standardized 
Amounts, Labor/Nonlabor (68.8 Percent Labor Share/31.2 Percent 
Nonlabor Share If Wage Index Is Greater Than 1)
    Table 1B.--Proposed National Adjusted Operating Standardized 
Amounts, Labor/Nonlabor (62 Percent Labor Share/38 Percent Nonlabor 
Share If Wage Index Is Less Than or Equal to 1)
    Table 1C.--Proposed Adjusted Operating Standardized Amounts for 
Puerto Rico, Labor/Nonlabor
    Table 1D.--Proposed Capital Standard Federal Payment Rate
    Table 1E.--Proposed LTCH Standard Federal Prospective Payment 
Rate
    Table 2.--Acute Care Hospitals Case-Mix Indexes for Discharges 
Occurring in Federal Fiscal Year 2009; Proposed Hospital Wage 
Indexes for Federal Fiscal Year 2011; Hospital Average Hourly Wages 
for Federal Fiscal Years 2009 (2005 Wage Data), 2010 (2006 Wage 
Data), and 2011 (2007 Wage Data); and 3-Year Average of Hospital 
Average Hourly Wages
    Table 3A.--FY 2011 and 3-Year Average Hourly Wage for Acute Care 
Hospitals in Urban Areas by CBSA
    Table 3B.--FY 2011 and 3-Year Average Hourly Wage for Acute Care 
Hospitals in Rural Areas by CBSA
    Table 4A.--Proposed Wage Index and Capital Geographic Adjustment 
Factor (GAF) for Acute Care Hospitals in Urban Areas by CBSA and by 
State--FY 2011
    Table 4B.--Proposed Wage Index and Capital Geographic Adjustment 
Factor (GAF) for Acute Care Hospitals in Rural Areas by CBSA and by 
State--FY 2011
    Table 4C.--Proposed Wage Index and Capital Geographic Adjustment 
Factor (GAF) for Acute Care Hospitals That Are Reclassified by CBSA 
and by State--FY 2011
    Table 4D-1.--Proposed Rural Floor Budget Neutrality Factors for 
Acute Care Hospitals--FY 2011
    Table 4D-2.--Urban Areas with Acute Care Hospitals Receiving the 
Proposed Statewide Rural Floor or Imputed Floor Wage Index--FY 2011
    Table 4E.--Urban CBSAs and Constituent Counties for Acute Care 
Hospitals--FY 2011
    Table 4F.--Proposed Puerto Rico Wage Index and Capital 
Geographic Adjustment Factor (GAF) for Acute Care Hospitals by 
CBSA--FY 2011
    Table 4J.--Proposed Out-Migration Adjustment for Acute Care 
Hospitals--FY 2011
    Table 5.--List of Medicare Severity Diagnosis-Related Groups 
(MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic 
Mean Length of Stay--FY 2011
    Table 6A.--New Diagnosis Codes
    Table 6B.--New Procedure Codes
    Table 6C.--Invalid Diagnosis Codes
    Table 6D.--Invalid Procedure Codes
    Table 6E.--Revised Diagnosis Code Titles
    Table 6F.--Revised Procedure Code Titles
    Table 6G.--Additions to the CC Exclusions List (Available 
Through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)
    Table 6H.--Deletions from the CC Exclusions List (Available 
Through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)
    Table 6I.--Complete List of Complication and Comorbidity (CC) 
Exclusions (Available only through the Internet on the CMS Web site 
at: http:/www.cms.hhs.gov/AcuteInpatientPPS/)
    Table 6J.--Major Complication and Comorbidity (MCC) List 
(Available Through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)
    Table 6K.--Complication and Comorbidity (CC) List (Available 
Through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/)
    Table 7A.--Medicare Prospective Payment System Selected 
Percentile Lengths of Stay: FY 2009 MedPAR Update--December 2009 
GROUPER V27.0 MS-DRGs
    Table 7B.--Medicare Prospective Payment System Selected 
Percentile Lengths of Stay: FY 2009 MedPAR Update--December 2009 
GROUPER V28.0 MS-DRGs
    Table 8A.--Proposed Statewide Average Operating Cost-to-Charge 
Ratios (CCRs) for Acute Care Hospitals--March 2009
    Table 8B.--Proposed Statewide Average Capital Cost-to-Charge 
Ratios (CCRs) for Acute Care Hospitals--March 2009
    Table 8C.--Proposed Statewide Average Total Cost-to-Charge 
Ratios (CCRs) for LTCHs--March 2009
    Table 9A.--Hospital Reclassifications and Redesignations--FY 
2011
    Table 9C.--Hospitals Redesignated as Rural Under Section 
1886(d)(8)(E) of the Act--FY 2011
    Table 10.--Geometric Mean Plus the Lesser of .75 of the National 
Adjusted Operating Standardized Payment Amount (Increased To Reflect 
the Difference Between Costs and Charges) or .75 of One Standard 
Deviation of Mean Charges by Medicare Severity Diagnosis-Related 
Groups (MS-DRGs)--March 2009
    Table 11.--Proposed MS-LTC-DRGs, Relative Weights, Geometric 
Average Length of Stay, Short-Stay Outlier Threshold, and IPPS 
Comparable Threshold for Discharges Occurring From October 1, 2010 
Through

[[Page 23858]]

September 30, 2011 Under the LTCH PPS
    Table 12A.--Proposed LTCH PPS Wage Index for Urban Areas for 
Discharges Occurring from October 1, 2010 Through September 30, 2011
    Table 12B.--Proposed LTCH PPS Wage Index for Rural Areas for 
Discharges Occurring From October 1, 2010 Through September 30, 2011

Appendix A--Regulatory Impact Analysis

I. Overall Impact
II. Objectives of the IPPS
III. Limitations of Our Analysis
IV. Hospitals Included In and Excluded From the IPPS
V. Effects on Hospitals and Hospital Units Excluded From the IPPS
VI. Quantitative Effects of the Proposed Policy Changes Under the 
IPPS for Operating Costs
    A. Basis and Methodology of Estimates
    B. Analysis of Table I
    C. Effects of the Proposed Changes to the MS-DRG 
Reclassifications and Relative Cost-Based Weights (Column 1)
    D. Effects of the Application of Recalibration Budget Neutrality 
(Column 2)
    E. Effects of Proposed Wage Index Changes (Column 3)
    F. Application of the Wage Budget Neutrality Factor (Column 4)
    G. Combined Effects of Proposed MS-DRG and Wage Index Changes 
(Column 5)
    H. Effects of MGCRB Reclassifications (Column 6)
    I. Effects of the Proposed Rural Floor and Imputed Floor, 
Including Application of Budget Neutrality at the State Level 
(Column 7)
    J. Effects of the Proposed Wage Index Adjustment for Out-
Migration (Column 8)
    K. Effects of All Proposed Changes Prior to Documentation and 
Coding (Or CMI) Adjustment (Column 9)
    L. Effects of All Proposed Changes With CMI Adjustment (Column 
10)
    M. Effects of Proposed Policy on Payment Adjustments for Low-
Volume Hospitals
    N. Impact Analysis of Table II
VII. Effects of Other Proposed Policy Changes
    A. Effects of Proposed Policy on HACs, Including Infections
    B. Effects of Proposed Policy Changes Relating to New Medical 
Service and Technology Add-On Payments
    C. Effects of Proposed Requirements for Hospital Reporting of 
Quality Data for Annual Hospital Payment Update
    D. Effects of Proposed Policy on Payment for Transfer Cases From 
Medicare Participating Hospitals to Nonparticipating Hospitals and 
CAHs
    E. Effects of Proposed Change in Criteria for MDHs
    F. Effects of Proposed Change Relating to Payment Adjustment for 
Disproportionate Share Hospitals
    G. Effects of Proposed Changes Relating to Payments for IME and 
Direct GME
    1. Identifying ``Approved Medical Residency Programs''
    2. Submission of Electronic Affiliation Agreements
    H. Effects of Proposed Changes Relating to CRNA Services 
Furnished in Rural Hospitals and CAHs
    I. Effects of Implementation of Rural Community Hospital 
Demonstration Program
    J. Effects of Proposed Changes Relating to CAHs
    1. CAH Optional Method of Payment for Outpatient Services
    2. Consideration of Costs of Provider Taxes as Allowable Costs 
for CAHs
    K. Effects of Proposed Policy Relating to Effective Date of 
Provider Agreements and Supplier Approvals
    L. Effects of Proposed Changes Relating to Hospital 
Rehabilitation Services and Respiratory Care Services Conditions of 
Participation
VIII. Effects of Proposed Changes in the Capital IPPS
    A. General Considerations
    B. Results
IX. Effects of Proposed Payment Rate Changes and Proposed Policy 
Changes Under the LTCH PPS
    A. Introduction and General Considerations
    B. Impact on Rural Hospitals
    C. Anticipated Effects of Proposed LTCH PPS Payment Rate Change 
and Proposed Policy Changes
    D. Effect on the Medicare Program
    E. Effect on Medicare Beneficiaries
X. Effects of Proposed Policy Changes Relating to Accreditation 
Requirements for Medicaid Providers of Inpatient Psychiatric 
Services to Individuals Under Age 21
XI. Alternatives Considered
XII. Overall Conclusion
    A. Acute Care Hospitals
    B. LTCHs
XIII. Accounting Statements
    A. Acute Care Hospitals
    B. LTCHs
XIV. Executive Order 12866

Appendix B--Recommendation of Update Factors for Operating Cost Rates 
of Payment for Inpatient Hospital Services

I. Background
II. Inpatient Hospital Update for FY 2011
III. Secretary's Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and 
Updating Payments in Traditional Medicare

I. Background

A. Summary

1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)
    Section 1886(d) of the Social Security Act (the Act) sets forth a 
system of payment for the operating costs of acute care hospital 
inpatient stays under Medicare Part A (Hospital Insurance) based on 
prospectively set rates. Section 1886(g) of the Act requires the 
Secretary to pay for the capital-related costs of hospital inpatient 
stays under a prospective payment system (PPS). Under these PPSs, 
Medicare payment for hospital inpatient operating and capital-related 
costs is made at predetermined, specific rates for each hospital 
discharge. Discharges are classified according to a list of diagnosis-
related groups (DRGs).
    The base payment rate is comprised of a standardized amount that is 
divided into a labor-related share and a nonlabor-related share. The 
labor-related share is adjusted by the wage index applicable to the 
area where the hospital is located. If the hospital is located in 
Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-
living adjustment factor. This base payment rate is multiplied by the 
DRG relative weight.
    If the hospital treats a high percentage of low-income patients, it 
receives a percentage add-on payment applied to the DRG-adjusted base 
payment rate. This add-on payment, known as the disproportionate share 
hospital (DSH) adjustment, provides for a percentage increase in 
Medicare payments to hospitals that qualify under either of two 
statutory formulas designed to identify hospitals that serve a 
disproportionate share of low-income patients. For qualifying 
hospitals, the amount of this adjustment may vary based on the outcome 
of the statutory calculations.
    If the hospital is an approved teaching hospital, it receives a 
percentage add-on payment for each case paid under the IPPS, known as 
the indirect medical education (IME) adjustment. This percentage 
varies, depending on the ratio of residents to beds.
    Additional payments may be made for cases that involve new 
technologies or medical services that have been approved for special 
add-on payments. To qualify, a new technology or medical service must 
demonstrate that it is a substantial clinical improvement over 
technologies or services otherwise available, and that, absent an add-
on payment, it would be inadequately paid under the regular DRG 
payment.
    The costs incurred by the hospital for a case are evaluated to 
determine whether the hospital is eligible for an additional payment as 
an outlier case. This additional payment is designed to protect the 
hospital from large financial losses due to unusually expensive cases. 
Any eligible outlier payment is added to the DRG-adjusted base payment 
rate, plus any DSH, IME, and new technology or medical service add-on 
adjustments.
    Although payments to most hospitals under the IPPS are made on the 
basis of the standardized amounts, some categories of hospitals are 
paid in whole or in part based on their hospital-specific rate based on 
their costs in a base year. For example, sole community

[[Page 23859]]

hospitals (SCHs) receive the higher of a hospital-specific rate based 
on their costs in a base year (the highest of FY 1982, FY 1987, FY 
1996, or FY 2006) or the IPPS Federal rate based on the standardized 
amount. Through and including FY 2006, a Medicare-dependent, small 
rural hospital (MDH) received the higher of the Federal rate or the 
Federal rate plus 50 percent of the amount by which the Federal rate is 
exceeded by the higher of its FY 1982 or FY 1987 hospital-specific 
rate. As discussed below, for discharges occurring on or after October 
1, 2007, but before October 1, 2011, an MDH will receive the higher of 
the Federal rate or the Federal rate plus 75 percent of the amount by 
which the Federal rate is exceeded by the highest of its FY 1982, FY 
1987, or FY 2002 hospital-specific rate. SCHs are the sole source of 
care in their areas, and MDHs are a major source of care for Medicare 
beneficiaries in their areas. Specifically, section 1886(d)(5)(D)(iii) 
of the Act defines an SCH as a hospital that is located more than 35 
road miles from another hospital or that, by reason of factors such as 
isolated location, weather conditions, travel conditions, or absence of 
other like hospitals (as determined by the Secretary), is the sole 
source of hospital inpatient services reasonably available to Medicare 
beneficiaries. In addition, certain rural hospitals previously 
designated by the Secretary as essential access community hospitals are 
considered SCHs. Section 1886(d)(5)(G)(iv) of the Act defines an MDH as 
a hospital that is located in a rural area, has not more than 100 beds, 
is not an SCH, and has a high percentage of Medicare discharges (not 
less than 60 percent of its inpatient days or discharges in its cost 
reporting year beginning in FY 1987 or in two of its three most 
recently settled Medicare cost reporting years). Both of these 
categories of hospitals are afforded this special payment protection in 
order to maintain access to services for beneficiaries.
    Section 1886(g) of the Act requires the Secretary to pay for the 
capital-related costs of inpatient hospital services ``in accordance 
with a prospective payment system established by the Secretary.'' The 
basic methodology for determining capital prospective payments is set 
forth in our regulations at 42 CFR 412.308 and 412.312. Under the 
capital IPPS, payments are adjusted by the same DRG for the case as 
they are under the operating IPPS. Capital IPPS payments are also 
adjusted for IME and DSH, similar to the adjustments made under the 
operating IPPS. In addition, hospitals may receive outlier payments for 
those cases that have unusually high costs.
    The existing regulations governing payments to hospitals under the 
IPPS are located in 42 CFR part 412, Subparts A through M.
2. Hospitals and Hospital Units Excluded From the IPPS
    Under section 1886(d)(1)(B) of the Act, as amended, certain 
hospitals and hospital units are excluded from the IPPS. These 
hospitals and units are: rehabilitation hospitals and units; long-term 
care hospitals (LTCHs); psychiatric hospitals and units; children's 
hospitals; and cancer hospitals. Religious nonmedical health care 
institutions (RNHCIs) are also excluded from the IPPS. Various sections 
of the Balanced Budget Act of 1997 (BBA, Pub. L. 105-33), the Medicare, 
Medicaid and SCHIP [State Children's Health Insurance Program] Balanced 
Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the 
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act 
of 2000 (BIPA, Pub. L. 106-554) provide for the implementation of PPSs 
for rehabilitation hospitals and units (referred to as inpatient 
rehabilitation facilities (IRFs)), LTCHs, and psychiatric hospitals and 
units (referred to as inpatient psychiatric facilities (IPFs)). (We 
note that the annual updates to the LTCH PPS are now included as part 
of the IPPS annual update document. Updates to the IRF PPS and IPF PPS 
are issued as separate documents.) Children's hospitals, cancer 
hospitals, and RNHCIs continue to be paid solely under a reasonable 
cost-based system subject to a rate-of-increase ceiling on inpatient 
operating costs per discharge.
    The existing regulations governing payments to excluded hospitals 
and hospital units are located in 42 CFR parts 412 and 413.
3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
    The Medicare prospective payment system (PPS) for LTCHs applies to 
hospitals described in section 1886(d)(1)(B)(iv) effective for cost 
reporting periods beginning on or after October 1, 2002. The LTCH PPS 
was established under the authority of sections 123(a) and (c) of 
Public Law 106-113 and section 307(b)(1) of Public Law 106-554 (as 
codified under section 1886(m)(1) of the Act). During the 5-year 
(optional) transition period, a LTCH's payment under the PPS was based 
on an increasing proportion of the LTCH Federal rate with a 
corresponding decreasing proportion based on reasonable cost 
principles. Effective for cost reporting periods beginning on or after 
October 1, 2006, all LTCHs are paid 100 percent of the Federal rate. 
The existing regulations governing payment under the LTCH PPS are 
located in 42 CFR part 412, Subpart O. Beginning October 1, 2009, we 
issue the annual updates to the LTCH PPS in the same documents that 
update the IPPS (73 FR 26797 through 26798).
4. Critical Access Hospitals (CAHs)
    Under sections 1814(l), 1820, and 1834(g) of the Act, payments are 
made to critical access hospitals (CAHs) (that is, rural hospitals or 
facilities that meet certain statutory requirements) for inpatient and 
outpatient services are generally based on 101 percent of reasonable 
cost. Reasonable cost is determined under the provisions of section 
1861(v)(1)(A) of the Act and existing regulations under 42 CFR parts 
413 and 415.
5. Payments for Graduate Medical Education (GME)
    Under section 1886(a)(4) of the Act, costs of approved educational 
activities are excluded from the operating costs of inpatient hospital 
services. Hospitals with approved graduate medical education (GME) 
programs are paid for the direct costs of GME in accordance with 
section 1886(h) of the Act. The amount of payment for direct GME costs 
for a cost reporting period is based on the hospital's number of 
residents in that period and the hospital's costs per resident in a 
base year. The existing regulations governing payments to the various 
types of hospitals are located in 42 CFR part 413.

B. Provisions of the Patient Protection and Affordable Care Act (Pub. 
L. 111-148), as Amended by the Health Care and Education Reconciliation 
Act of 2010 (Pub. L. 111-152)

    On March 23, 2010, the Patient Protection and Affordable Care Act 
(PPACA), Public Law 111-148 was enacted. Following the enactment of 
Public Law 111-148, the Health Care and Education Reconciliation Act of 
2010, Public L. 111-152 (enacted on March 30, 2010), amended certain 
provisions of Public Law 111-148. A number of the provisions of Public 
Law 111-148, as amended by Public Law 111-152, affect the IPPS and the 
LTCH PPS and the providers and suppliers addressed in this proposed 
rule. However, due to the timing of the passage of the legislation, we 
are unable to address those provisions in this proposed rule. 
Therefore, the proposed policies and payment rates in this proposed 
rule do not reflect the new

[[Page 23860]]

legislation. We plan to issue separate documents in the Federal 
Register addressing the provisions of Public Law 111-148, as amended, 
that affect our proposed policies and payment rates for FY 2011 under 
the IPPS and the LTCH PPS. In addition, we plan to issue further 
instructions implementing the provisions of Public Law 111-148, as 
amended, that affect the policies and payment rates for FY 2010 under 
the IPPS and for RY 2010 under the LTCH PPS.

C. Major Content of This Proposed Rule

    In this proposed rule, we are setting forth proposed changes to the 
Medicare IPPS for operating costs and for capital-related costs of 
acute care hospitals in FY 2011. We also are setting forth proposed 
changes relating to payments for IME costs and payments to certain 
hospitals and units that continue to be excluded from the IPPS and paid 
on a reasonable cost basis.
    In addition, in this proposed rule, we are setting forth proposed 
changes to the payment rates, factors, and other payment rate policies 
under the LTCH PPS for FY 2011. We note that because the annual update 
of payment rates for the LTCH PPS will now take place on the same 
schedule and in the same publication as for the IPPS, for the sake of 
clarity, in section VII.D. of this proposed rule, we are proposing to 
use ``fiscal year (FY)'' instead of ``rate year (RY) when referring to 
updates and changes to the LTCH PPS to be effective October 1, 2010. 
Therefore, throughout this proposed rule, we are using the phrase 
``fiscal year (FY)'' in referring to proposed updates and changes to 
the LTCH PPS.
    Below is a summary of the major changes that we are proposing to 
make:
1. Proposed Changes to MS-DRG Classifications and Recalibrations of 
Relative Weights
    In section II. of the preamble of this proposed rule, we included--
     Proposed changes to MS-DRG classifications based on our 
yearly review.
     Proposed application of the documentation and coding 
adjustment to hospital-specific rates for FY 2011 resulting from 
implementation of the MS-DRG system.
     A discussion of the Research Triangle International, Inc. 
(RTI) and RAND Corporation reports and recommendations relating to 
charge compression.
     Proposed recalibrations of the MS-DRG relative weights.
    We also presented a listing and discussion of hospital-acquired 
conditions (HACs), including infections, that are subject to the 
statutorily required quality adjustment in MS-DRG payments for FY 2011.
    We discuss the FY 2011 status of two new technologies approved for 
add-on payments for FY 2010 and presented our evaluation and analysis 
of the FY 2011 applicants for add-on payments for high-cost new medical 
services and technologies (including public input, as directed by Pub. 
L. 108-173, obtained in a town hall meeting).
2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals
    In section III. of the preamble to this proposed rule, we are 
proposing revisions to the wage index for acute care hospitals and the 
annual update of the wage data. Specific issues addressed include the 
following:
     Budget neutrality for the rural floor and imputed floor.
     Changes to titles and principal cities of CBSA 
designations.
     The proposed FY 2011 wage index update using wage data 
from cost reporting periods beginning in FY 2007.
     Analysis and implementation of the proposed FY 2011 
occupational mix adjustment to the wage index for acute care hospitals, 
including discussion of the 2010 occupational mix survey.
     Proposed revisions to the wage index for acute care 
hospitals based on hospital redesignations and reclassifications.
     The proposed adjustment to the wage index for acute care 
hospitals for FY 2011 based on commuting patterns of hospital employees 
who reside in a county and work in a different area with a higher wage 
index.
     The timetable for reviewing and verifying the wage data 
used to compute the proposed FY 2011 hospital wage index.
     Determination of the labor-related share for the proposed 
FY 2011 wage index.
3. Other Decisions and Proposed Changes to the IPPS for Operating Costs 
and GME Costs
    In section IV. of the preamble of this proposed rule, we discussed 
a number of the provisions of the regulations in 42 CFR parts 412, 413, 
and 489, including the following:
     The reporting of hospital quality data as a condition for 
receiving the full annual payment update increase.
     Payment for transfer cases from Medicare participating 
hospitals to nonparticipating hospitals and CAHs.
     A change to the definition criteria for MDHs.
     The proposed updated national and regional case-mix values 
and discharges for purposes of determining RRC status.
     The statutorily required IME adjustment factor for FY 
2011.
     The proposed policy change relating to the determination 
of the SSI ratio of the Medicare fraction in the formula for 
determining the payment adjustments for disproportionate share 
hospitals.
     A proposed clarification of ``approved medical residency 
programs'' policies relating to payment for IME and direct GME and our 
proposal to accept the electronic submission of Medicare GME 
affiliation agreements.
     Proposed policy change for payments for services furnished 
by certified registered nurse anesthetists (CRNAs) in rural hospitals 
and CAHs.
     Discussion of the status of the Rural Community Hospital 
Demonstration Program.
4. Proposed FY 2011 Policy Governing the IPPS for Capital-Related Costs
    In section V. of the preamble to this proposed rule, we discussed 
the proposed payment policy requirements for capital-related costs and 
capital payments to hospitals for FY 2011 and the proposed MS-DRG 
documentation and coding adjustment for FY 2011.
5. Proposed Changes to the Payment Rates for Certain Excluded 
Hospitals: Rate-of-Increase Percentages
    In section VI. of the preamble of this proposed rule, we 
discussed--
     Proposed changes to payments to excluded hospitals.
     Proposed changes relating to the election by CAHs of the 
optional method of payment for outpatient services
     Proposed clarification of the policies on costs of 
provider taxes as allowable costs for CAHs.
6. Proposed Changes to the LTCH PPS
    In section VII. of the preamble of this proposed rule, we set forth 
proposed changes to the payment rates, factors, and other payment rate 
policies under the LTCH PPS for FY 2011, including the annual update of 
the MS-LTC-DRG classifications and relative weights for use under the 
LTCH PPS for FY 2011 and the proposed MS-DRG documentation and coding 
adjustment for FY 2011.
7. Proposed Changes Relating to Effective Date of Provider Agreements 
and Supplier Approvals
    In section VIII. of the preamble of this proposed rule, we set 
forth our proposed change in policies for

[[Page 23861]]

determining the effective date of provider agreements and supplier 
approvals and to make changes to assure that accredited and 
nonaccredited facilities are treated in the same manner in determining 
this effective date.
8. Proposed Changes to Medicare Conditions of Participation Affecting 
Hospital Rehabilitation Services and Respiratory Care Services
    In section IX. of the preamble of this proposed rule, we are 
proposing changes to the Medicare conditions of participation regarding 
which practitioners are allowed to order rehabilitation and respiratory 
care services in the hospital setting.
9. Proposed Changes to the Accreditation Requirements for Medicaid 
Providers of Inpatient Psychiatric Services for Individuals under Age 
21
    In section X. of the preamble of this proposed rule, we are 
proposing to remove the requirement for accreditation by The Joint 
Commission of psychiatric hospitals and hospitals with inpatient 
psychiatric programs. Hospitals with inpatient psychiatric programs 
would be afforded the flexibility in obtaining accreditation by a 
national accrediting organization whose hospital accrediting program 
has been approved by CMS, and psychiatric rehabilitation treatment 
facilities would be afforded flexibility in obtaining accreditation by 
a national accrediting organization whose program has been approved by 
CMS, or by any other accrediting organization with comparable standards 
that is recognized by the State.
10. Determining Proposed Prospective Payment Operating and Capital 
Rates and Rate-of-Increase Limits for Acute Care Hospitals
    In the Addendum to this proposed rule, we set forth proposed 
changes to the amounts and factors for determining the proposed FY 2011 
prospective payment rates for operating costs and capital-related costs 
for acute care hospitals. We also are establishing the proposed 
threshold amounts for outlier cases. In addition, we address the 
proposed update factors for determining the rate-of-increase limits for 
cost reporting periods beginning in FY 2011 for certain hospitals 
excluded from the IPPS.
11. Determining Proposed Prospective Payment Rates for LTCHs
    In the Addendum to this proposed rule, we set forth proposed 
changes to the amounts and factors for determining the proposed FY 2011 
prospective standard Federal rate. We also are establishing the 
proposed adjustments for wage levels, the labor-related share, the 
cost-of-living adjustment, and high-cost outliers, including the fixed-
loss amount, and the LTCH cost-to-charge ratios (CCRs) under the LTCH 
PPS.
12. Impact Analysis
    In Appendix A of this proposed rule, we set forth an analysis of 
the impact that the proposed changes would have on affected acute care 
hospitals and LTCHs.
13. Recommendation of Update Factors for Operating Cost Rates of 
Payment for Hospital Inpatient Services
    In Appendix B of this proposed rule, as required by sections 
1886(e)(4) and (e)(5) of the Act, we provide our recommendations of the 
appropriate percentage changes for FY 2011 for the following:
     A single average standardized amount for all areas for 
hospital inpatient services paid under the IPPS for operating costs of 
acute care hospitals (and hospital-specific rates applicable to SCHs 
and MDHs).
     Target rate-of-increase limits to the allowable operating 
costs of hospital inpatient services furnished by certain hospitals 
excluded from the IPPS.
     The standard Federal rate for hospital inpatient services 
furnished by LTCHs.
14. Discussion of Medicare Payment Advisory Commission Recommendations
    Under section 1805(b) of the Act, MedPAC is required to submit a 
report to Congress, no later than March 1 of each year, in which MedPAC 
reviews and makes recommendations on Medicare payment policies. 
MedPAC's March 2010 recommendations concerning hospital inpatient 
payment policies address the update factor for hospital inpatient 
operating costs and capital-related costs under the IPPS, for hospitals 
and distinct part hospital units excluded from the IPPS. We address 
these recommendations in Appendix B of this proposed rule. For further 
information relating specifically to the MedPAC March 2008 report or to 
obtain a copy of the report, contact MedPAC at (202) 220-3700 or visit 
MedPAC's Web site at: http://www.medpac.gov.

E. Interim Final Rule With Comment Period That Implemented Certain 
Provisions of the ARRA Relating to Payments to LTCHs and LTCH Satellite 
Facilities

    Section 4302 of the American Recovery and Reinvestment Act of 2009 
(ARRA, Public Law 111-5) included several amendments to section 114 of 
Public Law 110-173 (MMSEA) relating to payments to LTCHs and LTCH 
satellite facilities that were discussed under section X. of the FY 
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43976 through 43990). 
These amendments are effective as if they were enacted as part of 
section 114 of Public Law 110-173 (MMSEA). We issued instructions to 
the fiscal intermediaries and Medicare administrative contractors 
(MACs) to interpret these amendments (Change Request 6444). In section 
XI. of the FY 2010/RY 2010 LTCH PPS final rule (74 FR 43990), we 
implemented the provisions of section 4302 of Public Law 111-5 through 
an interim final rule with comment period. We will respond to the 
public comments that we received in a timely manner on this interim 
final rule with comment period and finalize the interim final rule with 
any necessary modification in the final rule for this proposed rule.

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

A. Background

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

[[Page 23862]]

adjustments are made to reflect changes in treatment patterns, 
technology, and any other factors that may change the relative use of 
hospital resources.

B. MS-DRG Reclassifications

1. General
    As discussed in the preamble to the FY 2008 IPPS final rule with 
comment period (72 FR 47138), we focused our efforts in FY 2008 on 
making significant reforms to the IPPS consistent with the 
recommendations made by MedPAC in its ``Report to the Congress, 
Physician-Owned Specialty Hospitals'' in March 2005. MedPAC recommended 
that the Secretary refine the entire DRG system by taking severity of 
illness into account and applying hospital-specific relative value 
(HSRV) weights to DRGs.\1\ We began this reform process by adopting 
cost-based weights over a 3-year transition period beginning in FY 2007 
and making interim changes to the DRG system for FY 2007 by creating 20 
new CMS DRGs and modifying 32 other DRGs across 13 different clinical 
areas involving nearly 1.7 million cases. As described in more detail 
below, these refinements were intermediate steps towards comprehensive 
reform of both the relative weights and the DRG system as we undertook 
further study. For FY 2008, we adopted 745 new Medicare Severity DRGs 
(MS-DRGs) to replace the CMS DRGs. We refer readers to section II.D. of 
the FY 2008 IPPS final rule with comment period for a full detailed 
discussion of how the MS-DRG system, based on severity levels of 
illness, was established (72 FR 47141).
---------------------------------------------------------------------------

    \1\ Medicare Payment Advisory Commission: Report to the 
Congress, Physician-Owned Specialty Hospitals, March 2005, page 
viii.
---------------------------------------------------------------------------

    Currently, cases are classified into MS-DRGs for payment under the 
IPPS based on the following information reported by the hospital: The 
principal diagnosis, up to eight additional diagnoses, and up to six 
procedures performed during the stay. (We refer readers to section 
II.G.11.c. of this proposed rule for a discussion of our efforts to 
increase our internal systems capacity to process diagnosis and 
procedures on hospital claims to 25 diagnosis codes and 25 procedure 
codes prior to the use of the International Classification of Diseases, 
10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding 
and the International Classification of Diseases, 10th Revision, 
Procedure Coding System (ICD-10 PCS) for inpatient hospital procedure 
coding, effective October 1, 2013.) In a small number of MS-DRGs, 
classification is also based on the age, sex, and discharge status of 
the patient. The diagnosis and procedure information is reported by the 
hospital using codes from the International Classification of Diseases, 
Ninth Revision, Clinical Modification (ICD-9-CM) prior to October 1, 
2013. We refer readers to section II.G.11.b. of this proposed rule for 
a reference to the replacement of ICD-9-CM, Volumes 1 and 2, including 
the Official ICD-9-CM Guidelines for Coding and Reporting, Volume 3, 
with the ICD-10-CM and ICD-10-PCS, including the Official ICD-10-CM and 
ICM-10-PCS Guidelines for Coding and Reporting, effective October 1, 
2013 (FY 2014).
    The process of developing the MS-DRGs was begun by dividing all 
possible principal diagnoses into mutually exclusive principal 
diagnosis areas, referred to as Major Diagnostic Categories (MDCs). The 
MDCs were formulated by physician panels to ensure that the DRGs would 
be clinically coherent. The diagnoses in each MDC correspond to a 
single organ system or etiology and, in general, are associated with a 
particular medical specialty. Thus, in order to maintain the 
requirement of clinical coherence, no final MS-DRG could contain 
patients in different MDCs. For example, MDC 6 is Diseases and 
Disorders of the Digestive System. This approach is used because 
clinical care is generally organized in accordance with the organ 
system affected. However, some MDCs are not constructed on this basis 
because they involve multiple organ systems (for example, MDC 22 
(Burns)). For FY 2010, cases are assigned to one of 746 MS-DRGs in 25 
MDCs. The table below lists the 25 MDCs.

                   Major Diagnostic Categories (MDCs)
------------------------------------------------------------------------

------------------------------------------------------------------------
1......................  Diseases and Disorders of the Nervous System.
2......................  Diseases and Disorders of the Eye.
3......................  Diseases and Disorders of the Ear, Nose, Mouth,
                          and Throat.
4......................  Diseases and Disorders of the Respiratory
                          System.
5......................  Diseases and Disorders of the Circulatory
                          System.
6......................  Diseases and Disorders of the Digestive System.
7......................  Diseases and Disorders of the Hepatobiliary
                          System and Pancreas.
8......................  Diseases and Disorders of the Musculoskeletal
                          System and Connective Tissue.
9......................  Diseases and Disorders of the Skin,
                          Subcutaneous Tissue and Breast.
10.....................  Endocrine, Nutritional and Metabolic Diseases
                          and Disorders.
11.....................  Diseases and Disorders of the Kidney and
                          Urinary Tract.
12.....................  Diseases and Disorders of the Male Reproductive
                          System.
13.....................  Diseases and Disorders of the Female
                          Reproductive System.
14.....................  Pregnancy, Childbirth, and the Puerperium.
15.....................  Newborns and Other Neonates with Conditions
                          Originating in the Perinatal Period.
16.....................  Diseases and Disorders of the Blood and Blood
                          Forming Organs and Immunological Disorders.
17.....................  Myeloproliferative Diseases and Disorders and
                          Poorly Differentiated Neoplasms.
18.....................  Infectious and Parasitic Diseases (Systemic or
                          Unspecified Sites).
19.....................  Mental Diseases and Disorders.
20.....................  Alcohol/Drug Use and Alcohol/Drug Induced
                          Organic Mental Disorders.
21.....................  Injuries, Poisonings, and Toxic Effects of
                          Drugs.
22.....................  Burns.
23.....................  Factors Influencing Health Status and Other
                          Contacts with Health Services.
24.....................  Multiple Significant Trauma.
25.....................  Human Immunodeficiency Virus Infections.
------------------------------------------------------------------------

[[Page 23863]]

    In general, cases are assigned to an MDC based on the patient's 
principal diagnosis before assignment to an MS-DRG. However, under the 
most recent version of the Medicare GROUPER (Version 27.0), there are 
13 MS-DRGs to which cases are directly assigned on the basis of ICD-9-
CM procedure codes. These MS-DRGs are for heart transplant or implant 
of heart assist systems; liver and/or intestinal transplants; bone 
marrow transplants; lung transplants; simultaneous pancreas/kidney 
transplants; pancreas transplants; and tracheostomies. Cases are 
assigned to these MS-DRGs before they are classified to an MDC. The 
table below lists the 13 current pre-MDCs.

               Pre-Major Diagnostic Categories (Pre-MDCs)
------------------------------------------------------------------------

------------------------------------------------------------------------
MS-DRG 001...............  Heart Transplant or Implant of Heart Assist
                            System with MCC.
MS-DRG 002...............  Heart Transplant or Implant of Heart Assist
                            System without MCC.
MS-DRG 003...............  ECMO or Tracheostomy with Mechanical
                            Ventilation 96+ Hours or Principal Diagnosis
                            Except for Face, Mouth, and Neck Diagnosis
                            with Major O.R.
MS-DRG 004...............  Tracheostomy with Mechanical Ventilation 96+
                            Hours or Principal Diagnosis Except for
                            Face, Mouth, and Neck Diagnosis with Major
                            O.R.
MS-DRG 005...............  Liver Transplant with MCC or Intestinal
                            Transplant.
MS-DRG 006...............  Liver Transplant without MCC.
MS-DRG 007...............  Lung Transplant.
MS-DRG 008...............  Simultaneous Pancreas/Kidney Transplant.
MS-DRG 009...............  Bone Marrow Transplant.
MS-DRG 010...............  Pancreas Transplant.
MS-DRG 011...............  Tracheostomy for Face, Mouth, and Neck
                            Diagnoses with MCC.
MS-DRG 012...............  Tracheostomy for Face, Mouth, and Neck
                            Diagnoses with CC.
MS-DRG 013...............  Tracheostomy for Face, Mouth, and Neck
                            Diagnoses without CC/MCC.
------------------------------------------------------------------------

    Once the MDCs were defined, each MDC was evaluated to identify 
those additional patient characteristics that would have a consistent 
effect on hospital resource consumption. Because the presence of a 
surgical procedure that required the use of the operating room would 
have a significant effect on the type of hospital resources used by a 
patient, most MDCs were initially divided into surgical DRGs and 
medical DRGs. Surgical DRGs are based on a hierarchy that orders 
operating room (O.R.) procedures or groups of O.R. procedures by 
resource intensity. Medical DRGs generally are differentiated on the 
basis of diagnosis and age (0 to 17 years of age or greater than 17 
years of age). Some surgical and medical DRGs are further 
differentiated based on the presence or absence of a complication or 
comorbidity (CC) or a major complication or comorbidity (MCC).
    Generally, nonsurgical procedures and minor surgical procedures 
that are not usually performed in an operating room are not treated as 
O.R. procedures. However, there are a few non-O.R. procedures that do 
affect MS-DRG assignment for certain principal diagnoses. An example is 
extracorporeal shock wave lithotripsy for patients with a principal 
diagnosis of urinary stones. Lithotripsy procedures are not routinely 
performed in an operating room. Therefore, lithotripsy codes are not 
classified as O.R. procedures. However, our clinical advisors believe 
that patients with urinary stones who undergo extracorporeal shock wave 
lithotripsy should be considered similar to other patients who undergo 
O.R. procedures. Therefore, we treat this group of patients similar to 
patients undergoing O.R. procedures.
    Once the medical and surgical classes for an MDC were formed, each 
diagnosis class was evaluated to determine if complications or 
comorbidities would consistently affect hospital resource consumption. 
Each diagnosis was categorized into one of three severity levels. These 
three levels include a major complication or comorbidity (MCC), a 
complication or comorbidity (CC), or a non-CC. Physician panels 
classified each diagnosis code based on a highly iterative process 
involving a combination of statistical results from test data as well 
as clinical judgment. As stated earlier, we refer readers to section 
II.D. of the FY 2008 IPPS final rule with comment period for a full 
detailed discussion of how the MS-DRG system was established based on 
severity levels of illness (72 FR 47141).
    A patient's diagnosis, procedure, discharge status, and demographic 
information is entered into the Medicare claims processing systems and 
subjected to a series of automated screens called the Medicare Code 
Editor (MCE). The MCE screens are designed to identify cases that 
require further review before classification into an MS-DRG.
    After patient information is screened through the MCE and any 
further development of the claim is conducted, the cases are classified 
into the appropriate MS-DRG by the Medicare GROUPER software program. 
The GROUPER program was developed as a means of classifying each case 
into an MS-DRG on the basis of the diagnosis and procedure codes and, 
for a limited number of MS-DRGs, demographic information (that is, sex, 
age, and discharge status).
    After cases are screened through the MCE and assigned to an MS-DRG 
by the GROUPER, the PRICER software calculates a base MS-DRG payment. 
The PRICER calculates the payment for each case covered by the IPPS 
based on the MS-DRG relative weight and additional factors associated 
with each hospital, such as IME and DSH payment adjustments. These 
additional factors increase the payment amount to hospitals above the 
base MS-DRG payment.
    The records for all Medicare hospital inpatient discharges are 
maintained in the Medicare Provider Analysis and Review (MedPAR) file. 
The data in this file are used to evaluate possible MS-DRG 
classification changes and to recalibrate the MS-DRG weights. However, 
in the FY 2000 IPPS final rule (64 FR 41500), we discussed a process 
for considering non-MedPAR data in the recalibration process. In order 
for us to consider using particular non-MedPAR data, we must have 
sufficient time to evaluate and test the data. The time necessary to do 
so depends upon the nature and quality of the non-MedPAR data 
submitted. Generally, however, a significant sample of the non-MedPAR 
data should be submitted by mid-October for consideration in 
conjunction with the next year's proposed rule. This date allows us 
time to test the data and make a preliminary assessment as to the 
feasibility of using the data. Subsequently, a complete database should 
be submitted by early December for consideration in conjunction with 
the next year's proposed rule.

[[Page 23864]]

    As we indicated above, for FY 2008, we made significant 
improvements in the DRG system to recognize severity of illness and 
resource usage by adopting MS-DRGs that were reflected in the FY 2008 
GROUPER, Version 25.0, and were effective for discharges occurring on 
or after October 1, 2007. Our MS-DRG analysis for the FY 2009 final 
rule was based on data from the March 2008 update of the FY 2007 MedPAR 
file, which contained hospital bills received through March 31, 2008, 
for discharges occurring through September 30, 2007. For this proposed 
rule, for FY 2011, our MS-DRG analysis is based on data from the 
September 2009 update of the FY 2009 MedPAR file, which contains 
hospital bills received through September 30, 2009, for discharges 
occurring through September 30, 2009.
2. Yearly Review for Making MS-DRG Changes
    Many of the changes to the MS-DRG classifications we make annually 
are the result of specific issues brought to our attention by 
interested parties. We encourage individuals with comments about MS-DRG 
classifications to submit these comments no later than early December 
of each year so they can be carefully considered for possible inclusion 
in the annual proposed rule and, if included, may be subjected to 
public review and comment. Therefore, similar to the timetable for 
interested parties to submit non-MedPAR data for consideration in the 
MS-DRG recalibration process, comments about MS-DRG classification 
issues should be submitted no later than early December in order to be 
considered and possibly included in the next annual proposed rule 
updating the IPPS.
    The actual process of forming the MS-DRGs was, and will likely 
continue to be, highly iterative, involving a combination of 
statistical results from test data combined with clinical judgment. In 
the FY 2008 IPPS final rule (72 FR 47140 through 47189), we described 
in detail the process we used to develop the MS-DRGs that we adopted 
for FY 2008. In addition, in deciding whether to make further 
modification to the MS-DRGs for particular circumstances brought to our 
attention, we considered whether the resource consumption and clinical 
characteristics of the patients with a given set of conditions are 
significantly different than the remaining patients in the MS-DRG. We 
evaluated patient care costs using average charges and lengths of stay 
as proxies for costs and relied on the judgment of our medical advisors 
to decide whether patients are clinically distinct or similar to other 
patients in the MS-DRG. In evaluating resource costs, we considered 
both the absolute and percentage differences in average charges between 
the cases we selected for review and the remainder of cases in the MS-
DRG. We also considered variation in charges within these groups; that 
is, whether observed average differences were consistent across 
patients or attributable to cases that were extreme in terms of charges 
or length of stay, or both. Further, we considered the number of 
patients who will have a given set of characteristics and generally 
preferred not to create a new MS-DRG unless it would include a 
substantial number of cases.

C. Adoption of the MS-DRGs in FY 2008

    In the FY 2006, FY 2007, and FY 2008 IPPS final rules, we discussed 
a number of recommendations made by MedPAC regarding revisions to the 
DRG system used under the IPPS (70 FR 47473 through 47482; 71 FR 47881 
through 47939; and 72 FR 47140 through 47189). As we noted in the FY 
2006 IPPS final rule, we had insufficient time to complete a thorough 
evaluation of these recommendations for full implementation in FY 2006. 
However, we did adopt severity-weighted cardiac DRGs in FY 2006 to 
address public comments on this issue and the specific concerns of 
MedPAC regarding cardiac surgery DRGs. We also indicated that we 
planned to further consider all of MedPAC's recommendations and 
thoroughly analyze options and their impacts on the various types of 
hospitals in the FY 2007 IPPS proposed rule.
    For FY 2007, we began this process. In the FY 2007 IPPS proposed 
rule, we proposed to adopt Consolidated Severity DRGs (CS DRGs) for FY 
2008 (if not earlier). Based on public comments received on the FY 2007 
IPPS proposed rule, we decided not to adopt the CS DRGs. In the FY 2007 
IPPS final rule (71 FR 47906 through 47912), we discussed several 
concerns raised by commenters regarding the proposal to adopt CS DRGs. 
We acknowledged the many comments suggesting the logic of Medicare's 
DRG system should continue to remain in the public domain as it has 
since the inception of the PPS. We also acknowledged concerns about the 
impact on hospitals and software vendors of moving to a proprietary 
system. Several commenters suggested that CMS refine the existing DRG 
classification system to preserve the many policy decisions that were 
made over the last 20 years and were already incorporated into the DRG 
system, such as complexity of services and new device technologies. 
Consistent with the concerns expressed in the public comments, this 
option had the advantage of using the existing DRGs as a starting point 
(which was already familiar to the public) and retained the benefit of 
many DRG decisions that were made in recent years. We stated our belief 
that the suggested approach of incorporating severity measures into the 
existing DRG system was a viable option that would be evaluated.
    Therefore, we decided to make interim changes to the existing DRGs 
for FY 2007 by creating 20 new DRGs involving 13 different clinical 
areas that would significantly improve the CMS DRG system's recognition 
of severity of illness. We also modified 32 DRGs to better capture 
differences in severity. The new and revised DRGs were selected from 40 
existing CMS DRGs that contained 1,666,476 cases and represented a 
number of body systems. In creating these 20 new DRGs, we deleted 8 
existing DRGs and modified 32 existing DRGs. We indicated that these 
interim steps for FY 2007 were being taken as a prelude to more 
comprehensive changes to better account for severity in the DRG system 
by FY 2008.
    In the FY 2007 IPPS final rule (71 FR 47898), we indicated our 
intent to pursue further DRG reform through two initiatives. First, we 
announced that we were in the process of engaging a contractor to 
assist us with evaluating alternative DRG systems that were raised as 
potential alternatives to the CMS DRGs in the public comments. Second, 
we indicated our intent to review over 13,000 ICD-9-CM diagnosis codes 
as part of making further refinements to the current CMS DRGs to better 
recognize severity of illness based on the work that CMS (then HCFA) 
did in the mid-1990's in connection with adopting severity DRGs. We 
describe below the progress we have made on these two initiatives and 
our actions for FYs 2008, 2009, and 2010, and our proposals for FY 2011 
based on our continued analysis of reform of the DRG system. We note 
that the adoption of the MS-DRGs to better recognize severity of 
illness has implications for the outlier threshold, the application of 
the postacute care transfer policy, the measurement of real case-mix 
versus apparent case-mix, and the IME and DSH payment adjustments. We 
discuss these implications for FY 2011 in other sections of this 
preamble and in the Addendum to this proposed rule.
    In the FY 2007 IPPS proposed rule, we discussed MedPAC's 
recommendations to move to a cost-based HSRV weighting methodology 
using HSRVs beginning with the FY

[[Page 23865]]

2007 IPPS proposed rule for determining the DRG relative weights. 
Although we proposed to adopt the HSRV weighting methodology for FY 
2007, we decided not to adopt the proposed methodology in the final 
rule after considering the public comments we received on the proposal. 
Instead, in the FY 2007 IPPS final rule, we adopted a cost-based 
weighting methodology without the HSRV portion of the proposed 
methodology. The cost-based weights were adopted over a 3-year 
transition period in \1/3\ increments between FY 2007 and FY 2009. In 
addition, in the FY 2007 IPPS final rule, we indicated our intent to 
further study the HSRV-based methodology as well as other issues 
brought to our attention related to the cost-based weighting 
methodology adopted in the FY 2007 final rule. There was significant 
concern in the public comments that our cost-based weighting 
methodology does not adequately account for charge compression--the 
practice of applying a higher percentage charge markup over costs to 
lower cost items and services and a lower percentage charge markup over 
costs to higher cost items and services. Further, public commenters 
expressed concern about potential inconsistencies between how costs and 
charges are reported on the Medicare cost reports and charges on the 
Medicare claims. In the FY 2007 IPPS final rule, we used costs and 
charges from the cost report to determine departmental level cost-to-
charge ratios (CCRs) which we then applied to charges on the Medicare 
claims to determine the cost-based weights. The commenters were 
concerned about potential distortions to the cost-based weights that 
would result from inconsistent reporting between the cost reports and 
the Medicare claims. After publication of the FY 2007 IPPS final rule, 
we entered into a contract with RTI International (RTI) to study both 
charge compression and to what extent our methodology for calculating 
DRG relative weights is affected by inconsistencies between how 
hospitals report costs and charges on the cost reports and how 
hospitals report charges on individual claims. Further, as part of its 
study of alternative DRG systems, the RAND Corporation analyzed the 
HSRV cost-weighting methodology. We refer readers to section II.E. of 
the preamble of this proposed rule for discussion of the issue of 
charge compression and the cost-weighting methodology for FY 2011.
    We believe that revisions to the DRG system to better recognize 
severity of illness and changes to the relative weights based on costs 
rather than charges are improving the accuracy of the payment rates in 
the IPPS. We agree with MedPAC that these refinements should be 
pursued. Although we continue to caution that any prospective payment 
system based on grouping cases will always present some opportunities 
for providers to specialize in cases they believe have higher margins, 
we believe that the changes we have adopted and the continuing reforms 
we are proposing to make in this proposed rule for FY 2011 will improve 
payment accuracy and reduce financial incentives to create specialty 
hospitals.
    We refer readers to section II.D. of the FY 2008 IPPS final rule 
with comment period for a full discussion of how the MS-DRG system was 
established based on severity levels of illness (72 FR 47141).

D. Proposed FY 2011 MS-DRG Documentation and Coding Adjustment, 
Including the Applicability to the Hospital-Specific Rates and the 
Puerto Rico-Specific Standardized Amount

1. Background on the Prospective MS-DRG Documentation and Coding 
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
    As we discussed earlier in this preamble, we adopted the MS-DRG 
patient classification system for the IPPS, effective October 1, 2007, 
to better recognize severity of illness in Medicare payment rates for 
acute care hospitals. The adoption of the MS-DRG system resulted in the 
expansion of the number of DRGs from 538 in FY 2007 to 745 in FY 2008. 
(Currently, there are 746 DRGs for FY 2010; there would be 747 DRGs in 
FY 2011, with our proposals in this proposed rule to delete one MS-DRG 
and to create two new MS-DRGs.) By increasing the number of MS-DRGs and 
more fully taking into account patients' severity of illness in 
Medicare payment rates for acute care hospitals, MS-DRGs encourage 
hospitals to improve their documentation and coding of patient 
diagnoses. In the FY 2008 IPPS final rule with comment period (72 FR 
47175 through 47186), we indicated that the adoption of the MS-DRGs had 
the potential to lead to increases in aggregate payments without a 
corresponding increase in actual patient severity of illness due to the 
incentives for additional documentation and coding. In that final rule 
with comment period, we exercised our authority under section 
1886(d)(3)(A)(vi) of the Act, which authorizes us to maintain budget 
neutrality by adjusting the national standardized amount, to eliminate 
the estimated effect of changes in coding or classification that do not 
reflect real changes in case-mix. Our actuaries estimated that 
maintaining budget neutrality required an adjustment of -4.8 percent to 
the national standardized amount. We provided for phasing in this -4.8 
percent adjustment over 3 years. Specifically, we established 
prospective documentation and coding adjustments of -1.2 percent for FY 
2008, -1.8 percent for FY 2009, and -1.8 percent for FY 2010.
    On September 29, 2007, Congress enacted the TMA [Transitional 
Medical Assistance], Abstinence Education, and QI [Qualifying 
Individuals] Programs Extension Act of 2007, Public Law 110-90. Section 
7(a) of Public Law 110-90 reduced the documentation and coding 
adjustment made as a result of the MS-DRG system that we adopted in the 
FY 2008 IPPS final rule with comment period to -0.6 percent for FY 2008 
and -0.9 percent for FY 2009. Section 7(a) of Public Law 110-90 did not 
adjust the FY 2010 -1.8 percent documentation and coding adjustment 
promulgated in the FY 2008 IPPS final rule with comment period. To 
comply with section 7(a) of Public Law 110-90, we promulgated a final 
rule on November 27, 2007 (72 FR 66886) that modified the IPPS 
documentation and coding adjustment for FY 2008 to -0.6 percent, and 
revised the FY 2008 payment rates, factors, and thresholds accordingly. 
These revisions were effective on October 1, 2007.
    For FY 2009, section 7(a) of Public Law 110-90 required a 
documentation and coding adjustment of -0.9 percent instead of the -1.8 
percent adjustment established in the FY 2008 IPPS final rule with 
comment period. As discussed in the FY 2009 IPPS final rule (73 FR 
48447) and required by statute, we applied a documentation and coding 
adjustment of -0.9 percent to the FY 2009 IPPS national standardized 
amount. The documentation and coding adjustments established in the FY 
2008 IPPS final rule with comment period, as amended by Public Law 110-
90, are cumulative. As a result, the -0.9 percent documentation and 
coding adjustment for FY 2009 was in addition to the -0.6 percent 
adjustment for FY 2008, yielding a combined effect of -1.5 percent.
2. Prospective Adjustment to the Average Standardized Amounts Required 
by Section 7(b)(1)(A) of Public Law 110-90
    Section 7(b)(1)(A) of Public Law 110-90 requires that, if the 
Secretary determines that implementation of the

[[Page 23866]]

MS-DRG system resulted in changes in documentation and coding that did 
not reflect real changes in case-mix for discharges occurring during FY 
2008 or FY 2009 that are different than the prospective documentation 
and coding adjustments applied under section 7(a) of Public Law 110-90, 
the Secretary shall make an appropriate adjustment under section 
1886(d)(3)(A)(vi) of the Act. Section 1886(d)(3)(A)(vi) of the Act 
authorizes adjustments to the average standardized amounts for 
subsequent fiscal years in order to eliminate the effect of such coding 
or classification changes. These adjustments are intended to ensure 
that future annual aggregate IPPS payments are the same as the payments 
that otherwise would have been made had the prospective adjustments for 
documentation and coding applied in FY 2008 and FY 2009 reflected the 
change that occurred in those years.
3. Recoupment or Repayment Adjustments in FYs 2010 Through 2012 
Required by Public Law 110-90
    If, based on a retroactive evaluation of claims data, the Secretary 
determines that implementation of the MS-DRG system resulted in changes 
in documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 or FY 2009 that are 
different from the prospective documentation and coding adjustments 
applied under section 7(a) of Public Law 110-90, section 7(b)(1)(B) of 
Public Law 110-90 requires the Secretary to make an additional 
adjustment to the standardized amounts under section 1886(d) of the 
Act. This adjustment must offset the estimated increase or decrease in 
aggregate payments for FYs 2008 and 2009 (including interest) resulting 
from the difference between the estimated actual documentation and 
coding effect and the documentation and coding adjustment applied under 
section 7(a) of Public Law 110-90. This adjustment is in addition to 
making an appropriate adjustment to the standardized amounts under 
section 1886(d)(3)(A)(vi) of the Act as required by section 7(b)(1)(A) 
of Public Law 110-90. That is, these adjustments are intended to recoup 
(or repay) spending in excess of (or less than) spending that would 
have occurred had the prospective adjustments for changes in 
documentation and coding applied in FY 2008 and FY 2009 precisely 
matched the changes that occurred in those years. Public Law 110-90 
requires that the Secretary make these recoupment or repayment 
adjustments for discharges occurring during FYs 2010, 2011, and 2012.
4. Retrospective Evaluation of FY 2008 Claims Data
    In order to implement the requirements of section 7 of Public Law 
110-90, we indicated in the FY 2009 IPPS final rule (73 FR 48450) that 
we planned a thorough retrospective evaluation of our claims data. We 
stated that the results of this evaluation would be used by our 
actuaries to determine any necessary payment adjustments to the 
standardized amounts under section 1886(d) of the Act to ensure the 
budget neutrality of the MS-DRGs implementation for FY 2008 and FY 
2009, as required by law. In the FY 2009 IPPS proposed rule (73 FR 
23541 through 23542), we described our preliminary plan for a 
retrospective analysis of inpatient hospital claims data and invited 
public input on our proposed methodology.
    In that proposed rule, we indicated that we intended to measure and 
corroborate the extent of the overall national average changes in case-
mix for FY 2008 and FY 2009. We expected that the two largest parts of 
this overall national average change would be attributable to 
underlying changes in actual patient severity of illness and to 
documentation and coding improvements under the MS-DRG system. In order 
to separate the two effects, we planned to isolate the effect of shifts 
in cases among base DRGs from the effect of shifts in the types of 
cases within-base DRGs.
    The MS-DRGs divide the base DRGs into three severity levels (with 
MCC, with CC and without CC); the previously used CMS DRGs had only two 
severity levels (with CC and without CC). Under the CMS DRG system, the 
majority of hospital discharges had a secondary diagnosis which was on 
the CC list, which led to the higher severity level. The MS-DRGs 
significantly changed the code lists of what was classified as an MCC 
or a CC. Many codes that were previously classified as a CC are no 
longer included on the MS-DRG CC list because the data and clinical 
review showed these conditions did not lead to a significant increase 
in resource use. The addition of a new level of high severity 
conditions, the MCC list, also provided a new incentive to code more 
precisely in order to increase the severity level. We anticipated that 
hospitals would examine the MS-DRG MCC and CC code lists and then work 
with physicians and coders on documentation and coding practices so 
that coders could appropriately assign codes from the highest possible 
severity level. We note that there have been numerous seminars and 
training sessions on this particular coding issue. The topic of 
improving documentation practices in order to code conditions on the 
MCC list was also discussed extensively by participants at the March 
11-12, 2009 ICD-9-CM Coordination and Maintenance Committee meeting. 
Participants discussed their hospitals' efforts to encourage physicians 
to provide more precise documentation so that coders could 
appropriately assign codes that would lead to a higher severity level. 
Because we expected most of the documentation and coding changes under 
the MS-DRG system would occur in the secondary diagnoses, we believed 
that the shifts among base DRGs were less likely to be the result of 
the MS-DRG system and the shifts within-base DRGs were more likely to 
be the result of the MS-DRG system. We also anticipated evaluating data 
to identify the specific MS-DRGs and diagnoses that contributed 
significantly to the documentation and coding payment effect and to 
quantify their impact. This step entailed analysis of the secondary 
diagnoses driving the shifts in severity within specific base DRGs.
    In that same proposed rule, we also stated that, while we believed 
that the data analysis plan described previously would produce an 
appropriate estimate of the extent of case-mix changes resulting from 
documentation and coding changes, we might decide, if feasible, to use 
historical data from our Hospital Payment Monitoring Program (HPMP) to 
corroborate the within-base DRG shift analysis. The HPMP is supported 
by the Medicare Clinical Data Abstraction Center (CDAC).
    In the FY 2009 IPPS proposed rule, we solicited public comments on 
the analysis plans described above, as well as suggestions on other 
possible approaches for performing a retrospective analysis to identify 
the amount of case-mix changes that occurred in FY 2008 and FY 2009 
that did not reflect real increases in patients' severity of illness.
    A few commenters, including MedPAC, expressed support for the 
analytic approach described in the FY 2009 IPPS proposed rule. A number 
of other commenters expressed concerns about certain aspects of the 
approach and/or suggested alternate analyses or study designs. In 
addition, one commenter recommended that any determination or 
retrospective evaluation by the actuaries of the impact of the MS-DRGs 
on case-mix be open to public scrutiny prior to the

[[Page 23867]]

implementation of the payment adjustments beginning in FY 2010.
    We took these comments into consideration as we developed our 
proposed analysis plan and in the FY 2010 IPPS/RY 2010 LTCH PPS 
proposed rule (74 FR 24092 through 24101) solicited public comment on 
our methodology and analysis. For the FY 2010 IPPS/RY 2010 LTCH PPS 
proposed rule, we performed a retrospective evaluation of the FY 2008 
data for claims paid through December 2008. Based on this evaluation, 
our actuaries determined that implementation of the MS-DRG system 
resulted in a 2.5 percent change due to documentation and coding that 
did not reflect real changes in case-mix for discharges occurring 
during FY 2008
    In the analysis of data for that proposed rule, we found that the 
within-base DRG increases were almost entirely responsible for the 
case-mix change, supporting our conclusion that the 2.5 percent 
estimate was an accurate reflection of the FY 2008 effect of changes in 
documentation and coding under the MS-DRG system. In fact, almost every 
base DRG that was split into different severity levels under the MS-DRG 
system experienced increases in the within-base DRGs. We then further 
analyzed the changes in the within-base DRGs to determine which MS-DRGs 
had the highest contributions to this increase. The results of the 
analysis for the proposed rule provided additional support for our 
conclusion that the proposed 2.5 percent estimate accurately reflected 
the FY 2008 increases in documentation and coding under the MS-DRG 
system. While we attempted to use the CDAC data to distinguish real 
increase in case-mix growth from documentation and coding in the 
overall case-mix number, we found aberrant data and significant 
variation across the FY 1999 through FY 2007 analysis period. It was 
not possible to distinguish changes in documentation and coding from 
changes in real case-mix in the CDAC data. Therefore, we concluded that 
the CDAC data would not support analysis of real case-mix growth that 
could be used in our retrospective evaluation of the FY 2008 claims 
data.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43768 
through 43772), we responded to comments on our methodology for the 
retrospective evaluation of FY 2008 claims data. Commenters raised 
concerns that CMS' estimate in the proposed rule did not fully consider 
other potential causes of increased case-mix, such as patients 
requiring less complex services receiving care in other settings and 
``healthier'' patients enrolling in Medicare Advantage plans in 
increasing numbers. Other commenters indicated that factors such as the 
changes in the CC/MCC definitions, limitations on the number of codes 
used by CMS for payment and ratesetting, resequencing of secondary 
diagnoses, the transition to the cost-based weights, less use of ``not 
otherwise specified'' codes, and increases in real case-mix due to 
health reform efforts also resulted in an inaccurate documentation and 
coding analysis. One commenter indicated that, of the overall case-mix 
increase, 1.0 percent to 1.5 percent is ``real'' case-mix increase, 
while 1.0 percent to 1.5 percent is due to documentation and coding or 
other increases.
    In considering these comments concerning historical real case-mix, 
in the FY 2010 final rule, we calculated overall increases in case-mix 
for the period from FY 2000 to FY 2007 using the cases from each year 
and the GROUPER and relative weights applicable for each year. The 
results are shown in the following chart:

            Overall Case-Mix Increases for FY 2000 to FY 2007
------------------------------------------------------------------------
                                                       Overall case-mix
                        Year                           change from prior
                                                      year  (in percent)
------------------------------------------------------------------------
FY 2000.............................................                -0.7
FY 2001.............................................                -0.4
FY 2002.............................................                 1.0
FY 2003.............................................                 1.4
FY 2004.............................................                 1.0
FY 2005.............................................                 0.9
FY 2006.............................................                 1.2
FY 2007.............................................                -0.2
------------------------------------------------------------------------

    Overall case-mix growth is predominately comprised of three 
factors: Real case-mix growth; a documentation and coding effect; and a 
measurement effect. Under the reasonable assumption that there has been 
a relatively small measurement effect in those years, the assertion 
that there is a historical pattern of steady annual increases of 1.2 to 
1.3 percent in real case-mix implies that the documentation and coding 
effect in many of those years was negative. For example, as discussed 
in that rule (74 FR 43769), we estimated a recent measurement effect of 
+0.3 percent. The overall case-mix growth of -0.2 percent in FY 2007 
net of a measurement effect of +0.3 percent results in growth of +0.1 
percent. A real case-mix growth of +1.2 percent in FY 2007, therefore, 
implies a negative documentation and coding effect of approximately -
1.1 percent. It is not obvious why documentation and coding would have 
had such a large negative effect in FY 2007, or in any other year where 
the overall case-mix change is significantly less than the commenter's 
claimed average annual trend, calling into question the assertion that 
real case-mix growth is a steady 1.2 to 1.3 percent per year.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43770 
through 43771), we indicated that our estimate of the overall case-mix 
growth for FY 2008 based on more recent data than the data used in the 
FY 2010 proposed rule was 2.0 percent, still less than our actuaries' 
estimate of a 2.5 percent documentation and coding increase. With 
respect to the concerns raised by commenters about our finding of 
negative real case-mix growth in FY 2008, a finding of negative real 
case-mix growth is consistent with the fact that, in some years, 
overall case-mix growth has been negative, as shown in the chart 
presented above in this response.
5. Retrospective Analysis of FY 2009 Claims Data
    We performed the same analysis for FY 2009 claims data using the 
same methodology as we did for FY 2008 claims in the FY 2010 final 
rule. We first divided the case-mix index (CMI) obtained by grouping 
the FY 2009 claims data through the FY 2009 GROUPER (Version 26.0) by 
the CMI obtained by grouping these same FY 2009 claims through the FY 
2007 GROUPER (Version 24.0). This resulted in a value of 1.056. Because 
these cases are the same FY 2009 cases grouped using the Versions 24.0 
and 26.0 of the GROUPER, we attribute this increase primarily to two 
factors: (1) The effect of changes in documentation and coding under 
the MS-DRG system; and (2) the measurement effect from the calibration 
of the GROUPER. We estimated the measurement effect from the 
calibration of the GROUPER by dividing the CMI obtained by grouping 
cases in the FY 2007 claims data through the FY 2009 GROUPER by the CMI 
obtained by grouping cases in these same claims through the FY 2007 
GROUPER. This resulted in a value of 1.0019. In order to isolate the 
documentation and coding effect, we then divided the combined effect of 
the changes in documentation and coding and measurement (1.056) by the 
measurement effect (1.0019) to yield 1.054. Therefore, our estimate of 
the documentation and coding increase that did not reflect real changes 
in case-mix for discharges was 5.4 percent.
    We then sought to corroborate this 5.4 percent estimate by 
examining the increases in the within-base DRGs as compared to the 
increases in the across

[[Page 23868]]

base DRGs as described earlier in our analysis plan. In other words, we 
looked for improvements in code selection that would lead to a 
secondary diagnosis increasing the severity level to either a CC or an 
MCC level. We found that the within-base DRG increases were almost 
entirely responsible for the case mix change, supporting our conclusion 
that the 5.4 percent estimate was an accurate reflection of the FY 2009 
effect of changes in documentation and coding under the MS-DRG system. 
We then further analyzed the changes in the within-base DRGs to 
determine which MS-DRGs had the highest contributions to this increase. 
The results of the analysis for the proposed rule provided additional 
support for our conclusion that the proposed 5.4 percent estimate 
accurately reflected the FY 2009 increases in documentation and coding 
under the MS-DRG system.
[GRAPHIC] [TIFF OMITTED] TP04MY10.000

    As reflected in the above chart, for short-term acute care 
hospitals, SCHs, and MDHs, there is an 8 percentage point increase in 
the discharge severity with MCCs from 20 percent to 28 percent, and a 
corresponding decrease of 8 percentage points in discharge severity 
without CC/MCC from 57 percent to 49 percent.
    Consistent with the expectations of our medical coding experts 
concerning areas with potential for documentation and coding 
improvements, the top contributors were heart failure, chronic 
obstructive pulmonary disease, and simple pneumonia and pleurisy. Heart 
failure is a very common secondary diagnosis among Medicare hospital 
admissions. The heart failure codes are assigned to all three severity 
levels. Some codes are classified as non-CCs, while other codes are on 
the CC and MCC lists. By changing physician documentation to more 
precisely identify the type of heart failure, coders are able to 
appropriately change the severity level of cases from the lowest level 
(non-CC) to a higher severity level (CC or MCC). This point was 
stressed repeatedly at the March 11-12, 2009 ICD-9-CM Coordination and 
Maintenance Committee meeting as coders discussed their work with 
physicians on this coding issue. Many of the participants indicated 
that additional work was still needed with their physicians in order to 
document conditions in the medical record more precisely.
    The results of the analysis for the proposed rule provided 
additional support for our conclusion that the proposed 5.4 percent 
estimate accurately reflected the FY 2009 increases in documentation 
and coding under the MS-DRG system.
    As in prior years, the FY 2008 and FY 2009 MedPAR files are 
available to the public to allow independent analysis of the FY 2008 
and FY 2009 documentation and coding effect. Interested individuals may 
still order these files through the Web site at: http://www.cms.hhs.gov/LimitedDataSets/ by clicking on MedPAR Limited Data Set 
(LDS)-Hospital (National). This Web page describes the file and 
provides directions and further detailed instructions for how to order.
    Persons placing an order must send the following: a Letter of 
Request, the LDS Data Use Agreement and Research Protocol (refer to the 
Web site for further instructions), the LDS Form, and a check for 
$3,655 to:
    Mailing address if using the U.S. Postal Service: Centers for 
Medicare & Medicaid Services, RDDC Account, Accounting Division, P.O. 
Box 7520, Baltimore, MD 21207-0520.
    Mailing address if using express mail: Centers for Medicare & 
Medicaid Services, OFM/Division of Accounting--RDDC, 7500 Security 
Boulevard, C3-07-11, Baltimore, MD 21244-1850.
6. Prospective Adjustment for FY 2010 and Subsequent Years Authorized 
by Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) 
of the Act
    Based on our evaluation of FY 2008 Medicare claims data that were 
most current at the time of the FY 2010 IPPS/RY 2010 LTCH PPS proposed 
rule, the estimated 2.5 percent change in FY 2008 case-mix due to 
changes in documentation and coding that did not reflect real changes 
in case-mix for discharges occurring during FY 2008 exceeded the -0.6 
percent prospective documentation and coding adjustment applied under 
section 7(a) of Public Law 110-90 by 1.9 percentage points. Under 
section 7(b)(1)(A) of Public Law 119-90,

[[Page 23869]]

the Secretary is required to make an appropriate adjustment under 
section 1886(d)(3)(A)(vi) of the Act to the average standardized 
amounts for subsequent fiscal years in order to eliminate the full 
effect of the documentation and coding changes on future payments. As 
we have consistently stated since the initial implementation of the MS-
DRG system, we do not believe it is appropriate for expenditures to 
increase due to MS-DRG-related changes in documentation and coding that 
do not reflect real changes in case-mix.
    We also estimated in the FY 2010 IPPS/RY 2010 LTCH PPS proposed 
rule that the additional change in case-mix due to changes in 
documentation and coding that do not reflect real changes in case-mix 
for discharges occurring during FY 2009 was 2.3 percent, which would 
exceed by 1.4 percentage points the -0.9 percent prospective 
documentation and coding adjustment for FY 2009 applied under section 
7(a) of Public Law 100-90. We had the statutory authority to adjust the 
FY 2010 rates for this estimated 1.4 percentage point increase. 
However, given that Public Law 100-90 requires a retrospective claims 
evaluation for the additional adjustments (as described in section 
II.D.3. of this preamble), we stated in the FY 2010 IPPS/RY 2010 LTCH 
PPS proposed rule and final rule (74 FR 24096 and 43772, respectively) 
that we believed our evaluation of the extent of the overall national 
average changes in case-mix for FY 2009 should also be based on a 
retrospective evaluation of all FY 2009 claims data. Because we did not 
receive all FY 2009 claims data prior to publication of the FY 2010 
final rule, we indicated we would address any difference between the 
additional increase in FY 2009 case-mix due to changes in documentation 
and coding that did not reflect real changes in case-mix for discharges 
occurring during FY 2009 and the -0.9 percent prospective documentation 
and coding adjustment applied under section 7(a) of Public Law 110-90 
in the FY 2011 rulemaking cycle.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24096), 
we solicited public comment on the proposed -1.9 percent prospective 
adjustment to the standardized amounts under section 1886(d) of the Act 
to address the effects of documentation and coding changes unrelated to 
changes in real case-mix in FY 2008. In addition, we solicited public 
comments on addressing in the FY 2011 rulemaking cycle any differences 
between the increase in FY 2009 case-mix due to changes in 
documentation and coding changes that do not reflect real changes in 
case-mix for discharges occurring during FY 2009 and the -0.9 percent 
prospective documentation and coding adjustment applied under section 
7(a) of Public Law 110-90. In response to the proposed rule, MedPAC 
summarized its comments on when CMS should reduce payment rates to 
prevent further overpayments and to recover overpayments occurring in 
2008 and 2009 as follows: ``We support CMS's proposal to reduce IPPS 
payments in 2010 by 1.9 percent to prevent further overpayments. While 
we and the CMS actuaries believe that a 1.9 percent reduction will not 
fully prevent overpayments from continuing in 2010, this is a 
reasonable first step toward reducing overpayments.'' Most of the other 
commenters opposed the proposed -1.9 percent prospective FY 2010 
adjustment for FY 2008 documentation and coding increases, but 
supported the proposal not to apply a FY 2010 prospective adjustment 
for estimated FY 2009 documentation and coding increases. Many 
commenters expressed concern over the financial impact of the proposed 
-1.9 percent adjustment and the methodology for calculating the 
adjustment. Other commenters recommended that CMS seek to extend the 
timeframe beyond 2 years to phase in the estimated -6.6 percent 
adjustment to the standardized amount.
    In the final FY 2010 IPPS/RY 2010 LTCH PPS rule in response to 
these commenters, we indicated that we fully understood that our 
proposed adjustment of -1.9 percent would reduce the increase in 
payments that affected hospitals would have received in FY 2009 in the 
absence of the adjustment. We explained that, although we are required 
to make an prospective adjustment to eliminate the full effect of 
coding or classification changes that did not reflect real changes in 
case-mix for discharges occurring during FY 2008, we believed we had 
some discretion regarding when to implement this adjustment. Section 
7(b)(1)(A) of Public Law 110-90 requires that if the Secretary 
determines that implementation of the MS-DRG system resulted in changes 
in documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 or FY 2009 that are 
different than the prospective documentation and coding adjustments 
applied under section 7(a) of Public Law 110-90, the Secretary shall 
make an ``appropriate'' adjustment under section 1886(d)(3)(A)(vi) of 
the Act.
    Thus, we determined that it would be appropriate to postpone 
adopting documentation and coding adjustments as authorized under 
section 7(a) of Public Law 110-90 and section 1886(d)(3)(A)(vi) of the 
Act until a full analysis of case-mix changes could be completed. We 
indicated that while we had the statutory authority to make this -1.9 
percent prospective adjustment entirely in FY 2010, we believed it 
would be prudent to wait until we had completed data on the magnitude 
of the documentation and coding effect in FY 2009. Specifically, we 
stated that if the documentation and coding effect were to be less in 
FY 2009 than our then-current estimates, it could lessen the 
anticipated adjustment that we had estimated we would have had to make 
for FY 2008 and FY 2009 combined. We indicated that, in future 
rulemaking, we would consider applying a prospective adjustment based 
upon a complete analysis of FY 2008 and FY 2009 claims data, beginning 
in FY 2011. We indicated that we intended to address any difference 
between the increase in FY 2009 case-mix due to changes in 
documentation and coding that did not reflect real changes in case-mix 
for discharges occurring during FY 2009 and the -0.9 percent 
prospective documentation and coding adjustment applied under section 
7(a) of Public Law 110-90 in the FY 2011 rulemaking cycle.
    After analysis of the FY 2009 claims data, we have found a total 
prospective documentation and coding effect of 1.054. After accounting 
for the -0.6 percent and the -0.9 percent documentation and coding 
adjustments in FYs 2008 and 2009, we find a remaining documentation and 
coding effect of 3.9 percent. As we have discussed, an additional 
cumulative adjustment of -3.9 percent would be necessary to meet the 
requirements of section 7(b)(1)(A) of Public Law 110-90 to make an 
adjustment to the average standardized amounts in order to eliminate 
the full effect of the documentation and coding changes on future 
payments. Unlike section 7(b)(1)(B) of Public Law 110-90, section 
7(b)(1)(A) does not specify when we must apply the prospective 
adjustment, but merely requires us to make an ``appropriate'' 
adjustment. Therefore, we believe we have some discretion as to the 
manner in which we apply the prospective adjustment of -3.9 percent. 
Applying the full prospective adjustment of -3.9 percent for FY 2011, 
in combination with the proposed recoupment adjustment of -2.9 percent, 
discussed below, would require an aggregate adjustment of -6.8 percent. 
As we discuss more fully

[[Page 23870]]

below, it has been our practice to moderate payment adjustments when 
necessary to mitigate the effects of significant downward adjustments 
on hospitals, to avoid what could be widespread, disruptive effects of 
such adjustments on hospitals. As we also discuss below, we are 
required to implement the adjustment in section 7(b)(1)(B) of Public 
Law 110-90 no later than FY 2012, and accordingly, we are proposing an 
adjustment under that section for FY 2011. Therefore, we believe it is 
appropriate to not implement any or all of the -3.9 percent prospective 
adjustment in FY 2011. Accordingly, we are not proposing a prospective 
adjustment under section 7(b)(1)(A) of Public Law 110-90 for FY 2011. 
We note that, as a result, payments in FY 2011 (and in each future year 
until we implement the requisite adjustment) will be 3.9 percent higher 
than they would have been if we had implemented an adjustment under 
section 7(b)(1)(A) of Public Law 110-90.
    We are seeking public comment on our proposal not to apply in FY 
2011 the -3.9 percent prospective adjustment to the average 
standardized amounts required under section 7(b)(1)(A) of Public Law 
110-90 in order to eliminate the full effect of the documentation and 
coding changes on future payments. We note that this proposal would 
require us to apply the -3.9 percent adjustment in future payment 
years, which may be applied all at once in a single year or phased in 
over more than one year. We intend to update our analysis with FY 2009 
data on claims paid through March 2009 for the FY 2011 IPPS/LTCH PPS 
final rule.
7. Recoupment or Repayment Adjustment for FY 2010 Authorized by Section 
7(b)(1)(B) of Public Law 110-90
    As indicated in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43773), we estimated a 2.5 percent change (estimated from analysis of 
more recent data for the FY 2010 final rule than the data used for that 
proposed rule) due to documentation and coding that did not reflect 
real changes in case-mix for discharges occurring during FY 2008, 
exceeding the -0.6 percent prospective documentation and coding 
adjustment applied under section 7(a) of Public Law 110-90 by 1.9 
percentage points. We stated that our actuaries had estimated that this 
1.9 percentage point increase resulted in an increase in aggregate 
payments of approximately $2.2 billion. As described earlier, section 
7(b)(1)(B) of Public Law 110-90 requires an adjustment for discharges 
occurring in FYs 2010, 2011, and/or 2012 to offset the estimated amount 
of this increase in aggregate payments (including interest). Although 
section 7(b)(1)(B) of Public Law 110-90 requires us to make this 
adjustment in FYs 2010, 2011, and/or 2012, we have discretion as to 
when during this 3 year period we will apply the adjustment.
    We did not propose to make an adjustment to the FY 2010 average 
standardized amounts to offset, in whole or in part, the estimated 
increase in aggregate payments for discharges occurring in FY 2008, but 
stated in the proposed rule that we intended to address this issue in 
future rulemaking. That is, we stated that we would address recouping 
the additional expenditures that occurred in FY 2008 as a result of the 
1.9 percentage point difference between the actual changes in 
documentation and coding that do not reflect real changes in case-mix 
(2.5 percent), and the -0.6 percent adjustment applied under Public Law 
110-90 in FY 2011 and/or FY 2012, as required by law. We indicated 
that, while we had the statutory authority to make this -1.9 percent 
recoupment adjustment entirely in FY 2010, we were delaying the 
adjustment until FY 2011 and FY 2012 because we did not yet have any 
data on the magnitude of the documentation and coding effect in FY 
2009. We stated that as we have the authority to recoup the aggregate 
effect of this 1.9 percentage point difference in FY 2008 IPPS payments 
in FY 2011 or FY 2012 (with interest), delaying this adjustment would 
have no effect on Federal budget outlays. We indicated that we intended 
to wait until we have a complete year of data on the FY 2009 
documentation and coding effect before applying a recoupment adjustment 
for IPPS spending that occurred in FY 2008 or we estimate will occur in 
FY 2009.
    As discussed above, section 7(b)(1)(B) of Public Law 110-90 
requires the Secretary to make an adjustment to the standardized 
amounts under section 1886(d) of the Act to offset the estimated 
increase or decrease in aggregate payments for FY 2009 (including 
interest) resulting from the difference between the estimated actual 
documentation and coding effect and the documentation and coding 
adjustments applied under section 7(a) of Public Law 110-90. This 
determination must be based on a retrospective evaluation of claims 
data. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43774), we 
stated that because we would not receive all FY 2009 claims data prior 
to publication of the final rule, we would address any increase or 
decrease in FY 2009 payments in future rulemaking for FY 2011 and 2012 
after we perform a retrospective evaluation of the FY 2009 claims data. 
At that time, our actuaries estimated that this adjustment would be 
approximately -3.3 percent. This reflected the difference between the 
estimated 4.8 percent cumulative actual documentation and coding 
changes for FY 2009 (2.5 percent for FY 2008 and an additional 2.3 
percent for FY 2009) and the cumulative -1.5 percent documentation and 
coding adjustments applied under section 7(a) of Public Law 110-90 (-
0.6 percent in FY 2008 and -0.9 percent in FY 2009). We noted that the 
actual adjustments were multiplicative and not additive. This estimated 
4.8 percent cumulative actual documentation and coding changes for FY 
2009 included the impact of the changes in documentation and coding 
first occurring in FY 2008 because we believed hospitals would continue 
these changes in documentation and coding in subsequent fiscal years. 
Consequently, we believed that these documentation and coding changes 
would continue to impact payments under the IPPS absent a prospective 
adjustment to account for the effect of these changes.
    We note that, unlike the adjustment to the standardized amounts 
under section 7(b)(1)(A) of Public Law 110-90 described earlier, any 
adjustment to the standardized amounts under section 7(b)(1)(B) of 
Public Law 110-90 would not be cumulative, but would be removed for 
subsequent fiscal years once we have offset the increase in aggregate 
payments for discharges for FY 2008 expenditures and FY 2009 
expenditures, if any.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24096), 
we did not propose to offset the 1.9 percent increase in aggregate 
payments (including interest) for discharges occurring in FY 2008 
resulting from the adoption of the MS-DRGs, but to instead address this 
issue in future rulemaking for FYs 2011 and 2012.
    In response to the FY 2010 proposed rule, MedPAC stated in its 
comments on the adjustment to the standardized amounts under section 
7(b)(1)(B) of Public Law 110-90: ``In addition, it would be desirable 
for CMS to minimize year-to-year changes in payment adjustments it must 
make to recover overpayments that were made in 2008 and 2009. To 
achieve this goal, CMS should consider spreading the recovery of 2008 
overpayments over 3 years, beginning in 2010.'' Some commenters 
recommended that CMS seek to extend the timeframe beyond 2 years to 
phase in the estimated -6.6 percent adjustment to the standardized 
amount. The commenters asked CMS to seek

[[Page 23871]]

necessary legislative action to accommodate such a policy. Most 
commenters expressed concern with the significant negative financial 
impacts that would be incurred by providers if CMS adopted that 
proposed -1.9 percent documentation and coding adjustment in FY 2010. 
The commenters cited providers' already small or negative margins for 
Medicare payments, and requested that CMS not further reduce payments 
during the current period of economic instability and reduced State 
funding. Other commenters indicated that it would be appropriate to 
delay any adjustment to the standardized amounts under section 
7(b)(1)(B) of Public Law 110-90 until after CMS has the opportunity to 
fully examine the FY 2009 claims data.
    In response to these comments in FY 2010, we indicated that we 
recognized that any adjustment to account for the documentation and 
coding effect observed in the FY 2008 and FY 2009 claims data may 
result in significant future payment reductions for providers. However, 
we indicated that we are required under section 7(b)(1)(B) of Public 
Law 110-90 to recapture the difference of actual documentation and 
coding effect in FY 2008 and FY 2009 that is greater than the prior 
adjustments. We agreed with the commenters who requested that CMS delay 
any adjustment and, for the reasons stated above, indicated that we 
expect to address this issue in this FY 2011 rulemaking.
    As indicated in section II.D.4. of this preamble, the change due to 
documentation and coding that did not reflect real changes in case mix 
for discharges occurring during FY 2008 and FY 2009 exceeded the -0.6 
and -0.9 percent prospective documentation and coding adjustment 
applied under section 7(a) of Public Law 110-90 for those 2 years 
respectively by 1.9 percentage points in FY 2008 and 3.9 percentage 
points in FY 2009. In total, this change exceeded the cumulative 
prospective adjustments by 5.8 percentage points. Our actuaries 
currently estimate that this 5.8 percentage point increase resulted in 
an increase in aggregate payments of approximately $6.9 billion. We 
note that there may be a need to actuarially adjust the recoupment 
adjustment to accurately reflect accumulated interest. Therefore, an 
aggregate adjustment of -5.8 percent in FYs 2011 and 2012, subject to 
actuarial adjustment to reflect accumulated interest, is necessary in 
order to meet the requirements of section 7(b)(1)(B) of Public Law 110-
90 to adjust the standardized amounts for discharges occurring in FYs 
2010, 2011, and/or 2012 to offset the estimated amount of the increase 
in aggregate payments (including interest) in FYs 2008 and 2009. We 
intend to take into account the need to reflect accumulated interest in 
proposing a recoupment adjustment under section (b)(1)(B) of Public Law 
110-90 for FY 2012. We will invite comments on our proposal at that 
time.
    It is often our practice to phase in rate adjustments over more 
than one year in order to moderate the effect on rates in any one year. 
Therefore, consistent with the policies we have adopted in many similar 
cases, we are proposing to make an adjustment to the standardized 
amount of -2.9 percent, representing approximately half of the 
aggregate adjustment required under section 7(b)(1)(B) of Public Law 
110-90, for FY 2011. An adjustment of this magnitude allows us to 
moderate the effects on hospitals in one year while simultaneously 
making it possible to implement the entire adjustment within the 
timeframe required under section 7(b)(1)(B) of Public Law 110-90. As we 
have previously noted, unlike the prospective adjustment to the 
standardized amounts under section 7(b)(1)(A) of Public Law 110-90 
described earlier, the recoupment or repayment adjustment to the 
standardized amounts under section 7(b)(1)(B) of Public Law 110-90 is 
not cumulative, but would be removed for subsequent fiscal years once 
we have offset the increase in aggregate payments for discharges for FY 
2008 expenditures and FY 2009 expenditures. In keeping with our 
practice of moderating payment adjustments wherever possible, we can 
anticipate that this proposal will have an additional, and significant, 
moderating effect on implementing the requirements of section 
7(b)(1)(B) of Public Law 110-90 for FY 2012. Specifically, an advantage 
of our proposal for FY 2011 is that we anticipate removing this 
proposed FY 2011 -2.9 percent adjustment from the rates in FY 2012, 
when it would also be necessary under current law to apply the 
remaining approximately -2.9 percent adjustment required by section 
7(b)(1)(B) of Public Law 110-90. These two steps in FY 2012, restoring 
the FY 2011 -2.9 percent adjustment, and applying the remaining 
adjustment of approximately -2.9 percent, would effectively cancel each 
other out. The result would be an aggregate adjustment of approximately 
0.0 percent (subject to the need to account for accumulated interest, 
as discussed above) under section 7(b)(1)(B) of Public Law 110-90 in FY 
2012. However, while we are noting this anticipated effect of our FY 
2011 proposal, we are not making a formal proposal for the further 
implementation of section 7(b)(1)(B) of Public Law 110-90 in FY 2012 in 
this proposed rule.
    We are seeking public comment on our proposal to offset part of the 
total 5.8 percent increase in aggregate payments (including interest) 
for discharges occurring in FY 2008 and FY 2009 resulting from the 
adoption of the MS-DRGs in FY 2011, noting that this proposal would 
result in a -2.9 percent adjustment to the standardized amount. We 
intend to update our analysis with FY 2009 data on claims paid through 
March 2009 for the FY 2011 IPPS/LTCH PPS final rule.

                                                   FY 2011 MS-DRG Documentation and Coding Adjustment
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Required           Required                              Proposed
                                                              prospective         recoupment                            recoupment         Remaining
                                                             adjustment for     adjustment for    Total adjustment  adjustment for FY      adjustment
                                                             FYs 2008-2009      FYs 2008-2009                              2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
FY 2011 Proposal Amount of Adjustment....................              -3.9               -5.8               -9.7               -2.9               -6.8
--------------------------------------------------------------------------------------------------------------------------------------------------------

8. Background on the Application of the Documentation and Coding 
Adjustment to the Hospital-Specific Rates
    Under section 1886(d)(5)(D)(i) of the Act, SCHs are paid based on 
whichever of the following rates yields the greatest aggregate payment: 
the Federal rate; the updated hospital-specific rate based on FY 1982 
costs per discharge; the updated hospital-specific rate based on FY 
1987 costs per discharge; the updated hospital-specific rate based on 
FY 1996 costs per discharge; or the updated hospital-specific rate 
based on FY 2006 costs per discharge. Under

[[Page 23872]]

section 1886(d)(5)(G) of the Act, MDHs are paid based on the Federal 
national rate or, if higher, the Federal national rate plus 75 percent 
of the difference between the Federal national rate and the updated 
hospital-specific rate based on the greatest of the FY 1982, FY 1987, 
or FY 2002 costs per discharge. In the FY 2008 IPPS final rule with 
comment period (72 FR 47152 through 47188), we established a policy of 
applying the documentation and coding adjustment to the hospital-
specific rates. In that final rule with comment period, we indicated 
that because SCHs and MDHs use the same DRG system as all other 
hospitals, we believe they should be equally subject to the budget 
neutrality adjustment that we are applying for adoption of the MS-DRGs 
to all other hospitals. In establishing this policy, we relied on 
section 1886(d)(3)(A)(vi) of the Act, which provides us with the 
authority to adjust ``the standardized amount'' to eliminate the effect 
of changes in coding or classification that do not reflect real change 
in case-mix.
    However, in the final rule that appeared in the Federal Register on 
November 27, 2007 (72 FR 66886), we rescinded the application of the 
documentation and coding adjustment to the hospital-specific rates 
retroactive to October 1, 2007. In that final rule, we indicated that, 
while we still believe it would be appropriate to apply the 
documentation and coding adjustment to the hospital-specific rates, 
upon further review, we decided that the application of the 
documentation and coding adjustment to the hospital-specific rates is 
not consistent with the plain meaning of section 1886(d)(3)(A)(vi) of 
the Act, which only mentions adjusting ``the standardized amount'' 
under section 1886(d) of the Act and does not mention adjusting the 
hospital-specific rates.
    In the FY 2009 IPPS proposed rule (73 FR 23540), we indicated that 
we continued to have concerns about this issue. Because hospitals paid 
based on the hospital-specific rate use the same MS-DRG system as other 
hospitals, we believe they have the potential to realize increased 
payments from documentation and coding changes that do not reflect real 
increases in patients' severity of illness. In section 
1886(d)(3)(A)(vi) of the Act, Congress stipulated that hospitals paid 
based on the standardized amount should not receive additional payments 
based on the effect of documentation and coding changes that do not 
reflect real changes in case-mix. Similarly, we believe that hospitals 
paid based on the hospital-specific rates should not have the potential 
to realize increased payments due to documentation and coding changes 
that do not reflect real increases in patients' severity of illness. 
While we continue to believe that section 1886(d)(3)(A)(vi) of the Act 
does not provide explicit authority for application of the 
documentation and coding adjustment to the hospital-specific rates, we 
believe that we have the authority to apply the documentation and 
coding adjustment to the hospital-specific rates using our special 
exceptions and adjustment authority under section 1886(d)(5)(I)(i) of 
the Act. The special exceptions and adjustment provision authorizes us 
to provide ``for such other exceptions and adjustments to [IPPS] 
payment amounts * * * as the Secretary deems appropriate.'' In the FY 
2009 IPPS final rule (73 FR 48448 through 48449), we indicated that, 
for the FY 2010 rulemaking, we planned to examine our FY 2008 claims 
data for hospitals paid based on the hospital-specific rate. We further 
indicated that if we found evidence of significant increases in case-
mix for patients treated in these hospitals that do not reflect real 
changes in case-mix, we would consider proposing application of the 
documentation and coding adjustments to the FY 2010 hospital-specific 
rates under our authority in section 1886(d)(5)(I)(i) of the Act.
    In response to public comments received on the FY 2009 IPPS 
proposed rule, we stated in the FY 2009 IPPS final rule that we would 
consider whether such a proposal is warranted for FY 2010. To gather 
information to evaluate these considerations, we indicated that we 
planned to perform analyses on FY 2008 claims data to examine whether 
there has been a significant increase in case-mix for hospitals paid 
based on the hospital-specific rate. If we found that application of 
the documentation and coding adjustment to the hospital-specific rates 
for FY 2010 is warranted, we indicated that we would include a proposal 
to do so in the FY 2010 IPPS proposed rule.
9. Proposed Documentation and Coding Adjustment to the Hospital-
Specific Rates for FY 2011 and Subsequent Fiscal Years
    In the FY 2010 IPPS/RY 2010 LTCH proposed rule and final rule (74 
FR 24098 through 24100 and 74 FR 43775 through 43776, respectively), we 
discussed our performance of a retrospective evaluation of the FY 2008 
claims data for SCHs and MDHs using the same methodology described 
earlier for other IPPS hospitals. We found that, independently for both 
SCHs and MDHs, the change due to documentation and coding that did not 
reflect real changes in case-mix for discharges occurring during FY 
2008 slightly exceeded the proposed 2.5 percent result discussed 
earlier, but did not significantly differ from that result.9
    Again, for the FY 2010 proposed rule, we found that the within-base 
DRG increases were almost entirely responsible for the case-mix change. 
In that proposed rule, we presented two Figures to display our results.
    Therefore, consistent with our statements in prior IPPS rules, we 
proposed to use our authority under section 1886(d)(5)(I)(i) of the Act 
to prospectively adjust the hospital-specific rates by the proposed -
2.5 percent in FY 2010 to account for our estimated documentation and 
coding effect in FY 2008 that does not reflect real changes in case-
mix. We proposed to leave this adjustment in place for subsequent 
fiscal years in order to ensure that changes in documentation and 
coding resulting from the adoption of the MS-DRGs do not lead to an 
increase in aggregate payments for SCHs and MDHs not reflective of an 
increase in real case-mix. The proposed -2.5 percent adjustment to the 
hospital-specific rates exceeded the -1.9 percent adjustment to the 
national standardized amount under section 7(b)(1)(A) of Public Law 
110-90 because, unlike the national standardized rates, the FY 2008 
hospital-specific rates were not previously reduced in order to account 
for anticipated changes in documentation and coding that do not reflect 
real changes in case-mix resulting from the adoption of the MS-DRGs.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24100), 
we solicited public comment on the proposed -2.5 percent prospective 
adjustment to the hospital-specific rates under section 
1886(d)(5)(I)(i) of the Act and our proposal to address in the FY 2011 
rulemaking cycle any changes in FY 2009 case-mix due to changes in 
documentation and coding that do not reflect real changes in case-mix 
for discharges occurring during FY 2009. We also indicated that we 
intended to update our analysis with FY 2008 data on claims paid 
through March 2008 [sic] for the FY 2010 IPPS final rule. (We note that 
the March 2008 update claims paid data date in the proposed rule should 
have been March 2009.)
    Consistent with our approach for IPPS hospitals discussed earlier, 
in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we also delayed 
adoption of a documentation and coding adjustment to the hospital-
specific rate until FY 2011. Similar to our approach for IPPS

[[Page 23873]]

hospitals, we indicated that we would consider, through future 
rulemaking, phasing in the documentation and coding adjustment over an 
appropriate period. We also indicated that we would address, through 
future rulemaking, any changes in documentation and coding that do not 
reflect real changes in case-mix for discharges occurring during FY 
2009. We noted that, unlike the national standardized rates, the FY 
2009 hospital-specific rates were not previously reduced in order to 
account for anticipated changes in documentation and coding that do not 
reflect real changes in case-mix resulting from the adoption of the MS-
DRGs. However, as we noted earlier with regard to IPPS hospitals, if 
the estimated documentation and coding effect determined based on a 
full analysis of FY 2009 claims data is more or less than our current 
estimates, it would change, possibly lessen, the anticipated cumulative 
adjustments that we currently estimate we would have to make for the FY 
2008 and FY 2009 combined adjustment. Therefore, we believed that it 
would be more prudent to delay implementation of the documentation and 
coding adjustment to allow for a more complete analysis of FY 2009 
claims data for hospitals receiving hospital-specific rates.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP04MY10.001

BILLING CODE 4120-01-C
    Consistent with our analysis of IPPS hospitals, the two charts 
above show that we found after analysis of FY 2009 discharge data that 
the distribution of severity discharges for MDH and SCH both 
proportionally shifted from the

[[Page 23874]]

without CC/MCC to with MCC category. Similarly, we found using a 
methodology consistent with our analysis of IPPS hospitals that, 
independently for both SCHs and MDHs, the change due to documentation 
and coding that did not reflect real changes in case-mix for discharges 
occurring during FY 2009 slightly exceeded the proposed 2.5 percent 
result discussed earlier, but did not significantly differ from that 
result.
    As we have noted above, because SCHs and MDHs use the same MS-DRG 
system as all other hospitals, we believe they have the potential to 
realize increased payments from documentation and coding changes that 
do not reflect real increases in patients' severity of illness. 
Therefore, we believe they should be equally subject to a prospective 
budget neutrality adjustment that we are applying for adoption of the 
MS-DRGs to all other hospitals. We believe the documentation and coding 
estimates for all subsection (d) hospitals should be the same. While 
the findings for the documentation and coding effect for all IPPS 
hospitals are similar to the effect for SCHs and slightly different to 
the effect for MDHs, we continue to believe that this is the 
appropriate policy so as to neither advantage or disadvantage different 
types of providers. As we have also discussed above, our best estimate, 
based on the most recently available data, is that a cumulative 
adjustment of -5.4 percent is required to eliminate the full effect of 
the documentation and coding changes on future payments. Unlike the 
case of standardized amounts paid to IPPS hospitals, we have not made 
any previous adjustments to the hospital-specific rates paid to SCHs 
and MDHs to account for documentation and coding changes. Therefore, 
the entire -5.4 percent adjustment remains to be implemented.
    As discussed above, we are proposing to make an adjustment to the 
standardized amount for IPPS hospitals of -2.9 percent under section 
7(b)(1)(B) of Public Law 110-90, for FY 2011. As we also discussed 
above, it has been our practice to moderate payment adjustments when 
necessary to mitigate the effects of significant downward adjustments 
on hospitals, to avoid what could be widespread, disruptive effects of 
such adjustments on hospitals. Because payments for non-SCH and non-MDH 
IPPS hospitals and SCHs and MDHs are determined on the basis of the 
same MS-DRG system, SCHs and MDHs have the potential to realize 
increased payments from documentation and coding changes that do not 
reflect real increases in patients' severity of illness. Therefore, in 
determining the level and pace of adjustments to account for such 
documentation and coding changes, we believe that it is important to 
maintain, as much as possible, both consistency and equity among these 
classes of hospitals. In addition, as in the case of the documentation 
and coding adjustment for non-SCH and non-MDH IPPS hospitals, we also 
believe that it is important to provide as much as possible for 
moderating the effects of adjustments on hospital payments. Therefore 
we are proposing an adjustment of -2.9 percent in FY 2011 to the 
hospital-specific rates paid to SCHs and MDHs. This proposal is 
consistent with our proposed adjustment for IPPS hospitals in two ways. 
First, as in the case of the IPPS adjustment, we are not proposing to 
implement the entire adjustment that is warranted by our data (in this 
case, 5.4 percent) in one year. Second, we are maintaining consistency 
by proposing the same numerical level of adjustment for both groups of 
hospitals in FY 2011. While this proposed adjustment to the hospital-
specific rates represents somewhat over half of the of the entire 
adjustment that is appropriate for SCHs and MDHs, it allows us to 
maintain complete consistency, at least for FY 2011, in the effects on 
the relevant classes of hospitals. Although the proposed adjustment for 
SCHs and MDHs is cumulative and prospective, as opposed to the 
noncumulative recoupment adjustment we are proposing for other IPPS 
hospitals, we believe that proposing equal numerical adjustments in 
this first year is the most appropriate means to maintain such 
consistency and equity at this time. We will continue, as much as 
possible, consistent with sections 7(b)(1) of Public Law 110-90 and 
section 1886(d)(5)(I)(i) of the Act, to take such consistency and 
equity into account in developing future proposals for implementing 
documentation and coding adjustments.
    We are seeking public comment on the proposed -2.9 percent 
prospective adjustment to hospital-specific rates under section 
1886(d)(5)(I)(i) of the Act and addressing in future rule making cycles 
changes in FY 2008 and FY 2009 case-mix due to changes in documentation 
and coding that do not reflect real changes in case-mix for discharges 
occurring during FY 2008 and FY 2009, noting that our current estimates 
of the remaining adjustment is -2.5 percent. We intend to update our 
analysis with FY 2009 data on claims paid through March 2009 for the FY 
2011 IPPS/LTCH PPS final rule.
10. Background on the Application of the Documentation and Coding 
Adjustment to the Puerto Rico-Specific Standardized Amount
    Puerto Rico hospitals are paid based on 75 percent of the national 
standardized amount and 25 percent of the Puerto Rico-specific 
standardized amount. As noted previously, the documentation and coding 
adjustment we adopted in the FY 2008 IPPS final rule with comment 
period relied upon our authority under section 1886(d)(3)(A)(vi) of the 
Act, which provides the Secretary the authority to adjust ``the 
standardized amounts computed under this paragraph'' to eliminate the 
effect of changes in coding or classification that do not reflect real 
changes in case-mix. Section 1886(d)(3)(A)(vi) of the Act applies to 
the national standardized amounts computed under section 1886(d)(3) of 
the Act, but does not apply to the Puerto Rico-specific standardized 
amount computed under section 1886(d)(9)(C) of the Act. In calculating 
the FY 2008 payment rates, we made an inadvertent error and applied the 
FY 2008 -0.6 percent documentation and coding adjustment to the Puerto 
Rico-specific standardized amount, relying on our authority under 
section 1886(d)(3)(A)(vi) of the Act. However, section 
1886(d)(3)(A)(vi) of the Act authorizes application of a documentation 
and coding adjustment to the national standardized amount and does not 
apply to the Puerto Rico specific standardized amount. In the FY 2009 
IPPS final rule (73 FR 48449), we corrected this inadvertent error by 
removing the -0.6 percent documentation and coding adjustment from the 
FY 2008 Puerto Rico-specific rates.
    While section 1886(d)(3)(A)(vi) of the Act is not applicable to the 
Puerto Rico-specific standardized amount, we believe that we have the 
authority to apply the documentation and coding adjustment to the 
Puerto Rico-specific standardized amount using our special exceptions 
and adjustment authority under section 1886(d)(5)(I)(i) of the Act. 
Similar to SCHs and MDHs that are paid based on the hospital-specific 
rate, we believe that Puerto Rico hospitals that are paid based on the 
Puerto Rico-specific standardized amount should not have the potential 
to realize increased payments due to documentation and coding changes 
that do not reflect real increases in patients' severity of illness. 
Consistent with the approach described for SCHs and

[[Page 23875]]

MDHs, in the FY 2009 IPPS final rule (73 FR 48449), we indicated that 
we planned to examine our FY 2008 claims data for hospitals in Puerto 
Rico. We indicated in the FY 2009 IPPS proposed rule (73 FR 23541) that 
if we found evidence of significant increases in case-mix for patients 
treated in these hospitals, we would consider proposing application of 
the documentation and coding adjustments to the FY 2010 Puerto Rico-
specific standardized amount under our authority in section 
1886(d)(5)(I)(i) of the Act.
11. Proposed Documentation and Coding Adjustment to the Puerto Rico-
Specific Standardized Amount
    For the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we performed a 
retrospective evaluation of the FY 2008 claims data for Puerto Rico 
hospitals using the same methodology described earlier for IPPS 
hospitals paid under the national standardized amounts under section 
1886(d) of the Act. We found that, for Puerto Rico hospitals, the 
increase in payments for discharges occurring during FY 2008 due to 
documentation and coding that did not reflect real changes in case-mix 
for discharges occurring during FY 2008 was approximately 1.1 percent. 
When we calculated the within-base DRG changes and the across-base DRG 
changes for Puerto Rico hospitals, we found that responsibility for the 
case-mix change between FY 2007 and FY 2008 is much more evenly shared. 
Across-base DRG shifts accounted for 44 percent of the changes, and 
within-base DRG shifts accounted for 56 percent. Thus, the change in 
the percentage of discharges with an MCC was not as large as that for 
other IPPS hospitals. In Figure 4 in the FY 2010 proposed rule, we 
showed that, for Puerto Rico hospitals, there was a 3 percentage point 
increase in the discharges with an MCC from 22 percent to 25 percent 
and a corresponding decrease of 3 percentage points from 58 percent to 
55 percent in discharges without a CC or an MCC.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24101), 
we solicited public comment on the proposed -1.1 percent prospective 
adjustment to the hospital-specific rates under section 
1886(d)(5)(I)(i) of the Act and our intent to address in the FY 2011 
rulemaking cycle any changes in FY 2009 case-mix due to changes in 
documentation and coding that did not reflect real changes in case-mix 
for discharges occurring during FY 2009. We also stated that we 
intended to update our analysis with FY 2008 data on claims paid 
through March 2009 for the FY 2010 IPPS final rule.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43777), we 
indicated that, given these documentation and coding increases, 
consistent with our statements in prior IPPS rules, we would use our 
authority under section 1886(d)(5)(I)(i) of the Act to adjust the 
Puerto Rico-specific rate. However, in parallel to our decision to 
postpone adjustments to the Federal standardized amount, we indicated 
that we were adopting a similar policy for the Puerto Rico-specific 
rate for FY 2010 and would consider the phase-in of this adjustment 
over an appropriate time period through future rulemaking. The 
adjustment would be applied to the Puerto Rico-specific rate that 
accounts for 25 percent of payments to Puerto Rico hospitals, with the 
remaining 75 percent based on the national standardized amount. 
Consequently, the overall reduction to the payment rates for Puerto 
Rico hospitals to account for documentation and coding changes will be 
slightly less than the reduction for IPPS hospitals paid based on 100 
percent of the national standardized amount. We noted that, as with the 
hospital-specific rates, the Puerto Rico-specific standardized amount 
had not previously been reduced based on estimated changes in 
documentation and coding associated with the adoption of the MS-DRGs. 
However, as we note earlier for IPPS hospitals and hospitals receiving 
hospital-specific rates, if the estimated documentation and coding 
effect are determined based on a full analysis of FY 2009 claims data 
is more or less than our current estimates, it would change, possibly 
lessen, the anticipated cumulative adjustments that we currently 
estimate we would have to make for the FY 2008 and FY 2009 combined 
adjustment. Therefore, we believed that it would be more prudent to 
delay implementation of the documentation and coding adjustment to 
allow for a more complete analysis of FY 2009 claims data for Puerto 
Rico hospitals.
    Consistent with our approach for IPPS hospitals for FY 2010, we 
indicated that we would address in the FY 2011 rulemaking cycle any 
change in FY 2009 case-mix due to documentation and coding that did not 
reflect real changes in case-mix for discharges occurring during FY 
2009. We noted that, unlike the national standardized rates, the FY 
2009 hospital-specific rates were not previously reduced in order to 
account for anticipated changes in documentation and coding that do not 
reflect real changes in case-mix resulting from the adoption of the MS-
DRGs.
    As we have noted above, similar to SCHs and MDHs, hospitals in 
Puerto Rico use the same MS-DRG system as all other hospitals and we 
believe they have the potential to realize increased payments from 
documentation and coding changes that do not reflect real increases in 
patients' severity of illness. Therefore, we believe they should be 
equally subject to the prospective budget neutrality adjustment that we 
intend to apply to prospective payment rates for IPPS hospitals 
including SCHs and MDHs in order to eliminate the full effect of the 
documentation and coding changes associated with implementation of the 
MS-DRG system.

[[Page 23876]]

[GRAPHIC] [TIFF OMITTED] TP04MY10.002

    In the above chart, consistent with our findings for IPPS 
hospitals, for Puerto Rico hospitals, there is a 4 percentage point 
increase in the discharge severity with MCCs from 22 percent to 26 
percent, and a corresponding decrease of 4 percentage points in 
discharge severity without CC/MCC from 58 percent to 54 percent.
    Using the same methodology we applied to estimate documentation and 
coding changes under IPPS for non-Puerto Rico hospitals, as we have 
also discussed above, our best estimate, based on the most recently 
available data, is that a cumulative adjustment of -2.4 percent is 
required to eliminate the full effect of the documentation and coding 
changes on future payments from the Puerto Rico-specific rate. Unlike 
the case of standardized amounts paid to IPPS hospitals, we have not 
made any previous adjustments to the hospital-specific rates paid to 
Puerto Rico hospitals to account for documentation and coding changes. 
Therefore, the entire -2.4 percent adjustment remains to be 
implemented.
    As we stated above, we believe it important to maintain both 
consistency and equity among all hospitals paid on the basis of the 
same MS-DRG system. At the same time, however, we recognize that the 
estimated cumulative impact on aggregate payment rates resulting from 
implementation of the MD-DRG system was smaller for Puerto Rico 
hospitals as compared to IPPS hospitals and SCHs and MDHs. We therefore 
are proposing an adjustment of -2.4 percent in FY 2011 to Puerto Rico-
specific rate that accounts for 25 percent of payments to Puerto Rico 
hospitals, with the remaining 75 percent based on the national 
standardized amount, which we are proposing to adjust as described 
above. Consequently, the overall reduction to rates for Puerto Rico 
hospitals to account for the documentation and coding changes will be 
slightly less than the reduction for IPPS hospitals based on 100 
percent of the national standardized amount. We note that this proposed 
-2.4 percent prospective adjustment would eliminate the full effect of 
the documentation and coding changes on the portion of future payments 
to Puerto Rico hospitals based on the Puerto Rico-specific rate. We 
believe that this proposed adjustment is the most appropriate means to 
take into full account the effect of documentation and coding changes 
on payments, and to maintain equity as much as possible between 
hospitals paid on the basis of different prospective rates. One reason 
for proposing the full -2.4 percent adjustment for the Puerto Rico-
specific rate in FY 2011 is to maintain equity as much as possible in 
the documentation and coding adjustments applied to various hospital 
rates in FY 2011. Because this proposed -2.4 percent adjustment 
represents the full adjustment that is warranted for the Puerto Rico-
specific rate, we do not anticipate proposing any additional 
adjustments to the rate for documentation and coding effects.
    We are seeking public comment on the proposed -2.4 percent 
prospective adjustment to Puerto Rico-specific standardized amount 
under section 1886(d)(5)(I)(i) of the Act. We intend to update our 
analysis with FY 2009 data on claim paid through March 2009 for the FY 
2011 IPPS/LTCH PPS final rule.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background
    In the FY 2009 IPPS final rule (73 FR 48450), we continued to 
implement significant revisions to Medicare's inpatient hospital rates 
by completing our 3-year transition from charge-based relative weights 
to cost-based relative weights. Beginning in FY 2007, we implemented 
relative weights based on cost report data instead of based on charge 
information. We had initially proposed to develop cost-based relative 
weights using the hospital-specific relative value cost center (HSRVcc) 
methodology as recommended by MedPAC. However, after considering 
concerns expressed in the public comments we received on the proposal, 
we modified MedPAC's methodology to exclude the hospital-specific 
relative weight feature. Instead, we developed national CCRs based on 
distinct hospital departments and engaged a contractor to evaluate the 
HSRVcc methodology for future consideration. To mitigate payment 
instability due to the adoption of cost-based relative weights, we 
decided to transition cost-based weights over 3 years by blending them 
with charge-based weights beginning in FY 2007. (We refer readers to 
the FY 2007 IPPS final rule for details on the HSRVcc methodology and 
the 3-year

[[Page 23877]]

transition blend from charge-based relative weights to cost-based 
relative weights (71 FR 47882 through 47898).)
    In FY 2008, we adopted severity-based MS-DRGs, which increased the 
number of DRGs from 538 to 745. Many commenters raised concerns as to 
how the transition from charge-based weights to cost-based weights 
would continue with the introduction of new MS-DRGs. We decided to 
implement a 2-year transition for the MS-DRGs to coincide with the 
remainder of the transition to cost-based relative weights. In FY 2008, 
50 percent of the relative weight for each DRG was based on the CMS DRG 
relative weight and 50 percent was based on the MS-DRG relative weight.
    In FY 2009, the third and final year of the transition from charge-
based weights to cost-based weights, we calculated the MS-DRG relative 
weights based on 100 percent of hospital costs. We refer readers to the 
FY 2007 IPPS final rule (71 FR 47882) for a more detailed discussion of 
our final policy for calculating the cost-based DRG relative weights 
and to the FY 2008 IPPS final rule with comment period (72 FR 47199) 
for information on how we blended relative weights based on the CMS 
DRGs and MS-DRGs.
a. Summary of the RTI Study of Charge Compression and CCR Refinement
    As we transitioned to cost-based relative weights, some commenters 
raised concerns about potential bias in the weights due to ``charge 
compression,'' which is the practice of applying a higher percentage 
charge markup over costs to lower cost items and services, and a lower 
percentage charge markup over costs to higher cost items and services. 
As a result, the cost-based weights would undervalue high-cost items 
and overvalue low-cost items if a single CCR is applied to items of 
widely varying costs in the same cost center. To address this concern, 
in August 2006, we awarded a contract to RTI to study the effects of 
charge compression in calculating the relative weights and to consider 
methods to reduce the variation in the CCRs across services within cost 
centers. RTI issued an interim draft report in January 2007 with its 
findings on charge compression (which was posted on the CMS Web site 
at: http://www.cms.hhs.gov/reports/downloads/Dalton.pdf). In that 
report, RTI found that a number of factors contribute to charge 
compression and affect the accuracy of the relative weights. RTI's 
findings demonstrated that charge compression exists in several CCRs, 
most notably in the Medical Supplies and Equipment CCR.
    In its interim draft report, RTI offered a number of 
recommendations to mitigate the effects of charge compression, 
including estimating regression-based CCRs to disaggregate the Medical 
Supplies Charged to Patients, Drugs Charged to Patients, and Radiology 
cost centers, and adding new cost centers to the Medicare cost report, 
such as adding a ``Devices, Implants and Prosthetics'' line under 
``Medical Supplies Charged to Patients'' and a ``CT Scanning and MRI'' 
subscripted line under ``Radiology-Diagnostics''. Despite receiving 
public comments in support of the regression-based CCRs as a means to 
immediately resolve the problem of charge compression, particularly 
within the Medical Supplies and Equipment CCR, we did not adopt RTI's 
recommendation to create additional regression-based CCRs. (For more 
details on RTI's findings and recommendations, we refer readers to the 
FY 2009 IPPS final rule (73 FR 48452).) RTI subsequently expanded its 
analysis of charge compression beyond inpatient services to include a 
reassessment of the regression-based CCR models using both outpatient 
and inpatient charge data. This interim report was made available in 
April 2008 during the public comment period on the FY 2009 IPPS 
proposed rule and can be found on RTI's Web site at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200804.pdf. The IPPS-specific chapters, which were 
separately displayed in the April 2008 interim report, as well as the 
more recent OPPS chapters, were included in the July 3, 2008 RTI final 
report entitled, ``Refining Cost-to-Charge Ratios for Calculating APC 
[Ambulatory Payment Classification] and DRG Relative Payment Weights,'' 
that became available at the time of the development of the FY 2009 
IPPS final rule. The RTI final report can be found on RTI's Web site 
at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf.
    RTI's final report found that, under the IPPS and the OPPS, 
accounting improvements to the cost reporting data reduce some of the 
sources of aggregation bias without having to use regression-based 
adjustments. In general, with respect to the regression-based 
adjustments, RTI confirmed the findings of its March 2007 report that 
regression models are a valid approach for diagnosing potential 
aggregation bias within selected services for the IPPS and found that 
regression models are equally valid for setting payments under the 
OPPS.
    RTI also noted that cost-based weights are only one component of a 
final prospective payment rate. There are other rate adjustments (wage 
index, IME, and DSH) to payments derived from the revised cost-based 
weights, and the cumulative effect of these components may not improve 
the ability of final payment to reflect resource cost. RTI endorsed 
short-term regression-based adjustments, but also concluded that more 
refined and accurate accounting data are the preferred long-term 
solution to mitigate charge compression and related bias in hospital 
cost-based weights. For a more detailed summary of RTI's findings, 
recommendations, and public comments we received on the report, we 
refer readers to the FY 2009 IPPS final rule (73 FR 48452 through 
48453).
b. Summary of the RAND Corporation Study of Alternative Relative Weight 
Methodologies
    One of the reasons that we did not implement regression-based CCRs 
at the time of the FY 2008 IPPS final rule with comment period was our 
inability to investigate how regression-based CCRs would interact with 
the implementation of MS-DRGs. In the FY 2008 final rule with comment 
period (72 FR 47197), we stated that we engaged the RAND Corporation as 
the contractor to evaluate the HSRV methodology in conjunction with 
regression-based CCRs, and that we would consider its analysis as we 
prepared for the FY 2009 IPPS rulemaking process.
    RAND evaluated six different methods that could be used to 
establish relative weights; CMS' current relative weight methodology of 
15 national CCRs and 5 alternatives, including a method in which the 15 
national CCRs are disaggregated using the regression-based methodology, 
and a method using hospital-specific CCRs for the 15 cost center 
groupings. In addition, RAND analyzed our standardization methodologies 
that account for systematic cost differences across hospitals. The 
purpose of standardization is to eliminate systematic facility-specific 
differences in cost so that these cost differences do not influence the 
relative weights. Overall, RAND found that none of the methods it 
studied of calculating the relative weights represented a marked 
improvement in payment accuracy over the current method, and there was 
little difference across methods in their ability to predict cost at 
either the discharge-level or the hospital-level. In their regression 
analysis, RAND found

[[Page 23878]]

that, after controlling for hospital payment factors, the relative 
weights are compressed (that is, understated). However, RAND also found 
that the hospital payment factors are overstated and increase more 
rapidly than cost. Therefore, while the relative weights are 
compressed, these payment factors offset the compression such that 
total payments to hospitals increase more rapidly than hospitals' 
costs.
    In the FY 2009 IPPS final rule (73 FR 48453 through 48457), we 
provided a summary of the RAND report and the public comments we 
received in response to the FY 2009 IPPS proposed rule. The report may 
be found on RAND's Web site at: http://www.rand.org/pubs/working_papers/WR560/.
2. Proposals for FY 2011 and Timeline for Changes to the Medicare Cost 
Report
    In the FY 2009 IPPS final rule (73 FR 48458 through 48467), in 
response to the RTI's recommendations concerning cost report 
refinements, and because of RAND's finding that regression-based 
adjustments to the CCRs do not significantly improve payment accuracy, 
we discussed our decision to pursue changes to the cost report to split 
the cost center for Medical Supplies Charged to Patients into one line 
for ``Medical Supplies Charged to Patients'' and another line for 
``Implantable Devices Charged to Patients.'' We acknowledged, as RTI 
had found, that charge compression occurs in several cost centers that 
exist on the Medicare cost report. However, as we stated in the final 
rule, we focused on the CCR for Medical Supplies and Equipment because 
RTI found that the largest impact on the MS-DRG relative weights could 
result from correcting charge compression for devices and implants. In 
determining what should be reported in these respective cost centers, 
we adopted the commenters' recommendation that hospitals should use 
revenue codes established by AHA's National Uniform Billing Committee 
to determine what should be reported in the ``Medical Supplies Charged 
to Patients'' and the ``Implantable Devices Charged to Patients'' cost 
centers.
    When we developed the FY 2009 IPPS final rule, we considered all of 
the public comments we received both for and against adopting 
regression-based CCRs. Also noteworthy is RAND's belief that 
regression-based CCRs may not significantly improve payment accuracy, 
and that it is equally, if not more, important to consider revisions to 
the current IPPS hospital payment factor standardization method in 
order to improve payment accuracy. For FY 2010, we solicited comments 
on improving the standardization process, although we did not make any 
changes to the standardization process for FY 2010. We also stated that 
we continued to believe that, ultimately, improved and more precise 
cost reporting is the best way to minimize charge compression and 
improve the accuracy of the cost weights. Accordingly, a new 
subscripted line 55.01 for Implantable Devices Charged to Patients was 
created in July 2009 as part of CMS' Transmittal 20 update to the 
existing cost report Form CMS-2552-96. This new subscripted cost center 
is available for use for cost reporting periods beginning on or after 
May 1, 2009.
    With respect to the initiative to reform, update, and streamline 
the Medicare cost report, which has been the subject of many comments 
and our responses in the IPPS (and OPPS) Federal Register notices of 
rulemaking over the past several years, CMS is continuing to work on 
this project. The new draft hospital cost report Form CMS-2552-10 was 
published in the Federal Register on July 2, 2009, and was subject to a 
60-day review and comment period, which ended August 31, 2009. CMS 
received numerous comments on the draft hospital cost report Form CMS-
2552-10, specifically regarding the creation of new cost centers from 
which data would be ultimately used in the relative weights 
calculation, even though CMS had not proposed to add these cost 
centers. The public comments on the July 2, 2009 Federal Register 
notice will be addressed in detail in the Federal Register notice that 
will be issued to finalize Form CMS-2525-10. We now plan to issue the 
revised draft of the hospital cost report Form CMS-2552-10, which will 
include a standard cost center for Implantable Devices Charged to 
Patients, through a notice in the Federal Register, which will allow 
for a 30-day comment period, in the spring or summer of 2010. However, 
in part in this IPPS proposed rule, we are providing a summary of the 
public comments received on the July 2, 2009 notice that specifically 
related to the relative weights and responding to those comments. Our 
responses to the comments in this IPPS proposed rule constitute our 
proposals for FY 2011 regarding the relative weights.
    Several commenters asked that CMS create cost centers to house the 
costs of magnetic resonance imaging (MRI), Computed Tomography (CT), 
nuclear medicine services, cardiac catheterization, drugs that require 
detailed coding, and magnetoencephalography (MEG). One commenter 
indicated, that in RTI's July 2008 report (http://www.rti.org/reports/cms/), RTI made an argument that CMS should create new standard cost 
centers in which hospitals would report the costs of MRI scans, CT 
scans, cardiac catheterization, and drugs that require detailed coding, 
in addition to the new cost center for ``Implantable Devices Charged to 
Patients.'' The commenter stated that these additional lines are needed 
to distinguish items and services that hospitals tend to markup 
differently within existing revenue centers, citing RTI's finding that 
CT scans have a significantly higher markup than most other radiology 
services. The commenter indicated that when CMS uses the overall 
radiology department CCR to convert charges for CT scans to costs, it 
overestimates the cost of these services, resulting in overstated 
relative weights for MS-DRGs under the IPPS and for APCs under the OPPS 
that incorporate CT scanning. The commenter argued that having a 
separate cost center for each of these services would resolve the 
problem. The commenter also stated that, while CMS has done something 
similar with the creation of the cost center for high cost medical 
devices, making cost center changes for some services, but not others, 
where such changes are warranted could create additional distortion in 
the relative weights. The commenter further argued that cost center 
changes should be made for all service areas with significant volume 
where services with sizable differences in markup are currently 
combined in a single cost center. The commenter asserted that creating 
these cost centers should not create reporting burden for hospitals 
because the RTI report indicated that roughly one-third of the 
hospitals are already reporting costs for CT scans, MRI scans, and 
cardiac catheterization under the specific nonstandard cost centers 
currently available in the cost report.
    Another commenter also recommended the creation of the cost centers 
for CT scans, MRI scans, and nuclear medicine services, but for 
different reasons than the first commenter. Specifically, this 
commenter believed these new cost centers are necessary in order for 
the high capital costs to be appropriately allocated to these services 
and to be correctly reflected in the CCRs that are used in the 
establishment of the MS-DRG and APC payment rates for the services. The 
commenter stated that, under the existing cost report structure, some 
providers are allocating high capital costs for these services in a

[[Page 23879]]

single radiology line, diluting the high capital costs associated with 
CT scans, MRI scans, and nuclear medicine services across all radiology 
services, including low cost services. Therefore, the commenter 
concluded that the resulting radiology CCRs that CMS applies to charges 
for CT scans, MRI scans, and nuclear medicine services to arrive at the 
relative costs used to set payment rates for both the IPPS and OPPS 
understate the cost of high cost radiology services and overstate the 
cost of low cost radiology services, resulting in payments that are too 
low for the high cost services. The commenter indicated that CMS should 
not only create these new costs centers but should also require all 
hospitals to use them, and should issue explicit instructions on how to 
report the costs of these services in the new standard cost centers.
    We agree that it is appropriate to create standard cost centers for 
CT scans, MRI scans, and cardiac catheterization and to require that 
hospitals report the costs and charges for these services under new 
cost centers on the revised Medicare cost report Form CMS 2552-10. As 
we discussed in the FY 2009 IPPS and CY 2009 OPPS proposed and final 
rules, RTI found that the costs and charges of CT scans, MRI scans, and 
cardiac catheterization differ significantly from the costs and charges 
of other services included in the standard associated cost center. RTI 
also concluded that both the IPPS and OPPS relative weights would 
better estimate the costs of those services if CMS were to add standard 
costs centers for CT scanning, MRIs, and cardiac catheterization in 
order for hospitals to report separately the costs and charges for 
those services and in order for CMS to calculate unique CCRs to 
estimate the cost from charges on claims data.
    In its analysis, RTI concluded that the estimated costs for CT 
scanning and MRI scans would decline significantly and that the 
estimated cost for cardiac catheterization would increase modestly if 
specific standard cost centers were used. RTI found that cardiac 
catheterization has very different cost inputs from most cardiac 
testing (for example, electrocardiograms or cardiac stress testing) 
captured in the 5300 ``Electrocardiology'' cost center and that the 
accuracy of the CCR for both types of services, cardiac catheterization 
and other cardiac testing, would improve with creation of a standard 
cost center for cardiac catheterization. RTI also found that one-third 
of hospitals already report cardiac catheterization costs and charges 
separately through the available nonstandard cost center or through 
subscripted lines to the ``Electrocardiology'' cost center. Similarly, 
RTI found that approximately one-third of hospitals already separately 
report the costs for CT scanning and MRI scans on their Medicare cost 
report through subscripted lines and the available nonstandard cost 
centers. We believe the current prevalence of reporting for the 
nonstandard cost centers for these three services suggests a modest 
hospital burden required to adopt these cost centers.
    We discussed the possibility of creating standard cost centers for 
these three different services in our CY 2009 OPPS proposed and final 
rule with comment period (73 FR 41432 and 73 FR 68525) and solicited 
general comments on RTI's recommendations. The commenters who objected 
to the creation of the standard cost centers for CT scanning and MRI 
scans largely did so based on RTI projected lower estimated costs for 
these services if CMS created these cost centers. The commenters 
suggested that the current CCRs for advanced imaging may reflect a 
misallocation of capital costs and requested that CMS not adopt 
separate cost centers or statistical adjustment simulating lower CCRs 
for CT scanning and MRI until CMS could understand how providers are 
allocating the extensive capital costs for these services to the 
revenue producing cost centers. We also received comments suggesting 
that the accuracy of estimated costs would improve with better 
allocation, potentially increasing the CCR as more capital cost would 
be appropriately allocated to both CT scanning and MRI and not spread 
across all services in the radiology cost center. We noted in the CY 
2009 OPPS/ASC final rule with comment period (73 FR 68525) that our 
recommended allocation of moveable equipment costs in Worksheet A of 
the Medicare cost report is based on dollar value, and that it would be 
important to encourage improved accuracy of capital allocation through 
dollar value or direct assignment if we were to make these cost centers 
standard cost centers. At this time, we do not know the impact on CCRs 
and estimated costs of adopting standard cost centers specific to CT 
scanning and MRI. However, we believe that, because these areas 
constitute significant payment under both the IPPS and OPPS and because 
these are common imaging services already widely reported by hospitals, 
we are proposing to adopt new standard cost centers for CT scanning and 
MRI. We agree with those commenters who asserted that creation of 
standard cost centers for CT scanning and MRI would improve the 
accuracy of cost estimation for these services, in part by creating 
incentives for hospitals to more accurately allocate the capital and 
equipment associated with these services.
    With regard to cardiac catheterization, we received one comment on 
the CY 2009 OPPS/ASC proposed rule suggesting that hospitals might find 
it difficult to allocate costs for these services to specific cost 
centers, especially for cardiac catheterization, and that allocated 
overhead costs would, in most cases, be an estimate (73 FR 68527). 
However, given the number of hospitals already reporting the 
nonstandard cost center for cardiac catheterization and the number 
subscripting these costs and charges (approximately 50 percent, 
according to RTI's July 2008 report (pages 71 and 72) at: http://www.rti.org/reports/cms/HHSM-500-2005-0029I/PDF/Refining_Cost_to_Charge_Ratios_200807_Final.pdf), we believe that hospitals do 
allocate overhead costs to a cardiac catheterization-specific cost 
center. For these reasons, we are proposing to create standard cost 
centers for CT scanning, MRI, and cardiac catheterization in Form CMS 
2552-10.
    We also received public comments on the cost report notice urging 
us to create standard cost centers for nuclear medicine services, for 
drugs that require detailed coding, and for MEG. We continue to believe 
that it is not appropriate to create standard cost centers for these 
three services. The Medicare cost report already contains standard cost 
center 4300 (Radioisotope) to capture the costs and charges for the 
radioisotopes used in nuclear medicine services, the items that may 
have significantly different costs and hospital markup than the 
supplies and equipment used in other radiology services. Moreover, the 
cost report already contains standard cost center 4100 (Diagnostic 
Radiology) in which the costs of staff, equipment, and supplies for 
diagnostic nuclear medicine services can be reported. Therefore, we 
continue to believe that creating a new standard cost center for 
nuclear medicine services is not necessary. We also continue to believe 
that it is not appropriate to create a standard cost center for drugs 
that require detailed coding. We refer readers to the CY 2009 OPPS/ASC 
final rule with comment period (73 FR 68655) for a detailed discussion 
on our final decision not to create this cost center. Finally, with 
respect to MEG services, the extremely low volume of

[[Page 23880]]

claims for MEG services furnished to Medicare beneficiaries in the 
hospital outpatient setting and the extremely low number of hospitals 
that report these codes relative to the volumes we typically have 
considered in adding both standard and nonstandard cost centers to the 
cost report lead us to conclude that a specific cost center for MEG is 
not justified at this time.
    There is typically a 3-year lag between the availability of the 
cost report data that we use to calculate the relative weights both 
under the IPPS and the OPPS and a given fiscal or calendar year. We 
expect the data from the proposed standard cost centers for CT scans, 
MRI, and cardiac catheterization respectively, should they be 
finalized, to be available for possible use in calculating the relative 
weights not earlier than 3 years after Form CMS-2552-10 becomes 
available. At that time, we would analyze the data and determine if it 
is appropriate to use those data to create distinct CCRs from these 
cost centers for use in the relative weights for the respective payment 
systems. If we decide to finalize these proposed new cost centers, the 
upcoming Federal Register notice that will finalize Form CMS-2552-10 
will provide more information regarding the addition of these proposed 
new standard cost centers for CT scans, MRI, and cardiac 
catheterization, including the instructions for completing these cost 
centers on the new cost report.

F. Preventable Hospital-Acquired Conditions (HACs), Including 
Infections

1. Background
a. Statutory Authority
    Section 1886(d)(4)(D) of the Act addresses certain hospital-
acquired conditions (HACs), including infections. Section 1886(d)(4)(D) 
of the Act specifies that by October 1, 2007, the Secretary was 
required to select, in consultation with the Centers for Disease 
Control and Prevention (CDC), at least two conditions that: (a) Are 
high cost, high volume, or both; (b) are assigned to a higher paying 
MS-DRG when present as a secondary diagnosis (that is, conditions under 
the MS-DRG system that are CCs or MCCs); and (c) could reasonably have 
been prevented through the application of evidence-based guidelines. 
Section 1886(d)(4)(D) of the Act also specifies that the list of 
conditions may be revised, again in consultation with CDC, from time to 
time as long as the list contains at least two conditions.
    Section 1886(d)(4)(D)(iii) of the Act requires that hospitals, 
effective with discharges occurring on or after October 1, 2007, submit 
information on Medicare claims specifying whether diagnoses were 
present on admission (POA). Section 1886(d)(4)(D)(i) of the Act 
specifies that effective for discharges occurring on or after October 
1, 2008, Medicare no longer assigns an inpatient hospital discharge to 
a higher paying MS-DRG if a selected condition is not POA. Thus, if a 
selected condition that was not POA manifests during the hospital stay, 
it is considered a HAC and the case is paid as though the secondary 
diagnosis was not present. However, even if a HAC manifests during the 
hospital stay, if any nonselected CC/MCC appears on the claim, the 
claim will be paid at the higher MS-DRG rate. Under the HAC payment 
policy, all CCs/MCCs on the claim must be HACs in order to generate a 
lower MS-DRG payment. In addition, Medicare continues to assign a 
discharge to a higher paying MS-DRG if a selected condition is POA.
    The POA indicator reporting requirement and the HAC payment 
provision apply to IPPS hospitals only. Non-IPPS hospitals, including 
CAHs, LTCHs, IRFs, IPFs, cancer hospitals, children's hospitals, 
hospitals in Maryland operating under waivers, rural health clinics, 
federally qualified health centers, RNHCIs, and Department of Veterans 
Affairs/Department of Defense hospitals, are exempt from POA reporting 
and the HAC payment provision. Throughout this section, the term 
``hospital'' refers to an IPPS hospital.
    The HAC provision found in section 1886(d)(4)(D) of the Act is part 
of an array of Medicare value-based purchasing (VBP) tools that we are 
using to promote increased quality and efficiency of care. Those tools 
include measuring performance, using payment incentives, publicly 
reporting performance results, applying national and local coverage 
policy decisions, enforcing conditions of participation, and providing 
direct support for providers through Quality Improvement Organization 
(QIO) activities. The application of VBP tools, such as this HAC 
provision, is transforming Medicare from a passive payer to an active 
purchaser of higher value health care services. We are applying these 
strategies for inpatient hospital care and across the continuum of care 
for Medicare beneficiaries.
    These VBP tools are highly compatible with the underlying purposes 
as well as existing structural features of Medicare's IPPS. Under the 
IPPS, hospitals are encouraged to treat patients efficiently because 
they receive the same DRG payment for stays that vary in length and in 
the services provided, which gives hospitals an incentive to avoid 
unnecessary costs in the delivery of care. In some cases, conditions 
acquired in the hospital do not generate higher payments than the 
hospital would otherwise receive for cases without these conditions. To 
this extent, the IPPS encourages hospitals to avoid complications.
    However, the treatment of certain conditions can generate higher 
Medicare payments in two ways. First, if a hospital incurs 
exceptionally high costs treating a patient, the hospital stay may 
generate an outlier payment. Because the outlier payment methodology 
requires that hospitals experience large losses on outlier cases before 
outlier payments are made, hospitals have an incentive to prevent 
outliers. Second, under the MS-DRGs system that took effect in FY 2008 
and that has been refined through rulemaking in subsequent years, 
certain conditions can generate higher payments even if the outlier 
payment requirements are not met. Under the MS-DRG system, there are 
currently 258 sets of MS-DRGs that are split into 2 or 3 subgroups 
based on the presence or absence of a CC or an MCC. The presence of a 
CC or MCC generally results in a higher payment. However, since we 
implemented the HAC provisions, if a secondary diagnosis acquired 
during a hospital stay is a HAC and no other CCs or MCCs are present, 
the hospital receives a payment under the MS-DRGs as if the HACs were 
not present. (We refer readers to section II.D. of the FY 2008 IPPS 
final rule with comment period for a discussion of DRG reforms (72 FR 
47141).)
b. HAC Selection
    In the FY 2007 IPPS proposed rule (71 FR 24100), we sought public 
input regarding conditions with evidence-based prevention guidelines 
that should be selected in implementing section 1886(d)(4)(D) of the 
Act. The public comments we received were summarized in the FY 2007 
IPPS final rule (71 FR 48051 through 48053).
    In the FY 2008 IPPS proposed rule (72 FR 24716 through 24726), we 
sought public comment on conditions that we proposed to select. In the 
FY 2008 IPPS final rule with comment period (72 FR 47200 through 
47218), we selected 8 categories to which the HAC payment provisions 
would apply.
    In the FY 2009 IPPS proposed rule (73 FR 23547), we proposed 
several additional candidate HACs as well as refinements to the 
previously selected HACs. In the FY 2009 IPPS final rule (73 FR 48471), 
we expanded and refined

[[Page 23881]]

several of the previously selected HACs, and we selected 2 additional 
categories of HACs.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24106), 
we proposed the addition of ICD-9-CM codes 813.46 (Torus fracture of 
ulna) and 813.47 (Torus fracture of radius and ulna) to more precisely 
define the previously selected HAC category of Falls and Trauma. In the 
FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43784), we finalized 
the addition of these codes. A complete list of the 10 current 
categories of HACs is included in section II.F.2. of this preamble.
c. Collaborative Process
    In establishing the HAC payment policy under section 1886(d)(4)(D) 
of the Act, our experts have worked closely with public health and 
infectious disease professionals from across the Department of Health 
and Human Services, including CDC, the Agency for Healthcare Research 
and Quality (AHRQ), and the Office of Public Health and Science (OPHS), 
to identify the candidate preventable HACs, review comments, and select 
HACs. CMS and CDC have also collaborated on the process for hospitals 
to submit a POA indicator for each diagnosis listed on IPPS hospital 
Medicare claims and on the payment implications of the various POA 
reporting options. As discussed below, we have also used rulemaking and 
Listening Sessions to receive public input.
d Application of HAC Payment Policy to MS-DRG Classifications
    As described above, in certain cases application of the HAC payment 
policy provisions can result in MS-DRG reassignment to a lower paying 
MS-DRG. The following diagram portrays the logic of the HAC payment 
policy provision as adopted in the FY 2008 IPPS final rule (72 FR 
47200) and in the FY 2009 IPPS final rule (73 FR 48471):
[GRAPHIC] [TIFF OMITTED] TP04MY10.003

e. Public Input Regarding Selected and Potential Candidate HACs
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24104 
through 24106), we did not propose to add or remove categories of HACs. 
However, as we indicated in that proposed rule, we continue to 
encourage public dialogue about refinements to the HAC list. During and 
after the December 18, 2008 Listening Session, we received many oral 
and written stakeholder comments about both previously selected and 
potential candidate HACs. In response to the Listening Session, 
commenters strongly supported using information gathered from early 
experience with the HAC payment provision to inform maintenance of the 
HAC list and consideration of future potential candidate HACs. 
Commenters also emphasized the need for a robust program evaluation 
prior to modifying the HAC list.
    In response to the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 
FR 24106), commenters expressed strong support for a program evaluation 
prior to modifying the HAC list. We responded to these commenters and 
expressed our appreciation for the public's support for our decision to 
undertake a program evaluation. We indicated that we planned to include 
updates and findings from the evaluation on CMS' Hospital-Acquired 
Conditions and Present on Admission Indicator Web site available at: 
http://www.cms.hhs.gov/HospitalAcqCond/. We also responded to 
commenters regarding POA indicator reporting as well as to comments 
addressing other topics related to HACs and POA reporting (74 FR 
43785).
f. POA Indicator Reporting
    Collection of POA indicator data is necessary to identify which 
conditions were acquired during hospitalization for the HAC payment 
provision as well as for broader public health uses of Medicare data. 
Through Change Request No. 5679 (released on June 20, 2007), we issued 
instructions requiring IPPS hospitals to submit POA indicator data for 
all diagnosis codes on Medicare claims. We also issued Change Request 
No. 6086 (released on June 13, 2008) regarding instructions for 
processing non-IPPS claims. Specific instructions on how to select the 
correct POA indicator for each diagnosis code are included in the ICD-
9-CM Official Guidelines for Coding and Reporting, available on the CDC 
Web site at: http://www.cdc.gov/nchs/data/icd9/icdguide09.pdf. 
Additional information regarding POA indicator reporting and 
application of the POA reporting

[[Page 23882]]

options is available on the CMS Web site at: http://www.cms.hhs.gov/HospitalAcqCond. Historically we have not provided coding advice. 
Rather, we collaborate with the American Hospital Association (AHA) 
through the Coding Clinic for ICD-9-CM. We have been collaborating with 
the AHA to promote the Coding Clinic for ICD-9-CM as the source for 
coding advice about the POA indicator.
    There are five POA indicator reporting options, as defined by the 
ICD-9-CM Official Guidelines for Coding and Reporting:

----------------------------------------------------------------------------------------------------------------
                      Indicator                                               Descriptor
----------------------------------------------------------------------------------------------------------------
Y...................................................  Indicates that the condition was present on admission.
W...................................................  Affirms that the hospital has determined that, based on
                                                       data and clinical judgment, it is not possible to
                                                       document when the onset of the condition occurred.
N...................................................  Indicates that the condition was not present on admission.
U...................................................  Indicates that the documentation is insufficient to
                                                       determine if the condition was present at the time of
                                                       admission.
1...................................................  Signifies exemption from POA reporting. CMS established
                                                       this code as a workaround to blank reporting on the
                                                       electronic 4010A1. A list of exempt ICD-9-CM diagnosis
                                                       codes is available in the ICD-9-CM Official Guidelines
                                                       for Coding and Reporting.
----------------------------------------------------------------------------------------------------------------

    In the FY 2009 IPPS final rule (73 FR 48486 through 48487), we 
adopted as final our proposal to: (1) Pay the CC/MCC MS-DRGs for those 
HACs coded with ``Y'' and ``W'' indicators; and (2) not pay the CC/MCC 
MS-DRGs for those HACs coded with ``N'' and ``U'' indicators.
    Beginning on or after January 1, 2011, hospitals will begin 
reporting with the 5010 format. The 5010 format removes the need to 
report a POA indicator of ``1'' for codes that are exempt from POA 
reporting. The POA indicator of ``1'' is being used because of 
reporting restrictions from the use of the 4010 format. Therefore, 
hospitals that begin reporting with the 5010 format on and after 
January 1, 2011, will no longer report a POA indicator of ``1'' for POA 
exempt codes. The POA field will instead be left blank for codes exempt 
from POA reporting. We are planning to issue CMS instructions on this 
reporting change.
2. Proposed HAC Conditions for FY 2011
    As changes to diagnosis codes and new diagnosis codes are proposed 
and finalized for the list of CCs and MCCs, we will modify the list of 
selected HACs to reflect these changes. In Table 6A in the Addendum to 
this proposed rule, we have listed the proposed addition of five new 
ICD-9-CM diagnosis codes to replace existing ICD-9-CM code 999.6 (ABO 
incompatibility reaction) for FY 2011. ICD-9-CM code 999.6 is currently 
the only code identified under the Blood Incompatibility HAC category. 
We are proposing to delete code 999.6 and form a new subcategory of 
999.6 to identify new diagnoses relating to ABO incompatibility 
reaction due to transfusion of blood or blood products. These diagnoses 
meet the criteria for the Blood Incompatibility HAC category based on 
the predecessor code 999.6 being a selected HAC.
    As shown in Table 6C in the Addendum to this proposed rule, we are 
proposing that code 999.6 become invalid as a diagnosis code in FY 2011 
with the creation of this new ICD-9-CM subcategory. This proposed new 
subcategory would allow room for expansion and the creation of the 
following new diagnosis codes:

----------------------------------------------------------------------------------------------------------------
                ICD-9-CM code                           Code descriptor           Proposed  CC/MCC  designation
----------------------------------------------------------------------------------------------------------------
999.60.......................................  ABO incompatibility reaction,     CC
                                                unspecified.
999.61.......................................  ABO incompatibility with          CC
                                                hemolytic transfusion reaction
                                                not specified as acute or
                                                delayed.
999.62.......................................  ABO incompatibility with acute    CC
                                                hemolytic transfusion reaction.
999.63.......................................  ABO incompatibility with delayed  CC
                                                hemolytic transfusion reaction.
999.69.......................................  Other ABO incompatibility         CC
                                                reaction.
----------------------------------------------------------------------------------------------------------------

    We are inviting public comments on the proposed adoption of the 
five ICD-9-CM diagnosis codes as CCs that are listed above, which, if 
finalized, would be added to the current HAC Blood Incompatibility 
category.
    The following table lists the current HACs categories and the ICD-
9-CM codes that identify the conditions that have been finalized 
through FY 2010. For FY 2011, we are proposing that these conditions 
continue to be subject to the HAC payment provision, with a proposed 
refinement to the codes to identify blood incompatibility as described 
above.

------------------------------------------------------------------------
                     HAC                         CC/MCC (ICD-9-CM code)
------------------------------------------------------------------------
Foreign Object Retained After Surgery........  998.4 (CC)
                                               998.7 (CC)
Air Embolism.................................  999.1 (MCC)
Blood Incompatibility........................  999.6 (CC)
Pressure Ulcer Stages III & IV...............  707.23 (MCC)
                                               707.24 (MCC)
Falls and Trauma.............................  Codes within these ranges
                                                on the CC/MCC list:
    --Fracture...............................  800-829
    --Dislocation............................  830-839
    --Intracranial Injury....................  850-854

[[Page 23883]]

    --Crushing Injury........................  925-929
    --Burn...................................  940-949
    --Electric Shock.........................  991-994
Catheter-Associated Urinary Tract Infection    996.64 (CC)
 (UTI).
                                               Also excludes the
                                                following from acting as
                                                a CC/MCC:
                                               112.2 (CC)
                                               590.10 (CC)
                                               590.11 (MCC)
                                               590.2 (MCC)
                                               590.3 (CC)
                                               590.80 (CC)
                                               590.81 (CC)
                                               595.0 (CC)
                                               597.0 (CC)
                                               599.0 (CC)
Vascular Catheter-Associated Infection.......  999.31 (CC)
Manifestations of Poor Glycemic Control......  250.10-250.13 (MCC)
                                               250.20-250.23 (MCC)
                                               251.0 (CC)
                                               249.10-249.11 (MCC)
                                               249.20-249.21 (MCC)
------------------------------------------------------------------------
                        Surgical Site Infections
------------------------------------------------------------------------
Surgical Site Infection, Mediastinitis,        519.2 (MCC)
 Following Coronary Artery Bypass Graft        And one of the following
 (CABG).                                        procedure codes:
                                               36.10-36.19
Surgical Site Infection Following Certain      996.67 (CC)
 Orthopedic Procedures.                        998.59 (CC)
                                               And one of the following
                                                procedure codes: 81.01-
                                                81.08, 81.23-81.24,
                                                81.31-81.38, 81.83,
                                                81.85
Surgical Site Infection Following Bariatric    Principal Diagnosis--
 Surgery for Obesity.                           278.01
                                               998.59 (CC)
                                               And one of the following
                                                procedure codes: 44.38,
                                                44.39, or 44.95
Deep Vein Thrombosis and Pulmonary Embolism    415.11 (MCC)
 Following Certain Orthopedic Procedures.      415.19 (MCC)
                                               453.40-453.42 (CC)
                                               And one of the following
                                                procedure codes: 00.85-
                                                00.87, 81.51-81.52, or
                                                81.54
------------------------------------------------------------------------

    We refer readers to section II.F.6. of the FY 2008 IPPS final rule 
with comment period (72 FR 47202 through 47218) and to section II.F.7. 
of the FY 2009 IPPS final rule (73 FR 48474 through 48486) for detailed 
analyses supporting the selection of each of these HACs. We invite 
public comments on our proposal that these conditions continue to be 
subject to the HAC payment provision, with a proposed refinement of the 
codes to identify blood incompatibility as described above.
3. RTI Program Evaluation Summary
a. Background
    On September 30, 2009, a contract was awarded to Research Triangle 
Incorporated (RTI) to evaluate the impact of the Hospital-Acquired 
Condition-Present on Admission (HAC-POA) provisions on the changes in 
the incidence of selected conditions, effects on Medicare payments, 
impacts on coding accuracy, unintended consequences, and infection and 
event rates. This is an intra-agency project with funding and technical 
support coming from CMS, OPHS, AHRQ, and CDC. The evaluation will also 
examine the implementation of the program and evaluate additional 
conditions for future selection.
    RTI's evaluation of the HAC-POA provisions is divided into several 
parts, only some of which will be complete prior to the publication 
date of this proposed rule. Below we summarize the analyses that are 
complete. RTI's analyses of POA indicator reporting, frequencies and 
net savings associated with current HACs, and frequencies of previously 
considered candidate HACs reflect MedPAR claims from October 2008 
through June 2009. In the final rule, we intend to update our summary 
of these analyses with additional data that have become available.
b. Preliminary RTI Analysis on POA Indicator Reporting Across Medicare 
Discharges
    To better understand the impact of HACs on the Medicare program, it 
is necessary to first examine the incidence of POA indicator reporting 
across all eligible Medicare discharges. As mentioned previously, only 
IPPS hospitals are required to submit POA indicator data for all 
diagnosis codes on Medicare claims. Therefore, all non-IPPS hospitals 
were excluded, as well as providers in waiver States (Maryland) and 
territories other than Puerto Rico.
    Using MedPAR claims data from October 2008 through June 2009, RTI 
found a total of approximately 50.22 million secondary diagnoses across 
approximately 7.17 million discharges. As shown in Chart A below, the 
majority of all secondary diagnoses (83.52 percent) were reported with 
a POA indicator of ``Y,'' meaning the condition was POA.

[[Page 23884]]

      Chart A--POA Code Distribution Across All Secondary Diagnoses
------------------------------------------------------------------------
                                              Number        Percentage
------------------------------------------------------------------------
Total Discharges in Final File..........       7,175,139  ..............
Total Number of Secondary Diagnoses           50,216,195          100.00
 Across Total Discharges................
------------------------------------------------------------------------

                      POA                             Indicator Description
----------------------------------------------------------------------------------------------------------------
Y.............................................  Condition present on admission..      41,938,234           83.52
W.............................................  Status cannot be clinically               12,547            0.02
                                                 determined.
N.............................................  Condition not present on               3,440,815            6.85
                                                 admission.
U.............................................  Documentation not adequate to            110,771            0.22
                                                 determine if condition was
                                                 present on admission.
1.............................................  Exempted ICD-9-CM code..........       4,713,828            9.39
----------------------------------------------------------------------------------------------------------------
Source: RTI Analysis of MedPAR IPPS Claims, October 2008 through June 2009.

c. Preliminary RTI Analysis on POA Indicator Reporting of Current HACs
    Following the initial analysis of POA indicator reporting for all 
secondary diagnoses, RTI then evaluated POA indicator reporting for 
specific HAC-associated secondary diagnoses. The term ``HAC-associated 
secondary diagnosis'' refers to those diagnoses that are on the 
selected HAC list and were reported as a secondary diagnosis. Chart B 
below shows a summary of the HAC categories with the frequency in which 
each HAC was reported as a secondary diagnosis and the corresponding 
POA indicators assigned on the claims. It is important to note that, 
because more than one HAC-associated diagnosis code can be reported per 
discharge (that is, on a single claim), the frequency of HAC-associated 
diagnosis codes may be more than the actual number of discharges that 
have a HAC-associated diagnosis code reported as a secondary diagnosis. 
Below we discuss the frequency of each HAC-associated diagnosis code 
and the POA indicators assigned to those claims.
    RTI analyzed the frequency of each reported HAC-associated 
secondary diagnosis (across all 7.17 million discharges) and the POA 
indicator assigned to the claim. Chart B below shows that the most 
frequently reported conditions were in the Falls and Trauma HAC 
category, with a total of 132,666 HAC-associated diagnosis codes being 
reported for that HAC category. Of these 132,666 diagnoses, 4,081 
reported a POA indicator of ``N'' for not POA and 128,286 diagnoses 
reported a POA indicator of ``Y'' for POA. The lowest frequency appears 
in the Surgical Site Infection (SSI) Following Bariatric Surgery for 
Obesity HAC category with only 12 HAC-associated secondary diagnosis 
codes (and procedure codes) reported.

                                           Chart B--POA Status of Current HACS: October 2008 Through June 2009
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                           Not Present on Admission                      Present on Admission
                                                       Frequency ---------------------------------------------------------------------------------------
                     Selected HAC                         as a           POA = N               POA = U               POA = Y               POA = W
                                                       Secondary ---------------------------------------------------------------------------------------
                                                       Diagnosis    Number    Percent     Number    Percent     Number    Percent     Number    Percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Foreign Object Retained After Surgery (CC)........        378        172       45.5          0        0.0        206       54.5          0        0.0
2. Air Embolism (MCC)................................         29         23       79.3          0        0.0          6       20.7          0        0.0
3. Blood Incompatibility (CC)........................         23          8       34.8          0        0.0         15       65.2          0        0.0
4. Pressure Ulcer Stages III & IV (MCC)..............     80,190        944        1.2         56        0.1     79,165       98.7         25        0.0
5. Falls and Trauma (MCC & CC).......................    132,666      4,081        3.1        232        0.2    128,286       96.7         67        0.1
6. Catheter-Associated UTI (CC)......................     11,424      1,887       16.5         15        0.1      9,496       83.1         26        0.2
7. Vascular Catheter-Associated Infection (CC).......      5,470      2,091       38.2         19        0.3      3,348       61.2         12        0.2
8. Poor Glycemic Control (MCC).......................     11,070        344        3.1          9        0.1     10,711       96.8          6        0.1
9A. Surgical Site Infection Mediastinitis CABG (CC)..         29         21       72.4          0        0.0          8       27.6          0        0.0
9B. Surgical Site Infection Following Bariatric               12         10       83.3          0        0.0          2       16.7          0        0.0
 Surgery for Obesity (CC)............................
9B. Surgical Site Infection Following Certain                202        125       61.9          1        0.5         75       37.1          1        0.5
 Orthopedic Procedures (CC)..........................
10. Pulmonary Embolism & DVT Orthopedic (MCC)........      2,706      2,029       75.0         15        0.6        647       23.9         15        0.6
                                                      --------------------------------------------------------------------------------------------------
    Total *..........................................    244,199  .........  .........        347  .........  .........  .........        152  .........
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Discharges can appear in more than one row. The total figure is not adjusted for the 47 discharges with more than one HAC that appear as secondary
  diagnoses (15 of these discharges resulted in MS-DRG reassignment).

[[Page 23885]]

    We welcome public comments on these data that can provide insight 
into the accuracy of the data, using comparative data sets or analysis 
such as how aspects of the coding system might influence these data.
    As described earlier, in the FY 2009 IPPS final rule (73 FR 48486 
through 48487), we adopted as final our proposal to: (1) Pay the CC/MCC 
MS-DRGs for those HACs coded with ``Y'' and ``W'' indicators; and (2) 
not pay the CC/MCC MS-DRGs for those HACs coded with ``N'' and ``U'' 
indicators. We also discussed the comments we received urging CMS to 
strongly consider changing the policy and to pay for those HACs 
assigned a POA indicator of ``U'' (documentation is insufficient to 
determine if the condition was present at the time of admission). We 
stated we would monitor the extent to which and under what 
circumstances the ``U'' POA reporting option is used. In the FY 2010 
IPPS/RY 2010 LTCH PPS final rule, we also discussed and responded to 
comments regarding HACs coded with the ``U'' indicator (74 FR 43784 and 
43785). As shown in Chart B above, RTI's analysis provides some initial 
data on a total of 347 HAC-associated secondary diagnoses reported with 
a POA indicator of ``U''. Of those diagnoses, 232 (0.2 percent) were 
assigned to the Falls and Trauma HAC category.
    We continue to believe that better documentation will result in 
more accurate public health data. Because the RTI analysis is based on 
preliminary data, at this time we are not proposing to change our 
policy under which CMS does not pay at the higher CC/MCC amount when a 
selected HAC diagnosis code is reported with a POA indicator of ``U.''
    We encourage readers to further review the RTI detailed report 
which demonstrates the frequency of each individual HAC-associated 
diagnosis code within the HAC categories. For example, in the Foreign 
Object Retained After Surgery HAC category, there are two unique ICD-9-
CM diagnosis codes to identify that condition: code 998.4 (Foreign body 
accidentally left during a procedure) and code 998.7 (Acute reaction to 
foreign substance accidentally left during a procedure). In the 
detailed RTI report, readers can view that code 998.4 was reported 368 
times and code 998.7 was reported 10 times, for a total of 378 times, 
as shown in Chart B above. The RTI detailed report is available at the 
following Web site: http://www.rti.org/reports/cms/.
d. Preliminary RTI Analysis of Frequency of Discharges and POA 
Indicator Reporting for Current HACs
    RTI further analyzed the effect of the HAC provision by studying 
the frequency in which a HAC-associated diagnosis was reported as a 
secondary diagnosis with a POA indicator of ``N'' or ``U'' and, of that 
number, how many resulted in MS-DRG reassignment. In Chart C below, 
Column A shows the number of discharges for each HAC category where the 
HAC-associated diagnosis was reported as a secondary diagnosis. For 
example, there were 29 discharges that reported Air Embolism as a 
secondary diagnosis. Column C shows the number of discharges for each 
HAC reported with a POA indicator of ``N'' or ``U.'' Continuing with 
the example of Air Embolism, the chart shows that, of the 29 reported 
discharges, 23 discharges (79.31 percent) had a POA indicator of ``N'' 
or ``U'' and was identified as a HAC discharge. There were a total of 
23 discharges to which the HAC policy applies and that could, 
therefore, have had an MS-DRG reassignment. Column E shows the number 
of discharges where an actual MS-DRG reassignment occurred. As shown in 
Column E, the number of discharges with an Air Embolism that resulted 
in actual MS-DRG reassignments is 12 (52.17 percent of the 23 
discharges with a POA indicator of ``N'' or ``U''). Thus, while there 
were 23 discharges (79.31 percent of the original 29) with an Air 
Embolism reported with a POA indicator of ``N'' or ``U'' identified as 
a HAC discharge that could have caused MS-DRG reassignment, the end 
result was 12 (52.17 percent) actual MS-DRG reassignments. There are a 
number of reasons why a selected HAC reported with a POA indicator of 
``N'' or ``U'' will not result in MS-DRG reassignment. These reasons 
were illustrated with the diagram in section II.F.1.c. of this preamble 
and will be discussed in further detail in section II.F.3.e. of this 
preamble.
    Chart C below also shows that, of the 216,764 discharges with a 
HAC-associated diagnosis as a secondary diagnosis, 3,038 discharges 
ultimately resulted in MS-DRG reassignment. As will be discussed below, 
there were 15 claims that resulted in MS-DRG reassignment where two 
HACs were reported on the same admission. The four HAC categories that 
had the most discharges resulting in MS-DRG reassignment were: (1) 
Falls and Trauma; (2) Pressure Ulcer Stages III & IV; (3) Pulmonary 
Embolism and DVT Orthopedic (Orthopedic PE/DVT); and (4) Catheter-
Associated Urinary Tract Infection (UTI). Codes falling under the Falls 
and Trauma HAC category were the most frequently reported secondary 
diagnoses with 109,728 discharges. Of these 109,728 discharges, 3,852 
(3.51 percent) were coded as not POA and identified as HAC discharges. 
This category also contained the greatest number of discharges that 
resulted in an MS-DRG reassignment. Of the 3,852 discharges within this 
HAC category that were not POA, 1,476 (38.32 percent) resulted in an 
MS-DRG reassignment.
    Of the 216,764 total discharges reporting HAC-associated diagnoses 
as a secondary diagnosis, 2,494 discharges were coded with a secondary 
diagnosis of Orthopedic PE/DVT. Of these 2,494 discharges, 1,892 (75.86 
percent) were coded as not POA and identified as HAC discharges. This 
category contained the second greatest number of discharges resulting 
in an MS-DRG reassignment. Of the 1,892 discharges in this HAC category 
that were not POA, 845 discharges (44.66 percent) resulted in an MS-DRG 
reassignment.
    The Pressure Ulcer Stages III & IV category had the second most 
frequently coded secondary diagnoses, with 76,014 discharges. Of these 
discharges, 960 (1.26 percent) were coded as not POA and identified as 
HAC discharges. This category contained the third greatest number of 
discharges resulting in an MS-DRG reassignment. Of the 960 discharges 
in this HAC category that were not POA, 337 discharges (35.10 percent) 
resulted in an MS-DRG reassignment.
    The Catheter-Associated UTI category had the third most frequently 
coded secondary diagnoses, with 11,434 discharges. Of these discharges, 
1,896 (16.60 percent) were coded as not POA and identified as HAC 
discharges. This category contained the fourth greatest number of 
discharges resulting in an MS-DRG reassignment. Of the 1,896 discharges 
in this HAC category that were not POA, 197 discharges (10.39 percent) 
resulted in a MS-DRG reassignment.
    The remaining 6 HAC categories only had 183 discharges that 
ultimately resulted in MS-DRG reassignment. We note that, even in cases 
where a large number of HAC-associated secondary diagnoses were coded 
as not POA, this finding did not necessarily translate into a large 
number of discharges that resulted in MS-DRG reassignment. For example, 
only 23 of the 2,107 Vascular Catheter-Associated Infection secondary 
diagnoses that were coded as not POA and identified as HAC discharges 
resulted in a MS-DRG reassignment.

[[Page 23886]]

    There were a total of 277 discharges with a HAC-associated 
secondary diagnosis reporting a POA indicator of ``N'' or ``U'' that 
were excluded from acting as a HAC discharge (subject to MS-DRG 
reassignment) due to the CC Exclusion List logic within the GROUPER. 
The CC Exclusion List identifies secondary diagnosis codes designated 
as a CC or MCC that are disregarded by the GROUPER logic when reported 
with certain principal diagnoses. For example, a claim with the 
principal diagnosis code of 250.83 (Diabetes with other specified 
manifestations, type 1 [juvenile type], uncontrolled) and a secondary 
diagnosis code of 250.13 (Diabetes with ketoacidosis, type 1, [juvenile 
type], uncontrolled) with a POA indicator of ``N'' would result in the 
HAC-associated secondary diagnosis code 250.13 being ignored as a CC. 
According to the CC Exclusion List, code 250.13 is excluded from acting 
as a CC when code 250.83 is the principal diagnosis. As a result, the 
HAC logic would not be applicable to that case. For a detailed 
discussion on the CC Exclusion List, we refer readers to section 
II.G.9. of this preamble.
    Discharges where the HAC logic was not applicable due to the CC 
Exclusion List occurred among the following 4 HAC categories: Pressure 
Ulcer Stages III and IV (29 cases), Falls and Trauma (206 cases), 
Catheter-Associated UTI (6 cases), Vascular Catheter-Associated 
Infection (3 cases), and Manifestations of Poor Glycemic Control (33 
cases). Further information regarding the specific number of cases that 
were excluded for each HAC-associated secondary diagnosis code within 
each of the above mentioned HAC categories is also available. We refer 
readers to the RTI detailed report at the following Web site: http://www.rti.org/reports/cms/.
    In summary, Chart C below demonstrates that there were a total of 
216,764 discharges with a reported HAC-associated secondary diagnosis. 
Of the total 216,764 discharges, 11,383 (5.25 percent) discharges were 
HACs reported with a POA indicator of ``N'' or ``U'' that were 
identified as a HAC discharge. Of these 11,383 discharges, the number 
of discharges resulting in MS-DRG reassignments was 3,038 (26.69 
percent).
BILLING CODE 4310-10-P

[[Page 23887]]

[GRAPHIC] [TIFF OMITTED] TP04MY10.004

[[Page 23888]]

[GRAPHIC] [TIFF OMITTED] TP04MY10.005

BILLING CODE 4120-01-C
An extremely small number of discharges had multiple HACs reported 
during the same stay. In reviewing the 7.17 million claims, RTI found 
47 cases in which two HACs were reported on the same discharge. Chart D 
below summarizes these cases. There were eight cases in which a Falls 
and Trauma HAC was reported in addition to a Pressure Ulcer Stages III 
& IV HAC. Eighteen of the cases with two HACs involved Pressure Ulcer 
Stages III & IV and 15 cases involved Falls or Trauma. Other multiple 
HAC cases included 9 Catheter-Associated UTI cases and 5 Vascular 
Catheter-Associated Infection cases.
    Some of these cases with multiple HACs reported had both HAC codes 
ignored in the MS-DRG assignment. Of these 47 claims, 32 did not 
receive higher payments based on the presence of one or both of these 
reported HACs and we describe these claims below in section 
II.F.3.f.(2) of this preamble. Depending on the MS-DRG to which the 
cases were originally assigned, ignoring the HAC codes would have led 
to a MS-DRG reassignment if there were no other MCCs or CCs reported, 
if the MS-DRG was subdivided into severity levels, and if the case were 
not already in the lowest severity level prior to ignoring the HAC 
codes.

            Chart D--Claims With More Than One HAC Secondary Diagnosis October 2008 Through June 2009
----------------------------------------------------------------------------------------------------------------
                                                                                                   7. Vascular
                                             4. Pressure      5. Falls and      6. Catheter-        catheter-
                   HAC                    ulcer stages III   trauma-- MCC &   associated  UTI--    associated
                                              & IV--MCC            CC                CC           infection--CC
----------------------------------------------------------------------------------------------------------------
2. Air embolism--MCC....................  ................                 1  ................  ................
5. Falls and Trauma--MCC & CC...........                 8  ................  ................  ................
6. Catheter-Associated UTI--CC..........                 2                 3  ................  ................
7. Vascular Catheter-Associated                          5                 4                 6  ................
 Infection--CC..........................
8. Poor Glycemic Control--MCC...........                 1  ................  ................                 1
9C. Surgical Site Infection Following     ................  ................                 2                 1
 Bariatric Surgery for Obesity--CC......
10. Pulmonary Embolism & DVT Orthopedic--                2                 7                 1                 3
 MCC....................................
                                         -----------------------------------------------------------------------
    Total...............................                18                15                 9                 5
----------------------------------------------------------------------------------------------------------------

e. Preliminary RTI Analysis of Circumstances When Application of HAC 
Provisions Would Not Result in MS-DRG Reassignment for Current HACs
    As discussed in section II.F.1. and illustrated in the diagram in 
section II.F.1.c. of this preamble, there are instances when the MS-DRG 
assignment does not change even when a HAC-associated secondary 
diagnosis has a POA indicator of either ``N'' or ``U.'' In analyzing 
our claims data, RTI identified four main reasons why a MS-DRG 
assignment would not change despite the presence of a HAC. Those four 
reasons are described below and are shown in Chart E below. Column A 
shows the frequency of discharges that included a HAC-associated 
secondary diagnosis. Column B shows the frequency of discharges where 
the HAC-associated secondary diagnosis was

[[Page 23889]]

coded as not POA and identified as a HAC discharge. Column C shows the 
frequency of discharges in which the HAC-associated secondary diagnosis 
coded as not POA resulted in a change in MS-DRG. Columns D, E, F, and G 
show the frequency of discharges in which the HAC-associated secondary 
diagnosis coded as not POA did not result in a change in MS-DRG 
assignment. Columns D, E, F, and G are explained in more detail below.
(1) Other MCCs/CCs Prevent Reassignment
    Column D (Other MCC/CCs that Prevent Reassignment) in Chart E below 
indicates the number of cases reporting a HAC-associated secondary 
diagnosis code that did not have a MS-DRG reassignment because of the 
presence of other secondary diagnoses on the MCC or CC list. A claim 
that is coded with a HAC-associated secondary diagnoses and a POA 
status of either ``N'' or ``U'' may have other secondary diagnoses that 
are classified as an MCC or a CC. In such cases, the presence of these 
other MCC and CC diagnoses will still lead to the assignment of a 
higher severity level, despite the fact that the GROUPER software is 
disregarding the ICD-9-CM code that identifies the selected HAC in 
making the MS-DRG assignment for that claim. For example, there were 83 
cases in which the ICD-9-CM codes for the Foreign Object Retained After 
Surgery HAC category were present, but the presence of other secondary 
diagnoses that were MCCs or CCs resulted in no change to the MS-DRG 
assignment. Chart E shows that a total of 6,074 cases did not have a 
change in the MS-DRG assignment because of the presence of other 
reported MCCs and CCs.
(2) Two Severity Levels Where HAC Does Not Impact MS-DRG Assignment
    Column E (Number of MS-DRGs with Two Severity Levels Where HAC Does 
Not Impact MS-DRG Assignment) shows the frequency with which discharges 
with a HAC as a secondary diagnosis coded as not POA did not result in 
an MS-DRG change because the MS-DRG is subdivided solely by the 
presence or absence of an MCC. A claim with a HAC and a POA indicator 
of either ``N'' or ``U'' may be assigned to an MS-DRG that is 
subdivided solely by the presence or absence of an MCC. In such cases, 
removing a HAC ICD-9-CM CC code will not lead to further changes in the 
MS-DRG assignment. Examples of these MS-DRG subdivisions are shown in 
the footnotes to the chart and include the following examples:
     MS-DRGs 100 and 101 (Seizures with or without MCC, 
respectively)
     MS-DRGs 102 and 103 (Headaches with or without MCC, 
respectively)
    The codes that fall under the HAC category of Foreign Object 
Retained After Surgery are CCs. If this case were assigned to a MS-DRG 
with an MCC subdivision such as MS-DRGs 100 and 101, the presence of 
the HAC code would not affect the MS-DRG severity level assignment. In 
other words, if the Foreign Object Retained After Surgery code were the 
only secondary diagnosis reported, then the case would be assigned to 
MS-DRG 101. If the POA indicator was ``N,'' the HAC Foreign Object 
Retained After Surgery code would be ignored in the MS-DRG assignment 
logic. Despite the fact that the code was ignored, the case would still 
be assigned to the same, lower severity level MS-DRG. Therefore, there 
would be no impact on the MS-DRG assignment.
    Column E in Chart E below shows that there were 1,446 cases where 
the HAC code was ``N'' or ``U'' and the MS-DRG assignment did not 
change because the case was already assigned to the lowest severity 
level.
(3) No Severity Levels
    Column F (Number of MS-DRGs with No Severity Levels) shows the 
frequency with which discharges with an HAC as a secondary diagnosis 
coded as not POA did not result in an MS-DRG change because the MS-DRG 
is not subdivided by severity levels. A claim with a HAC and a POA of 
``N'' or ``U'' may be assigned to a MS-DRG with no severity levels. For 
instance, MS-DRG 311 (Angina Pectoris) has no severity level 
subdivisions; this MS-DRG is not split based on the presence of an MCC 
or a CC. If a patient assigned to this MS-DRG develops a secondary 
diagnosis such as a Stage III pressure ulcer after admission, the 
condition would be considered to be a HAC. The code for the Stage III 
pressure ulcer would be ignored in the MS-DRG assignment because the 
condition developed after the admission (the POA indicator was ``N''). 
Despite the fact that the ICD-9-CM code for the HAC Stage III pressure 
ulcer was ignored, the MS-DRG assignment would not change. The case 
would still be assigned to MS-DRG 311. Chart E below shows that 818 
cases reporting a HAC-associated secondary diagnosis did not undergo a 
change in the MS-DRG assignment based on the fact that the case was 
assigned to a MS-DRG that had no severity subdivisions (that is, the 
MS-DRG is not subdivided based on the presence or absence of an MCC or 
a CC, rendering the presence of the HAC irrelevant for payment 
purposes).
(4) MS-DRG Logic
    Column G (MS-DRG Logic Issues) shows the frequency with which a HAC 
as a secondary diagnosis coded as not POA did not result in an MS-DRG 
change because of MS-DRG assignment logic. There were seven discharges 
where the HAC criteria were met and the HAC logic was applied, however, 
due to the structure of the MS-DRG logic, these cases did not result in 
MS-DRG reassignment. These cases may appear similar to those discharges 
where the MS-DRG is subdivided into two severity levels by the presence 
or absence of an MCC and did not result in MS-DRG reassignment; 
however, these discharges differ slightly in that the MS-DRG logic also 
considers specific procedures that were reported on the claim. In other 
words, for certain MS-DRGs, a procedure may be considered the 
equivalent of an MCC or CC. The presence of the procedure code dictates 
the MS-DRG assignment despite the presence of the HAC-associated 
secondary diagnosis code with a POA indicator of ``N'' or ``U''.
    For example, a claim with the principal diagnosis code of 441.1 
(Thoracic aneurysm, ruptured) with HAC-associated secondary diagnosis 
code of 996.64 (Infection and inflammatory reaction due to indwelling 
urinary catheter) and diagnosis code 599.0 (Urinary tract infection, 
site not specified), having POA indicators of ``Y'', ``N'', ``N'', 
respectively, and procedure code 39.73 (Endovascular implantation of 
graft in thoracic aorta) results in an assignment to MS-DRG 237 (Major 
Cardiovascular Procedures with MCC or Thoracic Aortic Aneurysm Repair). 
In this case, the thoracic aortic aneurysm repair is what dictated the 
MS-DRG assignment and the presence of the HAC-associated secondary 
diagnosis code, 996.64, did not affect the MS-DRG assigned. Other 
examples of MS-DRGs that are subdivided in this same manner are as 
follows:
     MS-DRG 029 (Spinal procedures with CC or Spinal 
Neurostimulators)
     MS-DRG 129 (Major Head & Neck Procedures with CC/MCC or 
Major Device)
     MS-DRG 246 (Percutaneous Cardiovascular Procedure with 
Drug-Eluting Stent with MCC or 4+ Vessels/Stents)
    Column G in the chart below shows that four of the seven cases that 
did not result in MS-DRG reassignment due to the MS-DRG logic were in 
the Catheter Associated UTI HAC category, one case was in the Foreign 
Body Retained after

[[Page 23890]]

Surgery HAC Category, one case was in the Falls and Trauma HAC 
category, and one case was in the Vascular Catheter-Associated 
Infection HAC Category.
    In conclusion, a total of 8,345 cases (6,074 + 1,446 + 818 + 7) did 
not have a change in MS-DRG assignment, regardless of the presence of a 
HAC. The reasons described above explain why only 3,038 cases had a 
change in MS-DRG assignment despite the fact that there were 11,383 HAC 
cases with a POA of ``N'' or ``U.''
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP04MY10.006

[[Page 23891]]

[GRAPHIC] [TIFF OMITTED] TP04MY10.007

BILLING CODE 4120-01-C

[[Page 23892]]

f. Preliminary RTI Analysis of Coding Changes for HAC-Associated 
Secondary Diagnoses for Current HACs
    In addition to studying claims from October 2008 through June 2009, 
RTI evaluated claims data from 2 years prior to determine if there were 
significant changes in the number of discharges with a HAC being 
reported as a secondary diagnosis. To provide consistency with the FY 
2009 data studied, RTI examined claims using discharge dates from 
October 2006 through June 2007 (for FY 2007) and October 2007 through 
June 2008 (for FY 2008) and compared these data to the FY 2009 data.
    RTI's analysis found that there was an increase in the reporting of 
secondary diagnoses that are currently designated as HACs from FY 2007 
to FY 2008. The most significant increase was in the Falls and Trauma 
HAC category, with 108,397 discharges being reported in FY 2007, while 
116,832 discharges were reported in FY 2008, an increase of 8,435 
cases.
    However, the analysis found that there was a decrease in reported 
HAC-associated secondary diagnoses from FY 2008 to FY 2009. The most 
significant decrease was in the Falls and Trauma HAC category, with 
116,832 discharges being reported in FY 2008, while 109,246 discharges 
were reported in FY 2009, a decrease of 7,586 cases. We point out that 
because diagnosis codes for the Pressure Ulcer Stages III & IV HAC did 
not become effective until October 1, 2008, there are no data available 
for FY 2007 or FY 2008.
    We refer readers to the RTI detailed report for all the conditions 
in each fiscal year (FY 2007 through FY 2009) as described above at the 
following Web site: http://www.rti.org/reports/cms/.
g. Preliminary RTI Analysis of Estimated Net Savings for Current HACs
    RTI determined preliminary estimates of the net savings generated 
by the HAC payment policy based on MedPAR claims from October 2008 
through June 2009 for the 9-month period.
(1) Net Savings Estimation Methodology
    The payment impact of a HAC is the difference between the IPPS 
payment amount under the initially assigned MS-DRG and the amount under 
the reassigned MS-DRG. The amount for the reassigned MS-DRG appears on 
the MedPAR files. To construct this, RTI modeled the IPPS payments for 
each MS-DRG following the same approach that we use to model the impact 
of IPPS annual rule changes. Specifically, RTI replicated the payment 
computations carried out in the IPPS PRICER program using payment 
factors for IPPS providers as identified in various CMS downloaded 
files. The files used are as follows:
     Version 26 of the Medicare Severity GROUPER software 
(applicable to discharges between October 1, 2008 and September 30, 
2009). IPPS MedPAR claims were run through this file to obtain needed 
HAC-POA output variables.
     The FY 2009 MS-DRG payment weight file. This file includes 
the weights, geometric mean length of stay (GLOS), and the postacute 
transfer payment indicators.
     CMS standardized operating and capital rates. Tables 1A 
through 1C, as downloaded from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2009, include the full update and reduced update 
amounts, as well as the information needed to compute the blended 
amount for providers located in Puerto Rico.
     The IPPS impact files for FY 2009, also as downloaded from 
the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2009/. 
This file includes the wage index and geographic adjustment factors, 
plus the provider type variable to identify providers qualifying for 
alternative hospital-specific amounts and their respective HSP rates.
     The IPPS impact files for FY 2010, as downloaded from the 
Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/10FR/. This file 
includes indirect medical education (IME) and disproportionate share 
(DSH) percent adjustments that were in effect as of March 2009.
     CMS historical provider-specific files (PSF). This 
includes the indicator to identify providers subject to the full or 
reduced standardized rates and the applicable operating and capital 
cost-to-charge ratios. An SAS version was downloaded from the Web site 
at: http://www.cms.hhs.gov/ProspMedicareFeeSvcPmtGen/04_psf_SAS.asp.

There were 50 providers with discharges in the final HAC analysis file 
that did not appear in the FY 2009 impact file, of which 11 also did 
not appear in the FY 2010 impact file. For these providers, we 
identified the geographic CBSA from the historical PSF and assigned the 
wage index using values from Tables 4A and 4C as downloaded from the 
Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/IPPS2009/. For 
providers in the FY 2010 file but not the FY 2009 file, we used IME and 
DSH rates from FY 2010. The 11 providers in neither impact file were 
identified as non-IME and non-DSH providers in the historical PSF file.
    The steps for estimating the HAC payment impact are as follows:
    Step 1: Re-run the Medicare Severity GROUPER on all records in the 
analysis file. This is needed to obtain information on actual HAC-
related MS-DRG reassignments in the file, and to identify the CCs and 
MCCs that contribute to each MS-DRG assignment.
    Step 2: Model the base payment and outlier amounts associated with 
the initial MS-DRG if the HAC were excluded using the computations laid 
out in the CMS file ``Outlier Example FY2007 new.xls,'' as downloaded 
from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/04_outlier.asp#TopOfPage, and modified to accommodate FY 2009 factors. 
RTI's first round of computations treated all claims as though paid 
under standard IPPS rules without adjusting for short-stay transfers or 
HSP amounts.
    Step 3: Model the base payment and outlier amounts associated with 
the final MS-DRG where the HAC was excluded using the computations laid 
out in the CMS file ``Outlier Example FY2007 new.xls,'' as downloaded 
from the Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/04_outlier.asp#TopOfPage and modified to accommodate FY 2009 factors. 
RTI's first round of computations treated all claims as though paid 
under standard IPPS rules without adjusting for short-stay transfers or 
HSP amounts.
    Step 4: Compute MS-DRG base savings as the difference between the 
nonoutlier payments for the initial and final MS-DRGs. Compute outlier 
amounts as the difference in outlier amounts due under the initial and 
final reassigned MS-DRG. Compute net savings due to HAC reassignment as 
the sum of base savings plus outlier amounts.
    Step 5: Adjust the model to incorporate short-stay transfer payment 
adjustments.
    Step 6: Adjust the model to incorporate hospital-specific payments 
for qualifying rural providers receiving the hospital-specific payment 
rates.
    It is important to mention that using the methods described above, 
the MS-DRG and outlier payments amounts that are modeled for the final 
assigned MS-DRG do not always match the DRG price and outlier amounts 
that appear in the MedPAR record. There are several reasons for this. 
Some discrepancies are caused by using single wage index, IME and DSH 
factors for the full period

[[Page 23893]]

covered by the discharges, when in practice these payment factors can 
be adjusted for individual providers during the course of the fiscal 
year. In addition, RTI's approach disregards any Part A coinsurance 
amounts owed by individual beneficiaries with greater than sixty 
covered days in a spell of illness. Five percent of all HAC discharges 
showed at least some Part A coinsurance amount due from the 
beneficiary, although less than two percent of reassigned discharges 
(55 cases in the analysis file) showed Part A coinsurance amounts due. 
Any Part A coinsurance payments would reduce the actual savings 
incurred by the Medicare program.
    There are also a number of less common special IPPS payment 
situations that are not factored into RTI's modeling. These could 
include new technology add-on payments, payments for blood clotting 
factors, reductions for replacement medical devices, adjustments to the 
capital rate for new providers, and adjustments to the capital rate for 
certain classes of providers who are subject to a minimum payment level 
relative to capital cost.
(2) Net Savings Estimate
    Chart F below summarizes the estimated net savings of current HACs 
based on MedPAR claims from October 2008 through 2009, based on the 
methodology described above. Column A shows the number of discharges 
where an MS-DRG reassignment for each HAC category occurred. For 
example, there were 12 discharges with an Air Embolism that resulted in 
an actual MS-DRG reassignment. Column B shows the total net savings 
caused by MS-DRG reassignments for each HAC category. Continuing with 
the example of Air Embolism, the chart shows that the 12 discharges 
with an MS-DRG reassignment resulted in a total net savings of 
$148,394. Column C shows the net savings per discharge for each HAC 
category. For the Air Embolism HAC category, the net savings per 
discharge is $12,366.
BILLING CODE 4120-01-P

[[Page 23894]]

[GRAPHIC] [TIFF OMITTED] TP04MY10.008

BILLING CODE 4120-10-C

[[Page 23895]]

    As shown in Chart F above, the total net savings calculated for the 
9-month period from October 2008 through June 2009 was roughly $16.44 
million. The three HACs with the largest number of discharges resulting 
in MS-DRG reassignment, Falls and Trauma, Orthopedic PE/DVT, and 
Pressure Ulcer Stages III & IV, generated $15.10 million of net savings 
for the 9-month period. Estimated net savings for the 9-month period 
associated with the Falls and Trauma category were $7.58 million. 
Estimated net savings associated with Orthopedic PE/DVT for the 9-month 
period were $5.61 million. Estimated net savings for the 9-month period 
associated with Pressure Ulcer Stages III & IV were $1.87 million.
    The mean net savings per discharge calculated for the 9-month 
period from October 2008 through June 2009 was roughly $5,456. The HAC 
categories of Air Embolism; SSI, Mediastinitis, Following Coronary 
Artery Bypass Graft (CABG); and SSI Following Certain Orthopedic 
Procedures had the highest net savings per discharge, but represented a 
small proportion of total net savings because the number of discharges 
that resulted in MS-DRG reassignment for these HACs was low. With the 
exception of Blood Incompatibility, where no savings occurred because 
no discharges resulted in MS-DRG reassignment, SSI Following Bariatric 
Surgery for Obesity and Catheter-Associated UTI had the lowest net 
savings per discharge.
    We refer readers to the RTI detailed report available at the 
following Web site: http://www.rti.org/reports/cms/.
    As mentioned previously, an extremely small number of cases in the 
9-month period of FY 2009 analyzed by RTI had multiple HACs during the 
same stay. In reviewing our 7.17 million claims, RTI found 47 cases 
where two HACs were reported on the same admission as noted in section 
II.F.3.g.(2) of this preamble. Of these 47 claims, 15 resulted in MS-
DRG reassignment. Chart G below summarizes these cases. There were 15 
cases that had two HACs not POA that resulted in an MS-DRG 
reassignment. Of these, 5 discharges involved Pressure Ulcer Stages III 
& IV and Falls and Trauma and 4 discharges involved Orthopedic PE/DVT 
and Falls and Trauma.

   Chart G--Claims With More Than One HAC Secondary Diagnosis Where MS-DRG Reassignment Occurred October 2008
                                                Through June 2009
----------------------------------------------------------------------------------------------------------------
                                                                    4. Pressure    5. Falls and    6. Catheter-
                          Selected HAC                             ulcer stages    trauma--MCC &    associated
                                                                   III & IV--MCC        CC            UTI--CC
----------------------------------------------------------------------------------------------------------------
3. Blood Incompatibility--CC....................................  ..............               1  ..............
5. Falls and Trauma--MCC & CC...................................               5  ..............  ..............
6. Catheter-Associated Urinary Tract Infection (UTI)--CC........               1               1  ..............
7. Vascular Catheter-Associated Infection--CC...................  ..............               1               1
10. Pulmonary Embolism & DVT Orthopedic--MCC....................               1               4  ..............
                                                                 -----------------------------------------------
    Total.......................................................               7               7               1
----------------------------------------------------------------------------------------------------------------

    As we discuss in section II.F.1.b. of this preamble, implementation 
of this policy is the part of an array of Medicare VBP tools that we 
are using to promote increased quality and efficiency of care. We point 
out that a decrease over time in the number of discharges where these 
conditions are not POA is a desired consequence. We recognize that 
estimated net savings would likely decline as the number of such 
discharges decline. However, we believe that the sentinel effect 
resulting from CMS identifying these conditions is critical. (We refer 
readers to section IV.A. of this preamble for a discussion of the 
inclusion of the incidence of these conditions in the RHQDAPU program.) 
It is our intention to continue to monitor trends associated with the 
frequency of these HACs and the estimated net payment impact through 
RTI's program evaluation and possibly beyond.
h. Previously Considered Candidate HACs--Preliminary RTI Analysis of 
Frequency of Discharges and POA Indicator Reporting
    RTI evaluated the frequency of conditions previously considered, 
but not adopted as HACs in prior rulemaking, that were reported as 
secondary diagnoses (across all 7.17 million discharges) as well as the 
POA indicator assignments for these conditions. Chart H below indicates 
that the three previously considered candidate conditions most 
frequently reported as a secondary diagnosis were: (1) Clostridium 
Difficile-Associated Disease (CDAD), which demonstrated the highest 
frequency, with a total of 66,502 secondary diagnoses codes being 
reported for that condition, of which 23,323 reported a POA indicator 
of ``N''; (2) Staphylococcus aureus Septicemia, with a total of 17,662 
secondary diagnoses codes being reported for that condition, with 3,949 
of those reporting a POA indicator of ``N''; and (3) Iatrogenic 
Pneumothorax, with a total of 16,765 secondary diagnoses codes being 
reported for that condition, with 14,604 of those reporting a POA 
indicator of ``N.'' As these three conditions had the most significant 
impact for reporting a POA indicator of ``N,'' it is reasonable to 
believe that these same three conditions would have the greatest number 
of potential MS-DRG reassignments. The frequency of discharges for the 
previously considered HACs that could lead to potential changes in MS-
DRG assignment is discussed in the next section. We take this 
opportunity to remind readers that because more than one previously 
considered HAC diagnosis code can be reported per discharge (on a 
single claim) that the frequency of these diagnosis codes may be more 
than the actual number of discharges with a previously considered 
candidate condition reported as a secondary diagnosis.

[[Page 23896]]

[GRAPHIC] [TIFF OMITTED] TP04MY10.010

    In Chart I below, Column A shows the number of discharges for each 
previously considered candidate HAC category when the condition was 
reported as a secondary diagnosis. For example, there were 66,502 
discharges that reported CDAD as a secondary diagnosis. Previously 
considered candidate HACs reported with a POA indicator of ``N'' or 
``U'' may cause MS-DRG reassignment (which would result in reduced 
payment to the facility). Column C shows the discharges for each 
previously considered candidate HAC reported with a POA indicator of 
``N'' or ``U.'' Continuing with the example of CDAD, Chart I shows 
that, of the 66,502 discharges, 23,702 discharges (35.64 percent) had a 
POA indicator of ``N'' or ``U.'' Therefore, there were a total of 
23,702 discharges that could potentially have had an MS-DRG 
reassignment. Column E shows the number of discharges where an actual 
MS-DRG reassignment could have occurred; the number of discharges with 
CDAD that could have resulted in actual MS-DRG reassignments is 739 
(3.12 percent). Thus, while there were 23,702 discharges with CDAD 
reported with a POA indicator of ``N'' or ``U'' that could potentially 
have had an MS-DRG reassignment, the result was 739 (3.12 percent) 
potential MS-DRG reassignments. As discussed above, there are a number 
of reasons why a condition reported with a POA indicator of ``N'' or 
``U'' would not result in a MS-DRG reassignment.
    In summary, Chart I below demonstrates there were a total of 
159,485 discharges with a previously considered candidate HAC reported 
as a secondary diagnosis. Of those, 47,010 discharges were reported 
with a POA indicator of ``N'' or ``U.'' The total number of discharges 
that could have resulted in MS-DRG reassignments is 2,932.
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[[Page 23897]]

[GRAPHIC] [TIFF OMITTED] TP04MY10.011

BILLING CODE 4120-01-C
i. Current and Previously Considered Candidate HACs--RTI Report on 
Evidence-Based Guidelines
    The RTI program evaluation includes a report that provides 
references for all evidence-based guidelines available for each of the 
selected and previously considered candidate HACs that provide 
recommendations for the prevention of the corresponding conditions. 
Guidelines were primarily identified using the AHRQ National Guidelines 
Clearing House (NGCH) and the CDC, along with relevant professional 
societies. Guidelines published in the United States were used, if 
available. In the absence of U.S. guidelines for a specific condition, 
international guidelines were included.
    Evidence-based guidelines that included specific recommendations 
for the prevention of the condition were identified for each of the 10 
selected conditions. In addition, evidence-based guidelines were also 
found for the previously considered candidate conditions.
    RTI prepared a final report to summarize its findings regarding 
evidence-based guidelines, which can be found on the Web site at: 
http://www.rti.org/reports/cms.
j. Proposals Regarding Current HACs and Previously Considered Candidate 
HACs
    We believe that the RTI analysis summarized above does not provide 
additional information that would require us to change our previous 
determinations regarding either current HACs (as described in section 
II.F.2. of this preamble) or previously considered candidate HACs in 
the FY 2008 IPPS final rule with comment period and FY 2009 IPPS final 
rule (72 FR 47200 through 47218 and 73 FR 48471 through 48491, 
respectively). Accordingly, we are not proposing to add or remove 
categories of HACs at this time, although we note that we are proposing

[[Page 23898]]

to revise the Blood Incompatibility HAC category as discussed in 
section II.F.2. of this preamble. (We also note that, as discussed in 
section II.F.3.b. of this preamble, we are not proposing to change our 
current policy regarding the treatment of the ``U'' POA indicator.) 
However, we continue to encourage public dialogue about refinements to 
the HAC list.
    We refer readers to section II.F.6. of the FY 2008 IPPS final rule 
with comment period (72 FR 47202 through 47218) and to section II.F.7. 
of the FY 2009 IPPS final rule (73 FR 48474 through 48491) for detailed 
discussion supporting our determination regarding each of these 
conditions.

G. Proposed Changes to Specific MS-DRG Classifications

    We are inviting public comment on each of the MS-DRG classification 
proposed changes described below, as well as our proposals to maintain 
certain existing MS-DRG classifications, which are also discussed 
below. In some cases, we are proposing changes to the MS-DRG 
classifications based on our analysis of claims data. In other cases, 
we are proposing to maintain the existing MS-DRG classification based 
on our analysis of claims data.
1. Pre-Major Diagnostic Categories (MDCs)
a. Postsurgical Hypoinsulinemia (MS-DRG 008 (Simultaneous Pancreas/
Kidney Transplant)
    Diabetes mellitus is a pancreatic disorder in which the pancreas 
fails to produce sufficient insulin, or in which the body cannot 
process insulin. Many patients with diabetes will eventually experience 
complications of the disease, including poor kidney function. When 
these patients show signs of advanced kidney disease, they are usually 
referred for transplant evaluation. Currently, many doctors recommend 
that individuals with diabetes being evaluated for kidney 
transplantation also be considered for pancreas transplantation. A 
successful pancreas transplant may prevent, stop, or reverse the 
complications of diabetes.
    Occasionally, secondary diabetes may be surgically induced 
following a pancreas transplant. This condition would be identified by 
using ICD-9-CM diagnosis code 251.3 (Postsurgical hypoinsulinemia). 
However, currently the list of principal diagnosis codes assigned to 
surgical MS-DRG 008 (Simultaneous Pancreas/Kidney Transplant) does not 
include diagnosis code 251.3. Therefore, when diagnosis code 251.3 is 
assigned to a case as a principal diagnosis, the case is not assigned 
to MS-DRG 008. Instead, these cases are grouped to MS-DRG 652 (Kidney 
Transplant) under MDC 11 (Diseases and Disorders of the Kidney and 
Urinary Tract). In addition, the use of diagnosis code 251.3 as a 
principal diagnosis without a secondary diagnosis of diabetes mellitus 
and with a procedure code for pancreas transplant only during that 
admission results in assignment of the case to MS-DRG 628, 629, or 630 
(Other Endocrine, Nutritional & Metabolic Operating Room Procedures 
with MCC, with CC, and without CC/MCC, respectively) under MDC 10 
(Endocrine, Nutritional and Metabolic Diseases and Disorders).
    We believe that the exclusion of diagnosis code 251.3 from the list 
of principal diagnosis codes assigned to surgical MS-DRG 008 is an 
error of omission. Therefore, we are proposing to add diagnosis code 
251.3 to the list of principal or secondary diagnosis codes assigned to 
MS-DRG 008. As a conforming change, we also are proposing to add 
diagnosis code 251.3 to the list of principal or secondary diagnosis 
codes assigned to MS-DRG 010 (Pancreas Transplant).
b. Bone Marrow Transplants
    We received two requests to review whether cost differences between 
an autologous bone marrow transplant (where the patient's own bone 
marrow or stem cells are used) and an allogeneic bone marrow transplant 
(where bone marrow or stem cells come from either a related or 
unrelated donor) necessitate the creation of separate MS DRGs to more 
appropriately account for the clinical nature of the services being 
rendered as well as the costs. One of the requestors stated that there 
are dramatic differences in the costs between the two types of 
transplants where allogeneic cases are significantly more costly.
    Bone marrow transplantation and peripheral blood stem cell 
transplantation are used in the treatment of certain cancers and bone 
marrow diseases. These procedures restore stem cells that have 
destroyed by high doses of chemotherapy and/or radiation treatment. 
Currently, all bone marrow transplants are assigned to MS-DRG 009 (Bone 
Marrow Transplant).
    We performed an analysis of the FY 2009 MedPAR data and found 1,664 
total cases assigned to MS-DRG 009 with average costs of approximately 
$43,877 and an average length of stay of approximately 21 days. Of 
these MS-DRG 009 cases, 395 of them were allogeneic bone marrow 
transplant cases reported with one of the following ICD-9-CM procedure 
codes: 41.02 (Allogeneic bone marrow transplant with purging); 41.03 
(Allogeneic bone marrow transplant without purging); 41.05 (Allogeneic 
hematopoietic stem cell transplant without purging); 41.06 (Cord blood 
stem cell transplant); or 41.08 (Allogeneic hematopoietic stem cell 
transplant). The average costs of these allogeneic cases, approximately 
$64,845, were higher than the overall average costs of all cases in MS-
DRG 009, approximately $43,877. The average length of stay for the 
allogeneic cases, approximately 28 days, was slightly higher than the 
average length of stay for all cases assigned to MS-DRG 009, 
approximately 21 days.
    We found 1,269 autologous bone marrow transplant cases reported 
with one of the following ICD-9-CM procedure codes: 41.00 (Bone marrow 
transplant, not otherwise specified); 41.01 (Autologous bone marrow 
transplant without purging); 41.04 (Autologous hematopoietic stem cell 
transplant without purging); 41.07 (Autologous hematopoietic stem cell 
transplant with purging); or 41.09 (Autologous bone marrow transplant 
with purging). The average costs of these cases, approximately $37, 
350, was less than the overall average costs of all cases in MS-DRG 009 
and the average costs associated with the allogeneic bone marrow 
transplant cases. The average length of stay, of approximately 19 days, 
was less than the average lengths of stay for all the cases assigned to 
MS-DRG 009 and for the allogeneic bone marrow transplant cases. We 
included in our analysis of the autologous bone marrow transplants 
cases, 5 cases that were reported with procedure code 41.00 (Bone 
marrow transplant, not otherwise specified). These 5 cases had average 
costs of approximately $41,084 and an average length of stay of 
approximately 12 days, which was similar to the other autologous bone 
marrow transplant cases.
    The table below illustrates our findings:

[[Page 23899]]

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases         of  stay      Average cost
----------------------------------------------------------------------------------------------------------------
009--All cases..................................................           1,664           21.22         $43,877
009--Cases with allogeneic bone marrow transplants..............             395           27.7           64,845
009--Cases with autologous bone marrow transplants..............           1,269           19.1           37,350
----------------------------------------------------------------------------------------------------------------

    As a result of our analysis, the data support the requestor's 
suggestion that there are cost differences associated with the 
autologous bone marrow transplants and allogeneic bone marrow 
transplants and warrants a separate MS-DRG for these procedures. 
Therefore, we are proposing to delete MS-DRG 009 and create two new MS-
DRGs: MS-DRG 014 (Allogeneic Bone Marrow Transplant) and MS-DRG 015 
(Autologous Bone Marrow Transplant).
    Proposed MS-DRG 014 would include cases reported with one of the 
following ICD-9-CM procedure codes:
     41.02, Allogeneic bone marrow transplant with purging
     41.03, Allogeneic bone marrow transplant without purging
     41.05, Allogeneic hematopoietic stem cell transplant 
without purging
     41.06, Cord blood stem cell transplant
     41.08, Allogeneic hematopoietic stem cell transplant
    Proposed MS-DRG 015 would include cases reported with one of the 
following ICD-9-CM procedure codes:
     41.00 (Bone marrow transplant, not otherwise specified)
     41.01 (Autologous bone marrow transplant without purging)
     41.04 (Autologous hematopoietic stem cell transplant 
without purging)
     41.07 (Autologous hematopoietic stem cell transplant with 
purging)
     41.09 (Autologous bone marrow transplant with purging)
2. MDC 1 (Nervous System): Administration of Tissue Plasminogen 
Activator (tPA) (rtPA)
    During the comment period for the FY 2010 IPPS/RY 2010 LTCH PPS 
proposed rule, we received a public comment that had not been the 
subject of a proposal in that proposed rule. The commenter had 
requested that CMS conduct an analysis of diagnosis code V45.88 (Status 
post administration of tPA (rtPA) in a different facility within the 
last 24 hours prior to admission to current facility) under MDC 1 
(Diseases and Disorders of the Nervous System). Diagnosis code V45.88 
was created for use beginning October 1, 2008, to identify patients who 
are given tissue plasminogen activator (tPA) at one institution and 
then transferred and admitted to a comprehensive stroke center for 
further care. This situation is referred to as the ``drip-and-ship'' 
issue that was discussed at detail in the FY 2009 IPPS final rule (73 
FR 48493).
    According to the commenter, the concern at the receiving facilities 
is that the costs associated with [caring for] more complex stroke 
patients that receive tPA are much higher than the cost of the drug, 
presumably because stroke patients initially needing tPA have more 
complicated strokes and outcomes. However, because these patients do 
not receive the tPA at the second or transfer hospital, the receiving 
hospital will not be assigned to one of the higher weighted tPA stroke 
MS-DRGs when it admits these patients whose care requires the use of 
intensive resources. The MS-DRGs that currently include codes for the 
use of tPA are: 061 (Acute Ischemic Stroke with Use of Thrombolytic 
Agent with MCC); 062 (Acute Ischemic Stroke with Use of Thrombolytic 
Agent with CC); and 063 (Acute Ischemic Stroke with Use of Thrombolytic 
Agent without CC/MCC). These MS-DRGs have higher relative weights than 
the next six MS-DRGs relating to brain injury in the hierarchy. The 
commenter requested an analysis of the use of diagnosis code V45.88 
reflected in the MedPAR data for FY 2009 and FY 2010. The commenter 
believed that the data would show that the use of this code could 
potentially result in a new MS-DRG or a new set of MS-DRGs in FY 2011.
    In addressing this public comment in the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule (74 FR 43798), we noted that the comment was out of 
scope for the FY 2010 proposed rule and reiterated that the deadline 
for requesting data review and potential MS-DRG changes had been the 
previous December. We are now able to address the commenter's concern 
because we have been able to conduct an analysis of MedPAR claims data 
for this diagnosis code for this proposed rule.
    For this proposed rule, we undertook an analysis of MedPAR claims 
data for FY 2009. For our analysis, we did not include claims for 
patient cases assigned to MS-DRGs 061, 062, or 063 because patients 
whose cases were assigned to these MS-DRGs would have been given the 
tPA at the initial hospital, with assignment of procedure code 99.10 
(Injection or infusion of thrombolytic agent), prior to their transfer 
to a comprehensive stroke center. The tPA should not have been given at 
the receiving hospital; therefore, inclusion of code 99.10 on their 
claims would constitute erroneous coding. Likewise, we did not include 
MS-DRGs 067 and 068 (Nonspecific CVA & Precerebral Occlusion without 
Infarction with MCC, and without MCC, respectively), or MS-DRG 069 
(Transient Ischemia). Claims assigned to MS-DRGs 067, 068, and 069 are 
unlikely to contain cases in which tPA had been administered.
    Our data analysis included MS-DRGs 064, 065, and 066 (Intracranial 
Hemorrhage or Cerebral Infarction with MCC, with CC, and without CC/
MCC, respectively) because claims involving diagnosis code V45.88 would 
be properly reported in the data for these MS-DRGs for FY 2009. The 
following table reflects the results of our analysis of the MedPAR data 
in which diagnosis code V45.88 was reported as a secondary diagnosis 
for FY 2009.

----------------------------------------------------------------------------------------------------------------
                                                                                      Average
                             MS-DRG                                  Number of       length of     Average cost
                                                                       cases           stay
----------------------------------------------------------------------------------------------------------------
MS-DRG 064--All Cases...........................................          65,884            6.80         $11,305
MS-DRG 064--Cases with secondary diagnosis code V45.88..........             249            7.00          12,285
MS-DRG 065--All Cases...........................................          96,274            4.75           7,264
MS-DRG 065--Cases with secondary diagnosis code V45.88..........             448            5.06           8,732
MS-DRG 066--All Cases...........................................          62,337            3.29           5,291

[[Page 23900]]

MS-DRG 066--Cases with secondary diagnosis code V45.88..........             210            3.35           6,325
----------------------------------------------------------------------------------------------------------------

    Based on our review of the data for all of the cases in MS-DRGs 
064, 065, and 066, compared to the subset of cases containing the 
V45.88 secondary diagnosis code, we concluded that the movement of 
cases with diagnosis code V45.88 as a secondary diagnosis from MS-DRGs 
064, 065, and 066 into MS-DRGs 061, 062, and 063 is not warranted. We 
determined that the differences in the average lengths of stay and the 
average costs are too small to warrant an assignment to the higher 
weighted MS-DRGs. Likewise, neither the lengths of stay nor the average 
costs are substantial enough to justify the creation of an additional 
MS-DRG for transferred tPA cases, or to create separate MS-DRGs that 
would mirror the MCC, CC or without CC/MCC severity levels.
    Therefore, for FY 2011, we are not proposing any change to MS-DRGs 
061, 062, 063, 064, 065, or 066, or any change involving the assignment 
of diagnosis code V45.88.
3. MDC 5 (Diseases and Disorders of the Circulatory System): 
Intraoperative Fluorescence Vascular Angiography (IFVA) and X-Ray 
Coronary Angiography in Coronary Artery Bypass Graft Surgery
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR43785 through 
43787), we discussed a request we received to reassign cases reporting 
the use of intraoperative fluorescence vascular angiography (IFVA) with 
coronary artery bypass graft (CABG) procedures from MS-DRGs 235 and 236 
(Coronary Bypass without Cardiac Catheterization with and without MCC, 
respectively) to MS-DRG 233 (Coronary Bypass with Cardiac 
Catheterization with MCC) and MS-DRG 234 (Coronary Bypass with Cardiac 
Catheterization without MCC). Effective October 1, 2007, procedure code 
88.59 (Intraoperative fluorescence vascular angiography (IFVA)) was 
established to describe this technology.
    In addition, we also discussed receiving related requests (74 FR 
43798 through 43799) that were outside the scope of issues addressed 
for MDC 5 in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule. There 
were three components to these requests. The first component involved 
the creation of new MS-DRGs. One request was to create four new MS-DRGs 
that would differentiate the utilization of resources between 
intraoperative angiography and IFVA when utilized with CABG. A second 
request was to create only one new MS-DRG to separately identify the 
use of intraoperative angiography, by any method, in CABG surgery. The 
second component involved reviewing the ICD-9-CM procedure codes. 
Currently, the ICD-9-CM procedure codes do not distinguish between 
preoperative, intraoperative, and postoperative angiography. Procedure 
code 88.59 (Intraoperative fluorescence vascular angiography (IFVA)) is 
one intraoperative angiography technique that allows visualization of 
the coronary vasculature. The third component involved reassigning 
cases with procedure code 88.59 to the ``Other Cardiovascular MS-
DRG''s: MS-DRGs 228, 229, and 230 (Other Cardiothoracic Procedures with 
MCC, CC, and without CC/MCC, respectively). We stated our intent to 
consider these requests during the FY 2011 rulemaking process.
    After publication of the FY 2010 IPPS/RY 2010 LTCH PPS final rule, 
we were contacted by one of the requestors, the manufacturer of the 
IFVA technology. We met with the requestor in mid-November 2009 to 
discuss evaluating the data for IFVA (procedure code 88.59) again in 
consideration of a proposal to create new MS-DRGs and to discuss a 
request for a new procedure code(s).
    IFVA technology consists of a mobile device imaging system with 
software. It is used to test cardiac graft patency and technical 
adequacy at the time of coronary artery bypass grafting (CABG). While 
this system does not involve fluoroscopy or cardiac catheterization, it 
has been suggested that it yields results that are similar to those 
achieved with selective coronary arteriography and cardiac 
catheterization. Intraoperative coronary angiography provides 
information about the quality of the anastomosis, blood flow through 
the graft, distal perfusion, and durability. For additional information 
regarding IFVA technology, we refer readers to the September 28-29, 
2006 ICD-9-CM Coordination and Maintenance Committee meeting handout at 
the following Web site: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp#TopOfPage.
a. New MS-DRGs for Intraoperative Fluorescence Vascular Angiography 
(IFVA) With CABG
    As stated earlier, the manufacturer requested that we create four 
new MS-DRGs for CABG to distinguish CABG surgeries performed with IFVA 
and those performed without IFVA. According to the requestor, these 
four new MS-DRGs would correspond to the existing MS-DRG for CABG but 
would also include intraoperative angiography. The requestor proposed 
the following four new MS-DRGs:

MS-DRG XXX (Coronary Bypass with Cardiac Catheterization with MCC with 
Intraoperative Angiography)
MS-DRG XXX (Coronary Bypass with Cardiac Catheterization without MCC 
with Intraoperative Angiography)
MS-DRG XXX (Coronary Bypass without Cardiac Catheterization with MCC 
with Intraoperative Angiography)
MS-DRG XXX (Coronary Bypass without Cardiac Catheterization without MCC 
with Intraoperative Angiography)

    Using claims data from the FY 2009 MedPAR file, we examined cases 
identified by procedure code 88.59 in MS-DRGs 233, 234, 235, and 236. 
As shown in the table below, for both MS-DRGs 235 and 236, the cases 
utilizing IFVA technology (code 88.59) have a shorter length of stay 
and lower average costs compared to all cases in MS-DRGs 235 and 236. 
There were a total of 10,281 cases in MS-DRG 235 with an average length 
of stay of 10.61 days and average costs of $34,639. There were 114 
cases identified by procedure code 88.59 with an average length of stay 
of 10.38 days with average costs of $28,238. In MS-DRG 236, there were 
a total of 22,410 cases with an average length of stay of 6.37 days and 
average costs of $23,402; and there were 186 cases identified by 
procedure code 88.59 with an average length of stay of 6.54 days and 
average costs of $19,305. Similar to the data reported last year, the 
data for FY 2009 clearly demonstrate that the IFVA cases (identified by 
procedure code 88.59) are assigned appropriately to MS-DRGs 235 and 
236. We also examined cases identified by procedure code 88.59 in MS-
DRGs 233 and 234. Likewise, in MS-DRGs 233 and 234 cases identified by 
code 88.59 reflect shorter lengths of stay and lower

[[Page 23901]]

average costs compared to the remainder of the cases in those MS-DRGs; 
and there were a total of 16,475 cases in MS-DRG 233 with an average 
length of stay of 13.47 days and average costs of $42,662. There were 
58 cases identified by procedure code 88.59 with an average length of 
stay of 12.12 days and average costs of $35,940. In MS-DRG 234, there 
were a total of 23,478 cases with an average length of stay of 8.61 
days and average costs of $29,615; and there were 67 cases identified 
by procedure code 88.59 with an average length of stay of 8.85 days and 
average costs of $25,379. The data clearly demonstrate the IFVA cases 
(identified by procedure code 88.59) are appropriately assigned to MS-
DRGs 233 and 234.

----------------------------------------------------------------------------------------------------------------
                                                                                      Average
                             MS-DRG                                 Number  of       length of     Average cost
                                                                       cases           stay
----------------------------------------------------------------------------------------------------------------
235--All cases..................................................          10,281           10.61         $34,639
235--Cases with procedure code 88.59............................             114           10.38          28,238
235--Cases without procedure code 88.59.........................          10,167           10.62          34,711
236--All cases..................................................          22,410            6.37          23,402
236--Cases with code procedure 88.59............................             186            6.54          19,305
236--Cases without procedure code 88.59.........................          22,224            6.37          23,436
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
                                                                                      Average
                             MS-DRG                                 Number  of       length of     Average cost
                                                                       cases           stay
----------------------------------------------------------------------------------------------------------------
233--All cases..................................................          16,475           13.47         $42,662
233--Cases with procedure code 88.59............................              58           12.12          35,940
233--Cases without procedure code 88.59.........................          16,417           13.47          42,686
234--All cases..................................................          23,478            8.61          29,615
234--Cases with procedure code 88.59............................              67            8.85          25,379
234--Cases without procedure code 88.59.........................          23,411            8.61          29,627
----------------------------------------------------------------------------------------------------------------

    If the cases identified by procedure code 88.59 were proposed to be 
reassigned from MS-DRGs 235 and 236 to MS-DRGs 233 and 234, they would 
be significantly overpaid. In addition, because the cases in MS-DRGs 
235 and 236 did not actually have a cardiac catheterization performed, 
a proposal to reassign cases identified by procedure code 88.59 would 
result in lowering the relative weights of MS-DRGs 233 and 234 where a 
cardiac catheterization is truly performed.
    In summary, the data do not support moving IFVA cases (procedure 
code 88.59) from MS-DRGs 235 and 236 to MS-DRGs 233 and 234. Therefore, 
we are not proposing to make any MS-DRG modifications for cases 
reporting procedure code 88.59 for FY 2011.
b. New MS-DRG for Intraoperative Angiography, by Any Method, With CABG
    We also received a request to create a single MS-DRG for any type 
of intraoperative angiography utilized in CABG surgery. The requestor 
suggested the following title for the proposed new MS-DRG: XXX Coronary 
Bypass with Intraoperative Angiography, by any Method.
    Currently, the only ICD-9-CM procedure code that identifies an 
intraoperative angiography is procedure code 88.59 (Intraoperative 
fluorescence vascular angiography), as described in the previous 
section. Due to the structure of the ICD-9-CM procedure classification 
system, it is not possible to distinguish when other types of 
angiography are performed intraoperatively. Therefore, we are unable to 
evaluate any data, other than that for procedure code 88.59, as shown 
in the tables above. We are not proposing to create a new MS-DRG in FY 
2011 for coronary bypass with intraoperative angiography, by any 
method.
c. New Procedure Codes
    In response to our invitation to submit public comments regarding 
the proposal not to make any MS-DRG modifications for cases reporting 
procedure code 88.59 in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule 
(74 FR 24106-24107), one requestor presented another option involving 
the creation of new ICD-9-CM procedure codes. According to the 
requestor, the purpose of these new codes would be to separately 
identify the two technologies used to perform intraoperative coronary 
angiography in CABG surgery: X-ray coronary angiography with cardiac 
catheterization and fluoroscopy versus intraoperative fluorescence 
coronary angiography (IFVA). The requestor stated that due to the 
structure of the current codes and MS-DRGs for CABG, it is difficult to 
identify when x-ray angiography is performed.
    X-ray angiography is commonly performed as a separate procedure in 
a catheterization laboratory. Currently, there are no procedure codes 
to distinguish if this angiography was performed preoperatively, 
intraoperatively, and/or postoperatively. We informed the requestor 
that they could submit a proposal for creating a new procedure code(s) 
to the ICD-9-CM Coordination and Maintenance Committee for its 
consideration. Therefore, this topic will be further evaluated through 
the ICD-9-CM Coordination and Maintenance Committee meeting process.
d. MS-DRG Reassignment of Intraoperative Fluorescence Vascular 
Angiography (IFVA)
    One requestor suggested reassigning procedure code 88.59 
(Intraoperative Fluorescence Vascular Angiography), to the ``Other 
Cardiovascular MS-DRGs:'' MS-DRGs 228, 229, and 230 (Other 
Cardiothoracic Procedures with MCC, CC, and without CC/MCC, 
respectively). The requestor noted that these MS-DRGs have three levels 
of severity and that other procedures assigned to these MS-DRGs (for 
example, transmyocardial revascularization) are frequently performed at 
the same time as a CABG. The requestor believed that reassigning cases 
that report IFVA (procedure code 88.59) to these MS-DRGs would not 
result in a significant overpayment to hospitals.
    We point out that, in the surgical hierarchy, MS-DRGs 228, 229, and 
230 rank higher than MS-DRGs 233, 234, 235, and 236, which were 
evaluated in the above tables for CABG procedures

[[Page 23902]]

performed with IFVA (procedure code 88.59). The surgical hierarchy 
reflects the relative resource requirements of various surgical 
procedures. For example, if a CABG surgery were performed along with 
another procedure currently assigned to MS-DRGs 228, 229, and 230, the 
case would be assigned to one of the ``Other Cardiothoracic Procedures 
MS-DRGs'' (228, 229, and 230) because patients with multiple procedures 
are assigned to the highest surgical hierarchy to which one of the 
procedures is assigned.
    Therefore, as the data shown above did not demonstrate that IFVA 
utilized an equivalent (or additional) amount of resources as a cardiac 
catheterization to warrant a proposal to reassign IFVA cases to MS-DRGs 
233 and 234 and the fact that IFVA cases with CABG performed with a 
procedure assigned to MS-DRGs 228, 229, and 230 would already be 
grouped to those same MS-DRGs, we are not proposing to reassign cases 
reporting procedure code 88.59 to MS-DRGs 228, 229, and 230 for FY 
2011.
4. MDC 6 (Diseases and Disorders of the Digestive System): 
Gastrointestinal Stenting
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR43799), we 
discussed a request we received to create new MS-DRGs in FY 2011 to 
better identify patients who undergo the insertion of a 
gastrointestinal stent. The request was considered outside the scope of 
issues addressed in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule; 
therefore, we stated our intent to consider this request during the FY 
2011 rulemaking process.
    Gastrointestinal stenting is performed by inserting a tube (stent) 
into the esophagus, duodenum, biliary tract or colon to reestablish or 
maintain patency of these structures and allow swallowing, drainage, or 
passage of waste. The commenter requested that the new MS-DRGs be 
subdivided into three severity levels (with MCC, with CC, and without 
CC/MCC) to better align payment rates with resource consumption and 
improve the clinical coherence of these cases.
    In its own analysis using FY 2008 MedPAR data, the commenter 
identified gastrointestinal stenting cases using relevant diagnosis 
codes and a combination of procedure codes with revenue code 0278 in 
MS-DRGs 374, 375, and 376 (Digestive Malignancy with MCC, with CC, and 
without CC/MCC, respectively), MS-DRGs 391and 392 (Esophagitis, 
Gastroenteritis and Miscellaneous Digestive Disorders with MCC and 
without MCC, respectively), and MS-DRGs 393, 394, and 395 (Other 
Digestive System Diagnoses with MCC, with CC, and without CC/MCC, 
respectively) in MDC 6 (Diseases and Disorders of the Digestive 
System); and MS-DRGs 435, 436, and 437 (Malignancy of Hepatobiliary 
System or Pancreas with MCC, with CC, and without CC/MCC, respectively) 
in MDC 7 (Diseases and Disorders of the Hepatobiliary System and 
Pancreas).
    As stated above, the commenter utilized a combination of procedure 
codes along with revenue code 0278 for its analysis. There were a total 
of six procedure codes included, of which, only three (procedure codes 
42.81, 51.87, and 52.93) actually describe the insertion of a stent. 
The complete list of procedure codes is as follows:
     42.81 (Insertion of permanent tube into esophagus)
     45.13 (Other endoscopy of small intestine)
     45.22 (Endoscopy of large intestine through artificial 
stoma)
     46.85 (Dilation of intestine)
     51.87 (Endoscopic insertion of stent (tube) into bile 
duct)
     52.93 (Endoscopic insertion of stent (tube) into 
pancreatic duct)
    The commenter aggregated the results by the previously mentioned 
MS-DRG groupings and did not present results for individual stenting 
procedures. According to the commenter, mean standardized charges for 
gastrointestinal stenting procedures were higher than those for 
nonstenting procedures across all levels of severity of illness. In 
addition, the commenter believed that the difference in charges was not 
simply related to the costs of the stents, but rather that the extent 
of the difference in charges reflected the severity of illness and 
resource intensity associated with gastrointestinal stenting 
procedures.
    In response to the commenter's request, we point out that we do not 
utilize revenue codes in our process to evaluate if new MS-DRGs are 
warranted. The use of revenue codes in the MS-DRG reclassification 
process would require a major structural change from the current 
process that has been utilized since the inception of the IPPS. In 
addition, the commenter included procedure codes in its analysis that 
do not identify the insertion of a stent; thereby, the data are 
unreliable. Furthermore, two procedure codes describing the insertion 
of a colonic stent were recently implemented, effective with discharges 
occurring on or after October 1, 2009--procedure code 46.86 (Endoscopic 
insertion of colonic stent(s)) and procedure code 46.87 (Other 
insertion of colonic stent(s)). However, we do not have data currently 
available on these two new procedure codes to include them in a 
comprehensive analysis. Lastly, as the commenter indicated, the 
differences between those procedures with and without stents is a 
reflection on the severity of illness and resource consumption 
associated with these types of procedures. The commenter also 
acknowledged that patients receiving a gastrointestinal stent who are 
severely debilitated due to prolonged illness are reflected by the fact 
that the majority of cases are assigned to MS-DRGs for patients with 
MCCs (major complications or comorbidities). Therefore, the medical MS-
DRGs to which these procedures are currently assigned already account 
for the severity of illness and intensity of resources utilized.
    Using FY 2009 MedPAR data, we analyzed the three procedure codes 
that truly identify and describe the insertion of a stent (procedure 
codes 42.81, 51.87, and 52.93) within the MS-DRGs referenced above. 
Similar to the commenter's findings, our analysis demonstrated a small 
volume of cases in which insertion of a gastrointestinal stent occurred 
in the specified MS-DRGs. Of the 411,390 total cases across the 
digestive system MS-DRGs the requestor identified, there were only 
2,011cases that involved the actual insertion of a gastrointestinal 
stent. These cases had average costs ranging from a low of $5,846 to a 
high of $17,626. Based on these findings, we do not believe it is 
appropriate to assign cases with such disparity in costs into a single, 
new MS-DRG. Furthermore, in applying the five criteria used to 
establish new MS-DRGs, the data do not support the creation of new MS-
DRGs with three severity levels (with MCC, with CC, and without CC/
MCC).
    For the reasons stated above, we invite the public to submit 
comments on our proposal not to make any MS-DRG modifications at this 
time to cases involving the use of gastrointestinal stents for FY 2011.
5. MDC 8 (Diseases and Disorders of the Musculoskeletal System and 
Connective Tissue): Pedicle-Based Dynamic Stabilization
    As we did for FY 2009 (73 FR 45820), we received a request from a 
manufacturer to reassign procedure code 84.82 (Insertion or replacement 
of pedicle-based dynamic stabilization device(s)), effective October 1, 
2007, from MS-DRG 490 (Back and Neck Procedures Except Spinal Fusion 
with CC/MCC or Disc Device/Neurostimulator) to MS-DRG 460

[[Page 23903]]

(Spinal Fusion Except Cervical without MCC). According to the 
manufacturer, the technology that is identified by this procedure code, 
the Dynesys[supreg] Dynamic Stabilization System, is clinically similar 
to lumbar spinal fusion and requires similar utilization of resources.
    Dynamic stabilization is a concept that utilizes a flexible system 
to stabilize the spine without fusion. The primary goals of dynamic 
stabilization are to limit the amount of unnatural spinal motion and 
preserve as much of the patient's natural anatomic structures as 
possible. The Dynesys[supreg] Dynamic Stabilization System is comprised 
of three components with specific functions: Titanium alloy pedicle 
screws that anchor the system to the spine; a polyethylene-
terephthalate (PET) cord that connects the Dynesys[supreg] screws; and 
a polycarbonate-urethane (PCU) spacer that runs over the cord between 
the Dynesys[supreg] screws. The system is placed under tension creating 
a dynamic interaction between the components.
    The MS-DRGs are comprised of clinically coherent groups of patients 
who consume similar utilization of resources and complexity of 
services. The insertion of a Dynesys[supreg] Dynamic Stabilization 
System is clinically not a lumbar fusion. As stated previously, dynamic 
stabilization is a concept that utilizes a flexible system to stabilize 
the spine without fusion. Therefore, it would be clinically 
inappropriate to reassign cases reporting procedure code 84.82 in the 
fusion MS-DRG.
    In conclusion, the Dynesys[supreg] Dynamic Stabilization System is 
currently FDA approved for use only as an adjunct to spinal fusion, 
there is uncertainty regarding the coding and reporting of procedure 
code 84.82, as well as off-label use, and currently, all other similar 
nonfusion devices are assigned to MS-DRG 490.
    For the reasons listed above, we are not proposing to reassign 
cases reporting procedure code 84.82 from MS-DRG 490 to MS-DRG 460 for 
FY 2011.
6. MDC 15 (Newborns and Other Neonates With Conditions Originating in 
the Perinatal Period)
a. Discharges/Transfers of Neonates to a Designated Cancer Center or 
Children's Hospital
    We received a request to add patient discharge status code 05 
(Discharged/transferred to a designated cancer center or children's 
hospital) to the MS-DRG GROUPER logic for MS-DRG 789 (Neonates, Died or 
Transferred to Another Acute Care Facility). Currently, neonate cases 
with the discharge status code 05 are being assigned to MS-DRG 795 
(Normal Newborn).
    The definition of discharge status code 05 was changed on April 1, 
2008, from ``discharged/transferred to another type of health care 
institution not defined elsewhere in this code list'' to ``discharged/
transferred to a designated cancer center or children's hospital.'' We 
examined cases in the FY 2009 MedPAR file but did not find any cases 
with the discharge status code 05 that were assigned to either MS-DRG 
789 or MS-DRG 795. However, we believe that the request has merit in 
identifying neonate cases appropriately. Therefore, for FY 2011, we are 
proposing to add discharge status code 05 to the MS-DRG GROUPER logic 
for MS-DRG 789.
b. Vaccinations of Newborns
    We received a request to examine the assignment of code V64.05 
(Vaccination not carried out because of caregiver refusal) to MS-DRG 
794 (Neonate with Other Significant Problems). Code V64.05 is currently 
being reported when a physician documents that a parent/caregiver has 
refused immunization for a child. The reporting of this code as a 
principal or secondary diagnosis impacts the MS-DRG assignment for 
normal newborns cases being assigned to MS-DRG 794.
    We examined cases in the FY 2009 MedPAR file but did not find any 
cases of code V64.05 assigned to MS-DRG 794. Our medical advisors agree 
that code V64.05 should not be assigned to MS-DRG 794. We determined 
that the presence of code V64.05 does not indicate that there is a 
significant problem with the newborn and should not be assigned to MS-
DRG 794. Therefore, we believe that assignment of code V64.05 to MS-DRG 
795 (Normal Newborn) would be more appropriate for this code because it 
does not identify a significant problem.
    The logic for MS-DRG 795 contains a list of principal diagnosis 
codes for normal newborn and no secondary diagnosis or a list of only 
secondary diagnosis codes. Therefore, in this proposed rule, for FY 
2011, we are proposing to remove code V64.05 from MS-DRG 794 and add 
this code to the only secondary diagnosis list for MS-DRG 795.
7. Medicare Code Editor (MCE) Changes
    As explained under section II.B.1. of the preamble of this proposed 
rule, the Medicare Code Editor (MCE) is a software program that detects 
and reports errors in the coding of Medicare claims data. Patient 
diagnoses, procedure(s), and demographic information are entered into 
the Medicare claims processing systems and are subjected to a series of 
automated screens. The MCE screens are designed to identify cases that 
require further review before classification into a MS-DRG. For FY 
2011, we intend to make the following changes to the MCE edits and 
invite public input on whether or not we should do so:
a. Unacceptable Principal Diagnosis Edit: Addition of Code for 
Gastroparesis
    It has been brought to our attention that code 536.3 
(Gastroparesis) has a ``code first underlying disease'' note. This note 
indicates that code 536.3 should not be used as a principal diagnosis. 
Therefore, code 536.3 should have been included on the list of 
unacceptable principal diagnoses in the MCE.
    We agree that code 536.3 should have been included on the list of 
unacceptable principal diagnoses in the MCE. Therefore, for FY 2011, we 
intend to add code 536.3 to that list.
b. Open Biopsy Check Edit
    The Open Biopsy Check edit in the MCE dates back to the early years 
of the IPPS when the surgical and medical DRGs were not as expansive as 
they are today. In the mid-1980s when the Open Biopsy Check edit was 
created, the ICD-9-CM codes did not have many biopsy procedure codes 
that clearly showed the approach, such as codes for open, percutaneous, 
and closed biopsies. Furthermore, under the current MS-DRGs, the open 
biopsy codes do not have as significant an impact as they did in the 
early versions of the DRGs. We believe that the Open Biopsy Check edit 
no longer serves a useful purpose. Therefore, for FY 2011, we intend to 
delete the entire Open Biopsy Check edit from the MCE, which means 
removing the following 63 codes from the edit:
     01.11 (Closed [Percutaneous] [Needle] biopsy of cerebral 
meninges)
     01.12 (Open biopsy of cerebral meninges)
     01.13 (Closed [Percutaneous] [Needle] biopsy of brain)
     01.14 (Open biopsy of brain)
     04.11 (Closed [Percutaneous] [Needle] biopsy of cranial or 
peripheral nerve or ganglion)
     04.12 (Open biopsy of cranial or peripheral nerve or 
ganglion)
     06.11 (Closed [Percutaneous] [Needle] biopsy of thyroid 
gland)
     06.12 (Open biopsy of thyroid gland)
     07.11 (Closed [Percutaneous] [Needle] biopsy of adrenal 
gland)
     07.12 (Open biopsy of adrenal gland)

[[Page 23904]]

     22.11 (Closed [Endoscopic] [Needle] biopsy of nasal sinus)
     22.12 (Open biopsy of nasal sinus)
     25.01 (Closed [Needle] biopsy of tongue)
     25.02 (Open biopsy of tongue)
     26.11 (Closed [Needle] biopsy of salivary gland or duct)
     26.12 (Open biopsy of salivary gland or duct)
     31.43 (Closed [Endoscopic] biopsy of larynx)
     31.44 (Closed [Endoscopic] biopsy of trachea)
     31.45 (Open biopsy of larynx or trachea)
     33.24 (Closed [Endoscopic] biopsy of bronchus)
     33.25 (Open biopsy of bronchus)
     33.26 (Closed [Percutaneous] [Needle] biopsy of lung)
     33.28 (Open biopsy of lung)
     34.25 (Closed [Percutaneous] [Needle] biopsy of 
mediastinum)
     34.26 (Open mediastinal biopsy)
     41.32 (Closed [Aspiration] [Percutaneous] biopsy of 
spleen)
     41.33 (Open biopsy of spleen)
     42.24 (Closed [Endoscopic] biopsy of esophagus)
     42.25 (Open biopsy of esophagus)
     44.14 (Closed [Endoscopic] biopsy of stomach)
     44.15 (Open biopsy of stomach)
     45.14 (Closed [Endoscopic] biopsy of small intestine)
     45.15 (Open biopsy of small intestine)
     45.25 (Closed [Endoscopic] biopsy of large intestine)
     45.26 (Open biopsy of large intestine)
     48.24 (Closed [Endoscopic] biopsy of rectum)
     48.25 (Open biopsy of rectum)
     50.11 (Closed (Percutaneous) [Needle] biopsy of liver)
     50.12 (Open biopsy of liver)
     51.12 (Percutaneous biopsy of gallbladder or bile ducts)
     51.13 (Open biopsy of gallbladder or bile ducts)
     52.11 (Closed [Aspiration] [Needle] [Percutaneous] biopsy 
of pancreas)
     52.12 (Open biopsy of pancreas)
     54.23 (Biopsy of peritoneum)
     54.24 (Closed [Percutaneous] [Needle] biopsy of intra-
abdominal mass)
     55.23 (Closed [Percutaneous] [Needle] biopsy of kidney)
     55.24 (Open biopsy of kidney)
     56.32 (Closed percutaneous biopsy of ureter)
     56.34 (Open biopsy of ureter)
     57.33 (Closed [Transurethral] biopsy of bladder)
     57.34 (Open biopsy of bladder)
     60.11 (Closed [Percutaneous] [Needle] biopsy of prostate)
     60.12 (Open biopsy of prostate)
     60.13 (Closed [Percutaneous] biopsy of seminal vesicles)
     60.14 (Open biopsy of seminal vesicles)
     62.11 (Closed [Percutaneous] [Needle] biopsy of testis)
     62.12 (Open biopsy of testis)
     68.13 (Open biopsy of uterus)
     68.14 (Open biopsy of uterine ligaments)
     68.15 (Closed biopsy of uterine ligaments)
     68.16 (Closed biopsy of uterus)
     85.11 (Closed [Percutaneous] [Needle] biopsy of breast)
     85.12 (Open biopsy of breast)
c. Noncovered Procedure Edit
    The ICD-9-CM procedure codes 52.80 (Pancreatic transplant, not 
otherwise specified) and 52.82 (Homotransplant of pancreas) alone (that 
is, without procedure code 55.69 (Other kidney transplantation)) are 
considered noncovered procedures, except when either one is combined 
with at least one specific principal or secondary diagnosis code. These 
specific diagnosis codes identify Type I diabetes mellitus, not stated 
as uncontrolled, or else identified as uncontrolled.
    To conform to the proposed change to Pre-MDC MS-DRGs 008 and 010 as 
discussed in section II.G.1. of this preamble, in which we are 
proposing to add code 251.3 (Postsurgical hypoinsulinemia) to those MS-
DRGs, we intend to add procedure code 251.3 to the list of acceptable 
principal or secondary diagnosis codes in the MCE.
8. Surgical Hierarchies
    Some inpatient stays entail multiple surgical procedures, each one 
of which, occurring by itself, could result in assignment of the case 
to a different MS-DRG within the MDC to which the principal diagnosis 
is assigned. Therefore, it is necessary to have a decision rule within 
the GROUPER by which these cases are assigned to a single MS-DRG. The 
surgical hierarchy, an ordering of surgical classes from most resource-
intensive to least resource-intensive, performs that function. 
Application of this hierarchy ensures that cases involving multiple 
surgical procedures are assigned to the MS-DRG associated with the most 
resource-intensive surgical class.
    Because the relative resource intensity of surgical classes can 
shift as a function of MS-DRG reclassification and recalibrations, we 
reviewed the surgical hierarchy of each MDC, as we have for previous 
reclassifications and recalibrations, to determine if the ordering of 
classes coincides with the intensity of resource utilization.
    A surgical class can be composed of one or more MS-DRGs. For 
example, in MDC 11, the surgical class ``kidney transplant'' consists 
of a single MS-DRG (MS-DRG 652) and the class ``major bladder 
procedures'' consists of three MS-DRGs (MS-DRGs 653, 654, and 655). 
Consequently, in many cases, the surgical hierarchy has an impact on 
more than one MS-DRG. The methodology for determining the most 
resource-intensive surgical class involves weighting the average 
resources for each MS-DRG by frequency to determine the weighted 
average resources for each surgical class. For example, assume surgical 
class A includes MS-DRGs 1 and 2 and surgical class B includes MS-DRGs 
3, 4, and 5. Assume also that the average costs of MS-DRG 1 is higher 
than that of MS-DRG 3, but the average costs of MS-DRGs 4 and 5 are 
higher than the average costs of MS-DRG 2. To determine whether 
surgical class A should be higher or lower than surgical class B in the 
surgical hierarchy, we would weigh the average costs of each MS-DRG in 
the class by frequency (that is, by the number of cases in the MS-DRG) 
to determine average resource consumption for the surgical class. The 
surgical classes would then be ordered from the class with the highest 
average resource utilization to that with the lowest, with the 
exception of ``other O.R. procedures'' as discussed below.
    This methodology may occasionally result in assignment of a case 
involving multiple procedures to the lower-weighted MS-DRG (in the 
highest, most resource-intensive surgical class) of the available 
alternatives. However, given that the logic underlying the surgical 
hierarchy provides that the GROUPER search for the procedure in the 
most resource-intensive surgical class, in cases involving multiple 
procedures, this result is sometimes unavoidable.
    We note that, notwithstanding the foregoing discussion, there are a 
few instances when a surgical class with a lower average cost is 
ordered above a surgical class with a higher average cost. For example, 
the ``other O.R. procedures'' surgical class is uniformly ordered last 
in the surgical hierarchy of each MDC in which it occurs, regardless of 
the fact that the average costs for the MS-DRG or MS-DRGs in that 
surgical class may be higher than those for other surgical classes in 
the MDC. The ``other O.R. procedures'' class is a group of procedures 
that are only infrequently related to the diagnoses in the MDC, but are 
still occasionally performed on patients in the MDC with these 
diagnoses. Therefore, assignment to these surgical classes should only 
occur

[[Page 23905]]

if no other surgical class more closely related to the diagnoses in the 
MDC is appropriate.
    A second example occurs when the difference between the average 
costs for two surgical classes is very small. We have found that small 
differences generally do not warrant reordering of the hierarchy 
because, as a result of reassigning cases on the basis of the hierarchy 
change, the average costs are likely to shift such that the higher-
ordered surgical class has a lower average costs than the class ordered 
below it.
    Based on the changes that we are proposing for FY 2011, as 
discussed in section II.C.2 of this preamble, we are proposing to 
revise the surgical hierarchy for Pre-MDCs and MDC 10 (Endocrine, 
Nutritional and Metabolic Diseases and Disorders) to reflect the 
resource intensiveness of the MS-DRGs, as follows:
    In Pre-MDCs, we are proposing to reorder proposed new MS-DRG 014 
(Allogeneic Bone Marrow Transplant) above MS-DRG 007 (Lung Transplant); 
and proposed new MS-DRG 015 (Autologous Bone Marrow Transplant) above 
MS-DRG 010 (Pancreas Transplant).
    In MDC 10, we are proposing to reorder MS-DRG 614 (Adrenal and 
Pituitary Procedures With CC/MCC) and MS-DRG 615 (Adrenal and Pituitary 
Procedures Without CC/MCC) above MS-DRG 625 (Thyroid, Parathyroid and 
Thyroglossal Procedures With MCC).
9. Complications or Comorbidity (CC) Exclusions List
a. Background
    As indicated earlier in the preamble of this proposed rule, under 
the IPPS MS-DRG classification system, we have developed a standard 
list of diagnoses that are considered CCs. Historically, we developed 
this list using physician panels that classified each diagnosis code 
based on whether the diagnosis, when present as a secondary condition, 
would be considered a substantial complication or comorbidity. A 
substantial complication or comorbidity was defined as a condition 
that, because of its presence with a specific principal diagnosis, 
would cause an increase in the length of stay by at least 1 day in at 
least 75 percent of the patients. We refer readers to section II.D.2. 
and 3. of the preamble of the FY 2008 IPPS final rule with comment 
period for a discussion of the refinement of CCs in relation to the MS-
DRGs we adopted for FY 2008 (72 FR 47121 through 47152).
b. Proposed CC Exclusions List for FY 2011
    In the September 1, 1987 final notice (52 FR 33143) concerning 
changes to the DRG classification system, we modified the GROUPER logic 
so that certain diagnoses included on the standard list of CCs would 
not be considered valid CCs in combination with a particular principal 
diagnosis. We created the CC Exclusions List for the following reasons: 
(1) To preclude coding of CCs for closely related conditions; (2) to 
preclude duplicative or inconsistent coding from being treated as CCs; 
and (3) to ensure that cases are appropriately classified between the 
complicated and uncomplicated DRGs in a pair. As we indicated above, we 
developed a list of diagnoses, using physician panels, to include those 
diagnoses that, when present as a secondary condition, would be 
considered a substantial complication or comorbidity. In previous 
years, we have made changes to the list of CCs, either by adding new 
CCs or deleting CCs already on the list.
    In the May 19, 1987 proposed notice (52 FR 18877) and the September 
1, 1987 final notice (52 FR 33154), we explained that the excluded 
secondary diagnoses were established using the following five 
principles:
     Chronic and acute manifestations of the same condition 
should not be considered CCs for one another.
     Specific and nonspecific (that is, not otherwise specified 
(NOS)) diagnosis codes for the same condition should not be considered 
CCs for one another.
     Codes for the same condition that cannot coexist, such as 
partial/total, unilateral/bilateral, obstructed/unobstructed, and 
benign/malignant, should not be considered CCs for one another.
     Codes for the same condition in anatomically proximal 
sites should not be considered CCs for one another.
     Closely related conditions should not be considered CCs 
for one another.
    The creation of the CC Exclusions List was a major project 
involving hundreds of codes. We have continued to review the remaining 
CCs to identify additional exclusions and to remove diagnoses from the 
master list that have been shown not to meet the definition of a CC.\2\
---------------------------------------------------------------------------

    \2\ See the FY 1989 final rule (53 FR 38485, September 30, 
1988), for the revision made for the discharges occurring in FY 
1989; the FY 1990 final rule (54 FR 36552, September 1, 1989), for 
the FY 1990 revision; the FY 1991 final rule (55 FR 36126, September 
4, 1990), for the FY 1991 revision; the FY 1992 final rule (56 FR 
43209, August 30, 1991) for the FY 1992 revision; the FY 1993 final 
rule (57 FR 39753, September 1, 1992), for the FY 1993 revision; the 
FY 1994 final rule (58 FR 46278, September 1, 1993), for the FY 1994 
revisions; the FY 1995 final rule (59 FR 45334, September 1, 1994), 
for the FY 1995 revisions; the FY 1996 final rule (60 FR 45782, 
September 1, 1995), for the FY 1996 revisions; the FY 1997 final 
rule (61 FR 46171, August 30, 1996), for the FY 1997 revisions; the 
FY 1998 final rule (62 FR 45966, August 29, 1997) for the FY 1998 
revisions; the FY 1999 final rule (63 FR 40954, July 31, 1998), for 
the FY 1999 revisions; the FY 2001 final rule (65 FR 47064, August 
1, 2000), for the FY 2001 revisions; the FY 2002 final rule (66 FR 
39851, August 1, 2001), for the FY 2002 revisions; the FY 2003 final 
rule (67 FR 49998, August 1, 2002), for the FY 2003 revisions; the 
FY 2004 final rule (68 FR 45364, August 1, 2003), for the FY 2004 
revisions; the FY 2005 final rule (69 FR 49848, August 11, 2004), 
for the FY 2005 revisions; the FY 2006 final rule (70 FR 47640, 
August 12, 2005), for the FY 2006 revisions; the FY 2007 final rule 
(71 FR 47870) for the FY 2007 revisions; the FY 2008 final rule (72 
FR 47130) for the FY 2008 revisions, the FY 2009 final rule (73 FR 
48510), and the FY 2010 final rule (74 FR 43799). In the FY 2000 
final rule (64 FR 41490, July 30, 1999, we did not modify the CC 
Exclusions List because we did not make any changes to the ICD-9-CM 
codes for FY 2000.
---------------------------------------------------------------------------

(1) Proposed Limited Revisions Based on Changes to the ICD-9-CM 
Diagnosis Codes
    For FY 2011, we are proposing to make limited revisions to the CC 
Exclusions List for FY 2011 to take into account the changes made in 
the ICD-9-CM diagnosis coding system effective October 1, 2009. (We 
refer readers to section II.G.11. of the preamble of this proposed rule 
for a discussion of ICD-9-CM changes.) We are proposing to make these 
changes in accordance with the principles established when we created 
the CC Exclusions List in 1987. In addition, we are indicating on the 
CC Exclusions List some changes as a result of updates to the ICD-9-CM 
codes to reflect the exclusion of codes from being MCCs under the MS-
DRG system that we adopted in FY 2008.
(2) Suggested Changes to Severity Levels for Obesity-Related and Major 
Osseous Defect Diagnosis Codes
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43793 
through 43794), we indicated that several commenters on the FY 2010 
IPPS proposed rule recommended that CMS consider making further 
adjustments to the MS-DRG assignments based on obesity and major 
osseous defects. The commenters stated that obesity, high Body Mass 
Index (BMI) ratings, and major osseous defects add to the complexity of 
care for patients such as those patients undergoing orthopedic 
procedures. The commenters recommended the following changes to the 
list of MCCs and CCs:
    Several commenters recommended that CMS add the following diagnosis 
codes, which are classified as non-CCs, to the CC or MCC list:

[[Page 23906]]

     731.3 (Major osseous defects)
     V85.35 (Body mass index 35.0-35.9, adult)
     V85.36 (Body mass index 36.0-36.9, adult)
     V85.37 (Body mass index 37.0-37.9, adult)
     V85.38 (Body mass index 38.0-38.9, adult)
     V85.39 (Body mass index 39.0-39.9, adult)
    Several commenters recommended that CMS add the following diagnosis 
code, which is on the CC list, to the MCC list:
     V85.40 (Body mass index 40 and over, adult)
    We stated that we believed these comments were outside the scope of 
the proposal in the proposed rule. We did not propose significant 
revisions to the MS-DRGs in the FY 2010 IPPS/RY 2010 LTCH PPS proposed 
rule (74 FR 24091) for these codes. We stated that we were encouraging 
individuals with comments about MS-DRG classifications to submit these 
comments no later than early December of each year so they can be 
carefully considered for possible inclusion in the annual proposed rule 
and, if included, may be subjected to public review and comment. 
Therefore, we did not add these codes to the MCC list or the CC list 
for FY 2010. We stated that we would consider their appropriateness for 
inclusion in next year's annual proposed rule.
    In addition to the diagnosis codes mentioned above, we also have 
received requests that we consider changing the following diagnosis 
codes from a non-CC to a CC:
     278.00 (Obesity NOS)
     278.01 (Morbid obesity)
     278.02 (Overweight)
    We analyzed claims data for the diagnosis codes mentioned above 
related to obesity and major osseous defects. We used the same approach 
we used in initially creating the MS-DRGs and classifying secondary 
diagnosis codes as non-CCs, CCs, or MCC. A detailed discussion of the 
process and criteria we used in this process is described in the FY 
2008 IPPS final rule (72 FR 47158 through 47161). We refer the readers 
to this discussion for complete information on our approach to 
developing the non-CC, CC, and MCC lists. Each diagnosis for which 
Medicare data were available was evaluated to determine its impact on 
resource use and to determine the most appropriate CC subclass (non-CC, 
CC, or MCC) assignment. In order to make this determination, the 
average cost for each subset of cases was compared to the expected cost 
for cases in that subset. The following format was used to evaluate 
each diagnosis:

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

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

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

--------------------------------------------------------------------------------------------------------------------------------------------------------
                     Code                                      Diagnosis                   Cnt1        C1        Cnt2        C2        Cnt3        C3
--------------------------------------------------------------------------------------------------------------------------------------------------------
278.00........................................  Obesity NOS...........................    130,310     1.0755    116,304     1.7234     45,565     2.3843
278.01........................................  Morbid obesity........................     51,832     1.2619    106,169     1.9630     52,398     2.6787
278.02........................................  Overweight............................      5,242     0.9948      3,594     1.7042      1,033     2.3471
731.3.........................................  Major osseous defects.................        215     1.3833        575     2.3390        186     2.7627
V85.35........................................  BMI 35.0-35.9, adult..................      2,621     0.9759      1,480     1.6932        499     2.3664
V85.36........................................  BMI 36.0-36.9, adult..................      2,359     0.9729      1,298     1.6536        466     2.3107
V85.37........................................  BMI 37.0-37.9, adult..................      2,305     0.9849      1,271     1.7225        473     2.4032
V85.38........................................  BMI 38.0-38.9, adult..................      2,152     0.9713      1,231     1.5964        432     2.2743
V85.39........................................  BMI 39.0-39.9, adult..................      2,253     0.9857      1,141     1.7741        445     2.4919
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The C1 findings do not support a reclassification of any of these 
diagnosis codes from a non-CC to a CC. As can be seen by the C1 
findings, the codes range from a low of 0.9729 for code V85.35 to a 
high of 1.3833 for diagnosis code 731.3. These findings are consistent 
with a classification as a non-CC. Therefore, for FY 2011, we are not 
proposing to change the CC classification of any of the diagnosis codes 
mentioned in the chart above from a non-CC to a CC. Our clinical 
advisors agree with this recommendation.
    We also examined claims data for diagnosis code V85.4 (Body mass 
index 40 and over, adult), which is classified as a CC. We received a 
request to reclassify this code as a MCC. The following chart summaries 
our findings for this diagnosis code:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                     Code                                      Diagnosis                   Cnt1        C1        Cnt2        C2        Cnt3        C3
--------------------------------------------------------------------------------------------------------------------------------------------------------
V85.4.........................................  BMI 40 and over, adult................     51,871     1.2323     59,941     2.1711     57,220     3.0465
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 23907]]

    We note that the C1 finding of 1.2323 does not support a 
reclassification of this diagnosis code from a CC to a MCC. This 
finding is much more consistent with classifying the code as a non-CC. 
Our clinical advisors recommended that CMS not reclassify this 
diagnosis code from a CC to a non-CC at this time. They recommended 
that CMS analyze data associated with this diagnosis code again in the 
future to determine if it continues to act like a non-CC. We are not 
recommending any change in the severity classification of diagnosis 
code V85.4. We are proposing to retain it as a CC for FY 2011.
    We welcome public comments on our proposal not to change the 
severity levels of the diagnosis codes mentioned above.
(3) Suggested Change to the Severity Level for Alzheimer's Disease 
Diagnosis Code
    We received a request to change the severity classification for 
diagnosis code 331.0 (Alzheimer's disease). Currently, this diagnosis 
code is classified as a non-CC. We analyzed claims data for this 
diagnosis code. The following chart shows our findings:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                     Code                                      Diagnosis                   Cnt1        C1        Cnt2        C2        Cnt3        C3
--------------------------------------------------------------------------------------------------------------------------------------------------------
331.0.........................................  Alzheimer's disease...................     83,743     1.1381    114,445     1.8890     77,841     2.4185
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The C1 finding of 1.1381 for Alzheimer's disease supports the 
current classification of this diagnosis code as a non-CC. Our clinical 
advisors agree with this classification. Therefore, we are not 
proposing to change the severity classification of diagnosis code 331.0 
from a non-CC to a CC for FY 2011. We believe the code is appropriately 
classified as a non-CC.
(4) Proposed Change to the Severity Level for Acute Renal Failure, 
Unspecified Diagnosis Code
    We received a request to reclassify diagnosis code 584.9 (Acute 
renal failure, unspecified) from a MCC to a CC. The commenter stated 
that this code is being widely used to capture degrees of renal failure 
that range from that which is caused by mild dehydration with only 
minor laboratory abnormalities all the way through severe renal failure 
that requires dialysis. The commenter pointed out that there are no 
clinical criteria for assigning diagnosis code 584.9 (Acute renal 
failure, unspecified). The attending physician must simply document the 
presence of acute renal failure for the diagnosis code to be assigned. 
The concern is that the diagnosis code for Acute renal failure, 
unspecified (diagnosis code 584.9) is being assigned to patients with a 
low clinical severity level.
    We also point out that the Editorial Advisory Board of Coding 
Clinic for ICD-9-CM has received a number of requests to clarify the 
use of diagnosis code 584.9. Coders are observing the terminology of 
``acute renal failure'' being applied to patients who are simply 
dehydrated. These patients do not require renal dialysis, and they do 
not appear to be severely ill. Coders have stated that there appears to 
be an increase in the use of the terminology of acute renal failure for 
patients who were previously referred to as acute renal insufficiency. 
When acute renal insufficiency is documented, the ICD-9-CM index 
directs the use of code 593.9 (Unspecified disorder of kidney and 
ureter). Diagnosis code 593.9 includes acute renal insufficiency and is 
classified as a non-CC. The problem is further compounded by the fact 
that there is no consistent convention among clinicians for documenting 
acute renal insufficiency versus acute renal failure.
    We examined claims data on diagnosis code 584.9, and our findings 
are shown in the table below:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                   Code                                      Diagnosis                     Cnt1        C1        Cnt2        C2        Cnt3        C3
--------------------------------------------------------------------------------------------------------------------------------------------------------
584.9.....................................  Acute kidney failure, unspecified.........    124,428     1.8364    411,667     2.6151    417,359     3.2429
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The C1 finding of 1.8364 is more consistent with a classification 
of a CC. Our clinical advisors agreed that cases captured by diagnosis 
code 584.9 are more appropriately classified as a CC. This unspecified 
type of kidney failure is clearly not capturing patients with a MCC 
severity level. Therefore, we are proposing to change the severity 
level for diagnosis code 584.9 from a MCC to a CC for FY 2011.
    Tables 6G and 6H, Additions to and Deletions from the CC Exclusion 
List, respectively, which are effective for discharges occurring on or 
after October 1, 2010, are not being published in the Addendum to this 
proposed rule because of the length of the two tables. Instead, we are 
making them available through the Internet on the CMS Web site at: 
http://www.cms.hhs.gov/AcuteInpatientPPS. Each of these principal 
diagnoses for which there is a CC exclusion is shown in Tables 6G and 
6H in the Addendum to this proposed rule with an asterisk, and the 
conditions that will not count as a CC, are provided in an indented 
column immediately following the affected principal diagnosis.
    A complete updated MCC, CC, and Non-CC Exclusions List is also 
available through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS. Beginning with discharges on or 
after October 1, 2010, the indented diagnoses will not be recognized by 
the GROUPER as valid CCs for the asterisked principal diagnosis.
    To assist readers in identifying the changes to the MCC and CC 
lists that occurred as a result of updates to the ICD-9-CM codes, as 
described in Tables 6A, 6C, and 6E of the Addendum to this proposed 
rule, we are providing the following summaries of those MCC and CC 
changes.
    There were no additions to the MS-DRG MCC List for FY 2011 (Table 
6I.1).
BILLING CODE 4120-01-P

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[GRAPHIC] [TIFF OMITTED] TP04MY10.012

[GRAPHIC] [TIFF OMITTED] TP04MY10.013

BILLING CODE 4120-10-C

[[Page 23909]]

    Alternatively, the complete documentation of the GROUPER logic, 
including the current CC Exclusions List, is available from 3M/Health 
Information Systems (HIS), which, under contract with CMS, is 
responsible for updating and maintaining the GROUPER program. The 
current MS-DRG Definitions Manual, Version 27.0, is available for 
$250.00, which includes shipping and handling. Version 27.0 of the 
manual is also available on a CD for $200.00; a combination hard copy 
and CD is available for $400.00. Version 28.0 of this manual, which 
will include the final FY 2011 MS-DRG changes, will be available on CD 
only for $225.00. These manuals may be obtained by writing 3M/HIS at 
the following address: 100 Barnes Road, Wallingford, CT 06492; or by 
calling (203) 949-0303, or by obtaining an order form at the Web site: 
http://www.3MHIS.com. Please specify the revision or revisions 
requested.
10. Review of Procedure Codes in MS DRGs 981 Through 983; 984 Through 
986; and 987 Through 989
    Each year, we review cases assigned to former CMS DRG 468 
(Extensive O.R. Procedure Unrelated to Principal Diagnosis), CMS DRG 
476 (Prostatic O.R. Procedure Unrelated to Principal Diagnosis), and 
CMS DRG 477 (Nonextensive O.R. Procedure Unrelated to Principal 
Diagnosis) to determine whether it would be appropriate to change the 
procedures assigned among these CMS DRGs. Under the MS-DRGs that we 
adopted for FY 2008, CMS DRG 468 was split three ways and became MS-
DRGs 981, 982, and 983 (Extensive O.R. Procedure Unrelated to Principal 
Diagnosis with MCC, with CC, and without CC/MCC, respectively). CMS DRG 
476 became MS-DRGs 984, 985, and 986 (Prostatic O.R. Procedure 
Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC, 
respectively). CMS DRG 477 became MS-DRGs 987, 988, and 989 
(Nonextensive O.R. Procedure Unrelated to Principal Diagnosis with MCC, 
with CC, and without CC/MCC, respectively).
    MS-DRGs 981 through 983, 984 through 986, and 987 through 989 
(formerly CMS DRGs 468, 476, and 477, respectively) are reserved for 
those cases in which none of the O.R. procedures performed are related 
to the principal diagnosis. These MS-DRGs are intended to capture 
atypical cases, that is, those cases not occurring with sufficient 
frequency to represent a distinct, recognizable clinical group. MS-DRGs 
984 through 986 (previously CMS DRG 476) are assigned to those 
discharges in which one or more of the following prostatic procedures 
are performed and are unrelated to the principal diagnosis:
     60.0, Incision of prostate
     60.12, Open biopsy of prostate
     60.15, Biopsy of periprostatic tissue
     60.18, Other diagnostic procedures on prostate and 
periprostatic tissue
     60.21, Transurethral prostatectomy
     60.29, Other transurethral prostatectomy
     60.61, Local excision of lesion of prostate
     60.69, Prostatectomy, not elsewhere classified
     60.81, Incision of periprostatic tissue
     60.82, Excision of periprostatic tissue
     60.93, Repair of prostate
     60.94, Control of (postoperative) hemorrhage of prostate
     60.95, Transurethral balloon dilation of the prostatic 
urethra
     60.96, Transurethral destruction of prostate tissue by 
microwave thermotherapy
     60.97, Other transurethral destruction of prostate tissue 
by other thermotherapy
     60.99, Other operations on prostate
    All remaining O.R. procedures are assigned to MS-DRGs 981 through 
983 and 987 through 989, with MS-DRGs 987 through 989 assigned to those 
discharges in which the only procedures performed are nonextensive 
procedures that are unrelated to the principal diagnosis.\3\
---------------------------------------------------------------------------

    \3\ The original list of the ICD-9-CM procedure codes for the 
procedures we consider nonextensive procedures, if performed with an 
unrelated principal diagnosis, was published in Table 6C in section 
IV. of the Addendum to the FY 1989 final rule (53 FR 38591). As part 
of the FY 1991 final rule (55 FR 36135), the FY 1992 final rule (56 
FR 43212), the FY 1993 final rule (57 FR 23625), the FY 1994 final 
rule (58 FR 46279), the FY 1995 final rule (59 FR 45336), the FY 
1996 final rule (60 FR 45783), the FY 1997 final rule (61 FR 46173), 
and the FY 1998 final rule (62 FR 45981), we moved several other 
procedures from DRG 468 to DRG 477, and some procedures from DRG 477 
to DRG 468. No procedures were moved in FY 1999, as noted in the 
final rule (63 FR 40962); in FY 2000 (64 FR 41496); in FY 2001 (65 
FR 47064); or in FY 2002 (66 FR 39852). In the FY 2003 final rule 
(67 FR 49999) we did not move any procedures from DRG 477. However, 
we did move procedure codes from DRG 468 and placed them in more 
clinically coherent DRGs. In the FY 2004 final rule (68 FR 45365), 
we moved several procedures from DRG 468 to DRGs 476 and 477 because 
the procedures are nonextensive. In the FY 2005 final rule (69 FR 
48950), we moved one procedure from DRG 468 to 477. In addition, we 
added several existing procedures to DRGs 476 and 477. In the FY 
2006 (70 FR 47317), we moved one procedure from DRG 468 and assigned 
it to DRG 477. In FY 2007, we moved one procedure from DRG 468 and 
assigned it to DRGs 479, 553, and 554. In FYs 2008, 2009, and FY 
2010, no procedures were moved, as noted in the FY 2008 final rule 
with comment period (72 FR 46241), the FY 2009 final rule (73 FR 
48513), and the FY 2010 final rule (74 FR 43796).
---------------------------------------------------------------------------

    Our review of MedPAR claims data showed that there were 59 cases in 
which procedures related to the prostate were arrayed across 10 
different MDCs. None of the 59 cases were cases that should logically 
be assigned to any of the other MDCs. For example, there were a total 
of 16 cases of other transurethral prostate surgery that occurred in 
MDC 5 (Diseases and Disorders of the Circulatory System). In addition, 
none of the cases had lengths of stay or average charges that would 
indicate that these cases were anything other than some of the expected 
irregularities of medical care. Therefore, for FY 2011, we are not 
proposing to change the procedures assigned among these MS-DRGs.
a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-DRGs 987 
Through 989 Into MDCs
    We annually conduct a review of procedures producing assignment to 
MS-DRGs 981 through 983 (Extensive O.R. procedure unrelated to 
principal diagnosis with MCC, with CC, and without CC/MCC, 
respectively) or MS-DRGs 987 through 989 (Nonextensive O.R. procedure 
unrelated to principal diagnosis with MCC, with CC, and without CC/MCC, 
respectively) on the basis of volume, by procedure, to see if it would 
be appropriate to move procedure codes out of these MS-DRGs into one of 
the surgical MS-DRGs for the MDC into which the principal diagnosis 
falls. The data are arrayed in two ways for comparison purposes. We 
look at a frequency count of each major operative procedure code. We 
also compare procedures across MDCs by volume of procedure codes within 
each MDC.
    We identify those procedures occurring in conjunction with certain 
principal diagnoses with sufficient frequency to justify adding them to 
one of the surgical MS-DRGs for the MDC in which the diagnosis falls. 
Our review of claims data showed that there were 4,443 cases in MS-DRGs 
981 through 983. These 4,443 cases were arrayed across 18 MDCs. The 
single most common procedure was code 00.66 (Percutaneous transluminal 
coronary angioplasty [PTCA] of coronary atherectomy), 21 cases, located 
in MDC 1 (Diseases and Disorders of the Nervous System). These cases 
represent a very small volume of cases that are unlikely to indicate 
medical practice trends. In addition, from a clinical coherence 
standpoint, we do not believe it benefits the GROUPER system to add 
cardiac procedures to the nervous system MDC. The same situation was 
evident in MS-DRGs 987 through 989. There were a total of 1,601 cases 
across 17 MDCs and, again, the cases did not

[[Page 23910]]

represent clinically coherent examples of medical care that warranted 
movement of procedure codes into additional MS-DRGs. Examples of cases 
that we reviewed included six cases of bone biopsies in MDC 21 
(Injuries, Poisonings and Toxic Effects of Drugs) and one case of a 
destruction of a lesion of the knee in MDC 13 (Diseases and Disorders 
of the Female Reproductive System). Again, the volume of these cases is 
negligible, and clinical coherence is not demonstrated to the degree 
that a change in the MS-DRGs is warranted. Therefore, for FY 2011, we 
are not proposing to remove any procedures from MS-DRGs 981 through 983 
or MS-DRGs 987 through 989 into one of the surgical MS-DRGs for the MDC 
into which the principal diagnosis is assigned.
b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984 
Through 986, and 987 Through 989
    We also annually review the list of ICD-9-CM procedures that, when 
in combination with their principal diagnosis code, result in 
assignment to MS-DRGs 981 through 983, 984 through 986 (Prostatic O.R. 
procedure unrelated to principal diagnosis with MCC, with CC, or 
without CC/MCC, respectively), and 987 through 989, to ascertain 
whether any of those procedures should be reassigned from one of these 
three MS-DRGs to another of the three MS-DRGs based on average charges 
and the length of stay. We look at the data for trends such as shifts 
in treatment practice or reporting practice that would make the 
resulting MS-DRG assignment illogical. If we find these shifts, we 
would propose to move cases to keep the MS-DRGs clinically similar or 
to provide payment for the cases in a similar manner. Generally, we 
move only those procedures for which we have an adequate number of 
discharges to analyze the data.
    To reiterate, our review of claims data showed that 18 MDCs were 
represented in MS-DRGs 981 through 983, for a total of 4,443 cases. 
There were 10 MDCs represented in MS-DRGs 984 through 986, which 
contained 59 cases. In addition, our review of claims data for MS-DRGs 
987 through 989 showed 1,601 cases across 17 MDCs. However, these cases 
represent such disparate situations as one case of a large bowel 
incision assigned to MDC 1 (Diseases and Disorders of the Nervous 
System) and one case of a revision of the femoral component of a hip 
replacement assigned to MDC 3 (Diseases and Disorders of the Ear, Nose, 
Mouth, and Throat). We do not believe that any of these cases represent 
shifts in either treatment practice or reporting practice. As these 
types of cases do not represent clinical coherence, we do not believe 
that the addition of these procedure codes identified in our review 
would positively benefit the overall MS-DRG logic. Therefore, for FY 
2011, we are not proposing to move any procedure codes among these MS-
DRGs.
c. Adding Diagnosis or Procedure Codes to MDCs
    Based on the review of cases in the MDCs as described above in 
sections G.10.a. and b., we are not proposing to add any diagnosis or 
procedure codes to MDCs for FY 2011.
11. Changes to the ICD-9-CM Coding System, Including Discussion of the 
Replacement of the ICD-9-CM Coding System With the ICD-10-CM and ICD-
10-PCS Systems in FY 2014
a. ICD-9-CM Coding System
    As described in section II.B.1. of the preamble of this proposed 
rule, the ICD-9-CM is a coding system currently used for the reporting 
of diagnoses and procedures performed on a patient. In September 1985, 
the ICD-9-CM Coordination and Maintenance Committee was formed. This is 
a Federal interdepartmental committee, co-chaired by the National 
Center for Health Statistics (NCHS), the Centers for Disease Control 
and Prevention, and CMS, charged with maintaining and updating the ICD-
9-CM system. The Committee is jointly responsible for approving coding 
changes, and developing errata, addenda, and other modifications to the 
ICD-9-CM to reflect newly developed procedures and technologies and 
newly identified diseases. The Committee is also responsible for 
promoting the use of Federal and non-Federal educational programs and 
other communication techniques with a view toward standardizing coding 
applications and upgrading the quality of the classification system.
    The Official Version of the ICD-9-CM contains the list of valid 
diagnosis and procedure codes. (The Official Version of the ICD-9-CM is 
available from the Government Printing Office on CD-ROM for $19.00 by 
calling (202) 512-1800.) Complete information on ordering the CD-ROM is 
also available at: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/05_CDROM.asp#TopOfPage. The Official Version of the ICD-9-CM is no 
longer available in printed manual form from the Federal Government; it 
is only available on CD-ROM. Users who need a paper version are 
referred to one of the many products available from publishing houses.
    The NCHS has lead responsibility for the ICD-9-CM diagnosis codes 
included in the Tabular List and Alphabetic Index for Diseases, while 
CMS has lead responsibility for the ICD-9-CM procedure codes included 
in the Tabular List and Alphabetic Index for Procedures.
    The Committee encourages participation in the above process by 
health-related organizations. In this regard, the Committee holds 
public meetings for discussion of educational issues and proposed 
coding changes. These meetings provide an opportunity for 
representatives of recognized organizations in the coding field, such 
as the American Health Information Management Association (AHIMA), the 
American Hospital Association (AHA), and various physician specialty 
groups, as well as individual physicians, health information management 
professionals, and other members of the public, to contribute ideas on 
coding matters. After considering the opinions expressed at the public 
meetings and in writing, the Committee formulates recommendations, 
which then must be approved by the agencies.
    The Committee presented proposals for coding changes for 
implementation in FY 2011 at a public meeting held on September 16-17, 
2009 and finalized the coding changes after consideration of comments 
received at the meetings and in writing by November 20, 2009. Those 
coding changes are announced in Tables 6A through 6F in the Addendum to 
this proposed rule. The Committee held its 2010 meeting on March 9-10, 
2010. New codes for which there was a consensus of public support and 
for which complete tabular and indexing changes are made by May 2010 
will be included in the October 1, 2010 update to ICD-9-CM. Code 
revisions that were discussed at the March 9-10, 2010 Committee meeting 
but that could not be finalized in time to include them in the Addendum 
to this proposed rule will be included in Tables 6A through 6F of the 
final rule and will be marked with an asterisk (*).
    Copies of the minutes of the procedure codes discussions at the 
Committee's September 16-17, 2009 meeting and March 9-10, 2010 meeting 
can be obtained from the CMS Web site at: http://cms.hhs.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp. The minutes of the 
diagnosis codes discussions at the September 16-17, 2009 meeting and 
March 9-10, 2010 meeting are found at: http://www.cdc.gov/nchs/icd.htm. 
These Web sites also provide detailed

[[Page 23911]]

information about the Committee, including information on requesting a 
new code, attending a Committee meeting, and timeline requirements and 
meeting dates.
    We encourage commenters to address suggestions on coding issues 
involving diagnosis codes to: Donna Pickett, Co-Chairperson, ICD-9-CM 
Coordination and Maintenance Committee, NCHS, Room 2402, 3311 Toledo 
Road, Hyattsville, MD 20782. Comments may be sent by e-mail to: 
dfp4@cdc.gov.
    Questions and comments concerning the procedure codes should be 
addressed to: Patricia E. Brooks, Co-Chairperson, ICD-9-CM Coordination 
and Maintenance Committee, CMS, Center for Medicare Management, 
Hospital and Ambulatory Policy Group, Division of Acute Care, C4-08-06, 
7500 Security Boulevard, Baltimore, MD 21244-1850. Comments may be sent 
by e-mail to: patricia.brooks2@cms.hhs.gov.
    The ICD-9-CM code changes that have been approved will become 
effective October 1, 2010. The new ICD-9-CM codes are listed, along 
with their MS-DRG classifications, in Tables 6A and 6B (New Diagnosis 
Codes and New Procedure Codes, respectively) in the Addendum to this 
proposed rule. As we stated above, the code numbers and their titles 
were presented for public comment at the ICD-9-CM Coordination and 
Maintenance Committee meetings. Both oral and written comments were 
considered before the codes were approved.
    In this proposed rule, we are soliciting comments on the proposed 
classification of these new codes, which are shown in Tables 6A and 6B 
of the Addendum to this proposed rule.
    For codes that have been replaced by new or expanded codes, the 
corresponding new or expanded diagnosis codes are included in Table 6A 
in the Addendum to this proposed rule. New procedure codes are shown in 
Table 6B in the Addendum to this proposed rule. Diagnosis codes that 
have been replaced by expanded codes or other codes or have been 
deleted are in Table 6C (Invalid Diagnosis Codes) in the Addendum to 
this proposed rule. These invalid diagnosis codes will not be 
recognized by the GROUPER beginning with discharges occurring on or 
after October 1, 2010. Table 6D in the Addendum to this proposed rule 
contains invalid procedure codes. These invalid procedure codes will 
not be recognized by the GROUPER beginning with discharges occurring on 
or after October 1, 2010. Revisions to diagnosis code titles are in 
Table 6E (Revised Diagnosis Code Titles) in the Addendum to this 
proposed rule, which also includes the MS-DRG assignments for these 
revised codes. Table 6F in the Addendum to this proposed rule includes 
revised procedure code titles for FY 2011.
    In the September 7, 2001 final rule implementing the IPPS new 
technology add-on payments (66 FR 46906), we indicated we would attempt 
to include proposals for procedure codes that would describe new 
technology discussed and approved at the Spring meeting as part of the 
code revisions effective the following October. As stated previously, 
ICD-9-CM codes discussed at the March 9-10, 2010 Committee meeting that 
receive consensus and that are finalized by May 2010 will be included 
in Tables 6A through 6F in the Addendum to the final rule.
    Section 503(a) of Public Law 108-173 included a requirement for 
updating ICD-9-CM codes twice a year instead of a single update on 
October 1 of each year. This requirement was included as part of the 
amendments to the Act relating to recognition of new technology under 
the IPPS. Section 503(a) amended section 1886(d)(5)(K) of the Act by 
adding a clause (vii) which states that the ``Secretary shall provide 
for the addition of new diagnosis and procedure codes on April 1 of 
each year, but the addition of such codes shall not require the 
Secretary to adjust the payment (or diagnosis-related group 
classification) * * * until the fiscal year that begins after such 
date.'' This requirement improves the recognition of new technologies 
under the IPPS system by providing information on these new 
technologies at an earlier date. Data will be available 6 months 
earlier than would be possible with updates occurring only once a year 
on October 1.
    While section 1886(d)(5)(K)(vii) of the Act states that the 
addition of new diagnosis and procedure codes on April 1 of each year 
shall not require the Secretary to adjust the payment, or DRG 
classification, under section 1886(d) of the Act until the fiscal year 
that begins after such date, we have to update the DRG software and 
other systems in order to recognize and accept the new codes. We also 
publicize the code changes and the need for a mid-year systems update 
by providers to identify the new codes. Hospitals also have to obtain 
the new code books and encoder updates, and make other system changes 
in order to identify and report the new codes.
    The ICD-9-CM Coordination and Maintenance Committee holds its 
meetings in the spring and fall in order to update the codes and the 
applicable payment and reporting systems by October 1 of each year. 
Items are placed on the agenda for the ICD-9-CM Coordination and 
Maintenance Committee meeting if the request is received at least 2 
months prior to the meeting. This requirement allows time for staff to 
review and research the coding issues and prepare material for 
discussion at the meeting. It also allows time for the topic to be 
publicized in meeting announcements in the Federal Register as well as 
on the CMS Web site. The public decides whether or not to attend the 
meeting based on the topics listed on the agenda. Final decisions on 
code title revisions are currently made by March 1 so that these titles 
can be included in the IPPS proposed rule. A complete addendum 
describing details of all changes to ICD-9-CM, both tabular and index, 
is published on the CMS and NCHS Web sites in May of each year. 
Publishers of coding books and software use this information to modify 
their products that are used by health care providers. This 5-month 
time period has proved to be necessary for hospitals and other 
providers to update their systems.
    A discussion of this timeline and the need for changes are included 
in the December 4-5, 2005 ICD-9-CM Coordination and Maintenance 
Committee minutes. The public agreed that there was a need to hold the 
fall meetings earlier, in September or October, in order to meet the 
new implementation dates. The public provided comment that additional 
time would be needed to update hospital systems and obtain new code 
books and coding software. There was considerable concern expressed 
about the impact this new April update would have on providers.
    In the FY 2005 IPPS final rule, we implemented section 
1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law 
108-173, by developing a mechanism for approving, in time for the April 
update, diagnosis and procedure code revisions needed to describe new 
technologies and medical services for purposes of the new technology 
add-on payment process. We also established the following process for 
making these determinations. Topics considered during the Fall ICD-9-CM 
Coordination and Maintenance Committee meeting are considered for an 
April 1 update if a strong and convincing case is made by the requester 
at the Committee's public meeting. The request must identify the reason 
why a new code is needed in April for purposes of the new technology 
process. The participants at

[[Page 23912]]

the meeting and those reviewing the Committee meeting summary report 
are provided the opportunity to comment on this expedited request. All 
other topics are considered for the October 1 update. Participants at 
the Committee meeting are encouraged to comment on all such requests. 
There were no requests approved for an expedited April 1, 2010 
implementation of an ICD-9-CM code at the September 16-17, 2009 
Committee meeting. Therefore, there were no new ICD-9-CM codes 
implemented on April 1, 2010.
    Current addendum and code title information is published on the CMS 
Web site at: http://www.cms.hhs.gov/icd9ProviderDiagnosticCodes/01_overview.asp#TopofPage. Information on ICD-9-CM diagnosis codes, along 
with the Official ICD-9-CM Coding Guidelines, can be found on the Web 
site at: http://www.cdc.gov/nchs/icd9.htm. Information on new, revised, 
and deleted ICD-9-CM codes is also provided to the AHA for publication 
in the Coding Clinic for ICD-9-CM. AHA also distributes information to 
publishers and software vendors.
    CMS also sends copies of all ICD-9-CM coding changes to its 
Medicare contractors for use in updating their systems and providing 
education to providers.
    These same means of disseminating information on new, revised, and 
deleted ICD-9-CM codes will be used to notify providers, publishers, 
software vendors, contractors, and others of any changes to the ICD-9-
CM codes that are implemented in April. The code titles are adopted as 
part of the ICD-9-CM Coordination and Maintenance Committee process. 
Thus, although we publish the code titles in the IPPS proposed and 
final rules, they are not subject to comment in the proposed or final 
rules. We will continue to publish the October code updates in this 
manner within the IPPS proposed and final rules. For codes that are 
implemented in April, we will assign the new procedure code to the same 
MS-DRG in which its predecessor code was assigned so there will be no 
MS-DRG impact as far as MS-DRG assignment. Any midyear coding updates 
will be available through the Web sites indicated above and through the 
Coding Clinic for ICD-9-CM. Publishers and software vendors currently 
obtain code changes through these sources in order to update their code 
books and software systems. We will strive to have the April 1 updates 
available through these Web sites 5 months prior to implementation 
(that is, early November of the previous year), as is the case for the 
October 1 updates.
b. Code Freeze
    The International Classification of Diseases, 10th Revision (ICD-
10) coding system applicable to hospital inpatient services will be 
implemented on October 1, 2013, as described in the Health Insurance 
Portability and Accountability Act (HIPAA) Administrative 
Simplification: Modifications to Medical Data code Set Standards to 
Adopt ICD-10-CM and ICD-10-PCS final rule (74 FR 3328 through 3362, 
January 16, 2009). The ICD-10 coding system includes the International 
Classification of Diseases, 10th Revision, Clinical Modification (ICD-
10-CM) for diagnosis coding and the International Classification of 
Diseases, 10th Revision, Procedure Coding System (ICD-10-PCS) for 
inpatient hospital procedure coding, as well as the Official ICD-10-CM 
and ICM-10-PCS Guidelines for Coding and Reporting. In the January 16, 
2009 ICD-10-CM and ICD-10-PCS final rule (74 FR 3328 through 3362), 
there was a discussion of the need for a partial or total freeze in the 
annual updates to both ICD-9-CM and ICD-10-CM and ICD-10-PCS codes. The 
public comment addressed in this final rule stated that the annual code 
set updates should cease l year prior to the implementation of ICD-10. 
The commenters stated that this freeze of code updates would allow for 
instructional and/or coding software programs to be designed and 
purchased early, without concern that an upgrade would take place 
immediately before the compliance date, necessitating additional 
updates and purchases.
    We responded to comments in the ICD-10 final rule that the ICD-9-CM 
Coordination and Maintenance Committee has jurisdiction over any action 
impacting the ICD-9-CM and ICD-10 code sets. Therefore, the issue of 
consideration of a moratorium on updates to the ICD-9-CM, ICD-10-CM, 
and ICD-10-PCS code sets in anticipation of the adoption of ICD-10-CM 
and ICD-10-PCS would be addressed through the Committee at a future 
public meeting.
    At the March 11-12, 2009 ICD-9-CM Coordination and Maintenance 
Committee meeting, the public was notified that there would be a 
discussion of whether there was a need to freeze updates to ICD-9-CM 
and/or ICD-10-CM and ICD-10-PCS prior to the implementation of ICD-10. 
The audience was asked to consider this issue and be prepared to 
discuss the topic at the September 16-17, 2009 ICD-9-CM Coordination 
and Maintenance Committee meeting. Advance written comments on this 
topic were welcomed. The first part of the meeting was devoted to this 
topic.
    CMS received comments in advance of the meeting. CMS staff 
summarized these advanced comments at the meeting as follows:
    No ICD-9-CM or ICD-10-CM/PCS updates beginning October 1, 2010 (36 
months for implementation activities without annual code updates). This 
approach involves updating ICD-9-CM and ICD-10 codes on October 1, 
2010, and not updating them again until after ICD-10 implementation on 
October 1, 2013. The commenters mentioned the extensive work needed to 
prepare for the transition to ICD-10 which will affect vendors, payers, 
providers, trainers, clearinghouses, and all claims handling 
organizations. The commenters stated that the 36 months between the 
last ICD-9-CM and ICD-10 updates on October 1, 2010 and the 
implementation of ICD-10 on October 1, 2013, were necessary to prepare 
and train for the transition.
    No ICD-9-CM or ICD-10-CM/PCS updates beginning October 1, 2011 (24 
months for implementation activities without annual code updates). This 
approach involves updating ICD-9-CM and ICD-10 codes on October 1, 
2011, and not updating them again until after ICD-10 implementation on 
October 1, 2013. The commenters raised similar concerns to those 
mentioned above. The commenters stated that, if codes continue to 
change, the changes would make it difficult for vendors, payers, and 
providers to be ready and for coder training to be successful. One 
commenter suggested that a provision be developed to perform limited 
annual updates to capture new technologies or new diagnoses.
    No ICD-10-CM/PCS updates beginning October 1, 2012 but continue 
annual updates to ICD-9-CM. This commenter supported annual updates to 
ICD-9-CM to capture advances in medical science. However, the commenter 
supported a freeze of ICD-10 beginning October 1, 2012, to give the 
industry time to update systems and prepare for ICD-10 implementation.
    No ICD-10 updates on October 1, 2012, but update ICD-9-CM without 
interruption. (No period for implementation activities without annual 
code updates.) The commenter recommended no ICD-10 updates on October 
1, 2012, but then updating ICD-10 again on October 1, 2013. The 
commenter recommended updating ICD-9-CM continuously through a final 
update on October 1, 2012. The commenter stated that having a two or 
three year gap between updating the

[[Page 23913]]

code books would lead to a loss of data. The commenter stated that 
there is a need to retain the ability to update the code books to 
capture conditions such as Swine flu.
    Update both ICD-9-CM and ICD-10-CM/PCS annually through October 1, 
2013 (no period for implementation activities without annual code 
updates). The commenter stated that codes should not be frozen prior to 
the implementation of ICD-10. The commenter stated that freezing the 
updates would inhibit the recognition of new technologies.
    Many of the commenters suggested a resumption of updates to ICD-10-
CM and ICD-10-PCS beginning on October 1, 2014. However, one commenter 
suggested annual updates of ICD-10-CM and ICD-10-PCS without 
interruptions, including on October 1, 2013.
    The topic was then opened for public discussion at the Committee 
meeting. CMS received a variety of comments from the participants that 
mirrored the advance written comments. These comments ranged from those 
supporting a complete freeze for both coding systems to those who 
recommended that both coding systems continue to be updated annually 
prior to ICD-10 implementation. There were also many comments that 
supported a more limited update process beginning on October 1, 2011, 
or October 1, 2012, which would allow only a small number of new codes 
to capture new technologies or new diseases. A number of commenters 
pointed out that section 503(a) of Public Law 108-173 included a 
requirement for updating ICD-9-CM codes twice a year to capture new 
technologies. The commenters stated that CMS must make a provision to 
capture new technologies despite any requests to freeze code updates.
    Commenters voiced concerns about the impact on vendors creating new 
ICD-10 products when both ICD-9-CM and ICD-10-CM and ICD-10-PCS codes 
were extensively updated on an annual basis. Commenters stated that 
vendors and educators were reluctant to begin ICD-10 products and 
training materials until there was a period of stability without 
extensive annual updates. Some commenters stated that it was important 
for physician offices to have time to prepare for the implementation of 
ICD-10. Reducing the annual ICD-9-CM and ICD-10 annual updates would be 
helpful to physician offices.
    Other commenters stated that it was important to update codes 
annually so that information on new diseases and technologies can be 
captured. These commenters stated that vendors, providers, system 
maintainers, and coders were used to annual code updates, and that they 
should continue.
    One commenter requested that ICD-10-CM codes be frozen on October 
1, 2011 so that ICD-10-CM codes could be coordinated with the 
Diagnostic and Statistical Manual of Mental Disorders (DSM), Fifth 
Edition. The commenter stated that the American Psychiatric Association 
plans to publish the fifth edition in 2012. Updates to ICD-10-CM on or 
after October 1, 2011, would disrupt those plans.
    One commenter suggested an approach that would greatly reduce the 
number of updates and provide more stability in the coding systems 
during the implementation period. This commenter suggested that the 
large, regular code updates on ICD-9-CM be discontinued beginning on 
October 1, 2011, or October 1, 2012. The commenter suggested that CMS 
and CDC raise the bar for new code requests at that time and only 
consider requests for new codes that clearly describe a new technology 
or a new disease. The commenter stated that this may lead to the 
creation of some new procedure codes which do not ultimately receive 
FDA approval, as is the case now.
    CMS and CDC have carefully reviewed the comments received at the 
ICD-9-CM Coordination and Maintenance Committee meeting as well as the 
written comments submitted. Most commenters proposed a limited freeze 
on code updates to both ICD-9-CM and ICD-10-CM and ICD-10-PCS code 
sets, with an exception made for adding codes for new technologies and 
diseases. Providing this exception would comply with section 503(a) of 
Public Law 108-173, which, as previously stated, includes a requirement 
for updating ICD-9-CM codes twice a year to capture new technologies. 
There was support for making the last regular update on October 1, 
2011. The commenters recommended that the ICD-9-CM Coordination and 
Maintenance Committee continue to discuss any new code updates for both 
coding systems. However, new codes would only be added to ICD-9-CM or 
ICD-10 to capture new technologies, as required by section 503(a) of 
Public Law 108-173. Other coding issues raised would be held for 
consideration after ICD-10 is implemented.
    In this proposed rule, we are soliciting additional input on this 
subject, especially in light of the requirements on hospitals for 
meaningful use of electronic health records. We welcome public comments 
that explore whether a freeze is needed to help with adoption of health 
IT, given other priorities such as achievement of meaningful use and 
implementation of ICD-10 by FY 2013. We welcome input on having the 
last regular, annual update to both ICD-9-CM and ICD-10 be made on 
October 1, 2011. On October 1, 2012, there would be only limited code 
updates to both the ICD-9-CM and ICD-10 coding systems to capture new 
technologies and diseases. On October 1, 2013, there would be only 
limited code updates to ICD-10 to capture new technologies and 
diagnoses. Any other issues raised would be considered for 
implementation in ICD 10 on October 1, 2014, a year after ICD-10 is 
implemented. We agree with commenters that there is a need to provide 
the provider, payer, and vendor community time to prepare for the 
implementation of ICD-10 and the accompanying system and product 
updates. The vendor community is especially interested in providing a 
more stable code set for ICD-10 while they are developing new products.
    We believe that this advance notice of a partial code freeze would 
provide the health care industry ample time to request last major code 
updates to ICD-9-CM and ICD-10, which could be discussed at the 
September 15-16, 2010 and the March 2011 ICD-9-CM Coordination and 
Maintenance Committee meeting. Codes discussed at these two meetings 
would be considered for the final major code updates on October 1, 
2011. Any code issues raised after that time would be addressed at the 
ICD-9-CM Coordination and Maintenance Committee meetings in September 
2011 through March 2013 to determine if they represented new 
technologies or new diseases. Any new technologies and diseases would 
be added during the regular annual updates. Other code requests would 
be held for implementation on October 1, 2014.
    We welcome additional input on having the last regular code updates 
to ICD-9-CM and ICD-10 on October 1, 2011, and to only add codes for 
new technologies and diseases on October 1, 2012 and 2013. We also 
welcome additional input on having the next regular update to ICD-10 
occur again on October 1, 2014.
    Information on ICD-10 can be found on the CMS Web site at: http://www.cms.hhs.gov/ICD10. The final ICD-10 version of MS-DRGs would be 
adopted under the formal rulemaking process as part of our annual IPPS 
updates.

[[Page 23914]]

c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on Hospital 
Inpatient Claims
    We have received repeated requests from the hospital community to 
process all 25 diagnosis codes and 25 procedure codes submitted on 
electronic hospital inpatient claims. Hospitals can submit up to 25 
diagnoses and 25 procedures; however, CMS' current system limitations 
allow for the processing of only the first 9 diagnoses and 6 
procedures. While CMS accepts all 25 diagnoses and 25 procedures 
submitted on the claims, we do not process all of the codes because of 
these system limitations. We recognize that much valuable information 
is lost by not processing the additional diagnosis and procedure codes 
that are reported by hospitals.
    We responded to hospitals' requests that we process up to 25 
diagnosis codes and 25 procedure codes in the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule (74 FR 43798). In that final rule, we referred readers 
to the ICD-10 final rule (74 FR 3328 through 3362) where we discuss the 
updating of Medicare systems prior to the implementation of ICD-10 on 
October 1, 2013. We mentioned that part of the system updates in 
preparation for ICD-10 is the ``expansion of our ability to process 
more diagnosis and procedure codes.'' In the FY 2009 IPPS final rule 
(73 FR 48433 through 48444), we also responded to multiple requests to 
increase the number of codes processed from 9 diagnosis and 6 procedure 
codes to 25 diagnosis and 25 procedure codes.
    CMS is currently undergoing extensive system updates as part of the 
move to 5010, which includes the ability to accept ICD-10 codes. This 
complicated transition involves converting many internal systems prior 
to October 1, 2013, when ICD-10 will be implemented. One important step 
in this planned conversion process is the expansion of our ability to 
process additional diagnosis and procedure codes. We are currently 
planning to complete the expansion of this internal system capability 
so that we are able to process up to 25 diagnoses and 25 procedures on 
hospital inpatient claims as part of the HIPPA ASC X12 Technical 
Reports Type 3, Version 005010 (Version 5010) standards system update. 
CMS will be able to process up to 25 diagnosis codes and 25 procedure 
codes when received on the 5010 format starting on January 1, 2011. We 
recognize the value of the additional information provided by this 
coded data for multiple uses such as for payment, quality measures, 
outcome analysis, and other important uses. We will continue to pursue 
this additional processing capacity as aggressively as possible in 
response to the multiple requests from the hospital industry. We 
appreciate the support of the health care community for this extensive 
system update process that will allow us to process more of this 
important data. Therefore, for claims submitted on the 5010 format 
beginning January 1, 2011, we will increase the capacity to process 
diagnosis and procedure codes on hospital inpatient claims from the 
current 9 diagnoses and 6 procedures up to 25 diagnoses and 25 
procedures.

H. Recalibration of MS-DRG Weights

    In developing the proposed FY 2011 system of weights, we used two 
data sources: Claims data and cost report data. As in previous years, 
the claims data source is the MedPAR file. This file is based on fully 
coded diagnostic and procedure data for all Medicare inpatient hospital 
bills. The FY 2009 MedPAR data used in this proposed rule include 
discharges occurring on October 1, 2008, through September 30, 2009, 
based on bills received by CMS through December 31, 2009, from all 
hospitals subject to the IPPS and short-term, acute care hospitals in 
Maryland (which are under a waiver from the IPPS under section 
1814(b)(3) of the Act). The FY 2009 MedPAR file used in calculating the 
proposed relative weights includes data for approximately 11,004,046 
Medicare discharges from IPPS providers. Discharges for Medicare 
beneficiaries enrolled in a Medicare Advantage managed care plan are 
excluded from this analysis. The data exclude CAHs, including hospitals 
that subsequently became CAHs after the period from which the data were 
taken. The second data source used in the cost-based relative weighting 
methodology is the FY 2008 Medicare cost report data files from HCRIS 
(that is, cost reports beginning on or after October 1, 2007, and 
before October 1, 2008), which represents the most recent full set of 
cost report data available. We used the December 31, 2009 update of the 
HCRIS cost report files for FY 2008 in setting the relative cost-based 
weights.
    The methodology we used to calculate the DRG cost-based relative 
weights from the FY 2009 MedPAR claims data and FY 2008 Medicare cost 
report data is as follows:
     To the extent possible, all the claims were regrouped 
using the proposed FY 2011 MS-DRG classifications discussed in sections 
II.B. and G. of the preamble of this proposed rule.
     The transplant cases that were used to establish the 
relative weights for heart and heart-lung, liver and/or intestinal, and 
lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively) 
were limited to those Medicare-approved transplant centers that have 
cases in the FY 2009 MedPAR file. (Medicare coverage for heart, heart-
lung, liver and/or intestinal, and lung transplants is limited to those 
facilities that have received approval from CMS as transplant centers.)
     Organ acquisition costs for kidney, heart, heart-lung, 
liver, lung, pancreas, and intestinal (or multivisceral organs) 
transplants continue to be paid on a reasonable cost basis. Because 
these acquisition costs are paid separately from the prospective 
payment rate, it is necessary to subtract the acquisition charges from 
the total charges on each transplant bill that showed acquisition 
charges before computing the average cost for each MS-DRG and before 
eliminating statistical outliers.
     Claims with total charges or total lengths of stay less 
than or equal to zero were deleted. Claims that had an amount in the 
total charge field that differed by more than $10.00 from the sum of 
the routine day charges, intensive care charges, pharmacy charges, 
special equipment charges, therapy services charges, operating room 
charges, cardiology charges, laboratory charges, radiology charges, 
other service charges, labor and delivery charges, inhalation therapy 
charges, emergency room charges, blood charges, and anesthesia charges 
were also deleted.
     At least 96.1 percent of the providers in the MedPAR file 
had charges for 10 of the 15 cost centers. Claims for providers that 
did not have charges greater than zero for at least 10 of the 15 cost 
centers were deleted.
     Statistical outliers were eliminated by removing all cases 
that were beyond 3.0 standard deviations from the mean of the log 
distribution of both the total charges per case and the total charges 
per day for each MS-DRG.
     Effective October 1, 2008, because hospital inpatient 
claims include a POA indicator field for each diagnosis present on the 
claim, only for purposes of relative weight-setting, the POA indicator 
field was reset to ``Y'' for ``Yes'' for all claims that otherwise have 
an ``N'' (No) or a ``U'' (documentation insufficient to determine if 
the condition was present at the time of inpatient admission) in the 
POA field.
    Under current payment policy, the presence of specific HAC codes, 
as indicated by the POA field values, can generate a lower payment for 
the claim.

[[Page 23915]]

Specifically, if the particular condition is present on admission (that 
is, a ``Y'' indicator is associated with the diagnosis on the claim), 
then it is not a HAC, and the hospital is paid for the higher severity 
(and, therefore, the higher weighted MS-DRG). If the particular 
condition is not present on admission (that is, an ``N'' indicator is 
associated with the diagnosis on the claim) and there are no other 
complicating conditions, the DRG GROUPER assigns the claim to a lower 
severity (and, therefore, the lower weighted MS-DRG) as a penalty for 
allowing a Medicare inpatient to contract a HAC. While the POA 
reporting meets policy goals of encouraging quality care and generates 
program savings, it presents an issue for the relative weight-setting 
process. Because cases identified as HACs are likely to be more complex 
than similar cases that are not identified as HACs, the charges 
associated with HACs are likely to be higher as well. Thus, if the 
higher charges of these HAC claims are grouped into lower severity MS-
DRGs prior to the relative weight-setting process, the relative weights 
of these particular MS-DRGs would become artificially inflated, 
potentially skewing the relative weights. In addition, we want to 
protect the integrity of the budget neutrality process by ensuring 
that, in estimating payments, no increase to the standardized amount 
occurs as a result of lower overall payments in a previous year that 
stem from using weights and case-mix that are based on lower severity 
MS-DRG assignments. If this would occur, the anticipated cost savings 
from the HAC policy would be lost.
    To avoid these problems, we reset the POA indicator field to ``Y'' 
only for relative weight-setting purposes for all claims that otherwise 
have a ``N'' or an ``U'' in the POA field. This resetting ``forced'' 
the more costly HAC claims into the higher severity MS-DRGs as 
appropriate, and the relative weights calculated for each MS-DRG more 
closely reflect the true costs of those cases.
    Once the MedPAR data were trimmed and the statistical outliers were 
removed, the charges for each of the 15 cost groups for each claim were 
standardized to remove the effects of differences in area wage levels, 
IME and DSH payments, and for hospitals in Alaska and Hawaii, the 
applicable cost-of-living adjustment. Because hospital charges include 
charges for both operating and capital costs, we standardized total 
charges to remove the effects of differences in geographic adjustment 
factors, cost-of-living adjustments, and DSH payments under the capital 
IPPS as well. Charges were then summed by MS-DRG for each of the 15 
cost groups so that each MS-DRG had 15 standardized charge totals. 
These charges were then adjusted to cost by applying the national 
average CCRs developed from the FY 2008 cost report data.
    The 15 cost centers that we used in the relative weight calculation 
are shown in the following table. The table shows the lines on the cost 
report and the corresponding revenue codes that we used to create the 
15 national cost center CCRs.
BILLING CODE 4120-01-P

[[Page 23916]]

[GRAPHIC] [TIFF OMITTED] TP04MY10.014

[[Page 23917]]

[GRAPHIC] [TIFF OMITTED] TP04MY10.015

[[Page 23918]]

[GRAPHIC] [TIFF OMITTED] TP04MY10.016

[[Page 23919]]

[GRAPHIC] [TIFF OMITTED] TP04MY10.017

[[Page 23920]]

[GRAPHIC] [TIFF OMITTED] TP04MY10.018

[[Page 23921]]

[GRAPHIC] [TIFF OMITTED] TP04MY10.019

[[Page 23922]]

[GRAPHIC] [TIFF OMITTED] TP04MY10.020

BILLING CODE 4120-01-C
    We developed the national average CCRs as follows:
    Taking the FY 2008 cost report data, we removed CAHs, Indian Health 
Service hospitals, all-inclusive rate hospitals, and cost reports that 
represented time periods of less than 1 year (365 days). We included 
hospitals located in Maryland as we are including their charges in our 
claims database. We then created CCRs for each provider for each cost 
center (see prior table for line items used in the calculations) and 
removed any CCRs that were greater than 10 or less than 0.01. We 
normalized the departmental CCRs by dividing the CCR for each 
department by the total CCR for the hospital for the purpose of 
trimming the data. We then took the logs of the normalized cost center 
CCRs and removed any cost center CCRs where the log of the cost center 
CCR was greater or less than the mean log plus/minus 3 times the 
standard deviation for the log of that cost center CCR. Once the cost 
report data were trimmed, we calculated a Medicare-specific CCR. The 
Medicare-specific CCR was determined by taking the Medicare charges for 
each line item from Worksheet D-4 and deriving the Medicare-specific 
costs by applying the hospital-specific departmental CCRs to the 
Medicare-specific charges for each line item from Worksheet D-4. Once 
each hospital's Medicare-specific costs were established, we summed the 
total Medicare-specific costs and divided by the sum of the total 
Medicare-specific charges to produce national average, charge-weighted 
CCRs.
    After we multiplied the total charges for each MS-DRG in each of 
the 15 cost centers by the corresponding national average CCR, we 
summed the 15 ``costs'' across each MS-DRG to produce a total 
standardized cost for the MS-DRG. The average standardized cost for 
each MS-DRG was then computed as the total standardized cost for the 
MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The 
average cost for each MS-DRG was then divided by the national average 
standardized cost per case to determine the relative weight.
    The new cost-based relative weights were then normalized by an 
adjustment factor of 1.57461 so that the average case weight after 
recalibration was equal to the average case weight before 
recalibration. The normalization adjustment is intended to ensure that 
recalibration by itself neither increases nor decreases total payments 
under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.
    The 15 proposed national average CCRs for FY 2011 are as follows:

------------------------------------------------------------------------
                   Group                                 CCR
------------------------------------------------------------------------
Routine Days...............................  0.553
Intensive Days.............................  0.480
Drugs......................................  0.200
Supplies & Equipment.......................  0.348
Therapy Services...........................  0.415
Laboratory.................................  0.163
Operating Room.............................  0.282
Cardiology.................................  0.181
Radiology..................................  0.161
Emergency Room.............................  0.278
Blood and Blood Products...................  0.424
Other Services.............................  0.426
Labor & Delivery...........................  0.462
Inhalation Therapy.........................  0.201
Anesthesia.................................  0.136
------------------------------------------------------------------------

    Since FY 2009, the relative weights have been based on 100 percent 
cost weights based on our MS-DRG grouping system.
    When we recalibrated the DRG weights for previous years, we set a 
threshold of 10 cases as the minimum number of cases required to 
compute a reasonable weight. In this FY 2011 proposed rule, we are 
proposing to use that same case threshold in recalibrating the MS-DRG 
weights for FY 2011. Using the FY 2009 MedPAR data set, there are 8 MS-
DRGs that contain fewer than 10 cases. Under the MS-DRGs, we have fewer 
low-volume DRGs than under the CMS DRGs because we no longer have 
separate DRGs for patients age 0 to 17 years. With the exception of 
newborns, we previously separated some DRGs based on whether the 
patient was age 0 to 17 years or age 17 years and older. Other than the 
age split, cases grouping to these DRGs are identical. The DRGs for 
patients age 0 to 17 years generally have very low volumes because 
children are typically ineligible for Medicare. In the past, we have 
found that the low volume of cases for the pediatric DRGs could lead to 
significant year-to-year instability in their relative weights. 
Although we have always encouraged non-Medicare payers to develop 
weights applicable to their own patient populations, we have heard 
frequent complaints from providers about the use of the Medicare 
relative weights in the pediatric population. We believe that 
eliminating this age split in the MS-DRGs will provide more stable 
payment for pediatric cases by determining their payment using adult 
cases that are much higher in total volume. Newborns are unique and 
require separate MS-DRGs that are not mirrored in the adult population. 
Therefore, it remains necessary to retain separate MS-DRGs for 
newborns. All of the low-volume MS-DRGs listed below are for newborns. 
In FY 2011, because we do not have sufficient MedPAR data to set 
accurate and stable cost weights for these low-volume MS-DRGs, we are 
proposing to compute weights for the low-volume MS-DRGs by adjusting 
their FY 2010 weights by the percentage change in the average weight of 
the cases in other MS-DRGs. The crosswalk table is shown below:

[[Page 23923]]

------------------------------------------------------------------------
 Low[dash]Volume MS-DRG        MS-DRG title         Crosswalk to MS-DRG
------------------------------------------------------------------------
768....................  Vaginal Delivery with    FY 2010 FR weight
                          O.R. Procedure Except    (adjusted by percent
                          Sterilization and/or     change in average
                          D&C.                     weight of the cases
                                                   in other MS-DRGs).
789....................  Neonates, Died or        FY 2010 FR weight
                          Transferred to Another   (adjusted by percent
                          Acute Care Facility.     change in average
                                                   weight of the cases
                                                   in other MS-DRGs).
790....................  Extreme Immaturity or    FY 2010 FR weight
                          Respiratory Distress     (adjusted by percent
                          Syndrome, Neonate.       change in average
                                                   weight of the cases
                                                   in other MS-DRGs).
791....................  Prematurity with Major   FY 2010 FR weight
                          Problems.                (adjusted by percent
                                                   change in average
                                                   weight of the cases
                                                   in other MS-DRGs).
792....................  Prematurity without      FY 2010 FR weight
                          Major Problems.          (adjusted by percent
                                                   change in average
                                                   weight of the cases
                                                   in other MS-DRGs).
793....................  Full-Term Neonate with   FY 2010 FR weight
                          Major Problems.          (adjusted by percent
                                                   change in average
                                                   weight of the cases
                                                   in other MS-DRGs).
794....................  Neonate with Other       FY 2010 FR weight
                          Significant Problems.    (adjusted by percent
                                                   change in average
                                                   weight of the cases
                                                   in other MS-DRGs).
795....................  Normal Newborn.........  FY 2010 FR weight
                                                   (adjusted by percent
                                                   change in average
                                                   weight of the cases
                                                   in other MS-DRGs).
------------------------------------------------------------------------

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

1. Background
    Sections 1886(d)(5)(K) and (L) of the Act establish a process of 
identifying and ensuring adequate payment for new medical services and 
technologies (sometimes collectively referred to in this section as 
``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the 
Act specifies that a medical service or technology will be considered 
new if it meets criteria established by the Secretary after notice and 
opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act 
specifies that a new medical service or technology may be considered 
for new technology add-on payment if, ``based on the estimated costs 
incurred with respect to discharges involving such service or 
technology, the DRG prospective payment rate otherwise applicable to 
such discharges under this subsection is inadequate.'' We note that 
beginning with FY 2008, CMS transitioned from CMS-DRGs to MS-DRGs.
    The regulations implementing these provisions specify three 
criteria for a new medical service or technology to receive the 
additional payment: (1) The medical service or technology must be new; 
(2) the medical service or technology must be costly such that the DRG 
rate otherwise applicable to discharges involving the medical service 
or technology is determined to be inadequate; and (3) the service or 
technology must demonstrate a substantial clinical improvement over 
existing services or technologies. These three criteria are explained 
below in the ensuing paragraphs in further detail.
    Under the first criterion, as reflected in 42 CFR 412.87(b)(2), a 
specific medical service or technology will be considered ``new'' for 
purposes of new medical service or technology add-on payments until 
such time as Medicare data are available to fully reflect the cost of 
the technology in the MS-DRG weights through recalibration. Typically, 
there is a lag of 2 to 3 years from the point a new medical service or 
technology is first introduced on the market (generally on the date 
that the technology receives FDA approval/clearance) and when data 
reflecting the use of the medical service or technology are used to 
calculate the MS-DRG weights. For example, data from discharges 
occurring during FY 2009 are used to calculate the proposed FY 2011 MS-
DRG weights in this proposed rule. Section 412.87(b)(2) of the 
regulations therefore provides that ``a medical service or technology 
may be considered new within 2 or 3 years after the point at which data 
begin to become available reflecting the ICD-9-CM code assigned to the 
new medical service or technology (depending on when a new code is 
assigned and data on the new medical service or technology become 
available for DRG recalibration). After CMS has recalibrated the MS-
DRGs, based on available data to reflect the costs of an otherwise new 
medical service or technology, the medical service or technology will 
no longer be considered `new' under the criterion for this section.''
    The 2-year to 3-year period during which a medical service or 
technology can be considered new would ordinarily begin on the date on 
which the medical service or technology received FDA approval or 
clearance. (We note that, for purposes of this section of this proposed 
rule, we generally refer to both FDA approval and FDA clearance as FDA 
``approval.'') However, in some cases, there may be few to no Medicare 
data available for the new service or technology following FDA 
approval. For example, the newness period could extend beyond the 2-
year to 3-year period after FDA approval is received in cases where the 
product initially was generally unavailable to Medicare patients 
following FDA approval, such as in cases of a national noncoverage 
determination or a documented delay in bringing the product onto the 
market after that approval (for instance, component production or drug 
production has been postponed following FDA approval due to shelf life 
concerns or manufacturing issues). After the MS-DRGs have been 
recalibrated to reflect the costs of an otherwise new medical service 
or technology, the medical service or technology is no longer eligible 
for special add-on payment for new medical services or technologies (as 
specified under Sec.  412.87(b)(2)). For example, an approved new 
technology that received FDA approval in October 2008 and entered the 
market at that time may be eligible to receive add-on payments as a new 
technology for discharges occurring before October 1, 2011 (the start 
of FY 2012). Because the FY 2012 MS-DRG weights would be calculated 
using FY 2010 MedPAR data, the costs of such a new technology would be 
fully reflected in the FY 2012 MS-DRG weights. Therefore, the new 
technology would no longer be eligible to receive add-on payments as a 
new technology for discharges occurring in FY 2012 and thereafter.
    We do not consider a service or technology to be new if it is 
substantially similar to one or more existing technologies. That is, 
even if a technology receives a new FDA approval, it may not 
necessarily be considered ``new'' for purposes of new technology add-on 
payments if it is ``substantially similar'' to a technology that was 
approved by FDA and has been on the market for more than 2 to 3 years. 
In the FY 2006 IPPS final rule (70 FR

[[Page 23924]]

47351), we explained our policy regarding substantial similarity in 
detail and its relevance for assessing if the hospital charge data used 
in the development of the relative weights for the relevant DRGs 
reflect the costs of the technology. In that final rule, we stated 
that, for determining substantial similarity, we consider (1) whether a 
product uses the same or a similar mechanism of action to achieve a 
therapeutic outcome, and (2) whether a product is assigned to the same 
or a different DRG. We indicated that both of the above criteria should 
be met in order for a technology to be considered ``substantially 
similar'' to an existing technology. However, in that same final rule, 
we also noted that, due to the complexity of issues regarding the 
substantial similarity component of the newness criterion, it may be 
necessary to exercise flexibility when considering whether technologies 
are substantially similar to one another. Specifically, we stated that 
we may consider additional factors, depending on the circumstances 
specific to each application.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43813 and 
43814), we noted that the discussion of substantial similarity in the 
FY 2006 IPPS final rule related to comparing two separate technologies 
made by different manufacturers. Nevertheless, we stated that the 
criteria discussed in the FY 2006 IPPS final rule also are relevant 
when comparing the similarity between a new use and existing uses of 
the same technology (or a very similar technology manufactured by the 
same manufacturer). In other words, we stated that it is necessary to 
establish that the new indication for which the technology has received 
FDA approval is not substantially similar to that of the prior 
indication. We explained that such a distinction is necessary to 
determine the appropriate start date of the newness period in 
evaluating whether the technology would qualify for add-on payments 
(that is, the date of the ``new'' FDA approval or that of the prior 
approval), or whether the technology could qualify for separate new 
technology add-on payments under each indication.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43814), we 
added a third factor of consideration to our analysis of whether a new 
technology is substantially similar to one or more existing 
technologies. Specifically, in making a determination of whether a 
technology is substantially similar to an existing technology, we will 
consider whether the new use of the technology involves the treatment 
of the same or similar type of disease and the same or similar patient 
population (74 FR 24130), in addition to considering the already 
established factors described in the FY 2006 IPPS final rule (that is, 
(1) whether a product uses the same or a similar mechanism of action to 
achieve a therapeutic outcome; and (2) whether a product is assigned to 
the same or a different DRG). As we noted in the FY 2010 IPPS/RY 2010 
LTCH PPS final rule, if all three components are present and the new 
use is deemed substantially similar to one or more of the existing uses 
of the technology (that is beyond the newness period), we would 
conclude that the technology is not new and, therefore, is not eligible 
for the new technology add-on payment.
    Under the second criterion, Sec.  412.87(b)(3) further provides 
that, to be eligible for the add-on payment for new medical services or 
technologies, the MS-DRG prospective payment rate otherwise applicable 
to the discharge involving the new medical services or technologies 
must be assessed for adequacy. Under the cost criterion, to assess the 
adequacy of payment for a new technology paid under the applicable MS-
DRG prospective payment rate, we evaluate whether the charges for cases 
involving the new technology exceed certain threshold amounts. In the 
FY 2004 IPPS final rule (68 FR 45385), we established the threshold at 
the geometric mean standardized charge for all cases in the MS-DRG plus 
75 percent of 1 standard deviation above the geometric mean 
standardized charge (based on the logarithmic values of the charges and 
converted back to charges) for all cases in the MS-DRG to which the new 
medical service or technology is assigned (or the case-weighted average 
of all relevant MS-DRGs, if the new medical service or technology 
occurs in more than one MS-DRG).
    However, section 503(b)(1) of Public Law 108-173 amended section 
1886(d)(5)(K)(ii)(I) of the Act to provide that, beginning in FY 2005, 
CMS will apply ``a threshold * * * that is the lesser of 75 percent of 
the standardized amount (increased to reflect the difference between 
cost and charges) or 75 percent of one standard deviation for the 
diagnosis-related group involved.'' (We refer readers to section IV.D. 
of the preamble to the FY 2005 IPPS final rule (69 FR 49084) for a 
discussion of the revision of the regulations to incorporate the change 
made by section 503(b)(1) of Pub. L. 108-173.) Table 10 that was 
included in the final rule published in the Federal Register on August 
27, 2009, contains the final thresholds that are being used to evaluate 
applications for new technology add-on payments for FY 2011 (74 FR 
44173). We note that we plan to issue separate documents in the Federal 
Register addressing the provisions of Public Law 111-148, as amended, 
that affect our proposed policies and payment rates for FY 2011 under 
the IPPS and the LTCH PPS. In addition, we plan to issue further 
instructions addressing the provisions of Public Law 111-148, as 
amended, that affect the policies and payment rates for FY 2010 under 
the IPPS and the LTCH PPS. At the time we issue those documents, we 
plan to update Table 10 that was published in the Federal Register on 
August 27, 2009 and Table 10 in the Addendum to this proposed rule.
    In the September 7, 2001 final rule that established the new 
technology add-on payment regulations (66 FR 46917), we discussed the 
issue of whether the HIPAA Privacy Rule at 45 CFR Parts 160 and 164 
applies to claims information that providers submit with applications 
for new technology add-on payments. Specifically, we explained that 
health plans, including Medicare, and providers that conduct certain 
transactions electronically, including the hospitals that would be 
receiving payment under the FY 2001 IPPS final rule, are required to 
comply with the HIPAA Privacy Rule. We further explained how such 
entities could meet the applicable HIPAA requirements by discussing how 
the HIPAA Privacy Rule permitted providers to share with health plans 
information needed to ensure correct payment, if they had obtained 
consent from the patient to use that patient's data for treatment, 
payment, or health care operations. We also explained that, because the 
information to be provided within applications for new technology add-
on payment would be needed to ensure correct payment, no additional 
consent would be required. The HHS Office for Civil Rights has since 
amended the HIPAA Privacy Rule, but the results remain. The HIPAA 
Privacy Rule no longer requires covered entities to obtain consent from 
patients to use or disclose protected health information for treatment, 
payment, or health care operations, and expressly permits such entities 
to use or to disclose protected health information for any of these 
purposes. (We refer readers to 45 CFR 164.502(a)(1)(ii), and 
164.506(c)(1) and (c)(3), and the Standards for Privacy of Individually 
Identifiable Health Information published in the Federal Register on 
August 14, 2002, for a full discussion of changes in consent 
requirements.)
    Under the third criterion, Sec.  412.87(b)(1) of our existing 
regulations

[[Page 23925]]

provides that a new technology is an appropriate candidate for an 
additional payment when it represents ``an advance that substantially 
improves, relative to technologies previously available, the diagnosis 
or treatment of Medicare beneficiaries.'' For example, a new technology 
represents a substantial clinical improvement when it reduces 
mortality, decreases the number of hospitalizations or physician 
visits, or reduces recovery time compared to the technologies 
previously available. (We refer readers to the September 7, 2001 final 
rule for a complete discussion of this criterion (66 FR 46902).)
    The new medical service or technology add-on payment policy under 
the IPPS provides additional payments for cases with relatively high 
costs involving eligible new medical services or technologies while 
preserving some of the incentives inherent under an average-based 
prospective payment system. The payment mechanism is based on the cost 
to hospitals for the new medical service or technology. Under Sec.  
412.88, if the costs of the discharge (determined by applying cost to 
charge ratios (``CCRs'') as described in Sec.  412.84(h)) exceed the 
full DRG payment (including payments for IME and DSH, but excluding 
outlier payments), Medicare will make an add-on payment equal to the 
lesser of: (1) 50 percent of the estimated costs of the new technology 
(if the estimated costs for the case including the new technology 
exceed Medicare's payment); or (2) 50 percent of the difference between 
the full DRG payment and the hospital's estimated cost for the case. 
Unless the discharge qualifies for an outlier payment, Medicare payment 
is limited to the full MS-DRG payment plus 50 percent of the estimated 
costs of the new technology.
    Section 1886(d)(4)(C)(iii) of the Act requires that the adjustments 
to annual MS-DRG classifications and relative weights must be made in a 
manner that ensures that aggregate payments to hospitals are not more 
or less than they were in the prior fiscal year (i.e., they are 
``budget neutral''). Therefore, in the past, we accounted for projected 
payments under the new medical service and technology provision during 
the upcoming fiscal year, while at the same time estimating the payment 
effect of changes to the MS-DRG classifications and recalibration. The 
impact of additional payments under this provision was then included in 
the budget neutrality factor, which was applied to the standardized 
amounts and the hospital-specific amounts. However, section 503(d)(2) 
of Public Law 108-173 provides that there shall be no reduction or 
adjustment in aggregate payments under the IPPS due to add-on payments 
for new medical services and technologies. Therefore, in accordance 
with section 503(d)(2) of Public Law 108-173, add-on payments for new 
medical services or technologies for FY 2005 and later years have not 
been subjected to budget neutrality.
    In the FY 2009 IPPS final rule (73 FR 48561 through 48563), we 
modified our regulations at Sec.  412.87 to codify our current practice 
of how CMS evaluates the eligibility criteria for new medical service 
or technology add-on payment applications. We also amended Sec.  
412.87(c) to specify that all applicants for new technology add-on 
payments must have FDA approval for their new medical service or 
technology by July 1 of each year prior to the beginning of the fiscal 
year that the application is being considered.
    The Council on Technology and Innovation (CTI) at CMS oversees the 
agency's cross-cutting priority on coordinating coverage, coding and 
payment processes for Medicare with respect to new technologies and 
procedures, including new drug therapies, as well as promoting the 
exchange of information on new technologies between CMS and other 
entities. The CTI, composed of senior CMS staff and clinicians, was 
established under section 942(a) of Public Law 108-173. The Council is 
co-chaired by the Director of the Office of Clinical Standards and 
Quality (OCSQ) and the Director of the Center for Medicare Management 
(CMM), who is also designated as the CTI's Executive Coordinator.
    The specific processes for coverage, coding, and payment are 
implemented by CMM, OCSQ, and the local claims-payment contractors (in 
the case of local coverage and payment decisions). The CTI supplements, 
rather than replaces, these processes by working to assure that all of 
these activities reflect the agency-wide priority to promote high-
quality, innovative care. At the same time, the CTI also works to 
streamline, accelerate, and improve coordination of these processes to 
ensure that they remain up to date as new issues arise. To achieve its 
goals, the CTI works to streamline and create a more transparent coding 
and payment process, improve the quality of medical decisions, and 
speed patient access to effective new treatments. It is also dedicated 
to supporting better decisions by patients and doctors in using 
Medicare-covered services through the promotion of better evidence 
development, which is critical for improving the quality of care for 
Medicare beneficiaries.
    CMS plans to continue its Open Door forums with stakeholders who 
are interested in CTI's initiatives. In addition, to improve the 
understanding of CMS' processes for coverage, coding, and payment and 
how to access them, the CTI has developed an ``innovator's guide'' to 
these processes. The intent is to consolidate this information, much of 
which is already available in a variety of CMS documents and in various 
places on the CMS Web site, in a user-friendly format. This guide was 
published in August 2008 and is available on the CMS Web site at: 
http://www.cms.hhs.gov/CouncilonTechInnov/Downloads/InnovatorsGuide8_25_08.pdf.
    As we indicated in the FY 2009 IPPS final rule (73 FR 48554), we 
invite any product developers or manufacturers of new medical 
technologies to contact the agency early in the process of product 
development if they have questions or concerns about the evidence that 
would be needed later in the development process for the agency's 
coverage decisions for Medicare.
    The CTI aims to provide useful information on its activities and 
initiatives to stakeholders, including Medicare beneficiaries, 
advocates, medical product manufacturers, providers, and health policy 
experts. Stakeholders with further questions about Medicare's coverage, 
coding, and payment processes, or who want further guidance about how 
they can navigate these processes, can contact the CTI at 
CTI@cms.hhs.gov or from the ``Contact Us'' section of the CTI home page 
(http: //www.cms.hhs.gov/CouncilonTechInnov/).
    We note that applicants for add-on payments for new medical 
services or technologies for FY 2012 must submit a formal request, 
including a full description of the clinical applications of the 
medical service or technology and the results of any clinical 
evaluations demonstrating that the new medical service or technology 
represents a substantial clinical improvement, along with a significant 
sample of data to demonstrate that the medical service or technology 
meets the high-cost threshold. Complete application information, along 
with final deadlines for submitting a full application, will be posted 
as it becomes available on our Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/08_newtech.asp. To allow interested parties to 
identify the new medical services or technologies under review before 
the publication of the proposed rule for FY 2012, the Web

[[Page 23926]]

site also will list the tracking forms completed by each applicant.
2. Public Input Before Publication of a Notice of Proposed Rulemaking 
on Add-On Payments
    Section 1886(d)(5)(K)(viii) of the Act, as amended by section 
503(b)(2) of Public Law 108-173, provides for a mechanism for public 
input before publication of a notice of proposed rulemaking regarding 
whether a medical service or technology represents a substantial 
clinical improvement or advancement. The process for evaluating new 
medical service and technology applications requires the Secretary to--
     Provide, before publication of a proposed rule, for public 
input regarding whether a new service or technology represents an 
advance in medical technology that substantially improves the diagnosis 
or treatment of Medicare beneficiaries;
     Make public and periodically update a list of the services 
and technologies for which applications for add-on payments are 
pending;
     Accept comments, recommendations, and data from the public 
regarding whether a service or technology represents a substantial 
clinical improvement; and
     Provide, before publication of a proposed rule, for a 
meeting at which organizations representing hospitals, physicians, 
manufacturers, and any other interested party may present comments, 
recommendations, and data regarding whether a new medical service or 
technology represents a substantial clinical improvement to the 
clinical staff of CMS.
    In order to provide an opportunity for public input regarding add-
on payments for new medical services and technologies for FY 2011 prior 
to publication of this FY 2011 IPPS/RY 2011 LTCH PPS proposed rule, we 
published a notice in the Federal Register on November 27, 2009 (74 FR 
62339 through 62342), and held a town hall meeting at the CMS 
Headquarters Office in Baltimore, MD, on February 19, 2010. In the 
announcement notice for the meeting, we stated that the opinions and 
alternatives provided during the meeting would assist us in our 
evaluations of applications by allowing public discussion of the 
substantial clinical improvement criterion for each of the FY 2011 new 
medical service and technology add-on payment applications before the 
publication of this FY 2011 proposed rule.
    Approximately 80 individuals registered to attend the town hall 
meeting in person, while additional individuals listened over an open 
telephone line. Each of the three FY 2011 applicants presented 
information on its technology, including a discussion of data 
reflecting the substantial clinical improvement aspect of the 
technology. We considered each applicant's presentation made at the 
town hall meeting, as well as written comments submitted on the 
applications, in our evaluation of the new technology add-on 
applications for FY 2011 in this proposed rule.
    In response to the published notice and the new technology town 
hall meeting, we received 11 written comments regarding applications 
for FY 2011 new technology add-on payments. We summarized these 
comments or, if applicable, indicated that there were no comments 
received, at the end of each discussion of the individual applications 
in this proposed rule.
    Comment: One commenter, a medical technology association, 
recommended that CMS, in its consideration as to whether a new 
technology meets the substantial clinical improvement criterion, judge 
a diagnostic device on the basis of a diagnostic outcome (improved 
diagnosis) rather than a therapeutic outcome, recognizing that earlier 
and improved detection of disease often leads to improved patient 
outcomes.
    Response: We thank the commenter for its comments on the 
substantial clinical improvement criterion. Similar to our statements 
in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43817 through 
43819), section 1886(d)(5)(K)(vi) of the Act authorizes the Secretary 
to establish through notice and comment rulemaking the criteria that a 
new medical service or technology must meet in order to be eligible for 
the new technology add-on payment. Under this authority, in the 
September 7, 2001 final rule, we established three criteria through 
notice and comment rulemaking--the newness criterion, the cost 
criterion, and the substantial clinical improvement criterion (66 FR 
46924). Specifically, Sec.  412.87(b)(1) of the regulations provides 
that a new medical service or technology must ``represent an advance 
that substantially improves, relating to technologies previously 
available, the diagnosis or treatment of Medicare beneficiaries.''
    As we explained in the September 7, 2001 final rule, we consider a 
diagnostic technology to meet the substantial clinical improvement 
criterion if the technology not only ``offers the ability to diagnose a 
medical condition in a patient population where that medical condition 
is currently undetectable or offers the ability to diagnose a medical 
condition earlier in a patient population than allowed by currently 
available methods,'' but also if ``use of the device to make a 
diagnosis affects the management of the patient'' (66 FR 46914). We 
believe that this evidence is necessary to determine whether the new 
technology affords a ``clear improvement over the use of previously 
available technologies.'' We do not consider any particular type of 
evidence to be dispositive; instead, we consider all information 
presented for each application to determine whether there is evidence 
to support a conclusion that ``use of the device to make a diagnosis 
affects the management of the patient'' (in the case of a diagnostic 
technology). Specifically, we consider whether the peer-reviewed 
medical literature supports or clinical studies indicate that the 
diagnostic device should generally be used by providers in guiding the 
management of their patients. In addition, we consider evidence 
demonstrating clinically accepted use of the device in a manner that 
actually affects the management of patients.
    Under the commenter's recommendation, a diagnostic technology 
effectively would only need to receive FDA approval and be the only 
technology approved for a particular diagnostic capability in order to 
be deemed a ``substantial improvement'' for purposes of new technology 
add-on payments, regardless of its ability to positively affect patient 
management. This approach would deem a device that led to the 
identification of new information as a substantial improvement in 
diagnosis even if such detection has not been ``demonstrated to 
represent a substantial improvement in caring for Medicare 
beneficiaries'' and was not linked to evidence-based, significant, and 
positive changes in the management of patients or, ultimately, to 
changes in clinical outcomes. We do not believe this rationale is 
consistent with our prior statements regarding the substantial clinical 
improvement criterion of the new technology add-on payment provision.
    Comment: One commenter, a medical device association, recommended 
that CMS ``deem a device to satisfy the substantial clinical 
improvement criteria if it was granted a humanitarian device exemption 
or priority review based on the fact that it represents breakthrough 
technologies, which offer significant advantages over existing approved 
alternatives, for which no alternatives exist, or the availability of 
which is in the best interests of the patients.'' In addition, the 
commenter

[[Page 23927]]

remarked that this process would simplify CMS' evaluation of 
applications for new technology add-on payments and would promote 
access to innovative treatments, as intended by Congress. Although the 
commenter also made remarks that were unrelated to substantial clinical 
improvement, because the purpose of the town hall meeting was 
specifically to discuss substantial clinical improvement of pending new 
technology applications, those comments are not summarized in this 
proposed rule.
    Response: We thank the commenter for its comments. We note that we 
have previously addressed the comment concerning automatically 
approving technologies that have a humanitarian device exemption (HDE) 
in the FY 2008 IPPS final rule (72 FR 47302). We refer readers to that 
rule for our response. A further discussion of our evaluation of the 
applications and the documentation for new technology add-on payments 
submitted for FY 2011 approval is provided under the specified areas 
under this section.
3. FY 2011 Status of Technologies Approved for FY 2010 Add-On Payments
a. Spiration[supreg] IBV[supreg] Valve System
    Spiration, Inc. submitted an application for new technology add-on 
payments for the Spiration[supreg] IBV[supreg] Valve System 
(Spiration[supreg] IBV[supreg]). The Spiration[supreg] IBV[supreg] is a 
device that is used to place, via bronchoscopy, small, one-way valves 
into selected small airways in the lung in order to limit airflow into 
selected portions of lung tissue that have prolonged air leaks 
following surgery while still allowing mucus, fluids, and air to exit, 
thereby reducing the amount of air that enters the pleural space. The 
device is intended to control prolonged air leaks following three 
specific surgical procedures: lobectomy; segmentectomy; or lung volume 
reduction surgery (LVRS). According to the applicant, an air leak that 
is present on postoperative day 7 is considered ``prolonged'' unless 
present only during forced exhalation or cough. In order to help 
prevent valve migration, there are five anchors with tips that secure 
the valve to the airway. The implanted valves are intended to be 
removed no later than 6 weeks after implantation.
    With regard to the newness criterion, the Spiration[supreg] 
IBV[supreg] received an HDE approval from the FDA on October 24, 2008. 
We were unaware of any previously FDA-approved predicate devices, or 
otherwise similar devices, that could be considered substantially 
similar to the Spiration[supreg] IBV[supreg]. However, the applicant 
asserted that the FDA had precluded the device from being used in the 
treatment of any patients until Institutional Review Board (IRB) 
approvals regarding its study sites. Therefore, the Spiration[supreg] 
IBV[supreg] met the newness criterion once it obtained at least one IRB 
approval because the device would then be available on the market to 
treat Medicare beneficiaries.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology payments for the 
Spiration[supreg] IBV[supreg] and consideration of the public comments 
we received on the FY 2010 IPPS proposed rule, including the additional 
analysis of clinical data and supporting information submitted by the 
applicant, we approved the Spiration[supreg] IBV[supreg] for new 
technology add-on payments for FY 2010. The Spiration[supreg] 
IBV[supreg] is the only device currently approved for the purpose of 
treating prolonged air leaks following lobectomy, segmentectomy, and 
LVRS patients in the United States. We stated that without the 
availability of this device, patients with prolonged air leaks 
(following lobectomy, segmentectomy, and LVRS) might otherwise remain 
inpatients in the hospital (and have a longer length of stay than they 
might otherwise have without the Spiration[supreg] IBV[supreg]) or 
might even require additional invasive surgeries to resolve the air 
leak. We also noted that use of the Spiration[supreg] IBV[supreg] may 
lead to more rapid beneficial resolution of prolonged air leaks and 
reduce recovery time following the three lung surgeries mentioned 
above.
    However, in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43823), we indicated that we remained interested in seeing whether the 
clinical evidence continues to find it to be effective. This approval 
was on the basis of using the Spiration[supreg] IBV[supreg] consistent 
with the FDA approval (HDE), and we emphasized the need for appropriate 
patient selection accordingly. Therefore, we limited the add-on payment 
to cases involving prolonged air leaks following lobectomy, 
segmentectomy and LVRS in MS-DRGs 163, 164, and 165. Cases involving 
the Spiration[supreg] IBV[supreg] that are eligible for the new 
technology add-on payment are identified by assignment to MS-DRGs 163, 
164, and 165 with procedure code 33.71 or 33.73 in combination with one 
of the following procedure codes: 32.22, 32.30, 32.39, 32.41, or 32.49.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we stated that the 
average cost of the Spiration[supreg] IBV[supreg] is reported as 
$2,750. Based on data from the FY 2010 application, the average amount 
of valves per case is 2.5. Therefore, the total maximum cost for the 
Spiration[supreg] IBV[supreg] was expected to be $6,875 per case 
($2,750 x 2.5). Under Sec.  412.88(a)(2) of our regulations, new 
technology add-on payments are limited to the lesser of 50 percent of 
the average cost of the device or 50 percent of the costs in excess of 
the MS-DRG payment for the case. As a result, we finalized a maximum 
add-on payment for a case involving the Spiration[supreg] IBV[supreg] 
as $3,437.50.
b. CardioWestTM Temporary Total Artificial Heart System 
(CardioWestTM TAH-t)
    SynCardia Systems, Inc. submitted an application for approval of 
the CardioWestTM temporary Total Artificial Heart system 
(TAH-t) in FY 2009. The TAH-t is a technology that is used as a bridge 
to heart transplant device for heart transplant-eligible patients with 
end-stage biventricular failure. The TAH-t pumps up to 9.5 liters of 
blood per minute. This high level of perfusion helps improve 
hemodynamic function in patients, thus making them better heart 
transplant candidates.
    The TAH-t was approved by the FDA on October 15, 2004, for use as a 
bridge to transplant device in cardiac transplant-eligible candidates 
at risk of imminent death from biventricular failure. The TAH-t is 
intended to be used in hospital inpatients. One of the FDA's post-
approval requirements is that the manufacturer agrees to provide a 
post-approval study demonstrating that success of the device at one 
center can be reproduced at other centers. The study was to include at 
least 50 patients who would be followed up to 1 year, including (but 
not limited to) the following endpoints: survival to transplant; 
adverse events; and device malfunction.
    In the past, Medicare did not cover artificial heart devices, 
including the TAH-t. However, on May 1, 2008, CMS issued a final 
national coverage determination (NCD) expanding Medicare coverage of 
artificial hearts when they are implanted as part of a study that is 
approved by the FDA and is determined by CMS to meet CMS' Coverage with 
Evidence Development (CED) clinical research criteria. (The final NCD 
is available on the CMS Web site at: http://www.cms.hhs.gov/mcd/viewdecisionmemo.asp?id=211.)
    We indicated in the FY 2009 IPPS/RY 2009 LTCH PPS final rule (73 FR 
48555) that, because Medicare's previous coverage policy with respect 
to this device had precluded payment from Medicare, we did not expect 
the costs associated with this technology to be

[[Page 23928]]

currently reflected in the data used to determine the relative weights 
of MS-DRGs. As we have indicated in the past, and as we discussed in 
the FY 2009 IPPS/RY 2009 LTCH PPS final rule, although we generally 
believe that the newness period would begin on the date that FDA 
approval was granted, in cases where the applicant can demonstrate a 
documented delay in market availability subsequent to FDA approval, we 
would consider delaying the start of the newness period. This 
technology's situation represented such a case. We also noted that 
section 1886(d)(5)(K)(ii)(II) of the Act requires that we provide for 
the collection of cost data for a new medical service or technology for 
a period of at least 2 years and no more than 3 years ``beginning on 
the date on which an inpatient hospital code is issued with respect to 
the service or technology.'' Furthermore, the statute specifies that 
the term ``inpatient hospital code'' means any code that is used with 
respect to inpatient hospital services for which payment may be made 
under the IPPS and includes ICD-9-CM codes and any subsequent 
revisions. Although the TAH-t has been described by the ICD-9-CM 
code(s) since the time of its FDA approval, because the TAH-t had not 
been covered under the Medicare program (and, therefore, no Medicare 
payment had been made for this technology), this code could not be 
``used with respect to inpatient hospital services for which payment'' 
is made under the IPPS, and thus we assumed that none of the costs 
associated with this technology would be reflected in the Medicare 
claims data used to recalibrate the MS-DRG relative weights for FY 
2009. For this reason, as discussed in the FY 2009 IPPS/RY 2009 LTCH 
PPS final rule, despite the FDA approval date of the technology, we 
determined that TAH-t would still be eligible to be considered ``new'' 
for purposes of the new technology add-on payment because the TAH-t met 
the newness criterion on the date that Medicare coverage began, 
consistent with issuance of the final NCD, effective on May 1, 2008.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology add-on payments for the TAH-t 
and consideration of the public comments we received in response to the 
FY 2009 IPPS/RY 2009 LTCH PPS proposed rule, we approved the TAH-t for 
new technology add-on payments for FY 2009 (73 FR 48557). We indicated 
that we believed the TAH-t offered a new treatment option that 
previously did not exist for patients with end-stage biventricular 
failure. However, we indicated that we recognized that Medicare 
coverage of the TAH-t is limited to approved clinical trial settings. 
The new technology add-on payment status does not negate the 
restrictions under the NCD nor does it obviate the need for continued 
monitoring of clinical evidence for the TAH-t. We remain interested in 
seeing whether the clinical evidence demonstrates that the TAH-t 
continues to be effective. If evidence is found that the TAH-t may no 
longer offer a substantial clinical improvement, we reserve the right 
to discontinue new technology add-on payments, even within the 2- to 3-
year period that the device may still be considered to be new. We also 
continued to make new technology add-on payments for the TAH-t in FY 
2010. We welcome public comment regarding whether there is new evidence 
that demonstrates that the TAH-t continues to be effective and whether 
it should still be considered to be a substantial clinical improvement 
for FY 2011.
    The new technology add-on payment for the TAH-t for FY 2010 is 
triggered by the presence of ICD-9-CM procedure code 37.52 
(Implantation of total heart replacement system), condition code 30, 
and the diagnosis code reflecting clinical trial--V70.7 (Examination of 
participant in clinical trial). For FY 2010, we finalized a maximum 
add-on payment of $53,000 (that is, 50 percent of the estimated 
operating costs of the device of $106,000) for cases that involve this 
technology.
    Our practice has been to begin and end new technology add-on 
payments on the basis of a fiscal year. In general, we extend add-on 
payments for an additional year only if the 3-year anniversary date of 
the product's entry on the market occurs in the latter half of the 
fiscal year (70 FR 47362). The TAH-t is still eligible to be considered 
``new'' for purposes of the new technology add-on payment because the 
3-year anniversary date of the TAH-t entry on the market was in the 
second half of the fiscal year and the TAH-t met the newness criterion 
on the date that Medicare coverage began, consistent with issuance of 
the final NCD, effective on May 1, 2008. Therefore, for FY 2011, we are 
proposing to continue new technology add-on payments for cases 
involving the TAH-t in FY 2011 with a maximum add-on payment of 
$53,000.
4. FY 2011 Applications for New Technology Add-On Payments
    We received five applications to be considered for new technology 
add-on payment for FY 2011. However, two applicants withdrew their 
applications: Nycomed Austria GmbH, which submitted an application for 
new technology add-on payments for FY 2011 for TachoSil[supreg]; and 
Zimmer, which submitted an application for new technology add-on 
payments for FY 2011 for the Dynesys Dynamic Stabilization System. 
Nycomed Austria GmbH withdrew its application from further review in 
January 2010, and Zimmer withdrew its application in February 2010. 
Because both applications were withdrawn prior to the town hall meeting 
and publication of this proposed rule, we are not discussing these two 
applications in this proposed rule.
    A discussion of the remaining three applications is presented 
below. At the time this proposed rule was developed, one of the 
technologies had not yet received FDA approval. Consequently, our 
discussion below of this application may be limited.
a. Auto Laser Interstitial Thermal Therapy (AutoLITTTM) 
System
    Monteris Medical submitted an application for new technology add-on 
payments for FY 2011 for the AutoLITTTM. We note that the 
applicant submitted an application for new technology add-on payments 
for FY 2010 but withdrew its application prior to the FY 2010 IPPS/RY 
2010 LTCH PPS final rule. AutoLITTTM is a minimally 
invasive, MRI-guided catheter tipped laser designed to destroy 
malignant brain tumors with interstitial thermal energy causing 
immediate coagulation and necrosis of diseased tissue. The applicant 
asserts that the AutoLITTTM delivers laser energy to the 
lesion with a proprietary 3mm diameter probe that directs the energy 
radially (that is, at right angle to the axis of the probe, or side-
firing) toward the targeted tumor tissue in a narrow beam profile and 
at the same time, a proprietary probe cooling system removes heat from 
tissue not directly in the path of the laser beam, ostensibly 
protecting it from thermal damage and enabling the physician to 
selectively ablate only targeted tissue. The AutoLITTTM 
received a 510K FDA clearance in May 2009. The AutoLITTTM is 
indicated for use to necrotize or coagulate soft tissue through 
interstitial irradiation or thermal therapy in medicine and surgery in 
the discipline of neurosurgery with 1064 nm lasers. The 
AutoLITTTM may be used in patients with glioblastoma 
multiforme brain tumors. The applicant stated in its application and 
through supplemental information that, due to required

[[Page 23929]]

updates, the technology was actually introduced to the market in 
December 2009. The applicant explained that it was necessary to reduce 
the thermal damage lines from three to one and complete International 
Electrotechnical Commission/Underwriter Laboratory testing, which led 
to the introduction of the technology to the market in December 2009, 
although the technology was approved by FDA in May 2009. The applicant 
also stated through supplementary information to its application that 
the first sale of the product took place on March 19, 2010. However, 
because the product was already available for use in December 2009, it 
appears that the newness date would begin in December 2009. We welcome 
public comments on this issue.
    With regard to the newness criterion, we are concerned that the 
AutoLITTTM may be substantially similar to the device that 
it listed as its predicate device in its application to the FDA for 
approval. Specifically, in making a determination of substantial 
similarity, we consider the following: (1) Whether a product uses the 
same or similar mechanism of action to achieve a therapeutic action; 
and (2) whether a product is assigned to the same of different MS-DRG; 
and (3) whether the new use of a technology involves the treatment of 
the same or similar type of disease and the same or similar patient 
population. The applicant identified Visual-ase as its predicate device 
(which was approved by the FDA in 2006), which is also used to treat 
tumors of the brain. The applicant maintains that 
AutoLITTTM; can be distinguished from the Visual-ase by its 
mechanism of action (that is, side-firing laser versus elliptical 
firing). Additionally, as mentioned above, the technology contains a 
proprietary probe cooling system that removes heat from tissue not 
directly in the path of the laser beam. We welcome comments from the 
public regarding whether or not the AutoLITTTM is 
substantially similar to the Visual-ase and if it meets the newness 
criteria.
    The technology can be identified by ICD-9-CM procedure codes 17.61 
(Laser interstitial thermal therapy [LITT] of lesion or tissue of brain 
under guidance), and 17.62 (Laser interstitial thermal therapy [LITT] 
of lesion or tissue of head and neck under guidance), which were 
effective on October 1, 2009.
    In an effort to demonstrate that AutoLITTTM meets the 
cost criterion, the applicant used 2007 Medicare data from the 
Healthcare Cost and Utilization Project (HCUP). We first note that the 
applicant believes that cases eligible for the AutoLITTTM 
will map to MS-DRG 25 (Craniotomy and Endovascular Intracranial 
Procedures with MCC), MS-DRG 26 (Craniotomy and Endovascular 
Intracranial Procedures with CC), and MS-DRG 27 (Craniotomy and 
Endovascular Intracranial Procedures without CC or MCC). The applicant 
explained through supplemental information to its application that most 
cases of the AutoLITTTM would map to MS-DRG 25 in the near-
term. As the technology becomes more widely available, clinicians will 
use the technology instead of performing a craniotomy for brain cancer 
and on other different types of brain cancers including metastases, 
which would map to other MS-DRGs aside from MS-DRG 25. The applicant 
further stated that life expectancy with brain cancer is predicated on 
the removal of as much of the cancer as possible and asserted that over 
time the AutoLITTTM will do a better job of removing the 
majority of the cancer that is present within the brain tissue compared 
to other procedures. The applicant believes that physicians with the 
AutoLITTTM have a better tool at removing more cancer and 
killing it more precisely and accessing parts of the brain that 
surgical resection cannot access. Lastly, the applicant believes that 
the minimally invasive nature of the procedure will also result in 
broader usage to other less complicated procedures (as clinical and 
patient awareness expands).
    The applicant searched HCUP hospital data for cases potentially 
eligible for the AutoLITTTM that was assigned one of the 
following ICD-9-CM diagnosis codes: a diagnosis code that begins with a 
prefix of 191 (Malignant neoplasm of brain); diagnosis code 225.0 
(Benign neoplasm of brain and other parts of nervous system); or 
diagnosis code 239.6 (Neoplasm of the brain of unspecified nature). The 
applicant found 41,021 cases and weighted the standardized charge per 
case based on the number of cases found within each of the diagnosis 
codes listed above rather than the percentage of cases that would group 
to different MS-DRGs. Based on this analysis, the applicant calculated 
an average standardized charge per case was $57,511. While the 
applicant's analysis established a case-weighted average charge per 
case in the aggregate, it did not provide a case-weighted average 
standardized charge per case by MS-DRG (as required by the 
application).
    The applicant also noted that their estimate of the case-weighted 
average standardized charge per case of $57,511 did not include charges 
related to the AutoLITTTM. Therefore, it is necessary to add 
the charges related to the device to the case-weighted average 
standardized charge per case in evaluating the cost threshold 
criterion. Although the applicant submitted data related to the 
estimated cost of the AutoLITTTM per case, the applicant 
stated that the cost of the device was proprietary information. Based 
on a study of charge compression data by RTI \4\ and charge master data 
from Stanford University and University of California, San Francisco, 
the applicant estimates $38,886 in charges related to the 
AutoLITTTM (we note that some of the data used a markup of 
294 percent of the costs). Adding the estimated charges related to the 
device to the average standardized charge per case resulted in a total 
average standardized charge per case of $96,397 ($57,511 plus $38,886). 
We note, in the applicant's discussion of substantial clinical 
improvement below, the applicant maintains that improved clinical 
outcomes using nonfocused LITT included reduced recovery time and a 
reduced rate of complications. Therefore, we are seeking comment on how 
reduced recovery time and a reduced rate of complications would affect 
the total case-weighted average standardized charge per case and the 
average length of stay (for cases eligible for the 
AutoLITTTM).
---------------------------------------------------------------------------

    \4\ RTI International, A Study of Charge Compression in 
Calculating DRG Relative Weights, RTI Project No. 0207964.012.008; 
January 2007.
---------------------------------------------------------------------------

    As noted above, the applicant's analysis established a case-
weighted average charge per case in the aggregate, but it did not 
provide a case-weighted average standardized charge per case by MS-DRG. 
However, the applicant explained through supplemental information to 
its application that the total average standardized charge per case 
significantly exceeds the cost threshold established by CMS for FY 2011 
in Table 10 (74 FR 44173) of $84,185 for MS-DRG 25. Additionally, the 
applicant further explained that the total average standardized charge 
per case would also exceed the cost thresholds established by CMS of 
$58,612 for MS-DRGs 26 and $47,053 for MS-DRG 27. Because the total 
average standardized charge per case exceeds the threshold amount for 
each individual MS-DRG to which the technology would map (MS-DRGs 25, 
26, and 27), the applicant maintains that the AutoLITTTM 
would meet the cost criterion. We invite public comment on whether or 
not the AutoLITTTM meets the cost criterion for a new 
technology add-on payment for FY 2011.

[[Page 23930]]

    With respect to the substantial clinical improvement criterion, the 
applicant maintains that it meets this criterion in its application. 
Specifically, the applicant stated that several non-
AutoLITTTM clinical trials have demonstrated that nonfocused 
LITT (and more recently, the use of LITT plus MRI) improved survival, 
quality of life, and recovery in patients with advanced glioblastoma 
multiforme tumors and advanced metastatic brain tumors that cannot be 
effectively treated with surgery, radiosurgery, radiation, 
chemotherapy, or any currently available clinical procedure. In a 
number of these patients, nonfocused LITT was the treatment of last 
resort, due to either the unresponsiveness or inability of these 
therapies to treat the brain tumor (due to tumor location, type, or 
size, among others). The applicant also maintains that when compared to 
craniotomy, it offers improved clinical outcomes using nonfocused LITT, 
including reduced recovery time and a reduced rate of complications 
(that is, infection, brain edema). The applicant stated that these 
factors, as discussed in the FY 2001 final rule (66 FR 46914 through 
46915) demonstrate that the AutoLITTTM meets the new 
technology criterion for substantial clinical improvement.
    The applicant further asserts that AutoLITTTM would 
represent a substantial clinical improvement over existing standards of 
care for a number of reasons and should build upon less sophisticated, 
nonfocused LITT therapies. These clinical improvements cited by the 
applicant include: A less invasive method of tumor ablation, 
potentially leading to lower complication rates post procedure 
(infection, edema); an ability to employ multiple interventions over 
shorter periods of time and an ability to be used as a treatment of 
last resort (radiosurgery is limited due to radiation dosing and 
craniotomy is limited to 1 to 2 procedures); an ability to be used in 
hard-to-reach brain tumors (the AutoLITTTM may be used as a 
treatment of last resort); and a shorter recovery time (the possibility 
for same day surgery, which has been demonstrated above with nonfocused 
LITT).
    We appreciate the applicant's summary of why this technology 
represents a substantial clinical improvement. While we recognize the 
future potential of this interesting therapy, we have concerns that to 
date the AutoLITTTM has been used for the treatment of only 
a few patients as part of a safety evaluation with no comparative 
efficacy data and, therefore, there may not be sufficient objective 
clinical evidence to determine if the AutoLITTTM meets the 
substantial clinical improvement criteria. The applicant did note in 
its presentation at the new technology town hall meeting that it is 
currently conducting a clinical trial with a summary report expected in 
the near future. We welcome additional clinical data to demonstrate 
whether the AutoLITTTM meets the substantial clinical 
improvement criterion and invite public comment on whether or not the 
AutoLITTTM meets the substantial clinical improvement 
criterion.
    We did not receive any written public comments regarding this 
application for new technology add-on payments concerning the new 
technology town hall meeting.
b. LipiScanTM Coronary Imaging System
    InfraReDx, Inc. submitted an application for new technology add-on 
payments for FY 2011 for the LipiScanTM Coronary Imaging 
System (LipiScanTM). We note that an application was also 
submitted for FY 2010, but the application was denied on the grounds 
that it did not meet the substantial clinical improvement criterion at 
that time. The application for FY 2011 contains some additional 
clinical and charge data that were not available at the time that the 
FY 2010 new technology add-on payment decisions were made.
    The LipiScanTM device is a diagnostic tool that uses 
Intravascular Near Infrared Spectroscopy (INIRS) during an invasive 
coronary catheterization to scan the artery wall in order to determine 
coronary plaque composition. The purpose of the device is to identify 
lipid-rich areas in the artery because such areas have been shown to be 
more prone to rupture. The procedure does not require flushing or 
occlusion of the artery. INIRS identifies the chemical content of 
plaque by focusing near infrared light at the vessel wall and measuring 
reflected light at different wavelengths (that is, spectroscopy). The 
LipiScanTM system collects approximately 1,000 measurements 
per 12.5 mm of pullback, with each measurement interrogating an area of 
1 to 2 mm\2\ of lumen surface perpendicular to the longitudinal axis of 
the catheter. When the catheter is in position, the physician activates 
the pullback and rotation device and the scan is initiated providing 
360 degree images of the length of the artery. The rapid acquisition 
speed for the image freezes the motion of the heart and permits 
scanning of the inside of the arterial wall in less than 2 minutes. 
When the catheter pullback is completed, the console displays the scan 
results, which are referred to as a ``chemogram'' image. The chemogram 
image requires reading by a trained user, but, according to the 
applicant was designed to be simple to interpret.
    With regard to the newness criterion, the LipiScanTM 
received a 510K FDA clearance for a new indication on April 25, 2008, 
and was available on the market immediately thereafter. On June 23, 
2006, InfraReDx, Inc. was granted a 510K FDA clearance for the 
``InfraReDx Near Infrared (NIR) Imaging System.'' Both devices are 
under the common name of ``Near Infrared Imaging System'' according to 
the 510K summary document from the FDA. However, the InfraReDx NIR 
Imaging System device that was approved by the FDA in 2006 was approved 
``for the near infrared imaging of the coronary arteries,'' whereas the 
LipiscanTM device cleared by the FDA in 2008 is for a 
modified indication. The modified indication specified that 
LipiscanTM is ``intended for the near-infrared examination 
of coronary arteries* * *, the detection of lipid-core-containing 
plaques of interest* * *[and] for the assessment of coronary artery 
lipid core burden.'' In the FY 2010 IPPS/RY 201 LTCH PPS proposed rule 
(74 FR 24132 through 24134), we noted that we had concerns with whether 
LipiscanTM was substantially similar to its predicate device 
that was approved by the FDA in 2006. However, those concerns were 
addressed by the manufacturer during the comment period. Specifically, 
the manufacturer stated that there were technical problems with the 
original device and that LipiScanTM had to be modified in 
the following ways:

------------------------------------------------------------------------
                                                        Marketed 2008
                                2006 NIRS device          lipiScan
------------------------------------------------------------------------
Console.....................  No display of         Results displayed
                               results of scan.      immediately.
Catheter....................  Saline-filled with    Air-filled with no
                               microbubble problem   microbubble
                               obscuring many        problem.
                               scans.

[[Page 23931]]

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

    The problems with the LipiScanTM device that was 
approved in 2006 were addressed in the second device that was granted 
FDA approval in April 2008. The LipiScanTM device was not 
marketed until after its second FDA clearance. Therefore, we no longer 
needed to make a determination as to whether the newer device was 
substantially similar to the predicate device and we determined in the 
FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43815) that 
LipiscanTM would be considered to be ``new'' to the market 
as of the date of its FDA approval in April 2008. Because a technology 
may be considered new for a period of up to 3 years if, during the 
third year, the technology is new for more than 6 months of the fiscal 
year, it appears that the technology would still be in the newness 
period for FY 2011. We welcome public comment on whether 
LipiscanTM meets the newness criterion.
    We note that the LipiscanTM technology is identified by 
ICD-9-CM procedure code 38.23 (Intravascular spectroscopy), which 
became effective October 1, 2008, and cases involving the use of this 
device generally map to MS-DRG 246 (Percutaneous Cardiovascular 
Procedures with Drug-Eluting Stent(s) with MCC or 4+ Vessels/Stents); 
MS-DRG 247 (Percutaneous Cardiovascular Procedures with Drug-Eluting 
Stent(s) without MCC); MS-DRG 248 (Percutaneous Cardiovascular 
Procedures with Non-Drug-Eluting Stent(s) with MCC or 4+ Vessels/
Stents); MS-DRG 249 (Percutaneous Cardiovascular Procedures with Non-
Drug-Eluting Stent(s) without MCC); MS-DRG 250 (Percutaneous 
Cardiovascular Procedures without Coronary Artery Stent with MCC); and 
MS-DRG 251 (Percutaneous Cardiovascular Procedures without Coronary 
Artery Stent without MCC).
    In an effort to demonstrate that the technology meets the cost 
criterion, the applicant used the FY 2010 final rule After Outliers 
Removed (AOR) file (posted on the CMS Web site) to identify cases 
potentially eligible for LipiscanTM. The applicant believes 
that every case within MS-DRGs 246, 247, 248, 249, 250, and 251 is 
eligible for LipiscanTM. In addition, the applicant believes 
that LipiscanTM will be evenly distributed across patients 
in each of those six MS-DRGs (16.7 percent within each MS-DRG). Using 
data from the AOR file, the applicant found the average standardized 
charge per case for MS-DRGs 246, 247, 248, 249, 250, and 251 was 
$67,531, $44,485, $62,936, $40,149, $59,416, and $38,864, respectively, 
equating to a case-weighted average standardized charge per case of 
$52,230 (calculation performed using unrounded numbers). The applicant 
indicated that the case-weighted average standardized charge per case 
does not include charges related to LipiscanTM; therefore, 
it is necessary to add the charges related to the device to the average 
case-weighted standardized charge per case to evaluate the cost 
threshold criterion. Although the applicant submitted data related to 
the estimated cost per case of LipiscanTM, the applicant 
stated that the cost of the device is proprietary information. Based on 
a sampling of all 10 non-VA hospitals that are actively using the 
device, the applicant determined that the average charge for the device 
was $7,497. Adding the estimated average charge related for the device 
to the case-weighted standardized charge per case (based on the case 
distribution from the applicant's FY 2010 AOR analysis) results in a 
total case-weighted average standardized charge per case of $59,727 
($52,230 plus $7,497). Using the FY 2011 thresholds published in Table 
10 of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44173), the 
case-weighted threshold for MS-DRGs 246, 247, 248, 249, 250, and 251 is 
$56,487 (all calculations above were performed using unrounded 
numbers). Because the applicant's calculation of the total case-
weighted average standardized charge per case for the applicable MS-
DRGs exceeds the case-weighted threshold amount, the applicant 
maintains that LipiscanTM meets the cost criterion.
    We note that in the applicant's analysis of the cost criterion, 
instead of determining the case-weighted average standardized charge 
per case and the case-weighted threshold amount based on the actual 
number of cases from the FY 2010 AOR file in the applicable MS-DRGs 
that are eligible for the LipiscanTM, the applicant's 
analysis assumed an even distribution of patients in the applicable MS-
DRGs. However, the data from the FY 2010 AOR file shows a varied 
distribution of cases in each of the applicable MS-DRGs. We believe the 
more appropriate way to determine the case-weighted average 
standardized charge per case and the case-weighted threshold amount for 
evaluating the cost criterion is to use the actual distribution of 
cases in the applicable MS-DRGs based on the number of cases from the 
AOR file because this would more accurately reflect the number and type 
of Medicare cases typically treated in the applicable MS-DRGs. 
Moreover, this would better conform with the applicant's assertion that 
the probability of use of LipiscanTM is the same in each of 
those six MS-DRGs. Using data from the FY 2010 AOR file, for MS-DRGs 
246, 247, 248, 249, 250, and 251, there were 30,411, 147,952, 19,736, 
67,964, 8,184, and 38,091 cases, respectively. Using this case 
distribution and the average standardized charge per case for MS-DRGs 
246, 247, 248, 249, 250, and 251 from the application (that is, 
$67,531, $44,485, $62,936, $40,149, $59,416, and $38,864, respectively, 
as stated above), the case-weighted average standardized charge per 
case is $46,657. As the applicant indicated above, the case-weighted 
average standardized charge per case does not include charges related 
to LipiscanTM. Therefore, it is necessary to add the average 
charge of $7,497 related to the device to the case-weighted 
standardized charge per case to evaluate the cost threshold criterion. 
Adding the estimated charges related to the device to the case-weighted 
average standardized charge per case (based on the case distribution 
from the FY 2010 AOR final rule file) results in a total case-weighted 
average standardized charge per case of $54,154 ($46,657 plus $7,497). 
Using the FY 2011 thresholds published in Table 10 of the FY 2010 IPPS/
RY 2010 LTCH PPS final rule (74 FR 44173) and the actual case 
distribution from the AOR file, the case-weighted threshold for MS-DRGs 
246, 247, 248, 249, 250, and 251 is $52,700 (all calculations above 
were performed using unrounded numbers). Because this alternative 
calculation of total case-weighted average standardized charge per case 
for the applicable MS-DRGs also exceeds the case-weighted threshold 
amount, it appears that LipiscanTM would meet the cost 
criterion. We invite public comment on

[[Page 23932]]

whether or not LipiscanTM meets the cost criterion.
    With regard to substantial clinical improvement, CMS determined 
that the FY 2010 new technology add-on payment application for 
LipiscanTM did not meet the substantial clinical improvement 
criterion because the evidence and information available at the time 
the new technology decisions were made did not allow CMS to determine 
that the application represented a substantial clinical improvement 
over existing technologies. Specifically, CMS found that there was a 
lack of evidence that demonstrated that LipiscanTM affected 
the medical management of patients in which the device was used.
    The applicant maintains that the device meets this criterion for 
the following reasons. The applicant noted that from November 2008 to 
2009, the number of patients in whom LipiscanTM has been 
used for clinical purposes has increased from 100 to 500 and during the 
same period, the number of hospitals using the product has increased 
from 6 to 16. In addition, the applicant asserts that ``during the past 
year, two LipiscanTM publications demonstrate that dilation 
of a lipid core plaque is responsible for slow or no reflow and 
myocardial infarction during the procedure.'' The applicant noted that 
this is important because ``several treatments are available that could 
prevent this stenting complication.'' The applicant referenced the 
``700 patient PROSPECT Study'' which was presented at Transcatheter 
Cardiovascular Therapeutics Conference in September 2009 and found that 
20.4 percent of patients experience a new event in the 3.4 years 
following stenting. The applicant pointed to that finding as evidence 
that there is a need for improved safety and efficacy of stenting and 
maintained that LipiscanTM offers clinicians the ability to 
make decisions that result in such improvements.
    The PROSPECT (Providing Regional Observations to Study Predictors 
of Events in the Coronary Tree) study is a cohort study of patients 
with acute coronary syndrome who underwent percutaneous coronary 
angioplasty and stenting (percutaneous coronary intervention). 
Following the procedure, angiography and intravascular ultrasound 
(IVUS) were performed. If a patient had a subsequent event, a new 
angiogram and IVUS image were obtained and compared to the original 
results. The investigators reported that ``angiographically mild 
lesions with certain morphologic features on grayscale and IVUS present 
with a 3 year cardiac event rate of 17%, versus other morphologies 
(indistinguishable by conventional angiograms) with three year event 
risks of less than 1%.'' We are concerned that with this type of study 
design, it is not possible to determine whether the information for the 
IVUS image would have altered the angioplasty and stenting procedures 
since the images were collected after the procedure. The results are 
suggestive, but a prospective study is needed to determine the clinical 
utility of IVUS and whether use of IVUS leads to changes in clinical 
practice or improvements in health outcomes. The PROSPECT study 
generated a hypothesis that use of IVUS may help determine which 
plaques are vulnerable to future events but further clinical research 
is needed to confirm this hypothesis. We note that the PROSPECT study 
was presented at the Transcatheter Cardiovascular Therapeutics 
Conference in 2009, but that the study results have yet to be published 
in a peer-reviewed journal. We also note that methods and conclusions 
from a study may change from what was verbally presented during the 
peer review process that is required to publish the study results.
    As it did in its prior application, the applicant noted that the 
September 1, 2001 final rule states that one facet of the criterion for 
substantial clinical improvement is ``the device offers the ability to 
diagnose a medical condition in a patient population where the medical 
condition is currently undetectable or offers the ability to diagnose a 
medical condition earlier in a patient population than allowed by 
currently available methods. There must also be evidence that use of 
the device to make a diagnosis affects the management of the patient'' 
(66 FR 46914). The applicant believes that LipiscanTM meets 
all facets of this criterion. The applicant asserted that the device is 
able to detect a condition that is not currently detectable. The 
applicant explained that LipiScanTM is the first device of 
its kind to be able to detect lipid-core-containing plaques of interest 
and to assess of coronary artery lipid core burden. The applicant 
further noted that FDA, in its approval documentation, has indicated 
that ``This is the first device that can help assess the chemical 
makeup of coronary artery plaques and help doctors identify those of 
particular concern.''
    In addition, the applicant stated that the LipiScanTM 
chemogram permits a clinician to detect lipid-core-containing plaques 
in the coronary arteries compared to other currently available devices 
that do not have this ability. The applicant explained that the 
angiogram, the conventional test for coronary atherosclerosis, shows 
only minimal coronary narrowing. However, the applicant indicated that 
the LipiScanTM chemogram has the ability to reveal when an 
artery contains extensive lipid-core-containing plaque at an earlier 
stage.
    The applicant also noted that the device has the ability to make a 
diagnosis that better affects the management of the patient. 
Specifically, the applicant asserted that LipiScanTM ``is 
currently used in the management of patients undergoing coronary 
stenting to improve the safety and efficacy of the procedure'' and that 
while stenting has steadily improved, its results are not optimal in 
approximately 30 percent of cases due to 3 problems: (1) Peri-stenting 
MI due to embolization of lipid core contents and side branch 
occlusion; (2) major adverse coronary events (MACE) post stenting from 
difficulties at the stented site; and (3) MACE post stenting for non-
stented vulnerable sites. We note that in order to demonstrate that the 
technology represents a substantial clinical improvement, there must be 
evidence that use of the device to make a diagnosis affects the medical 
management of the patient and leads to improved clinical outcomes.
    The applicant described three case studies where each of the above 
problems was addressed by use of the LipiScanTM. In 
addition, the applicant asserts that the chemogram results are 
available to the interventional cardiologist during the PCI procedure, 
and have been found to be useful in decision-making. According to the 
applicant, physicians have reported changes in therapy based on 
LipiScanTM findings in 20 to 50 percent of patients in which 
the device has been used. According to the applicant, the most common 
use of LipiScanTM results has been by physicians for 
selection of the length of artery to be stented. In some cases a longer 
stent has been used when there is a lipid-core-containing plaque 
adjacent to the area that is being stented because a flow-limiting 
stenosis is present. The applicant also noted that, in some cases, 
physicians have chosen to use down-stream protective devices during 
stenting procedures on the basis of information gathered by use of 
LipiscanTM in several patients, and that this has directly 
impacted their outcome by capturing emboli and preventing further 
cardiac damage. Therefore, the applicant contends that the use of 
LipiScanTM by clinicians to select the length of artery to 
be stented and as an aid in selection of intensity of lipid-altering 
therapy, demonstrates that

[[Page 23933]]

LipiScanTM affects the management of patients.
    While we recognize that the identification of lipid-rich plaques in 
the coronary vasculature holds promise in the management of coronary 
artery disease, we are concerned that statements in the FDA approval 
documents, as well as statements made by investigators in the 
literature, suggest that the clinical implications of identifying these 
lipid-rich plaques are not yet certain and that further studies need to 
be done to understand the clinical implications of obtaining this 
information.
    The applicant also submitted commentary from Interventional 
Cardiologists (a group of clinicians who currently utilize the 
LipiScanTM device) explaining the clinical benefits of the 
device. The applicant further noted that the device may have other 
potential uses that would be of clinical benefit, and studies are 
currently being conducted to investigate these other potential uses. 
The applicant explained that LipiScanTM offers promise as a 
means to enhance progress against the two leading problems in coronary 
disease management: (1) The high rate of second events that occur even 
after catheterization, revascularization, and the institution of 
optimal medical therapy; and (2) the failure to diagnose coronary 
disease early, which results in sudden death or MI being the first sign 
of the disease in most patients. The applicant further stated that the 
identification of coronary lipid-core-containing plaques, which can 
most readily be done in those already undergoing catheterization, is 
likely to be of benefit in the prevention of second events. In the 
longer term, the applicant stated that the identification of lipid-
core-containing plaques by LipiScanTM may contribute to the 
important goal of primary prevention of coronary events, which, in the 
absence of adequate diagnostic methods, continue to cause extensive 
morbidity, mortality and health care expenditures in Medicare 
beneficiaries and the general population.
    We welcome public comment regarding whether or not the 
LipiScanTM technology represents a substantial clinical 
improvement in the Medicare population.
    We received approximately nine public comments during the town hall 
meeting public comment period on the LipiScanTM and 
LipiScanTM IVUS. The comments relating to 
LipiScanTM IVUS are summarized at the end of the 
LipiScanTM IVUS application.
    Comment: Several commenters supported approving the 
LipiScanTM device for new technology add-on payments. They 
stated (using nearly identical language) that LipiScanTM 
provided accurate information about the presence of lipid core plaques 
that was previously unavailable. They also stated that the device 
``permits the detection of an earlier stage of coronary artery 
disease.'' The commenters also stated that, ``over the past year 
evidence has been obtained documenting that the presence of a lipid-
core plaque at a stenotic site (as detected by LipiScanTM) 
is an excellent predictor or peri-stenting myocardial infarction due to 
distal embolization of the lipid core following balloon dilation. This 
valuable diagnostic information can be combined with well-established 
treatments (prophylactic administration of vasodilators and/or direct 
stenting) as a means to reduce the stenting complication of peri-
stenting MI.''
    One commenter stated that ``the knowledge that a patient possesses 
lipid laden atheroma will markedly alter medical therapy in order to 
prevent thrombotic events. These heretofore unrecognized (asymptomatic) 
patients identified to be at high risk by the Lipiscan chemogram will 
be treated with intensive antihyperlipdemic therapy and other medical 
strategies that otherwise would not have been implemented to modify 
risk.'' Some commenters indicated that other potential uses of 
LipiScanTM include ``determination of the length of the 
artery to be stented and selection of the intensity of lipid-altering 
therapy.''
    Several commenters stated that the ``lack of specific 
reimbursement'' for the technology was an impediment to the use and 
development of it.
    Response: We thank the commenters for their comments. We have 
considered the comments concerning the town hall meeting in this 
proposed rule. As stated above, we invite additional public comment on 
objective data regarding the assertions made by the commenters. 
Specifically, we welcome additional information (including specific 
case-descriptions) regarding how the use of the technology has affected 
the medical management of patients and how the changes in management 
have led to improved clinical outcomes for those patients (again, 
specific examples are welcomed).
    In response to the comments concerning Medicare reimbursement for 
LipiScanTM, we note that LipiScanTM is currently 
covered by Medicare and would thus be included in the MS-DRG payment 
made to the hospital. In general, the MS-DRG payment is considered to 
cover all costs associated with the case including those of new 
technologies. As noted above, typically, there is a lag of 2 to 3 years 
from the point a new medical service or technology is first introduced 
on the market (generally on the date that the technology receives FDA 
approval/clearance) and when data reflecting the use of the medical 
service or technology are used to calculate the MS-DRG weights. In 
addition, Congress specified that a new medical service or technology 
may be considered for new technology add-on payment if, ``based on the 
estimated costs incurred with respect to discharges involving such 
service or technology, the DRG prospective payment rate otherwise 
applicable to such discharges under this subsection is inadequate.'' 
While we agree with the commenter that at this time there is no 
specific reimbursement for LipiscanTM within the MS-DRGs in 
the form of a new technology add-on payment, because 
LipiscanTM has applied for new technology add-on payments, 
we will evaluate it to determine whether it meets the criteria to 
receive new technology add-on payments in FY 2011. If the technology 
does not meet the new technology add-on payment criteria, it will 
continue to be paid as part of the regular MS-DRG payment and once the 
lag of 2 to 3 years is over, the costs associated of 
LipiscanTM will be fully reflected in the relative weights 
that are used to recalibrate the MS-DRGs.
    c. LipiScanTM Coronary Imaging System With Intravascular 
Ultrasound (IVUS)
    InfraReDx, Inc. submitted an application for new technology add-on 
payments for FY 2011 for the LipiScanTM Coronary Imaging 
System with Intravascular Ultrasound (LipiScanTM IVUS). The 
LipiScanTM IVUS device is a diagnostic device that uses 
Intravascular near infrared spectroscopy (INIRS) combined with 
intravascular ultrasound (IVUS) during an invasive coronary angiography 
to determine the chemical composition of coronary plaques, which is 
accomplished using near infrared spectroscopy (INIRS) and to visualize 
stents and the structural features of coronary lesions, which is 
accomplished using IVUS. This new technology combines both capabilities 
in a single catheter. The IVUS part of the device utilizes sound to 
interrogate the artery and, according to the applicant, provides an 
image of the size of the plaque, the degree of stenosis produced by the 
plaque, the size of the artery and the degree of expansion of the 
stent. The device consists of a single-use catheter, a console and a 
``single pullback with the artery.'' The

[[Page 23934]]

device is intended to be used in patients already undergoing coronary 
stenting.
    With respect to the newness criterion, we note that this device is 
not currently approved by the FDA, but the manufacturer anticipates 
that FDA approval will be granted in the second quarter of 2010. We 
also note that IVUS has existed for over 20 years. Therefore, IVUS, on 
its own, would not meet the newness criterion. The applicant asserts 
that one difference from the LipiscanTM product, for which 
it has also submitted an application for new technology add-on 
payments, is that the catheter for the combined product is filled with 
saline (which is required for transmission of sound). The manufacturer 
has also stated that the combined device only requires the use of one 
catheter, as opposed to two separate ones. The manufacturer asserts 
that the single-use catheter for the combined technologies is only 
supplied by InfraRedX (the manufacturer of LipiScanTM). 
However, we note that a physician could use LipiScanTM and 
IVUS as two separate products in the same patient (through the use of 
two catheters) and still be able to obtain the INIRS image and the 
ultrasound that are achieved through the combined product albeit 
separately.
    We welcome public comments regarding whether the combined 
LipiScanTM IVUS device should be considered to be ``new'' as 
of the date of the existing LipiScanTM device received FDA 
approval or whether it should be considered new from the FDA approval 
date for LipiScanTM IVUS (should such an approval be 
granted). We also welcome public comments regarding whether 
LipiScanTM IVUS, as a combined technology, should be 
considered to be substantially similar to each individual technology 
separately as of the date that each separate technology received FDA 
approval (or the date that each technology became available on the 
market, if either technology was not available on the market until a 
date after FDA approval).
    As stated above, in making a determination of substantial 
similarity, we consider the following: (1) Whether a product uses the 
same or similar mechanism of action to achieve a therapeutic action; 
(2) whether a product is assigned to the same or a different DRG; and 
(3) whether new use of a technology involves treatment of the same or 
similar type of disease and the same or similar patient population. In 
the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we stated that ``due to 
the complexity of issues regarding the substantial similarity component 
of the newness criterion, it may be necessary to exercise flexibility 
when considering whether technologies are substantially similar to one 
another (74 FR 43813).
    We note that the LipiScanTM IVUS device is identified by 
ICD-9-CM procedure codes 38.23 (Intravascular spectroscopy) and 00.24 
(Intravascular imaging of coronary vessels). Cases involving the use of 
this device generally map to MS-DRG 246 (Percutaneous Cardiovascular 
Procedures with Drug-Eluting Stent(s) with MCC or 4+ Vessels/Stents); 
MS-DRG 247 (Percutaneous Cardiovascular Procedures with Drug-Eluting 
Stent(s) without MCC); MS-DRG 248 (Percutaneous Cardiovascular 
Procedures with Non-Drug-Eluting Stent(s) with MCC or 4+ Vessels/
Stents); MS-DRG 249 (Percutaneous Cardiovascular Procedures with Non-
Drug-Eluting Stent(s) without MCC); MS-DRG 250 (Percutaneous 
Cardiovascular Procedures without Coronary Artery Stent with MCC); and 
MS-DRG 251 (Percutaneous Cardiovascular Procedures without Coronary 
Artery Stent without MCC).
    In an effort to demonstrate that the technology meets the cost 
criterion, the applicant used the FY 2010 final rule After Outliers 
Removed (AOR) file (posted on the CMS Web site) to identify cases 
potentially eligible for LipiscanTM IVUS. The applicant 
believes that every case within MS-DRGs 246, 247, 248, 249, 250, and 
251 is eligible for LipiscanTM IVUS. In addition, the 
applicant believes that LipiscanTM IVUS will be evenly 
distributed across patients in each of those six MS-DRGs (16.7 percent 
within each MS-DRG). Using data from the AOR file, the applicant found 
the average standardized charge per case for MS-DRGs 246, 247, 248, 
249, 250, and 251 was $67,531, $44,485, $62,936, $40,149, $59,416, and 
$38,864 respectively, equating to a case-weighted average standardized 
charge per case of $52,230 (calculation performed using unrounded 
numbers). The applicant indicated that the case-weighted average 
standardized charge per case does not include charges related to 
LipiscanTM IVUS. Therefore, it is necessary to add the 
charges related to the device to the average case-weighted standardized 
charge per case to evaluate the cost threshold criterion. Although the 
applicant submitted data related to the estimated cost per case of 
LipiscanTM IVUS, the applicant stated that the cost of the 
device is proprietary information. The applicant analyzed Hospital Cost 
Report Information System (``HCRIS'') data from 2008 to determine the 
charges related to the device. Specifically, the applicant searched for 
the 100 cardiac catheterization labs that had the highest volume of 
cases in the United States. Based on the HCRIS data from these 100 
labs, the applicant determined the mean cost-to-charge ratio was 0.188 
with a mark-up of 532 percent yielding a charge of $15,957 for 
LipiscanTM IVUS. (We note that this estimate of charges 
related to the LipiscanTM IVUS is significantly higher than 
the estimate of charges related to the LipiscanTM device.) 
Adding the estimated average charge related for the device to the case-
weighted standardized charge per case (based on the case distribution 
from the applicant's FY 2010 AOR analysis) results in a total case-
weighted average standardized charge per case of $68,190 ($52,230 plus 
$15,960). Using the FY 2011 thresholds published in Table 10 of the FY 
2011 IPPS/RY 2010 LTCH PPS final rule (74 FR 44173), the case-weighted 
threshold for MS-DRGs 246, 247, 248, 249, 250, and 251 is $56,487 (all 
calculations above were performed using unrounded numbers). Because the 
applicant's calculation of the total case-weighted average standardized 
charge per case for the applicable MS-DRGs exceeds the case-weighted 
threshold amount, the applicant maintains that LipiscanTM 
IVUS meets the cost criterion.
    We note that in the applicant's analysis of the cost criterion, 
instead of determining the case-weighted average standardized charge 
per case and the case-weighted threshold amount based on the actual 
number of cases from the FY 2010 AOR file in the applicable MS-DRGs 
that are eligible for the LipiscanTM IVUS, the applicant's 
analysis assumed an even distribution of patients in the applicable MS-
DRGs. However, the data from the FY 2010 AOR file shows a varied 
distribution of cases in each of the applicable MS-DRGs. We believe the 
more appropriate way to determine the case-weighted average 
standardized charge per case and the case-weighted threshold amount for 
evaluating the cost criterion is to use the actual distribution of 
cases in the applicable MS-DRGs based on the number of cases from the 
AOR file because this would more accurately reflect the number and type 
of Medicare cases typically treated in the applicable MS-DRGs. 
Moreover, this would better conform with the applicant's assertion that 
that the probability of use of LipiscanTM is the same in 
each of those six MS-DRGs. Using data from the FY 2010 AOR file, for 
MS-DRGs 246, 247, 248, 249, 250, and 251, there were 30,411, 147,952, 
19,736, 67,964, 8,184, and 38,091 cases, respectively. Using this case 
distribution and the average standardized charge per case for MS-

[[Page 23935]]

DRGs 246, 247, 248, 249, 250, and 251 from the application (that is, 
$67,531, $44,485, $62,936, $40,149, $59,416, and $38,864, respectively, 
as stated above), the case-weighted average standardized charge per 
case is $46,657. As the applicant indicated above, the case-weighted 
average standardized charge per case does not include charges related 
to LipiscanTM IVUS. Therefore, it is necessary to add the 
average charge of $15,960 related to the device to the case-weighted 
standardized charge per case to evaluate the cost threshold criterion. 
Adding the estimated charges related to the device to the case-weighted 
average standardized charge per case (based on the case distribution 
from the FY 2010 AOR final rule file) results in a total case-weighted 
average standardized charge per case of $62,617 ($46,657 plus $15,960). 
Using the FY 2011 thresholds published in Table 10 of the FY 2010 IPPS/
RY 2010 LTCH PPS final rule (74 FR 44173) and the actual case 
distribution from the AOR file, the case-weighted threshold for MS-DRGs 
246, 247, 248, 249, 250, and 251 is $52,700 (all calculations above 
were performed using unrounded numbers). Because this alternative 
calculation of total case-weighted average standardized charge per case 
for the applicable MS-DRGs exceeds the case-weighted threshold amount, 
it appears that LipiscanTM IVUS would meet the cost 
criterion.
    In addition to the analysis above, the applicant searched the FY 
2008 MedPAR file for cases potentially eligible for use of the 
LipiscanTM IVUS. Because the technology can potentially be 
used for all cases within MS-DRGs 246 through 251, the applicant 
searched the FY 2008 MedPAR file for all cases within these MS-DRGs. 
The applicant found 30,265 cases (or 9.7 percent of all cases) in MS-
DRG 246; 147,695 cases (or 47.4 percent of all cases) in MS-DRG 247; 
19,642 cases (or 6.3 percent of all cases) in MS-DRG 248; 67,840 cases 
(or 21.8 percent of all cases) in MS-DRG 249; 8,120 cases (or 2.6 
percent of all cases) in MS-DRG 250; and 38,022 cases (or 12.2 percent 
of all cases) in MS-DRG 251. The average standardized charge per case 
was $66,958 for MS-DRG 246, $50,192 for MS-DRG 247, $72,099 for MS-DRG 
248, $45,086 for MS-DRG 249, $71,355 for MS-DRG 250, and $46,141 for 
MS-DRG 251, equating to a case-weighted average standardized charge per 
case of $45,964.
    Similar to above, the average standardized charge per case does not 
include charges related to the LipiscanTM IVUS; therefore, 
it is necessary to add the charges related to the device to the average 
standardized charge per case in evaluating the cost threshold 
criterion. Although the applicant submitted data related to the 
estimated cost of LipiscanTM IVUS per case, the applicant 
noted that the cost of the device was proprietary information. Based on 
2008 HCRIS data from the cardiac catheterization laboratories for all 
IPPS hospitals, the applicant determined a mean cost-to-charge ratio of 
0.246 with a markup of 351 percent, yielding a charge of $10,543 for 
LipiscanTM IVUS. Assuming that the LipiscanTM 
IVUS device was marked up 351 percent, the total case-weighted average 
standardized charge per case for cases involving the use of 
LipiscanTM IVUS would be $56,507 ($45,964 plus $10,543) 
across MS-DRGs 246 through 251.
    Using the FY 2011 thresholds published in Table 10 of the FY 2010 
IPPS/RY 2010 LTCH PPS final rule (74 FR 44173), the case-weighted 
threshold for MS-DRGs 246, 247, 248, 249, 250, and 251 is $52,692 (all 
calculations above were performed using unrounded numbers). Because the 
applicant's calculation of the total case-weighted average standardized 
charge per case for the applicable MS-DRGs exceeds the case-weighted 
threshold amount, the applicant maintains that LipiscanTM 
IVUS meets the cost criterion. We invite public comment on whether or 
not LipiscanTM IVUS meets the cost criterion.
    With regard to substantial clinical improvement, the applicant 
asserts that LipiScanTM IVUS lends all the same benefits of 
LipiScanTM by itself (see discussion of 
LipiScanTM with respect to clinical improvement in the above 
application analysis) and also gives added benefits of IVUS. 
Specifically, the applicant maintains that LipiScanTM IVUS 
is superior to perfusion imaging and coronary angiography because those 
procedures only provide information about the lumen, but not the wall 
of the vessel. The applicant asserts that it is superior to IVUS (by 
itself) because IVUS alone cannot identify plaque composition. The 
applicant further maintains that LipiScanTM IVUS provides a 
substantial clinical benefit over Optical Coherence Tomography (OCT) 
because OCT cannot be used if blood is present in the field of view and 
identification of lipid by OCT is ``time-consuming with a requirement 
for expert interpretation.'' In contrast, ``the LipiScanTM 
signal is available immediately after the coronary pullback and does 
not require expert interpretation.''
    The applicant also states that LipiScanTM IVUS makes it 
possible to find the lipid core plaques that are strongly associated 
with peri-stenting MI and adverse events post MI that current methods 
of diagnosis fail to find.
    Finally, the applicant asserts that LipiScanTM IVUS 
affects the management of the patient by improving the safety and 
efficacy of stenting. Further, the applicant states that while stenting 
has steadily improved, its results are not optimal in approximately 30% 
of cases due to 3 problems: (1) Peri-stenting MI due to embolization of 
lipid core contents and side branch occlusion; (2) major adverse 
coronary events (MACE) post stenting from difficulties at the stented 
site; and (3) MACE post stenting for non-stented vulnerable sites.''
    The applicant described three case studies where each of the above 
problems were addressed by use of the LipiScanTM IVUS. 
LipiScanTM IVUS achieves its utility to differentiate lipid 
core plaque from fibrotic plaque, a differentiation that cannot be made 
by angiography or grayscale IVUS.
    The applicant referenced the ``700 patient PROSPECT Study'' which 
was presented at Transcatheter Cardiovascular Therapeutic Conference in 
September 2009 and found that 20.4 percent of patients experience a new 
event in the 3.4 years following stenting. The applicant pointed to 
that finding as evidence that there is a need for improved safety and 
efficacy of stenting and maintained that LipiscanTM offers 
clinicians the ability to make decisions that result in such 
improvements.
    The PROSPECT (Providing Regional Observations to Study Predictors 
of Events in the Coronary Tree) study is a cohort study of patients 
with acute coronary syndrome who underwent percutaneous coronary 
angioplasty and stenting (percutaneous coronary intervention). 
Following the procedure, angiography and IVUS were performed. If a 
patient had a subsequent event, a new angiogram and IVUS image were 
obtained and compared to the original results. The investigators 
reported that ``angiographically mild lesions with certain morphologic 
features on grayscale and IVUS present with a 3 year cardiac event rate 
of 17%, versus other morphologies (indistinguishable by conventional 
angiograms) with three year event risks of less than 1%.'' We are 
concerned that with this type of study design, it is not possible to 
determine whether the information for the IVUS image would have altered 
the angioplasty and stenting procedures since the images were collected 
after the procedure. The results are suggestive, but a prospective 
study is needed to determine the clinical utility of IVUS

[[Page 23936]]

and whether use of IVUS leads to changes in clinical practice or 
improvements in health outcomes. The PROSPECT study generated a 
hypothesis that use of IVUS may help determine which plaques are 
vulnerable to future events but further clinical research is needed to 
confirm this hypothesis. We note that the PROSPECT study was presented 
at the Transcatheter Cardiovascular Therapeutics Conference in 2009, 
but that the study results have yet to be published in a peer reviewed 
journal. We also note that methods and conclusions from a study may 
change from what was verbally presented during the peer review process 
that is required to publish the study results.
    We are concerned that, in the LipiScanTM IVUS 
application, the applicant has generally repeated the statements made 
regarding use of LipiScanTM alone and has not provided 
information that indicates that combined use of LipiScanTM 
plus IVUS offers additional clinical benefit. Indeed, we note that most 
of the studies that were presented in an effort to support that 
LipiScanTM by itself was a substantial clinical improvement, 
were also included to support the LipiScanTM IVUS 
application. The applicant did not present any published peer-reviewed 
journal articles that were specifically related to the clinical merits 
of the combined LipiScanTM IVUS device.
    We welcome public comments on whether the LipiScanTM 
IVUS represents a substantial clinical improvement over existing 
technologies as well as public comments on what is the appropriate 
comparison for LipiScanTM IVUS.
    As we noted at the end of the discussion of the 
LipiScanTM application, we received approximately nine 
public comments on both the LipiScanTM and the 
LipiScanTM IVUS applications.
    Comment: Several commenters acknowledged that LipiScanTM 
IVUS is not yet approved by the FDA, but stated that they would support 
the LipiScanTM IVUS being approved for new technology add-on 
payments should FDA approval be granted. With regard to the clinical 
merits of LipiScanTM IVUS, the commenters stated that the 
LipiScanTM IVUS afforded all the same diagnostic abilities 
of the LipiScanTM, but also provided the added benefit of 
IVUS, which has ``been used in patients for over 20 years [and] is 
already supported by the [American College of Cardiologists and the 
American Hospital Association] for usage in stenting.''
    One commenter stated that once the LipiScanTM IVUS 
becomes approved by the FDA, he plans to use it in all of his patients 
who need IVUS imaging ``because of the wealth of added information 
regarding the presence of lipid laden plaque, a harbinger of myocardial 
infarction and sudden death.''
    Response: We thank the commenters for their comments. However, we 
note that unless the technology is approved by the FDA by July 1, 2010, 
it cannot be approved for add-on payments in FY 2011 since it would not 
be considered ``new.'' Should the technology receive FDA approval by 
July 1, 2010, we will take these comments into consideration in our 
review of the application for new technology add-on payments for FY 
2011.

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

A. Background

    Section 1886(d)(3)(E) of the Act requires that, as part of the 
methodology for determining prospective payments to hospitals, the 
Secretary must adjust the standardized amounts ``for area differences 
in hospital wage levels by a factor (established by the Secretary) 
reflecting the relative hospital wage level in the geographic area of 
the hospital compared to the national average hospital wage level.'' In 
accordance with the broad discretion conferred under the Act, we 
currently define hospital labor market areas based on the definitions 
of statistical areas established by the Office of Management and Budget 
(OMB). A discussion of the proposed FY 2011 hospital wage index based 
on the statistical areas, including OMB's revised definitions of 
Metropolitan Areas, appears under section III.C. of this preamble.
    Beginning October 1, 1993, section 1886(d)(3)(E) of the Act 
requires that we update the wage index annually. Furthermore, this 
section of the Act provides that the Secretary base the update on a 
survey of wages and wage-related costs of short-term, acute care 
hospitals. The survey must exclude the wages and wage-related costs 
incurred in furnishing skilled nursing services. This provision also 
requires us to make any updates or adjustments to the wage index in a 
manner that ensures that aggregate payments to hospitals are not 
affected by the change in the wage index. The proposed adjustment for 
FY 2011 is discussed in section II.B. of the Addendum to this proposed 
rule.
    As discussed below in section III.I. of this preamble, we also take 
into account the geographic reclassification of hospitals in accordance 
with sections 1886(d)(8)(B) and 1886(d)(10) of the Act when calculating 
IPPS payment amounts. Under section 1886(d)(8)(D) of the Act, the 
Secretary is required to adjust the standardized amounts so as to 
ensure that aggregate payments under the IPPS after implementation of 
the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the 
Act are equal to the aggregate prospective payments that would have 
been made absent these provisions. The proposed budget neutrality 
adjustment for FY 2011 is discussed in section II.A.4.b. of the 
Addendum to this proposed rule.
    Section 1886(d)(3)(E) of the Act also provides for the collection 
of data every 3 years on the occupational mix of employees for short-
term, acute care hospitals participating in the Medicare program, in 
order to construct an occupational mix adjustment to the wage index. A 
discussion of the occupational mix adjustment that we are proposing to 
apply beginning October 1, 2010 (the proposed FY 2011 wage index) 
appears under section III.D. of this preamble.

B. Wage Index Reform

1. Wage Index Study Required under the MIEA-TRHCA
a. Legislative Requirement
    Section 106(b)(1) of the MIEA-TRHCA (Pub. L. 109-432) required 
MedPAC to submit to Congress, not later than June 30, 2007, a report on 
the Medicare wage index classification system applied under the 
Medicare IPPS. Section 106(b) of MIEA-TRHCA required the report to 
include any alternatives that MedPAC recommends to the method to 
compute the wage index under section 1886(d)(3)(E) of the Act.
    In addition, section 106(b)(2) of the MIEA-TRHCA instructed the 
Secretary of Health and Human Services, taking into account MedPAC's 
recommendations on the Medicare wage index classification system, to 
include in the FY 2009 IPPS proposed rule one or more proposals to 
revise the wage index adjustment applied under section 1886(d)(3)(E) of 
the Act for purposes of the IPPS. The Secretary was also to consider 
each of the following:
     Problems associated with the definition of labor markets 
for the wage index adjustment.
     The modification or elimination of geographic 
reclassifications and other adjustments.
     The use of Bureau of Labor of Statistics (BLS) data or 
other data or methodologies to calculate relative wages for each 
geographic area.

[[Page 23937]]

     Minimizing variations in wage index adjustments between 
and within MSAs and statewide rural areas.
     The feasibility of applying all components of CMS' 
proposal to other settings.
     Methods to minimize the volatility of wage index 
adjustments while maintaining the principle of budget neutrality.
     The effect that the implementation of the proposal would 
have on health care providers on each region of the country.
     Methods for implementing the proposal(s), including 
methods to phase in such implementations.
     Issues relating to occupational mix such as staffing 
practices and any evidence on quality of care and patient safety 
including any recommendation for alternative calculations to the 
occupational mix.
    In the FY 2009 IPPS final rule (73 FR 48563 through 48567), we 
discussed the MedPAC's study and recommendations, the CMS contract with 
Acumen, L.L.C. for assistance with impact analysis and study of wage 
index reform, and public comments we received on the MedPAC 
recommendations and the CMS/Acumen study and analysis.
b. Interim and Final Reports on Results of Acumen's Study
(1) Interim Report on Impact Analysis of Using MedPAC's Recommended 
Wage Index
    In the FY 2009 IPPS final rule (73 FR 48566 through 48567), we 
discussed the analysis conducted by Acumen comparing use of the MedPAC 
recommended wage indices to the current CMS wage index. We refer 
readers to section III.B.1.e. of that final rule for a full discussion 
of the impact analysis as well as to Acumen's interim report available 
on the Web site: http: //www.acumenllc.com/reports/cms.
(2) Acumen's Final Report on Analysis of the Wage Index Data and 
Methodology
    Acumen's final report addressing the issues in section 106(b)(2) of 
the MIEA-TRHCA is divided into two parts. In the FY 2010 IPPS/RY 2010 
LTCH PPS final rule (74 FR 43824), we provided a description of 
Acumen's analyses for both parts. The first part of Acumen's final 
report analyzed the strengths and weaknesses of the data sources used 
to construct the MedPAC and CMS indexes. The first part of the report 
was published on Acumen's Web site after the publication of the FY 2010 
IPPS/RY 2010 LTCH PPS proposed rule. In its conclusion, Acumen 
suggested that MedPAC's recommended methods for revising the wage index 
represented an improvement over the existing methods, and that the BLS 
data should be used so that the MedPAC approach can be implemented.
    The second part of Acumen's final report focuses on the methodology 
of wage index construction and covers issues related to the definition 
of wage areas and methods of adjusting for differences among 
neighboring wage areas, as well as reasons for differential impacts of 
shifting to a new index. Acumen published the second part of its final 
report in March 2010 on its Web site at: http:/www./acumenllc.com/reports/cms. In particular, the report analyzes MedPAC's recommended 
method of improving upon the definition of the wage areas used in the 
current wage index. MedPAC's method first blends MSA and county-level 
wages and then implements a ``smoothing'' step that limits differences 
in wage index values between adjacent counties to no more than 10 
percent. Acumen found MedPAC's method to be an improvement over the 
current wage index construct. However, although MedPAC's method 
diminishes the size of differences between adjacent areas, Acumen 
suggested that MedPAC's method does not guarantee an accurate 
representation of a hospital labor market and would not necessarily 
eliminate or reduce hospitals' desire to reclassify for a higher wage 
index. Acumen recommended further exploration of labor market area 
definitions using a wage area framework based on hospital-specific 
characteristics, such as commuting times from hospitals to population 
centers, to construct a more accurate hospital wage index. Acumen 
suggested that such an approach offers the greatest potential for 
replacing or greatly reducing the need for hospital reclassifications 
and exceptions.
    We indicated in the FY 2009 IPPS final rule (73 FR 48566) that, in 
developing any proposal(s) for additional wage index reform that may be 
included in the FY 2010 IPPS proposed rule, we would consider all of 
the public comments on the MedPAC recommendations that we had received 
in that proposed rulemaking cycle, along with the interim and final 
reports to be submitted to us by Acumen. As Acumen's study was not 
complete at the time of issuance of the FY 2010 IPPS/RY 2010 LTCH PPS 
proposed rule, we did not propose any additional changes to the 
hospital wage index for the FY 2010 IPPS. We also are not proposing any 
additional changes regarding reforming the wage index for the FY 2011 
IPPS. We welcome comments regarding the second part of Acumen's final 
report.
2. FY 2009 Policy Changes in Response to Requirements Under Section 
106(b) of the MIEA-TRHCA
    To implement the requirements of section 106(b) of the MIEA-TRHCA 
and respond to MedPAC's recommendations in its June 2007 report to 
Congress, in the FY 2009 IPPS final rule (73 FR 48567 through 48574), 
we made the following policy changes relating to the hospital wage 
index. (We refer readers to the FY 2009 IPPS final rule for a full 
discussion of the basis for the proposals, the public comments 
received, and the FY 2009 final policy.) In the FY 2010 IPPS final rule 
(74 FR 43825), we reiterated these policy changes, especially as they 
related to the FY 2010 IPPS.
a. Reclassification Average Hourly Wage Comparison Criteria
    In the FY 2009 IPPS final rule, we adopted the policy to adjust the 
reclassification average hourly wage standard, comparing a 
reclassifying hospital's (or county hospital group's) average hourly 
wage relative to the average hourly wage of the area to which it seeks 
reclassification. We provided for a phase-in of the adjustment over 2 
years. For applications for reclassification for the first transitional 
year, FY 2010, the average hourly wage standards were set at 86 percent 
for urban hospitals and group reclassifications and 84 percent for 
rural hospitals. For applications for reclassification for FY 2011 (for 
which the application deadline was September 1, 2009) and for 
subsequent fiscal years, the average hourly wage standards are 88 
percent for urban and group reclassifications and 86 percent for rural 
hospitals (Sec. Sec.  412.230, 412.232, and 412.234 of the 
regulations). As stated above, these policies were adopted in the FY 
2009 IPPS final rule and are reflected in the wage index in the 
Addendum to this proposed rule. We note that these criteria were 
recently changed by provisions of section 3137(c) of the PPACA (Pub. L. 
111-148). We will address the changes made by Public Law 111-148 in a 
separate rulemaking document in the Federal Register.
b. Budget Neutrality Adjustment for the Rural and Imputed Floors
    In the FY 2009 IPPS final rule (73 FR 48574 through 48575), we 
adopted State level budget neutrality (rather than the national budget 
neutrality adjustment) for the rural and imputed floors, effective 
beginning with the FY 2009

[[Page 23938]]

wage index. The transition from the national budget neutrality 
adjustment to the State level budget neutrality adjustment was phased 
in over a 3-year period. In FY 2009, hospitals received a blended wage 
index that was 20 percent of a wage index with the State level rural 
and imputed floor budget neutrality adjustment and 80 percent of a wage 
index with the national budget neutrality adjustment. In FY 2010, the 
blended wage index reflects 50 percent of the State level adjustment 
and 50 percent of the national adjustment. In FY 2011, as reflected in 
the IPPS wage index in this proposed rule, the adjustment will be 
completely transitioned to the State level methodology.
    In the FY 2009 IPPS final rule, we incorporated this policy in our 
regulation at Sec.  412.64(e)(4). Specifically, the regulations specify 
that CMS makes an adjustment to the wage index to ensure that aggregate 
payments after implementation of the rural floor under section 4410 of 
the Balanced Budget Act of 1997 (Pub. L. 105-33) and the imputed floor 
under Sec.  412.64(h)(4) are made in a manner that ensures that 
aggregate payments to hospitals are not affected and that, beginning 
October 1, 2008, CMS would transition from a nationwide adjustment to a 
statewide adjustment, with a statewide adjustment fully in place by 
October 1, 2010.
    As stated above, these policies for the rural and imputed floors 
were adopted in the FY 2009 IPPS final rule and are reflected in the 
wage index in the Addendum to this proposed rule. However, these 
policies were recently changed by the provisions of section 3141 of the 
PPACA (Pub. L. 111-148). We will address the provisions of section 3141 
of Public Law 111-148 in a separate rulemaking document in the Federal 
Register.

C. Core-Based Statistical Areas for the Hospital Wage Index

    The wage index is calculated and assigned to hospitals on the basis 
of the labor market area in which the hospital is located. In 
accordance with the broad discretion under section 1886(d)(3)(E) of the 
Act, beginning with FY 2005, we define hospital labor market areas 
based on the Core-Based Statistical Areas (CBSAs) established by OMB 
and announced in December 2003 (69 FR 49027). For a discussion of OMB's 
revised definitions of CBSAs and our implementation of the CBSA 
definitions, we refer readers to the preamble of the FY 2005 IPPS final 
rule (69 FR 49026 through 49032).
    As with the FY 2010 final rule, in this FY 2011 proposed rule, we 
are proposing to provide that hospitals receive 100 percent of their 
wage index based upon the CBSA configurations. Specifically, for each 
hospital, we are proposing to determine a wage index for FY 2011 
employing wage index data from hospital cost reports for cost reporting 
periods beginning during FY 2007 and using the CBSA labor market 
definitions. We consider CBSAs that are MSAs to be urban, and CBSAs 
that are Micropolitan Statistical Areas as well as areas outside of 
CBSAs to be rural. In addition, it has been our longstanding policy 
that where an MSA has been divided into Metropolitan Divisions, we 
consider the Metropolitan Division to comprise the labor market areas 
for purposes of calculating the wage index (69 FR 49029) (regulations 
at Sec.  412.64(b)(1)(ii)(A)).
    On December 1, 2009, OMB announced changes to the principal cities 
and, if applicable, titles of a number of CBSAs and Metropolitan 
Divisions (OMB Bulletin No. 10-2). The changes to the principal cities 
and titles are as follows:
     San Marcos, TX qualifies as a new principal city of the 
Austin-Round Rock, TX CBSA. The new title is Austin-Round Rock-San 
Marcos, TX CBSA.
     Delano, CA qualifies as a new principal city of the 
Bakersfield, CA CBSA. The new title: Bakersfield-Delano, CA CBSA.
     Conroe, TX qualifies as a new principal city of the 
Houston-Sugar Land-Baytown, TX CBSA. The CBSA title is unchanged.
     North Port, FL qualifies as a new principal city of the 
Bradenton-Sarasota-Venice, FL CBSA. The new title is North Port-
Bradenton-Sarasota, FL CBSA. The new code is CBSA 35840.
     Sanford, FL qualifies as a new principal city of the 
Orlando-Kissimmee, FL CBSA. The new title is Orlando-Kissimmee-Sanford, 
FL CBSA.
     Glendale, AZ qualifies as a new principal city of the 
Phoenix-Mesa-Scottsdale, AZ CBSA. The new title is Phoenix-Mesa-
Glendale, AZ CBSA.
     Palm Desert, CA qualifies as a new principal city of the 
Riverside-San Bernardino-Ontario, CA CBSA. The CBSA title is unchanged.
     New Braunfels, TX qualifies as a new principal city of the 
San Antonio, TX CBSA. The new title is San Antonio-New Braunfels, TX 
CBSA.
     Auburn, WA qualifies as a new principal city of the 
Seattle-Tacoma-Bellevue, WA CBSA. The CBSA title is unchanged.
    The changes to titles resulting from changes to the order of 
principal cities based on population are as follows:
     Rockville, MD replaces Frederick, MD as the second most 
populous principal city in the Bethesda-Frederick-Rockville, MD 
Metropolitan Division. The new title is Bethesda-Rockville-Frederick, 
MD Metropolitan Division.
     Rock Hill, SC replaces Concord, NC as the third most 
populous principal city in the Charlotte-Gastonia-Concord, NC-SC CBSA. 
The new title is Charlotte-Gastonia-Rock Hill, NC-SC CBSA.
     Joliet, IL replaces Naperville, IL as the second most 
populous principal city in the Chicago-Naperville-Joliet, IL 
Metropolitan Division. The new title is Chicago-Joliet-Naperville, IL 
Metropolitan Division.
     Crestview, FL replaces Fort Walton Beach, FL as the most 
populous principal city in the Fort Walton Beach-Crestview-Destin, FL 
CBSA. The new title is Crestview-Fort Walton Beach-Destin, FL CBSA. The 
new code is 18880.
     Hillsboro, OR replaces Beaverton, OR as the third most 
populous principal city in the Portland-Vancouver-Beaverton, OR-WA 
CBSA. The new title is Portland-Vancouver-Hillsboro, OR-WA CBSA.
     Steubenville, OH replaces Weirton, WV as the most populous 
principal city in the Weirton-Steubenville, WV-OH CBSA. The new title 
is Steubenville-Weirton, OH-WV CBSA. The new CBSA code is 44600.
    The OMB bulletin is available on the OMB Web site at http://www.whitehouse.gov/OMB_go to ``Agency Information'' and click on 
``Bulletins''. CMS will apply these changes to the IPPS beginning 
October 1, 2010.

D. Proposed Occupational Mix Adjustment to the Proposed FY 2011 Wage 
Index

    As stated earlier, section 1886(d)(3)(E) of the Act provides for 
the collection of data every 3 years on the occupational mix of 
employees for each short-term, acute care hospital participating in the 
Medicare program, in order to construct an occupational mix adjustment 
to the wage index, for application beginning October 1, 2004 (the FY 
2005 wage index). The purpose of the occupational mix adjustment is to 
control for the effect of hospitals' employment choices on the wage 
index. For example, hospitals may choose to employ different 
combinations of registered nurses, licensed practical nurses, nursing 
aides, and medical assistants for the purpose of providing nursing care 
to their patients. The varying labor costs associated with these 
choices reflect hospital management decisions rather

[[Page 23939]]

than geographic differences in the costs of labor.
1. Development of Data for the Proposed FY 2011 Occupational Mix 
Adjustment Based on the 2007-2008 Occupational Mix Survey
    As provided for under section 1886(d)(3)(E) of the Act, we collect 
data every 3 years on the occupational mix of employees for each short-
term, acute care hospital participating in the Medicare program.
    For the FY 2010 hospital wage index, we used occupational mix data 
collected on a revised 2007-2008 Medicare Wage Index Occupational Mix 
Survey (the 2007-2008 survey) to compute the occupational mix 
adjustment for FY 2010. (We refer readers to the FY 2010 IPPS final 
rule (74 FR 43827) for a detailed discussion of the 2007-2008 survey.) 
Again, for the proposed FY 2011 hospital wage index, we used data from 
the 2007-2008 survey (including revised data for 45 hospitals) to 
compute the proposed FY 2011 adjustment.
2. New 2010 Occupational Mix Survey for the FY 2013 Wage Index
    As stated earlier, section 304(c) of Public Law 106-554 amended 
section 1886(d)(3)(E) of the Act to require CMS to collect data every 3 
years on the occupational mix of employees for each short-term, acute 
care hospital participating in the Medicare program. We used 
occupational mix data collected on the 2007-2008 survey to compute the 
occupational mix adjustment for FY 2010 and the proposed FY 2011 wage 
index in this proposed rule. We also plan to use the 2007-2008 survey 
data for the FY 2012 wage index. Therefore, a new measurement of 
occupational mix will be required for FY 2013.
    Since we implemented the 2007-2008 survey, we received several 
public comments suggesting further improvements to the occupational mix 
survey. Specifically, commenters recommended that CMS use the calendar 
year (that is, January 1 through December 31) as the 1-year reporting 
period instead of July 1 through June 30. Commenters also requested 
that CMS allow for a 6-month period after the end of the survey 
reporting period for hospitals to complete and submit their data to 
their Medicare fiscal intermediaries and MACs. The commenters suggested 
that these changes will allow hospitals more time to develop their 
occupational mix data before submitting the data to the Medicare 
contractors and CMS for use in development of the wage index. Based on 
these comments, we revised the occupational mix survey. The new 2010 
survey (Form CMS-10079 (2010)) will provide for the collection of 
hospital-specific wages and hours data for calendar year 2010 (that is, 
payroll periods ending between January 1, 2010 and December 31, 2010) 
and will be applied beginning with the FY 2013 wage index.
    On September 4, 2009, we published in the Federal Register a notice 
soliciting comments on the proposed 2010 survey (74 FR 45860). The 
comment period for the notice ended on November 3, 2009. After 
considering the comments we received, we made a few minor editorial 
changes and published the final 2010 survey in the Federal Register on 
January 15, 2010 (75 FR 2548). The survey was approved by OMB on 
February 26, 2010 (OMB control number 0938-0907) and is available on 
the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage, and through the fiscal intermediaries/MACs. 
Hospitals are required to submit their completed 2010 surveys to their 
fiscal intermediaries/MACs by July 1, 2011. The preliminary, unaudited 
2010 survey data will be released in early October 2011, along with the 
FY 2009 Worksheet S-3 wage data, for the FY 2013 wage index review and 
correction process.
3. Calculation of the Proposed Occupational Mix Adjustment for FY 2011
    For FY 2011 (as we did for FY 2010), we are proposing to calculate 
the occupational mix adjustment factor using the following steps:
    Step 1--For each hospital, determine the percentage of the total 
nursing category attributable to a nursing subcategory by dividing the 
nursing subcategory hours by the total nursing category's hours. Repeat 
this computation for each of the four nursing subcategories: registered 
nurses; licensed practical nurses; nursing aides, orderlies, and 
attendants; and medical assistants.
    Step 2--Determine a national average hourly rate for each nursing 
subcategory by dividing a subcategory's total salaries for all 
hospitals in the occupational mix survey database by the subcategory's 
total hours for all hospitals in the occupational mix survey database.
    Step 3--For each hospital, determine an adjusted average hourly 
rate for each nursing subcategory by multiplying the percentage of the 
total nursing category (from Step 1) by the national average hourly 
rate for that nursing subcategory (from Step 2). Repeat this 
calculation for each of the four nursing subcategories.
    Step 4--For each hospital, determine the adjusted average hourly 
rate for the total nursing category by summing the adjusted average 
hourly rate (from Step 3) for each of the nursing subcategories.
    Step 5--Determine the national average hourly rate for the total 
nursing category by dividing total nursing category salaries for all 
hospitals in the occupational mix survey database by total nursing 
category hours for all hospitals in the occupational mix survey 
database.
    Step 6--For each hospital, compute the occupational mix adjustment 
factor for the total nursing category by dividing the national average 
hourly rate for the total nursing category (from Step 5) by the 
hospital's adjusted average hourly rate for the total nursing category 
(from Step 4).
    If the hospital's adjusted average hourly rate is less than the 
national average hourly rate (indicating the hospital employs a less 
costly mix of nursing employees), the occupational mix adjustment 
factor is greater than 1.0000. If the hospital's adjusted average 
hourly rate is greater than the national average hourly rate, the 
occupational mix adjustment factor is less than 1.0000.
    Step 7--For each hospital, calculate the occupational mix adjusted 
salaries and wage-related costs for the total nursing category by 
multiplying the hospital's total salaries and wage-related costs (from 
Step 5 of the unadjusted wage index calculation in section III.G. of 
this preamble) by the percentage of the hospital's total workers 
attributable to the total nursing category (using the occupational mix 
survey data, this percentage is determined by dividing the hospital's 
total nursing category salaries by the hospital's total salaries for 
``nursing and all other'') and by the total nursing category's 
occupational mix adjustment factor (from Step 6 above).
    The remaining portion of the hospital's total salaries and wage-
related costs that is attributable to all other employees of the 
hospital is not adjusted by the occupational mix. A hospital's all 
other portion is determined by subtracting the hospital's nursing 
category percentage from 100 percent.
    Step 8--For each hospital, calculate the total occupational mix 
adjusted salaries and wage-related costs for a hospital by summing the 
occupational mix adjusted salaries and wage-related costs for the total 
nursing category (from Step 7) and the portion of the hospital's

[[Page 23940]]

salaries and wage-related costs for all other employees (from Step 7).
    To compute a hospital's occupational mix adjusted average hourly 
wage, divide the hospital's total occupational mix adjusted salaries 
and wage-related costs by the hospital's total hours (from Step 4 of 
the unadjusted wage index calculation in section III.G. of this 
preamble).
    Step 9--To compute the occupational mix adjusted average hourly 
wage for an urban or rural area, sum the total occupational mix 
adjusted salaries and wage-related costs for all hospitals in the area, 
then sum the total hours for all hospitals in the area. Next, divide 
the area's occupational mix adjusted salaries and wage-related costs by 
the area's hours.
    Step 10--To compute the national occupational mix adjusted average 
hourly wage, sum the total occupational mix adjusted salaries and wage-
related costs for all hospitals in the Nation, then sum the total hours 
for all hospitals in the Nation. Next, divide the national occupational 
mix adjusted salaries and wage-related costs by the national hours. The 
proposed FY 2011 occupational mix adjusted national average hourly wage 
is $34.9124.
    Step 11--To compute the occupational mix adjusted wage index, 
divide each area's occupational mix adjusted average hourly wage (Step 
9) by the national occupational mix adjusted average hourly wage (Step 
10).
    Step 12--To compute the Puerto Rico specific occupational mix 
adjusted wage index, follow Steps 1 through 11 above. The proposed FY 
2011 occupational mix adjusted Puerto Rico-specific average hourly wage 
is $14.7567.
    The table below is an illustrative example of the occupational mix 
adjustment.
BILLING CODE 4120-01-P

[[Page 23941]]

[GRAPHIC] [TIFF OMITTED] TP04MY10.021

[[Page 23942]]

[GRAPHIC] [TIFF OMITTED] TP04MY10.022

BILLING CODE 4120-01-C

[[Page 23943]]

    Because the occupational mix adjustment is required by statute, all 
hospitals that are subject to payments under the IPPS, or any hospital 
that would be subject to the IPPS if not granted a waiver, must 
complete the occupational mix survey, unless the hospital has no 
associated cost report wage data that are included in the proposed FY 
2011 wage index. For the FY 2007-2008 survey, the response rate was 
90.4 percent.
    In computing the proposed FY 2011 wage index, if a hospital did not 
respond to the occupational mix survey, or if we determined that a 
hospital's submitted data were too erroneous to include in the wage 
index, we assigned the hospital the average occupational mix adjustment 
for the labor market area. We believe this method had the least impact 
on the wage index for other hospitals in the area. For areas where no 
hospital submitted data for purposes of calculating the proposed 
occupational mix adjustment, we applied the national occupational mix 
factor of 1.0000 in calculating the area's proposed FY 2011 
occupational mix adjusted wage index. In addition, if a hospital 
submitted a survey, but that survey data could not be used because we 
determine it to be aberrant, we also assigned the hospital the average 
occupational mix adjustment for its labor market area. For example, if 
a hospital's individual nurse category average hourly wages were out of 
range (that is, unusually high or low), and the hospital did not 
provide sufficient documentation to explain the aberrancy, or the 
hospital did not submit any registered nurse salaries or hours data, we 
assigned the hospital the average occupational mix adjustment for the 
labor market area in which it is located.
    In calculating the average occupational mix adjustment factor for a 
labor market area, we replicated Steps 1 through 6 of the calculation 
for the occupational mix adjustment. However, instead of performing 
these steps at the hospital level, we aggregated the data at the labor 
market area level. In following these steps, for example, for CBSAs 
that contain providers that did not submit occupational mix survey 
data, the occupational mix adjustment factor ranged from a low of 
0.9252 (CBSA 17780, College Station-Bryan, TX), to a high of 1.1199 
(CBSA 40980, Saginaw-Saginaw Township North, MI). Also, in computing a 
hospital's occupational mix adjusted salaries and wage-related costs 
for nursing employees (Step 7 of the calculation), in the absence of 
occupational mix survey data, we multiplied the hospital's total 
salaries and wage-related costs by the percentage of the area's total 
workers attributable to the area's total nursing category. For FY 2011, 
there are 5 CBSAs (that include 5 hospitals) for which we did not have 
occupational mix data for any of its hospitals. The CBSAs are:
     CBSA 21940 Fajardo, PR (one hospital)
     CBSA 22140 (Farmington, NM (one hospital)
     CBSA 36140 Ocean City, NJ (one hospital)
     CBSA 41900 San German-Cabo Rojo, PR (two hospitals)
     CBSA 49500 Yauco, PR (one hospital)
    Since the FY 2007 IPPS final rule, we have periodically discussed 
applying a hospital-specific penalty to hospitals that fail to submit 
occupational mix survey data. (71 FR 48013 through 48014; 72 FR 47314 
through 47315; 73 FR 48580; and 74 FR 43832). During the FY 2008 
rulemaking cycle, some commenters suggested a penalty equal to a 1- to 
2-percent reduction in the hospital's wage index value or a set 
percentage of the standardized amount. During the FY 2009 and FY 2010 
rulemaking cycles, several commenters reiterated their view that full 
participation in the occupational mix survey is critical, and that CMS 
should develop a methodology that encourages hospitals to report 
occupational mix survey data but does not unfairly penalize neighboring 
hospitals. We indicated in the FY 2010 IPPS/RY 2010 LTCH PPS proposed 
rule that, while we were not proposing a penalty at that time, we would 
consider the public comments we previously received, as well as any 
public comments on the proposed rule, as we develop the proposed FY 
2011 wage index.
    To gain a better understanding of why some hospitals are not 
submitting the occupational mix data, beginning with the new 2010 
occupational mix survey (discussed in section III.D.2. of this 
preamble), we will require hospitals that do not submit occupational 
mix data to provide an explanation for not complying with the 
submission requirements. We will instruct fiscal intermediaries/MACs to 
gather this information as part of the FY 2013 wage index desk review 
process. We note that we reserve the right to apply a different 
approach in future years, including potentially penalizing 
nonresponsive hospitals.

E. Worksheet S-3 Wage Data for the Proposed FY 2011 Wage Index

    The proposed FY 2011 wage index values are based on the data 
collected from the Medicare cost reports submitted by hospitals for 
cost reporting periods beginning in FY 2007 (the FY 2010 wage index was 
based on data from cost reporting periods beginning during FY 2006).
1. Included Categories of Costs
    The proposed FY 2011 wage index includes the following categories 
of data associated with costs paid under the IPPS (as well as 
outpatient costs):
     Salaries and hours from short-term, acute care hospitals 
(including paid lunch hours and hours associated with military leave 
and jury duty)
     Home office costs and hours
     Certain contract labor costs and hours (which includes 
direct patient care, certain top management, pharmacy, laboratory, and 
nonteaching physician Part A services, and certain contract indirect 
patient care services (as discussed in the FY 2008 final rule with 
comment period (72 FR 47315))
     Wage-related costs, including pensions and other deferred 
compensation costs. We note that, for developing pension and deferred 
compensation costs for purposes of the wage index, CMS requires 
hospitals to comply with the requirements in 42 CFR 413.100, the 
Provider Reimbursement Manual (PRM), Part I, Sections 2140, 2141, and 
2142, and related Medicare program instructions, as discussed in the 
cost reporting instructions for Worksheet S-3, Part II, Lines 13 
through 20, and in the FY 2006 IPPS final rule (70 FR 47369). On March 
28, 2008, CMS published Revision 436, a technical clarification to the 
PRM, Part I policies for pension and deferred compensation costs. In 
addition, in November 2009, CMS released, through a Joint Signature 
Memorandum, instructions and a spreadsheet to assist hospitals and 
Medicare contractors in determining the annual allowable defined 
benefit pension cost for the FY 2011 wage index (JSM/TDL-10061, 11-20-
09, December 3, 2009). These instructions and spreadsheet crosswalk the 
current interest, liability, and normal cost terminology found in the 
Medicare reimbursement policies under Section 2142 of the PRM, Part I 
to the new terminology applicable under the Pension Protection Act of 
2006. The spreadsheet and instructions can be downloaded from the CMS 
Web site at http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/itemdetail.asp?filterType=none&filterByDID=0&sortByDID=3&sortOrder=desce
nding&itemID=CMS1231035&intNumPerPage=10.

[[Page 23944]]

2. Excluded Categories of Costs
    Consistent with the wage index methodology for FY 2009, the wage 
index for FY 2010 also excludes the direct and overhead salaries and 
hours for services not subject to IPPS payment, such as SNF services, 
home health services, costs related to GME (teaching physicians and 
residents) and certified registered nurse anesthetists (CRNAs), and 
other subprovider components that are not paid under the IPPS. The 
proposed FY 2011 wage index also excludes the salaries, hours, and 
wage-related costs of hospital-based rural health clinics (RHCs), and 
Federally qualified health centers (FQHCs) because Medicare pays for 
these costs outside of the IPPS (68 FR 45395). In addition, salaries, 
hours, and wage-related costs of CAHs are excluded from the wage index, 
for the reasons explained in the FY 2004 IPPS final rule (68 FR 45397).
3. Use of Wage Index Data by Providers Other Than Acute Care Hospitals 
under the IPPS
    Data collected for the IPPS wage index are also currently used to 
calculate wage indices applicable to other providers, such as SNFs, 
home health agencies (HHAs), and hospices. In addition, they are used 
for prospective payments to IRFs, IPFs, and LTCHs, and for hospital 
outpatient services. We note that, in the IPPS rules, we do not address 
comments pertaining to the wage indices for non-IPPS providers, other 
than for LTCHs. Such comments should be made in response to separate 
proposed rules for those providers.

F. Verification of Worksheet S-3 Wage Data

    The wage data for the proposed FY 2011 wage index were obtained 
from Worksheet S-3, Parts II and III of the Medicare cost report for 
cost reporting periods beginning on or after October 1, 2006, and 
before October 1, 2007. For wage index purposes, we refer to cost 
reports during this period as the ``FY 2007 cost report,'' the ``FY 
2007 wage data,'' or the ``FY 2007 data.'' Instructions for completing 
Worksheet S-3, Parts II and III are in the Provider Reimbursement 
Manual (PRM), Part II, sections 3605.2 and 3605.3. The data file used 
to construct the wage index includes FY 2007 data submitted to us as of 
March 3, 2010. As in past years, we performed an intensive review of 
the wage data, mostly through the use of edits designed to identify 
aberrant data.
    We asked our fiscal intermediaries/MACs to revise or verify data 
elements that resulted in specific edit failures. For the proposed FY 
2011 wage index, we identified and excluded 14 providers with data that 
was too aberrant to include in the proposed wage index, although if 
data elements for some of these providers are corrected, we intend to 
include some of these providers in the FY 2011 final wage index. We 
instructed fiscal intermediaries/MACs to complete their data 
verification of questionable data elements and to transmit any changes 
to the wage data no later than April 14, 2010. We believe all 
unresolved data elements will be resolved by the date the final rule is 
issued. The revised data will be reflected in the FY 2011 IPPS final 
rule.
    In constructing the proposed FY 2011 wage index, we included the 
wage data for facilities that were IPPS hospitals in FY 2007, inclusive 
of those facilities that have since terminated their participation in 
the program as hospitals, as long as those data did not fail any of our 
edits for reasonableness. We believe that including the wage data for 
these hospitals is, in general, appropriate to reflect the economic 
conditions in the various labor market areas during the relevant past 
period and to ensure that the current wage index represents the labor 
market area's current wages as compared to the national average of 
wages. However, we excluded the wage data for CAHs as discussed in the 
FY 2004 IPPS final rule (68 FR 45397). For this proposed rule, we 
removed 8 hospitals that converted to CAH status between February 16, 
2009, the cut-off date for CAH exclusion from the FY 2010 wage index, 
and February 15, 2010, the cut-off date for CAH exclusion from the FY 
2011 wage index. After removing hospitals with aberrant data and 
hospitals that converted to CAH status, the proposed FY 2011 wage index 
is calculated based on 3,513 hospitals.
    In the FY 2008 final rule with comment period (72 FR 47317) and the 
FY 2009 IPPS final rule (73 FR 48582), we discussed our policy for 
allocating a multicampus hospital's wages and hours data, by full-time 
equivalent (FTE) staff, among the different labor market areas where 
its campuses are located. During the FY 2011 wage index desk review 
process, we requested fiscal intermediaries/MACs to contact multicampus 
hospitals that had campuses in different labor market areas to collect 
the data for the allocation. The proposed FY 2011 wage index in this 
proposed rule includes separate wage data for campuses of three 
multicampus hospitals.
    For FY 2011, we are again allowing hospitals to use FTE or 
discharge data for the allocation of a multicampus hospital's wage data 
among the different labor market areas where its campuses are located. 
The Medicare cost report was updated in May 2008 to provide for the 
reporting of FTE data by campus for multicampus hospitals. Because the 
data from cost reporting periods that begin in FY 2008 will not be used 
in calculating the wage index until FY 2012, a multicampus hospital 
will still have the option, through the FY 2011 wage index, to use 
either FTE or discharge data for allocating wage data among its 
campuses by providing the information from the applicable cost 
reporting period to CMS through its fiscal intermediary/MAC. Two of the 
three multicampus hospitals chose to have their wage data allocated by 
their Medicare discharge data for the FY 2011 wage index. One of the 
hospitals provided FTE staff data for the allocation. The average 
hourly wage associated with each geographical location of a multicampus 
hospital is reflected in Table 2 of the Addendum to this proposed rule.

G. Method for Computing the Proposed FY 2011 Unadjusted Wage Index

    The method used to compute the proposed FY 2011 wage index without 
an occupational mix adjustment follows:
    Step 1--As noted above, we are basing the proposed FY 2011 wage 
index on wage data reported on the FY 2007 Medicare cost reports. We 
gathered data from each of the non-Federal, short-term, acute care 
hospitals for which data were reported on the Worksheet S-3, Parts II 
and III of the Medicare cost report for the hospital's cost reporting 
period beginning on or after October 1, 2006, and before October 1, 
2007. In addition, we included data from some hospitals that had cost 
reporting periods beginning before October 2006 and reported a cost 
reporting period covering all of FY 2007. These data are included 
because no other data from these hospitals would be available for the 
cost reporting period described above, and because particular labor 
market areas might be affected due to the omission of these hospitals. 
However, we generally describe these wage data as FY 2007 data. We note 
that, if a hospital had more than one cost reporting period beginning 
during FY 2007 (for example, a hospital had two short cost reporting 
periods beginning on or after October 1, 2006, and before October 1, 
2007), we included wage data from only one of the cost reporting 
periods, the longer, in the wage index calculation. If there was more 
than one cost reporting period and

[[Page 23945]]

the periods were equal in length, we included the wage data from the 
later period in the wage index calculation.
    Step 2--Salaries--The method used to compute a hospital's average 
hourly wage excludes certain costs that are not paid under the IPPS. 
(We note that, beginning with FY 2008 (72 FR 47315), we include Lines 
22.01, 26.01, and 27.01 of Worksheet S-3, Part II for overhead services 
in the wage index. However, we note that the wages and hours on these 
lines are not incorporated into Line 101, Column 1 of Worksheet A, 
which, through the electronic cost reporting software, flows directly 
to Line 1 of Worksheet S-3, Part II. Therefore, the first step in the 
wage index calculation for FY 2011 is to compute a ``revised'' Line 1, 
by adding to the Line 1 on Worksheet S-3, Part II (for wages and hours 
respectively) the amounts on Lines 22.01, 26.01, and 27.01.) In 
calculating a hospital's average salaries plus wage-related costs, we 
subtract from Line 1 (total salaries) the GME and CRNA costs reported 
on Lines 2, 4.01, 6, and 6.01, the Part B salaries reported on Lines 3, 
5 and 5.01, home office salaries reported on Line 7, and exclude 
salaries reported on Lines 8 and 8.01 (that is, direct salaries 
attributable to SNF services, home health services, and other 
subprovider components not subject to the IPPS). We also subtract from 
Line 1 the salaries for which no hours were reported. To determine 
total salaries plus wage-related costs, we add to the net hospital 
salaries the costs of contract labor for direct patient care, certain 
top management, pharmacy, laboratory, and nonteaching physician Part A 
services (Lines 9 and 10), home office salaries and wage-related costs 
reported by the hospital on Lines 11 and 12, and nonexcluded area wage-
related costs (Lines 13, 14, and 18).
    We note that contract labor and home office salaries for which no 
corresponding hours are reported are not included. In addition, wage-
related costs for nonteaching physician Part A employees (Line 18) are 
excluded if no corresponding salaries are reported for those employees 
on Line 4.
    Step 3--Hours--With the exception of wage-related costs, for which 
there are no associated hours, we compute total hours using the same 
methods as described for salaries in Step 2.
    Step 4--For each hospital reporting both total overhead salaries 
and total overhead hours greater than zero, we then allocate overhead 
costs to areas of the hospital excluded from the wage index 
calculation. First, we determine the ratio of excluded area hours (sum 
of Lines 8 and 8.01 of Worksheet S-3, Part II) to revised total hours 
(Line 1 minus the sum of Part II, Lines 2, 3, 4.01, 5, 5.01, 6, 6.01, 
7, and Part III, Line 13 of Worksheet S-3). We then compute the amounts 
of overhead salaries and hours to be allocated to excluded areas by 
multiplying the above ratio by the total overhead salaries and hours 
reported on Line 13 of Worksheet S-3, Part III. Next, we compute the 
amounts of overhead wage-related costs to be allocated to excluded 
areas using three steps: (1) We determine the ratio of overhead hours 
(Part III, Line 13 minus the sum of lines 22.01, 26.01, and 27.01) to 
revised hours excluding the sum of lines 22.01, 26.01, and 27.01 (Line 
1 minus the sum of Lines 2, 3, 4.01, 5, 5.01, 6, 6.01, 7, 8, 8.01, 
22.01, 26.01, and 27.01). (We note that for the FY 2008 and subsequent 
wage index calculations, we are excluding the sum of lines 22.01, 
26.01, and 27.01 from the determination of the ratio of overhead hours 
to revised hours because hospitals typically do not provide fringe 
benefits (wage-related costs) to contract personnel. Therefore, it is 
not necessary for the wage index calculation to exclude overhead wage-
related costs for contract personnel. Further, if a hospital does 
contribute to wage-related costs for contracted personnel, the 
instructions for Lines 22.01, 26.01, and 27.01 require that associated 
wage-related costs be combined with wages on the respective contract 
labor lines.); (2) we compute overhead wage-related costs by 
multiplying the overhead hours ratio by wage-related costs reported on 
Part II, Lines 13, 14, and 18; and (3) we multiply the computed 
overhead wage-related costs by the above excluded area hours ratio. 
Finally, we subtract the computed overhead salaries, wage-related 
costs, and hours associated with excluded areas from the total salaries 
(plus wage-related costs) and hours derived in Steps 2 and 3.
    Step 5--For each hospital, we adjust the total salaries plus wage-
related costs to a common period to determine total adjusted salaries 
plus wage-related costs. To make the wage adjustment, we estimate the 
percentage change in the employment cost index (ECI) for compensation 
for each 30-day increment from October 14, 2003, through April 15, 
2005, for private industry hospital workers from the BLS' Compensation 
and Working Conditions. We use the ECI because it reflects the price 
increase associated with total compensation (salaries plus fringes) 
rather than just the increase in salaries. In addition, the ECI 
includes managers as well as other hospital workers. This methodology 
to compute the monthly update factors uses actual quarterly ECI data 
and assures that the update factors match the actual quarterly and 
annual percent changes. We also note that, since April 2006 with the 
publication of March 2006 data, the BLS' ECI uses a different 
classification system, the North American Industrial Classification 
System (NAICS), instead of the Standard Industrial Codes (SICs), which 
no longer exist. We have consistently used the ECI as the data source 
for our wages and salaries and other price proxies in the IPPS market 
basket and we are not proposing to make any changes to the usage for FY 
2011. The factors used to adjust the hospital's data were based on the 
midpoint of the cost reporting period, as indicated below.

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    For example, the midpoint of a cost reporting period beginning 
January 1, 2007, and ending December 31, 2007, is June 30, 2007. An 
adjustment factor of 1.02153 would be applied to the wages of a 
hospital with such a cost reporting period. In addition, for the data 
for any cost reporting period that began in FY 2007 and covered a 
period of less than 360 days or more than 370 days, we annualize the 
data to reflect a 1-year cost report. Dividing the data by the number 
of days in the cost report and then multiplying the results by 365 
accomplishes annualization.
    Step 6--Each hospital is assigned to its appropriate urban or rural 
labor market area before any reclassifications under section 
1886(d)(8)(B), section 1886(d)(8)(E), or section 1886(d)(10) of the 
Act. Within each urban or rural labor market area, we add the total 
adjusted salaries plus wage-related costs obtained in Step 5 for all 
hospitals in that area to determine the total adjusted salaries plus 
wage-related costs for the labor market area.
    Step 7--We divide the total adjusted salaries plus wage-related 
costs obtained under both methods in Step 6 by the sum of the 
corresponding total hours (from Step 4) for all hospitals in each labor 
market area to determine an average hourly wage for the area.
    Step 8--We add the total adjusted salaries plus wage-related costs 
obtained in Step 5 for all hospitals in the Nation and then divide the 
sum by the national sum of total hours from Step 4 to arrive at a 
national average hourly wage. Using the data as described above, the 
proposed national average hourly wage (unadjusted for occupational mix) 
is $34.9330.
    Step 9--For each urban or rural labor market area, we calculate the 
hospital wage index value, unadjusted for occupational mix, by dividing 
the area average hourly wage obtained in Step 7 by the national average 
hourly wage computed in Step 8.
    Step 10--Following the process set forth above, we develop a 
separate Puerto Rico-specific wage index for purposes of adjusting the 
Puerto Rico standardized amounts. (The national Puerto Rico 
standardized amount is adjusted by a wage index calculated for all 
Puerto Rico labor market areas based on the national average hourly 
wage as described above.) We add the total adjusted salaries plus wage-
related costs (as calculated in Step 5) for all hospitals in Puerto 
Rico and divide the sum by the total hours for Puerto Rico (as 
calculated in Step 4) to arrive at an overall proposed average hourly 
wage (unadjusted for occupational mix) of $14.7351 for Puerto Rico. For 
each labor market area in Puerto Rico, we calculate the Puerto Rico-
specific wage index value by dividing the area average hourly wage (as 
calculated in Step 7) by the overall Puerto Rico average hourly wage.
    Step 11--Section 4410 of Public Law 105-33 provides that, for 
discharges on or after October 1, 1997, the area wage index applicable 
to any hospital that is located in an urban area of a State may not be 
less than the area wage index applicable to hospitals located in rural 
areas in that State. The areas affected by this provision are 
identified in Table 4D-2 of the Addendum to this proposed rule.
    In the FY 2005 IPPS final rule (69 FR 49109), we adopted the 
``imputed'' floor as a temporary 3-year measure to address a concern by 
some individuals that hospitals in all-urban States were disadvantaged 
by the absence of rural hospitals to set a wage index floor in those 
States. The imputed floor was originally set to expire in FY 2007, but 
we extended it an additional year in the FY 2008 IPPS final rule with 
comment period (72 FR 47321). In the FY 2009 IPPS final rule (73 FR 
48570 through 48574 and 48584), we extended the imputed floor for an 
additional 3 years, through FY 2011.

[[Page 23947]]

H. Analysis and Implementation of the Proposed Occupational Mix 
Adjustment and the Proposed FY 2011 Occupational Mix Adjusted Wage 
Index

    As discussed in section III.D. of this preamble, for FY 2011, we 
are proposing to apply the occupational mix adjustment to 100 percent 
of the proposed FY 2011 wage index. We calculated the proposed 
occupational mix adjustment using data from the 2007-2008 occupational 
mix survey data, using the methodology described in section III.D.3. of 
this preamble.
    Using the occupational mix survey data and applying the 
occupational mix adjustment to 100 percent of the proposed FY 2011 wage 
index results in a proposed national average hourly wage of $34.9124 
and a proposed Puerto-Rico specific average hourly wage of $14.7567. 
After excluding data of hospitals that either submitted aberrant data 
that failed critical edits, or that do not have FY 2007 Worksheet S-3 
cost report data for use in calculating the proposed FY 2011 wage 
index, we calculated the proposed FY 2011 wage index using the 
occupational mix survey data from 3,178 hospitals. Using the Worksheet 
S-3 cost report data of 3,513 hospitals and occupational mix survey 
data from 3,178 hospitals represents a 90.4 percent survey response 
rate. The proposed FY 2011 national average hourly wages for each 
occupational mix nursing subcategory as calculated in Step 2 of the 
occupational mix calculation are as follows:

------------------------------------------------------------------------
                                                         Average hourly
         Occupational mix nursing subcategory                 wage
------------------------------------------------------------------------
National RN...........................................      36.100857731
National LPN and Surgical Technician..................      20.877391755
National Nurse Aide, Orderly, and Attendant...........      14.632232352
National Medical Assistant............................      16.482939594
National Nurse Category...............................      30.504184147
------------------------------------------------------------------------

    The proposed national average hourly wage for the entire nurse 
category as computed in Step 5 of the occupational mix calculation is 
$30.504184147. Hospitals with a nurse category average hourly wage (as 
calculated in Step 4) of greater than the national nurse category 
average hourly wage receive an occupational mix adjustment factor (as 
calculated in Step 6) of less than 1.0. Hospitals with a nurse category 
average hourly wage (as calculated in Step 4) of less than the national 
nurse category average hourly wage receive an occupational mix 
adjustment factor (as calculated in Step 6) of greater than 1.0.
    Based on the 2007-2008 occupational mix survey data, we determined 
(in Step 7 of the occupational mix calculation) that the national 
percentage of hospital employees in the nurse category is 44.32 
percent, and the national percentage of hospital employees in the all 
other occupations category is 55.68 percent. At the CBSA level, the 
percentage of hospital employees in the nurse category ranged from a 
low of 29.08 percent in one CBSA, to a high of 70.76 percent in another 
CBSA.
    We compared the proposed FY 2011 occupational mix adjusted wage 
indices for each CBSA to the proposed unadjusted wage indices for each 
CBSA. As a result of applying the occupational mix adjustment to the 
wage data, the proposed wage index values for 203(51.9 percent) urban 
areas and 32 (68.1 percent) rural areas would increase. One hundred 
five (26.9 percent) urban areas would increase by 1 percent or more, 
and 6 (1.5 percent) urban areas would increase by 5 percent or more. 
Eighteen (38.3 percent) rural areas would increase by 1 percent or 
more, and no rural areas would increase by 5 percent or more. However, 
the wage index values for 188 (48.1 percent) urban areas and 15 (31.9 
percent) rural areas would decrease. Ninety (23.0 percent) urban areas 
would decrease by 1 percent or more, and no urban area would decrease 
by 5 percent or more. Seven (14.9 percent) rural areas would decrease 
by 1 percent or more, and no rural areas will decrease by 5 percent or 
more. The largest positive impacts are 7.83 percent for an urban area 
and 2.87 percent for a rural area. The largest negative impacts are 
3.98 percent for an urban area and 2.41 percent for a rural area. No 
urban or rural areas are unaffected. These results indicate that a 
larger percentage of rural areas (68.1 percent) benefit from the 
occupational mix adjustment than do urban areas (51.9 percent). While 
these results are more positive overall for rural areas than under the 
previous occupational mix adjustment that used survey data from 2006, 
approximately one-third (31.9 percent) of rural CBSAs will still 
experience a decrease in their wage indices as a result of the 
occupational mix adjustment.
    The proposed wage index values for FY 2011 (except those for 
hospitals receiving wage index adjustments under section 1886(d)(13) of 
the Act) included in Tables 4A, 4B, 4C, and 4F of the Addendum to this 
proposed rule include the proposed occupational mix adjustment.
    Tables 3A and 3B in the Addendum to this proposed rule list the 3-
year average hourly wage for each labor market area before the 
redesignation or reclassification of hospitals based on FYs 2009, 2010, 
and 2011 cost reporting periods. Table 3A lists these data for urban 
areas and Table 3B lists these data for rural areas. In addition, Table 
2 in the Addendum to this proposed rule includes the adjusted average 
hourly wage for each hospital from the FY 2005 and FY 2006 cost 
reporting periods, as well as the FY 2007 period used to calculate the 
proposed FY 2011 wage index. The 3-year averages are calculated by 
dividing the sum of the dollars (adjusted to a common reporting period 
using the method described previously) across all 3 years, by the sum 
of the hours. If a hospital is missing data for any of the previous 
years, its average hourly wage for the 3-year period is calculated 
based on the data available during that period. The proposed average 
hourly wages in Tables 2, 3A, and 3B in the Addendum to this proposed 
rule include the proposed occupational mix adjustment. The proposed 
wage index values in Tables 4A, 4B, 4C, and 4D-1 also include the 
proposed State-specific rural floor and imputed floor budget neutrality 
adjustments.

I. Revisions to the Wage Index Based on Hospital Redesignations and 
Reclassifications

1. General
    Under section 1886(d)(10) of the Act, the MGCRB considers 
applications by hospitals for geographic reclassification for purposes 
of payment under the IPPS. Hospitals must apply to the MGCRB to 
reclassify 13 months prior to the start of the fiscal year for which 
reclassification is sought (generally by September 1). Generally, 
hospitals must be proximate to the labor market area to which they

[[Page 23948]]

are seeking reclassification and must demonstrate characteristics 
similar to hospitals located in that area. The MGCRB issues its 
decisions by the end of February for reclassifications that become 
effective for the following fiscal year (beginning October 1). The 
regulations applicable to reclassifications by the MGCRB are located in 
42 CFR 412.230 through 412.280.
    Section 1886(d)(10)(D)(v) of the Act provides that, beginning with 
FY 2001, a MGCRB decision on a hospital reclassification for purposes 
of the wage index is effective for 3 fiscal years, unless the hospital 
elects to terminate the reclassification. Section 1886(d)(10)(D)(vi) of 
the Act provides that the MGCRB must use average hourly wage data from 
the 3 most recently published hospital wage surveys in evaluating a 
hospital's reclassification application for FY 2003 and any succeeding 
fiscal year.
    Section 304(b) of Public Law 106-554 provides that the Secretary 
must establish a mechanism under which a statewide entity may apply to 
have all of the geographic areas in the State treated as a single 
geographic area for purposes of computing and applying a single wage 
index, for reclassifications beginning in FY 2003. The implementing 
regulations for this provision are located at 42 CFR 412.235.
    Section 1886(d)(8)(B) of the Act requires the Secretary to treat a 
hospital located in a rural county adjacent to one or more urban areas 
as being located in the labor market area to which the greatest number 
of workers in the county commute, if the rural county would otherwise 
be considered part of an urban area under the standards for designating 
MSAs and if the commuting rates used in determining outlying counties 
were determined on the basis of the aggregate number of resident 
workers who commute to (and, if applicable under the standards, from) 
the central county or counties of all contiguous MSAs. In light of the 
CBSA definitions and the Census 2000 data that we implemented for FY 
2005 (69 FR 49027), we undertook to identify those counties meeting 
these criteria. Eligible counties are discussed and identified under 
section III.I.5. of this preamble.
2. Effects of Reclassification/Redesignation
    Section 1886(d)(8)(C) of the Act provides that the application of 
the wage index to redesignated hospitals is dependent on the 
hypothetical impact that the wage data from these hospitals would have 
on the wage index value for the area to which they have been 
redesignated. These requirements for determining the wage index values 
for redesignated hospitals are applicable both to the hospitals deemed 
urban under section 1886(d)(8)(B) of the Act and hospitals that were 
reclassified as a result of the MGCRB decisions under section 
1886(d)(10) of the Act. Therefore, as provided in section 1886(d)(8)(C) 
of the Act, the wage index values were determined by considering the 
following:
     If including the wage data for the redesignated hospitals 
would reduce the wage index value for the area to which the hospitals 
are redesignated by 1 percentage point or less, the area wage index 
value determined exclusive of the wage data for the redesignated 
hospitals applies to the redesignated hospitals.
     If including the wage data for the redesignated hospitals 
reduces the wage index value for the area to which the hospitals are 
redesignated by more than 1 percentage point, the area wage index 
determined inclusive of the wage data for the redesignated hospitals 
(the combined wage index value) applies to the redesignated hospitals.
     If including the wage data for the redesignated hospitals 
increases the wage index value for the urban area to which the 
hospitals are redesignated, both the area and the redesignated 
hospitals receive the combined wage index value. Otherwise, the 
hospitals located in the urban area receive a wage index excluding the 
wage data of hospitals redesignated into the area.
    Rural areas whose wage index values would be reduced by excluding 
the wage data for hospitals that have been redesignated to another area 
continue to have their wage index values calculated as if no 
redesignation had occurred (otherwise, redesignated rural hospitals are 
excluded from the calculation of the rural wage index). The wage index 
value for a redesignated rural hospital cannot be reduced below the 
wage index value for the rural areas of the State in which the hospital 
is located.
    CMS also has adopted the following policies:
     The wage data for a reclassified urban hospital is 
included in both the wage index calculation of the urban area to which 
the hospital is reclassified (subject to the rules described above) and 
the wage index calculation of the urban area where the hospital is 
physically located.
     In cases where hospitals have reclassified to rural areas, 
such as urban hospitals reclassifying to rural areas under 42 CFR 
412.103, the hospital's wage data are: (a) Included in the rural wage 
index calculation, unless doing so would reduce the rural wage index; 
and (b) included in the urban area where the hospital is physically 
located. The effect of this policy, in combination with the statutory 
requirement at section 1886(d)(8)(C)(ii) of the Act, is that rural 
areas may receive a wage index based upon the highest of: (1) Wage data 
from hospitals geographically located in the rural area; (2) wage data 
from hospitals geographically located in the rural area, but excluding 
all data associated with hospitals reclassifying out of the rural area 
under section 1886(d)(8)(B) or section 1886(d)(10) of the Act; or (3) 
wage data associated with hospitals geographically located in the area 
plus all hospitals reclassified into the rural area.
    In addition, in accordance with the statutory language referring to 
``hospitals'' in the plural under sections 1886(d)(8)(C)(i) and 
1886(d)(8)(C)(ii) of the Act, our longstanding policy is to consider 
reclassified hospitals as a group when deciding whether to include or 
exclude them from both urban and rural wage index calculations.
3. FY 2011 MGCRB Reclassifications
a. FY 2011 Reclassifications Requirements and Approvals
    Under section 1886(d)(10) of the Act, the MGCRB considers 
applications by hospitals for geographic reclassification for purposes 
of payment under the IPPS. The specific procedures and rules that apply 
to the geographic reclassification process are outlined in 42 CFR 
412.230 through 412.280.
    At the time this proposed rule was constructed, the MGCRB had 
completed its review of FY 2011 reclassification requests. Based on 
such reviews, there were 311 hospitals approved for wage index 
reclassifications by the MGCRB for FY 2011. Because MGCRB wage index 
reclassifications are effective for 3 years, for FY 2011, hospitals 
reclassified during FY 2009 or FY 2010 are eligible to continue to be 
reclassified to a particular labor market area based on such prior 
reclassifications. There were 258 hospitals approved for wage index 
reclassifications in FY 2009 and 254 hospitals approved for wage index 
reclassifications in FY 2010. Of all of the hospitals approved for 
reclassification for FY 2009, FY 2010, and FY 2011, based upon the 
review at the time of this proposed rule, 832 hospitals are in a 
reclassification status for FY 2011.
    Under 42 CFR 412.273, hospitals that have been reclassified by the 
MGCRB are permitted to withdraw their applications within 45 days of 
the

[[Page 23949]]

publication of a proposed rule. Generally stated, the request for 
withdrawal of an application for reclassification or termination of an 
existing 3-year reclassification that would be effective in FY 2011 has 
to be received by the MGCRB within 45 days of the publication of the 
proposed rule. Hospitals may also cancel prior reclassification 
withdrawals or terminations in certain circumstances. For further 
information about withdrawing, terminating, or canceling a previous 
withdrawal or termination of a 3-year reclassification for wage index 
purposes, we refer the reader to 42 CFR 412.273, as well as the FY 2002 
IPPS final rule (66 FR 39887) and the FY 2003 IPPS final rule (67 FR 
50065). Additional discussion on withdrawals and terminations, and 
clarifications regarding reinstating reclassifications and ``fallback'' 
reclassifications, were included in the FY 2008 IPPS final rule (72 FR 
47333).
    Changes to the wage index that result from withdrawals of requests 
for reclassification, terminations, wage index corrections, appeals, 
and the Administrator's review process for FY 2011 will be incorporated 
into the wage index values published in the FY 2011 IPPS/LTCH PPS final 
rule. These changes affect not only the wage index value for specific 
geographic areas, but also the wage index value redesignated/
reclassified hospitals receive; that is, whether they receive the wage 
index that includes the data for both the hospitals already in the area 
and the redesignated/reclassified hospitals. Further, the wage index 
value for the area from which the hospitals are redesignated/
reclassified may be affected.
b. Applications for Reclassifications for FY 2012
    Applications for FY 2012 reclassifications are due to the MGCRB by 
September 1, 2010. We note that this is also the deadline for canceling 
a previous wage index reclassification withdrawal or termination under 
42 CFR 412.273(d). Applications and other information about MGCRB 
reclassifications may be obtained, beginning in mid-July 2010, via the 
CMS Internet Web site at: http://cms.hhs.gov/MGCRB/02_instructions_and_applications.asp, or by calling the MGCRB at (410) 786-1174. The 
mailing address of the MGCRB is: 2520 Lord Baltimore Drive, Suite L, 
Baltimore, MD 21244-2670.
c. Appeals of MGCRB Denials of Withdrawals and Terminations
    Section 412.278 of the regulations permits a hospital or a group of 
hospitals dissatisfied with the MGCRB's decision regarding its 
geographic designation to request the Administrator's review of the 
decision. Section 412.273(e) permits a hospital to file an appeal to 
the Administrator regarding the MGCRB's denial of the hospital's 
request for withdrawal of an application. However, currently, this 
section of the regulations does not address Administrator review of the 
MGCRB's denial of a hospital's request for termination; that is, 
``terminations'' are not specified in the regulations at Sec.  
412.273(e).
    We are proposing to revise the regulations to specify the 
availability of Administrator review of MGCRB decisions regarding 
withdrawals and terminations, as well as cancellations of withdrawals 
or terminations. Because reclassifications are considered budget 
neutral actions, we believe these proposed revisions would have no 
impact on total IPPS payments.
    In addition, during our review of Sec.  412.273, we determined that 
some of the existing language in the section could be clarified to make 
it more easily understood. For example, we believe it would be helpful 
to clarify the distinction between terminations and withdrawals by 
defining these terms in a new paragraph (a), which would also include 
the timing provisions now under existing paragraph (b)(1)(ii). To 
account for this new paragraph, we are proposing to redesignate the 
existing contents of paragraph (e) as paragraph (f) and also to revise 
the language to specify the ability of a hospital to appeal an MGCRB 
denial of a request for ``termination'' of an approved 
reclassification, as well as cancellation of a withdrawal or 
termination. We also believe it would be helpful (1) to establish the 
introductory language of existing paragraph (a) as a general rule under 
new paragraph (b); (2) to establish a new paragraph (c) that addresses 
the timing provisions currently in paragraphs (a)(1), (a)(2), and 
(b)(1)(i); (3) to clarify the existing language of paragraphs 
(b)(2)(i), (b)(2)(ii), (b)(2)(iii), and (d) and incorporate it under 
new paragraph (d); and (4) to redesignate the existing contents of 
paragraph (c) as new paragraph (e).
4. Redesignations of Hospitals Under Section 1886(d)(8)(B) of the Act
    Section 1886(d)(8)(B) of the Act requires us to treat a hospital 
located in a rural county adjacent to one or more urban areas as being 
located in the MSA if certain criteria are met. Effective beginning FY 
2005, we use OMB's 2000 CBSA standards and the Census 2000 data to 
identify counties in which hospitals qualify under section 
1886(d)(8)(B) of the Act to receive the wage index of the urban area. 
Hospitals located in these counties have been known as ``Lugar'' 
hospitals and the counties themselves are often referred to as 
``Lugar'' counties. We provide the FY 2011 chart below with the listing 
of the rural counties containing the hospitals designated as urban 
under section 1886(d)(8)(B) of the Act. For discharges occurring on or 
after October 1, 2010, hospitals located in the rural county in the 
first column of this chart will be redesignated for purposes of using 
the wage index of the urban area listed in the second column.
BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C
    As in the past, hospitals redesignated under section 1886(d)(8)(B) 
of the Act are also eligible to be reclassified to a different area by 
the MGCRB. Affected hospitals may compare the reclassified wage index 
for the labor market area in Table 4C in the Addendum to the proposed 
rule into which they would be reclassified by the MGCRB to the wage 
index for the area to which they are redesignated under section 
1886(d)(8)(B) of the Act. Hospitals may withdraw from an MGCRB 
reclassification within 45 days of the publication of this proposed 
rule.
5. Reclassifications Under Section 1886(d)(8)(B) of the Act
    As discussed in the FY 2009 IPPS final rule (73 FR 48588), Lugar 
hospitals are treated like reclassified hospitals for purposes of 
determining their applicable wage index and receive the reclassified 
wage index for the urban area to which they have been redesignated. 
Because Lugar hospitals are treated like reclassified hospitals, when 
they are seeking reclassification by the MGCRB, they are subject to the 
rural reclassification rules set forth at 42 CFR 412.230. The 
procedural rules set forth at Sec.  412.230 list the criteria that a 
hospital must meet in order to reclassify as a rural hospital. Lugar 
hospitals are subject to the proximity criteria and payment thresholds 
that apply to rural hospitals. Specifically, the hospital must be no 
more than 35 miles from the area to which it seeks reclassification 
(Sec.  412.230(b)(1)); and the hospital must show that its average 
hourly wage is at least 106 percent of the average hourly wage of all 
other hospitals in the area in which the hospital is located (Sec.  
412.230(d)(1)(iii)(C)). In accordance with policy adopted in the FY 
2009 IPPS final rule (73 FR 48568 and 48569), beginning with 
reclassifications for the FY 2010 wage index, a Lugar hospital must 
also demonstrate that its average hourly wage is equal to at least 84 
percent (for FY 2010 reclassifications) and 86 percent (for 
reclassifications for FY 2011 and subsequent fiscal years) of the 
average hourly wage of hospitals in the area to which it seeks 
redesignation (Sec.  412.230(d)(1)(iv)(C)).
    Hospitals not located in a Lugar county seeking reclassification to 
the urban area where the Lugar hospitals have been redesignated are not 
permitted to measure to the Lugar county to demonstrate proximity (no 
more than 15 miles for an urban hospital, and no more than 35 miles for 
a rural hospital or the closest urban or rural area for RRCs or SCHs) 
in order to be reclassified to such urban area. These hospitals must 
measure to the urban area exclusive of the Lugar County to meet the 
proximity or nearest urban or rural area requirement. We treat New 
England deemed counties in a manner consistent with how we treat Lugar 
counties. (We refer readers to FY 2008 IPPS final rule with comment 
period (72 FR 47337) for a discussion of this policy.)
6. Reclassifications Under Section 508 of Public Law 108-173
    Section 508 of Public Law 108-173 allowed certain qualifying 
hospitals to receive wage index reclassifications and assignments that 
they otherwise would not have been eligible to receive under the law. 
Although section 508 originally was scheduled to expire after a 3-year 
period, Congress extended the provision several times, as well as 
certain special exceptions that would have otherwise expired. For a 
discussion of the original section 508 provision and its various 
extensions, we refer readers to the FY 2009 IPPS final rule (73 FR 
48588). The most recent extension of the provision was included in 
section 124 of Public Law 110-275 (MIPPA). Section 124 extended, 
through FY 2009, section 508 reclassifications as well as certain 
special exceptions. Because the section 124 extension of these 
provisions expired on September 30, 2009 (and, therefore, will not be 
applicable in FY 2011 unless there is intervening legislation to extend 
the provisions), we are not proposing to make any changes related to 
these provisions in this proposed rule for FY 2011.

[[Page 23953]]

    We note that section 508 and special exceptions reclassifications 
were recently extended again, through September 30, 2010, under section 
10317 of the PPACA (Pub. L. 111-148). We intend to imminently issue 
instructions regarding implementation of section 10317 of Public Law 
111-148.

J. Proposed FY 2011 Wage Index Adjustment Based on Commuting Patterns 
of Hospital Employees

    In accordance with the broad discretion under section 1886(d)(13) 
of the Act, as added by section 505 of Public Law 108-173, beginning 
with FY 2005, we established a process to make adjustments to the 
hospital wage index based on commuting patterns of hospital employees 
(the ``out-migration'' adjustment). The process, outlined in the FY 
2005 IPPS final rule (69 FR 49061), provides for an increase in the 
wage index for hospitals located in certain counties that have a 
relatively high percentage of hospital employees who reside in the 
county but work in a different county (or counties) with a higher wage 
index. Such adjustments to the wage index are effective for 3 years, 
unless a hospital requests to waive the application of the adjustment. 
A county will not lose its status as a qualifying county due to wage 
index changes during the 3-year period, and counties will receive the 
same wage index increase for those 3 years. However, a county that 
qualifies in any given year may no longer qualify after the 3-year 
period, or it may qualify but receive a different adjustment to the 
wage index level. Hospitals that receive this adjustment to their wage 
index are not eligible for reclassification under section 1886(d)(8) or 
section 1886(d)(10) of the Act. Adjustments under this provision are 
not subject to the budget neutrality requirements under section 
1886(d)(3)(E) of the Act.
    Hospitals located in counties that qualify for the wage index 
adjustment are to receive an increase in the wage index that is equal 
to the average of the differences between the wage indices of the labor 
market area(s) with higher wage indices and the wage index of the 
resident county, weighted by the overall percentage of hospital workers 
residing in the qualifying county who are employed in any labor market 
area with a higher wage index. Beginning with the FY 2008 wage index, 
we use post-reclassified wage indices when determining the out-
migration adjustment (72 FR 47339).
    For the proposed FY 2011 wage index, we are proposing to calculate 
the out-migration adjustment using the same formula described in the FY 
2005 IPPS final rule (69 FR 49064), with the addition of using the 
post-reclassified wage indices, to calculate the out-migration 
adjustment. This adjustment is calculated as follows:
    Step 1--Subtract the wage index for the qualifying county from the 
wage index of each of the higher wage area(s) to which hospital workers 
commute.
    Step 2--Divide the number of hospital employees residing in the 
qualifying county who are employed in such higher wage index area by 
the total number of hospital employees residing in the qualifying 
county who are employed in any higher wage index area. For each of the 
higher wage index areas, multiply this result by the result obtained in 
Step 1.
    Step 3--Sum the products resulting from Step 2 (if the qualifying 
county has workers commuting to more than one higher wage index area).
    Step 4--Multiply the result from Step 3 by the percentage of 
hospital employees who are residing in the qualifying county and who 
are employed in any higher wage index area.
    These adjustments will be effective for each county for a period of 
3 fiscal years. For example, hospitals that received the adjustment for 
the first time in FY 2010 will be eligible to retain the adjustment for 
FY 2011. For hospitals in newly qualified counties, adjustments to the 
wage index are effective for 3 years, beginning with discharges 
occurring on or after October 1, 2010.
    Hospitals receiving the wage index adjustment under section 
1886(d)(13)(F) of the Act are not eligible for reclassification under 
sections 1886(d)(8) or (d)(10) of the Act unless they waive the out-
migration adjustment. Consistent with our FYs 2005 through 2010 IPPS 
final rules, we are specifying that hospitals redesignated under 
section 1886(d)(8) of the Act or reclassified under section 1886(d)(10) 
of the Act will be deemed to have chosen to retain their redesignation 
or reclassification. Section 1886(d)(10) hospitals that wish to receive 
the out-migration adjustment, rather than their reclassification 
adjustment, should follow the termination/withdrawal procedures 
specified in 42 CFR 412.273 and section III.I.3. of the preamble of 
this proposed rule. Otherwise, they will be deemed to have waived the 
out-migration adjustment. Hospitals redesignated under section 
1886(d)(8) of the Act will be deemed to have waived the out-migration 
adjustment unless they explicitly notify CMS within 45 days from the 
publication of this proposed rule that they elect to receive the out-
migration adjustment instead. These notifications should be sent to the 
following address: Centers for Medicare and Medicaid Services, Center 
for Medicare Management, Attention: Wage Index Adjustment Waivers, 
Division of Acute Care, Room C4-08-06, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    Table 4J in the Addendum to this proposed rule lists the proposed 
out-migration wage index adjustments for FY 2011. Hospitals that are 
not otherwise reclassified or redesignated under section 1886(d)(8) or 
section 1886(d)(10) of the Act will automatically receive the listed 
adjustment. In accordance with the procedures discussed above, 
redesignated/reclassified hospitals will be deemed to have waived the 
out-migration adjustment unless CMS is otherwise notified within the 
necessary timeframe. In addition, hospitals eligible to receive the 
out-migration wage index adjustment and that withdraw their application 
for reclassification will automatically receive the wage index 
adjustment listed in Table 4J in the Addendum to this proposed rule. 
The wage index is updated annually and, as such, hospitals wishing to 
waive their Lugar redesignation in order to receive their home area 
wage index plus the out-migration adjustment must request the waiver 
annually.

K. Process for Requests for Wage Index Data Corrections

    The preliminary, unaudited Worksheet S-3 wage data and occupational 
mix survey data files for the proposed FY 2011 wage index were made 
available on October 5, 2009, through the Internet on the CMS Web site 
at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
    In the interest of meeting the data needs of the public, beginning 
with the proposed FY 2009 wage index, we post an additional public use 
file on our Web site that reflects the actual data that are used in 
computing the proposed wage index. The release of this new file does 
not alter the current wage index process or schedule. We notified the 
hospital community of the availability of these data as we do with the 
current public use wage data files through our Hospital Open Door 
forum. We encouraged hospitals to sign up for automatic notifications 
of information about hospital issues and the scheduling of the Hospital 
Open Door forums at: http://www.cms.hhs.gov/OpenDoorForums/.

[[Page 23954]]

    In a memorandum dated October 21, 2009, we instructed all fiscal 
intermediaries/MACs to inform the IPPS hospitals they service of the 
availability of the wage index data files and the process and timeframe 
for requesting revisions (including the specific deadlines listed 
below). We also instructed the fiscal intermediaries/MACs to advise 
hospitals that these data were also made available directly through 
their representative hospital organizations.
    If a hospital wished to request a change to its data as shown in 
the October 5, 2009 wage and occupational mix data files, the hospital 
was to submit corrections along with complete, detailed supporting 
documentation to its fiscal intermediary/MAC by December 7, 2009. 
Hospitals were notified of this deadline and of all other possible 
deadlines and requirements, including the requirement to review and 
verify their data as posted on the preliminary wage index data files on 
the Internet, through the October 21, 2009 memorandum referenced above.
    In the October 21, 2009 memorandum, we also specified that a 
hospital requesting revisions to its occupational mix survey data was 
to copy its record(s) from the CY 2007-2008 occupational mix 
preliminary files posted to our Web site in October, highlight the 
revised cells on its spreadsheet, and submit its spreadsheet(s) and 
complete documentation to its fiscal intermediary/MAC no later than 
December 7, 2009.
    The fiscal intermediaries/MACs notified the hospitals by mid-
February 2010 of any changes to the wage index data as a result of the 
desk reviews and the resolution of the hospitals' early-December 
revision requests. The fiscal intermediaries/MACs also submitted the 
revised data to CMS by mid-February 2010. CMS published the proposed 
wage index public use files that included hospitals' revised wage index 
data on February 22, 2010. Hospitals had until March 8, 2010, to submit 
requests to the fiscal intermediaries/MACs for reconsideration of 
adjustments made by the fiscal intermediaries/MACs as a result of the 
desk review, and to correct errors due to CMS's or the fiscal 
intermediary's (or, if applicable, the MAC's) mishandling of the wage 
index data. Hospitals also were required to submit sufficient 
documentation to support their requests.
    After reviewing requested changes submitted by hospitals, fiscal 
intermediaries/MACs are to transmit any additional revisions resulting 
from the hospitals' reconsideration requests by April 14, 2010. The 
deadline for a hospital to request CMS intervention in cases where the 
hospital disagrees with the fiscal intermediary's (or, if applicable, 
the MAC's) policy interpretations is April 21, 2010.
    Hospitals should examine Table 2 in the Addendum to this proposed 
rule. Table 2 in the Addendum to this proposed rule contains each 
hospital's adjusted average hourly wage used to construct the wage 
index values for the past 3 years, including the FY 2007 data used to 
construct the proposed FY 2011 wage index. We note that the hospital 
average hourly wages shown in Table 2 only reflect changes made to a 
hospital's data and transmitted to CMS in March 2010.
    We will release the final wage index data public use files by May 
7, 2010 on the Internet at http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage. The May 2010 public use files are made 
available solely for the limited purpose of identifying any potential 
errors made by CMS or the fiscal intermediary/MAC in the entry of the 
final wage index data that resulted from the correction process 
described above (revisions submitted to CMS by the fiscal 
intermediaries/MACs by April 14, 2010). If, after reviewing the May 
2010 final files, a hospital believes that its wage or occupational mix 
data are incorrect due to a fiscal intermediary/MAC or CMS error in the 
entry or tabulation of the final data, the hospital should send a 
letter to both its fiscal intermediary/MAC and CMS that outlines why 
the hospital believes an error exists and provide all supporting 
information, including relevant dates (for example, when it first 
became aware of the error). CMS and the fiscal intermediaries (or, if 
applicable, the MACs) must receive these requests no later than June 7, 
2010.
    Each request also must be sent to the fiscal intermediary/MAC. The 
fiscal intermediary/MAC will review requests upon receipt and contact 
CMS immediately to discuss any findings.
    At this point in the process, that is, after the release of the May 
2010 wage index data files, changes to the wage and occupational mix 
data will only be made in those very limited situations involving an 
error by the fiscal intermediary/MAC or CMS that the hospital could not 
have known about before its review of the final wage index data files. 
Specifically, neither the fiscal intermediary/MAC nor CMS will approve 
the following types of requests:
     Requests for wage index data corrections that were 
submitted too late to be included in the data transmitted to CMS by 
fiscal intermediaries or the MACs on or before April 21, 2010.
     Requests for correction of errors that were not, but could 
have been, identified during the hospital's review of the February 22, 
2010 wage index public use files.
     Requests to revisit factual determinations or policy 
interpretations made by the fiscal intermediary or the MAC or CMS 
during the wage index data correction process.
    Verified corrections to the wage index data received timely by CMS 
and the fiscal intermediaries or the MACs (that is, by June 7, 2010) 
will be incorporated into the final wage index in the FY 2011 IPPS/LTCH 
PPS final rule, which will be effective October 1, 2010.
    We created the processes described above to resolve all substantive 
wage index data correction disputes before we finalize the wage and 
occupational mix data for the FY 2011 payment rates. Accordingly, 
hospitals that did not meet the procedural deadlines set forth above 
will not be afforded a later opportunity to submit wage index data 
corrections or to dispute the fiscal intermediary's (or, if applicable, 
the MAC's) decision with respect to requested changes. Specifically, 
our policy is that hospitals that do not meet the procedural deadlines 
set forth above will not be permitted to challenge later, before the 
Provider Reimbursement Review Board, the failure of CMS to make a 
requested data revision. (See W. A. Foote Memorial Hospital v. Shalala, 
No. 99-CV-75202-DT (E.D. Mich. 2001) and Palisades General Hospital v. 
Thompson, No. 99-1230 (D.D.C. 2003).) We refer readers also to the FY 
2000 IPPS final rule (64 FR 41513) for a discussion of the parameters 
for appealing to the PRRB for wage index data corrections.
    Again, we believe the wage index data correction process described 
above provides hospitals with sufficient opportunity to bring errors in 
their wage and occupational mix data to the fiscal intermediary's (or, 
if applicable, the MAC's) attention. Moreover, because hospitals have 
access to the final wage index data by early May 2010, they have the 
opportunity to detect any data entry or tabulation errors made by the 
fiscal intermediary or the MAC or CMS before the development and 
publication of the final FY 2011 wage index by August 2010, and the 
implementation of the FY 2011 wage index on October 1, 2010. If 
hospitals availed themselves of the opportunities afforded to provide 
and make corrections to the wage and occupational mix data, the wage 
index implemented on October 1 should be accurate. Nevertheless, in the 
event that

[[Page 23955]]

errors are identified by hospitals and brought to our attention after 
June 7, 2010, we retain the right to make midyear changes to the wage 
index under very limited circumstances.
    Specifically, in accordance with 42 CFR 412.64(k)(1) of our 
existing regulations, we make midyear corrections to the wage index for 
an area only if a hospital can show that: (1) The fiscal intermediary 
or the MAC or CMS made an error in tabulating its data; and (2) the 
requesting hospital could not have known about the error or did not 
have an opportunity to correct the error, before the beginning of the 
fiscal year. For purposes of this provision, ``before the beginning of 
the fiscal year'' means by the June 7 deadline for making corrections 
to the wage data for the following fiscal year's wage index. This 
provision is not available to a hospital seeking to revise another 
hospital's data that may be affecting the requesting hospital's wage 
index for the labor market area. As indicated earlier, because CMS 
makes the wage index data available to hospitals on the CMS Web site 
prior to publishing both the proposed and final IPPS rules, and the 
fiscal intermediaries or the MACs notify hospitals directly of any wage 
index data changes after completing their desk reviews, we do not 
expect that midyear corrections will be necessary. However, under our 
current policy, if the correction of a data error changes the wage 
index value for an area, the revised wage index value will be effective 
prospectively from the date the correction is made.
    In the FY 2006 IPPS final rule (70 FR 47385), we revised 42 CFR 
412.64(k)(2) to specify that, effective on October 1, 2005, that is, 
beginning with the FY 2006 wage index, a change to the wage index can 
be made retroactive to the beginning of the Federal fiscal year only 
when: (1) The fiscal intermediary (or, if applicable, the MAC) or CMS 
made an error in tabulating data used for the wage index calculation; 
(2) the hospital knew about the error and requested that the fiscal 
intermediary (or, if applicable, the MAC) and CMS correct the error 
using the established process and within the established schedule for 
requesting corrections to the wage index data, before the beginning of 
the fiscal year for the applicable IPPS update (that is, by the June 7, 
2010 deadline for the FY 2011 wage index); and (3) CMS agreed that the 
fiscal intermediary (or, if applicable, the MAC) or CMS made an error 
in tabulating the hospital's wage index data and the wage index should 
be corrected.
    In those circumstances where a hospital requested a correction to 
its wage index data before CMS calculates the final wage index (that 
is, by the June 7, 2010 deadline), and CMS acknowledges that the error 
in the hospital's wage index data was caused by CMS' or the fiscal 
intermediary's (or, if applicable, the MAC's) mishandling of the data, 
we believe that the hospital should not be penalized by our delay in 
publishing or implementing the correction. As with our current policy, 
we indicated that the provision is not available to a hospital seeking 
to revise another hospital's data. In addition, the provision cannot be 
used to correct prior years' wage index data; and it can only be used 
for the current Federal fiscal year. In other situations where our 
policies would allow midyear corrections, we continue to believe that 
it is appropriate to make prospective-only corrections to the wage 
index.
    We note that, as with prospective changes to the wage index, the 
final retroactive correction will be made irrespective of whether the 
change increases or decreases a hospital's payment rate. In addition, 
we note that the policy of retroactive adjustment will still apply in 
those instances where a judicial decision reverses a CMS denial of a 
hospital's wage index data revision request.

L. Labor-Related Share for the Proposed FY 2011 Wage Index

    Section 1886(d)(3)(E) of the Act directs the Secretary to adjust 
the proportion of the national prospective payment system base payment 
rates that are attributable to wages and wage-related costs by a factor 
that reflects the relative differences in labor costs among geographic 
areas. It also directs the Secretary to estimate from time to time the 
proportion of hospital costs that are labor-related: ``The Secretary 
shall adjust the proportion (as estimated by the Secretary from time to 
time) of hospitals' costs which are attributable to wages and wage-
related costs of the DRG prospective payment rates * * *'' We refer to 
the portion of hospital costs attributable to wages and wage-related 
costs as the labor-related share. The labor-related share of the 
prospective payment rate is adjusted by an index of relative labor 
costs, which is referred to as the wage index.
    Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of 
the Act to provide that the Secretary must employ 62 percent as the 
labor-related share unless this ``would result in lower payments to a 
hospital than would otherwise be made.'' However, this provision of 
Public Law 108-173 did not change the legal requirement that the 
Secretary estimate ``from time to time'' the proportion of hospitals' 
costs that are ``attributable to wages and wage-related costs.'' We 
believe that this reflected Congressional intent that hospitals receive 
payment based on either a 62-percent labor-related share, or the labor-
related share estimated from time to time by the Secretary, depending 
on which labor-related share resulted in a higher payment.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850 
through 43856), we rebased and revised the hospital market basket for 
operating costs. We established a FY 2006-based IPPS hospital market 
basket to replace the FY 2002-based IPPS hospital market basket, 
effective October 1, 2009. In that final rule, we presented our 
analysis and conclusions regarding the frequency and methodology for 
updating the labor-related share for FY 2010. We also recalculated a 
labor-related share of 68.8 percent, using the FY 2006-based IPPS 
market basket, for discharges occurring on or after October 1, 2009. In 
addition, we implemented this revised and rebased labor-related share 
in a budget neutral manner, but consistent with section 1886(d)(3)(E) 
of the Act, we did not take into account the additional payments that 
would be made as a result of hospitals with a wage index less than or 
equal to 1.0 being paid using a labor-related share lower than the 
labor-related share of hospitals with a wage index greater than 1.0.
    The labor-related share is used to determine the proportion of the 
national IPPS base payment rate to which the area wage index is 
applied. In this proposed rule, we are not proposing to make any 
further changes to the national average proportion of operating costs 
that are attributable to wages and salaries, fringe benefits, contract 
labor, the labor-related portion of professional fees, administrative 
and business support services, and all other labor-related services 
(previously referred to in the FY 2002-based IPPS market basket as 
labor-intensive). Therefore, we are proposing to continue to use a 
labor-related share of 68.8 percent for discharges occurring on or 
after October 1, 2010. Tables 1A and 1B in the Addendum to this 
proposed rule reflects this proposed labor-related share. We note that 
section 403 of Public Law 108-173 amended sections 1886(d)(3)(E) and 
1886(d)(9)(C)(iv) of the Act to provide that the Secretary must employ 
62 percent as the labor-related share unless this employment ``would 
result in lower payments to a hospital than would otherwise be made.'' 
Therefore, for all IPPS hospitals whose wage indices are less than 
1.0000, we are applying the wage index to a labor-related share of 62

[[Page 23956]]

percent of the national standardized amount. For all IPPS hospitals 
whose wage indices are greater than 1.0000, we are applying the wage 
index to a labor-related share of 68.8 percent of the national 
standardized amount.
    For Puerto Rico hospitals, the national labor-related share will 
always be 62 percent because the wage index for all Puerto Rico 
hospitals is less than 1.0. We are proposing to continue to use a 
labor-related share for the Puerto Rico-specific standardized amounts 
of 62.1 percent for discharges occurring on or after October 1, 2010. 
This Puerto Rico labor-related share of 62.1 percent was also adopted 
in the FY 2010 IPPS/LTCH PPS final rule (74 FR 43857) at the time the 
FY 2006-based hospital market basket was established, effective October 
1, 2009. Consistent with our methodology for determining the national 
labor-related share, we added the Puerto Rico-specific relative weights 
for wages and salaries, fringe benefits, contract labor, the labor-
related portion of professional fees, administrative and business 
support services, and all other labor-related services (previously 
referred to in the FY 2002-based IPPS market basket as labor-intensive) 
to determine the labor-related share. Puerto Rico hospitals are paid 
based on 75 percent of the national standardized amounts and 25 percent 
of the Puerto Rico-specific standardized amounts. The labor-related 
share of a hospital's Puerto Rico-specific rate will be either the 
Puerto Rico-specific labor-related share of 62.1 percent or 62 
perecent, depending on which results in higher payments to the 
hospital. If the hospital has a Puerto Rico-specific wage index of 
greater than 1.0, we will set the hospital's rates using a labor-
related share of 62.1 percent for the 25 percent portion of the 
hospital's payment determined by the Puerto Rico standardized amounts 
because this amount will result in higher payments. Conversely, a 
hospital with a Puerto Rico-specific wage index of less than 1.0 will 
be paid using the Puerto Rico-specific labor-related share of 62 
percent of the Puerto Rico-specific rates because the lower labor-
related share will result in higher payments. The proposed Puerto Rico 
labor-related share of 62.1 percent for FY 2011 is reflected in the 
Table 1C of the Addendum to this proposed rule.

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

A. Reporting of Hospital Quality Data for Annual Hospital Payment 
Update

1. Background
a. Overview
    CMS is seeking to promote higher quality and more efficient health 
care for Medicare beneficiaries. This effort is supported by the 
adoption of an increasing number of widely-agreed upon quality 
measures. CMS has worked with relevant stakeholders to define measures 
of quality in almost every setting and currently measures some aspect 
of care for almost all Medicare beneficiaries. These measures assess 
structural aspects of care, clinical processes, patient experiences 
with care, and, increasingly, outcomes.
    CMS has implemented quality measure reporting programs for multiple 
settings of care. To measure the quality of hospital inpatient 
services, CMS implemented the Reporting Hospital Quality Data for 
Annual Payment Update (RHQDAPU) program. In addition, CMS has 
implemented quality reporting programs for hospital outpatient 
services, the Hospital Outpatient Quality Data Reporting Program (HOP 
QDRP), and for physicians and other eligible professionals, the 
Physician Quality Reporting Initiative (PQRI). CMS has also implemented 
quality reporting programs for home health agencies and skilled nursing 
facilities that are based on conditions of participation, and an end-
stage renal disease quality reporting program that is based on 
conditions for coverage.
b. Hospital Quality Data Reporting Under Section 501(b) of Public Law 
108-173
    Section 501(b) of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA), Public Law 108-173, added section 
1886(b)(3)(B)(vii) to the Act. This section established the authority 
for the RHQDAPU program and revised the mechanism used to update the 
standardized payment amount for inpatient hospital operating costs. 
Specifically, section 1886(b)(3)(B)(vii)(I) of the Act, before it was 
amended by section 5001(a) of Public Law 109-171, provided for a 
reduction of 0.4 percentage points to the update percentage increase 
(also known as the market basket update) for FY 2005 through FY 2007 
for any subsection (d) hospital that did not submit data on a set of 10 
quality indicators established by the Secretary as of November 1, 2003. 
It also provides that any reduction would apply only to the fiscal year 
involved, and would not be taken into account in computing the 
applicable percentage increase for a subsequent fiscal year. The 
statute thereby established an incentive for IPPS hospitals to submit 
data on the quality measures established by the Secretary, and also 
built upon the previously established Voluntary Hospital Quality Data 
Reporting Program that we described in the FY 2009 IPPS final rule (73 
FR 48598).
    We implemented section 1886(b)(3)(B)(vii) of the Act in the FY 2005 
IPPS final rule (69 FR 49078) and codified the applicable percentage 
change in Sec.  412.64(d) of our regulations. We adopted additional 
requirements under the RHQDAPU program in the FY 2006 IPPS final rule 
(70 FR 47420).
c. Hospital Quality Data Reporting Under Section 5001(a) of Public Law 
109-171
    Section 5001(a) of the Deficit Reduction Act of 2005 (DRA), Public 
Law 109-171, further amended section 1886(b)(3)(B) of the Act to revise 
the mechanism used to update the standardized payment amount for 
hospital inpatient operating costs, in particular, by adding new 
section 1886(b)(3)(B)(viii) to the Act. Specifically, sections 
1886(b)(3)(B)(viii)(I) and (II) of the Act provide that the payment 
update for FY 2007 and each subsequent fiscal year be reduced by 2.0 
percentage points for any subsection (d) hospital that does not submit 
quality data in a form and manner, and at a time, specified by the 
Secretary. Section 1886(b)(3)(B)(viii)(I) of the Act also provides that 
any reduction in a hospital's payment update will apply only with 
respect to the fiscal year involved, and will not be taken into account 
for computing the applicable percentage increase for a subsequent 
fiscal year. In the FY 2007 IPPS final rule (71 FR 48045), we amended 
our regulations at Sec.  412.64(d)(2) to reflect the 2.0 percentage 
point reduction in the payment update for FY 2007 and subsequent fiscal 
years for subsection (d) hospitals that do not comply with requirements 
for reporting quality data, as provided for under section 
1886(b)(3)(B)(viii) of the Act.
(1) Quality Measures
    Section 1886(b)(3)(B)(viii)(III) of the Act requires that the 
Secretary expand the ``starter set'' of 10 quality measures that was 
established by the Secretary as of November 1, 2003, as the Secretary

[[Page 23957]]

determines to be appropriate for the measurement of the quality of care 
furnished by a hospital in inpatient settings. In expanding this set of 
measures, section 1886(b)(3)(B)(viii)(IV) of the Act requires that, 
effective for payments beginning with FY 2007, the Secretary begin to 
adopt the baseline set of performance measures as set forth in a report 
issued by the Institute of Medicine (IOM) of the National Academy of 
Sciences under section 238(b) of Public Law 108-173.\5\
---------------------------------------------------------------------------

    \5\ Institute of Medicine, ``Performance Measurement: 
Accelerating Improvement,'' December 1, 2005, available at: http://www.iom.edu/CMS/3809/19805/31310.aspx. IOM set forth these baseline 
measures in a November 2005 report. However, the IOM report was not 
released until December 1, 2005 on the IOM Web site.
---------------------------------------------------------------------------

    Section 1886(b)(3)(B)(viii)(V) of the Act requires that, effective 
for payments beginning with FY 2008, the Secretary add other quality 
measures that reflect consensus among affected parties, and to the 
extent feasible and practicable, have been set forth by one or more 
national consensus building entities. The NQF is a voluntary consensus 
standard-setting organization with a diverse representation of 
consumer, purchaser, provider, academic, clinical, and other health 
care stakeholder organizations. The NQF was established to standardize 
health care quality measurement and reporting through its consensus 
development process. We have generally adopted NQF-endorsed measures. 
However, we believe that consensus among affected parties also can be 
reflected by other means, including consensus achieved during the 
measure development process, consensus shown through broad acceptance 
and use of measures, and consensus through public comment.
    Section 1886(b)(3)(B)(viii)(VI) of the Act authorizes the Secretary 
to replace any quality measures or indicators in appropriate cases, 
such as where all hospitals are effectively in compliance with a 
measure, or the measures or indicators have been subsequently shown to 
not represent the best clinical practice. Thus, the Secretary is 
granted broad discretion to replace measures that are no longer 
appropriate for the RHQDAPU program.
    In the FY 2007 IPPS final rule, we began to expand the RHQDAPU 
program measures by adding 11 quality measures to the 10-measure 
starter set to establish an expanded set of 21 quality measures for the 
FY 2007 payment determination (71 FR 48033 through 48037, 48045).
    In the CY 2007 OPPS/ASC final rule (71 FR 68201), we adopted six 
additional quality measures for the FY 2008 payment determination, for 
a total of 27 measures. Two of these measures (30-Day Risk Standardized 
Mortality Rates for Heart Failure and 30-Day Risk Standardized 
Mortality Rates for AMI) were calculated using existing administrative 
Medicare claims data; thus, no additional data submission by hospitals 
was required for these two measures. The measures used for the FY 2008 
payment determination included, for the first time, the HCAHPS patient 
experience of care survey.
    In the FY 2008 IPPS final rule (72 FR 47348 through 47358) and the 
CY 2008 OPPS/ASC final rule with comment period (72 FR 66875 through 
66877), we added three additional process measures to the RHQDAPU 
program measure set. (These three measures are SCIP-Infection-4: 
Cardiac Surgery Patients with Controlled 6AM Postoperative Serum 
Glucose, SCIP-Infection-6: Surgery Patients with Appropriate Hair 
Removal, and Pneumonia 30-day mortality (Medicare patients).) The 
addition of these 3 measures brought the total number of RHQDAPU 
program measures to be used for the FY 2009 payment determination to 30 
(72 FR 66876). The 30 measures used for the FY 2009 annual payment 
determination are listed in the FY 2009 IPPS final rule (73 FR 48600 
through 48601).
    For the FY 2010 payment determination, we added 15 new measures to 
the RHQDAPU program measure set and retired one measure from the 
program (PN-1: Oxygenation Assessment). Of the new measures, 13 were 
adopted in the FY 2009 IPPS final rule (73 FR 48602 through 48611) and 
two additional measures were finalized in the CY 2009 OPPS/ASC final 
rule with comment period (73 FR 68780 through 68781). This resulted in 
an expansion of the RHQDAPU program measures from 30 measures for the 
FY 2009 payment determination to 44 measures for the FY 2010 payment 
determination. The RHQDAPU program measures for the FY 2010 payment 
determination consist of: 26 chart-abstracted process measures, which 
measure quality of care provided for Acute Myocardial Infarction (AMI), 
Heart Failure (HF), Pneumonia (PN), and Surgical Care Improvement 
(SCIP); 6 claims-based measures, which evaluate 30-day mortality and 
30-day readmission rates for AMI, HF, or PN; 9 claims-based AHRQ 
patient safety indicators and inpatient quality indicators; 1 claims-
based nursing sensitive measure; 1 structural measure that assesses 
participation in a systematic database for cardiac surgery; and the 
HCAHPS patient experience of care survey. The measures are listed in 
the IPPS FY 2009 final rule at 73 FR 46809 and in the CY 2009 OPPS/ASC 
final rule with comment period at 73 FR 68781.
    On December 31, 2008, CMS advised hospitals that they would no 
longer be required to submit data for the RHQDAPU program measure AMI-
6-Beta blocker at arrival, beginning with discharges occurring on April 
1, 2009. This change was based on the evolving evidence regarding AMI 
patient care, as well as changes in the American College of Cardiology/
American Heart Association (ACC/AHA) practice guidelines for ST-segment 
elevation myocardial infarction and non-ST segment elevation myocardial 
infarction, upon which AMI-6 is based. CMS took action to remove the 
measure from reporting initiatives based on the lack of support by the 
measure developer and the clinical and scientific considerations 
described in the FY 2010 IPPS/RY 2010 LTCH PPS final rule at 74 FR 
43863.
    We had previously discussed considerations relating to retiring or 
replacing measures in the FY 2008 IPPS final rule with comment period 
and the FY 2009 IPPS final rule, including the ``topping out'' of 
hospitals' performance under a measure (72 FR 47358 through 47359 and 
73 FR 48603 through 48604, respectively). However, in this instance, 
the measure no longer ``represent[s] the best clinical practice,'' an 
additional basis under section 1886(b)(3)(B)(viii)(VI) of the Act for 
retiring a measure. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we 
formally retired the AMI-6 measure from the RHQDAPU program for the FY 
2011 payment determination and subsequent payment determinations.
    For the FY 2011 payment determination, we retained 41 of the FY 
2010 quality measures; harmonized two FY 2010 RHQDAPU program quality 
measures (combining PSI 04--Death among surgical patients with 
treatable serious complications; and Nursing Sensitive-Failure to 
rescue into a single measure (Death among surgical inpatients with 
serious, treatable complications); added two chart-abstracted measures 
(SCIP-Infection-9: Postoperative Urinary Catheter Removal on Post 
Operative Day 1 or 2 and SCIP-Infection-10: Perioperative Temperature 
Management); and added two structural measures (1) Participation in a 
Systematic Clinical Database Registry for Stroke Care; and (2) 
Participation in a Systematic Clinical Database Registry for Nursing 
Sensitive Care) (74 FR 43868 through 43873). The 46 measures

[[Page 23958]]

we adopted for the FY 2011 payment determination are:
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(2) Maintenance of Technical Specifications for Quality Measures
    The technical specifications for the RHQDAPU program measures, or 
links to Web sites hosting technical specifications, are contained in 
the CMS/The Joint Commission Specifications Manual for National 
Hospital Inpatient Quality Measures (Specifications Manual). This 
Specifications Manual is posted on the CMS QualityNet Web site at 
https://www.QualityNet.org/. We maintain the technical specifications 
by updating this Specifications Manual semiannually, or more frequently 
in unusual cases, and include detailed instructions and calculation 
algorithms for hospitals to use when collecting and submitting data on 
required measures. These semiannual updates are accompanied by 
notifications to users, providing sufficient time between the change 
and the effective date in order to allow users to incorporate changes 
and updates to the specifications into data collection systems.
(3) Public Display of Quality Measures
    Section 1886(b)(3)(B)(viii)(VII) of the Act requires that the 
Secretary establish procedures for making quality data available to the 
public after ensuring that a hospital has the opportunity to review its 
data before they are made public. To meet this requirement, data from 
the RHQDAPU program are typically displayed on CMS Web sites such as 
the Hospital Compare Web site, http://www.hospitalcompare.hhs.gov after 
a 30-day preview period. An interactive Web tool, this Web site assists 
beneficiaries by providing information on hospital quality of care to 
those who need to select a hospital. It further serves to encourage 
beneficiaries to work with their doctors and hospitals to discuss the 
quality of care hospitals provide to patients, thereby providing an 
additional incentive to hospitals to improve the quality of care that 
they furnish. The RHQDAPU program currently includes process of care 
measures, risk adjusted outcome measures, the HCAHPS patient experience 
of care survey, and structural measures, all of which are featured on 
the Hospital Compare Web site. However, information that may not be 
salient to or understood by beneficiaries and information for which 
there are unresolved display issues or design considerations for 
inclusion on Hospital Compare may be made available on other CMS Web 
sites that are not intended to be used as an interactive Web tool, such 
as http://www.cms.hhs.gov/HospitalQualityInits/. Publicly reporting the 
information in this manner, though not on the Hospital Compare Web 
site, allows CMS to meet the requirement under section 
1886(b)(3)(B)(viii)(VII) of the Act for establishing procedures to make 
quality data used for RHQDAPU payment determinations available to the 
public following a preview period. In such circumstances, affected 
parties are notified via CMS listservs, CMS e-mail blasts, national 
provider calls, and QualityNet announcements regarding the release of 
preview reports followed by the posting of data on a Web site other 
than Hospital Compare.
2. Retirement of RHQDAPU Program Measures
a. Considerations in Retiring Quality Measures From the RHQDAPU Program
    Unless stated otherwise, we generally retain measures from the 
current year's RHQDAPU program measure set for subsequent years' 
measure set. We have previously retired one measure, PN-1: Oxygenation 
Assessment for Pneumonia, from the RHQDAPU program on the basis of high 
unvarying performance among hospitals, as measures with very high 
performance among hospitals present little opportunity for improvement, 
and do not provide meaningful distinctions in performance for 
consumers. We also have retired one measure from the program because it 
no longer ``represent[ed] the best clinical practice,'' as stated under 
section 1886(b)(3)(B)(viii)(VI) of the Act. In this latter situation, 
we stated that when there is reason to believe that the continued 
collection of a measure as it is currently specified raises potential 
patient safety concerns that it is appropriate for CMS to take 
immediate action to remove a measure from the RHQDAPU program and not 
wait for the annual rulemaking cycle. Therefore, in the FY 2010 IPPS/RY 
2010 LTCH PPS final rule, we stated that we would promptly retire such 
measures followed by subsequent confirmation of the retirement in the 
next IPPS rulemaking. When we do so, we will notify hospitals and the 
public through the usual hospital and QIO communication channels used 
for the RHQDAPU program, which include memo and email notification and 
QualityNet Web site articles and postings.
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we invited 
public comment regarding additional RHQDAPU program measures that 
should be considered for retirement along with criteria that should be 
used for retiring measures. In the FY 2010 IPPS/RY 2010 LTCH PPS final 
rule, commenters recommended 11 RHQDAPU program measures for retirement 
for various reasons (74 FR 43865). Among the criteria suggested by 
commenters that CMS should consider when determining whether to retire 
RHQDAPU program measures were: (1) Measure performance among hospitals 
is so high and unvarying that meaningful distinctions and improvements 
in performance can no longer be made; (2) performance or improvement on 
a measure does not result in better patient outcomes; (3) a measure 
does not align with current clinical guidelines or practice; (4) the 
availability of a more broadly applicable (across settings, 
populations, or conditions) quality measure for the topic; (5) the 
availability of a measure that is more proximal in time to desired 
patient outcomes for the particular topic; (6) the availability of a 
measure that is more strongly associated with desired patient outcomes 
for the particular topic; (7) collection and/or public reporting of a 
measure leads to negative unintended consequences other than patient 
harm. We agreed with commenters that these criteria should be among 
those considered in evaluating current RHQDAPU program measures for 
retirement. We again invite commenters to submit suggestions for 
additional measure retirement criteria for CMS to consider.
b. Proposed Retirement of Quality Measures Under the RHQDAPU Program 
for the FY 2011 Payment Determination and Subsequent Years
    In the FY 2009 IPPS final rule, for the FY 2010 payment 
determination we adopted nine measures that were developed by the 
Agency for Healthcare Research and Quality (AHRQ), and in the FY 2010 
IPPS/RY 2010 LTCH PPS we subsequently retained these measures for the 
FY 2011 payment determination. One of these measures was the AHRQ 
Mortality for Selected Surgical Procedures Composite, which is 
comprised of measures from the AHRQ Inpatient Quality Indicator (IQI) 
measure set. In late June of 2009, following an NQF steering committee 
evaluation of the AHRQ Mortality for Selected Surgical Procedures 
composite, the AHRQ issued guidance \6\ that this composite is ``not 
recommended for comparative reporting'' as specified due to significant 
evidence gaps, and that these significant evidence gaps are

[[Page 23961]]

unlikely to be addressed with further development or validation work. 
This guidance is available at: http://www.qualityindicators.ahrq.gov/downloads/publications/AHRQ%20QI%20Guide%20to%20Comparative%20Reporting%20v10.pdf.
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    \6\ AHRQ. Guidance on Using the AHRQ QI for Hospital-Level 
Comparative Reporting. June 2009. http://www.qualityindicators.ahrq.gov/downloads/publications/AHRQ%20QI%20Guide%20to%20Comparative%20Reporting%20v10.pdf.
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    For this reason, we are proposing to retire the Mortality for 
Selected Procedures Composite from the RHQDAPU program measure set from 
the RHQDAPU program measure set for the FY 2011 payment determination 
and for subsequent payment determinations because the measure is not 
considered suitable for purposes of comparative reporting by the 
measure developer. We will neither calculate this measure for the FY 
2011 payment determination, nor display results for this measure on 
Hospital Compare. We invite comment on our proposal to retire this 
measure from the RHQDAPU program for the FY 2011 payment determination 
and for subsequent payment determinations. We also invite commenters to 
submit suggestions and rationales for retirement of other RHQDAPU 
program measures.
    Set out below are the RHQDAPU program quality measures for the FY 
2011 payment determination reflecting our proposed retirement of one 
measure:
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[[Page 23964]]

3. Proposed Expansion Plan for Quality Measures for the FY 2012, FY 
2013, and FY 2014 Payment Determinations
a. Considerations in Expanding and Updating Quality Measures Under the 
RHQDAPU Program
    In the FY 2009 IPPS final rule (73 FR 48613) and the FY 2010 IPPS/
RY 2010 LTCH PPS final rule (74 FR 43866 through 43869), we 
acknowledged the data collection burden for hospitals participating in 
the RHQDAPU program, and reiterated our desire to expand the RHQDAPU 
program measure set while minimizing burden and seeking to provide 
alternative mechanisms for data submission for the RHQDAPU program. In 
the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we also stated that in 
future expansions and updates to the RHQDAPU program measure set, we 
would be taking into consideration several important goals. These goals 
include: (a) Expanding the types of measures beyond process of care 
measures to include an increased number of outcome measures, efficiency 
measures, and patients' experience-of-care measures; (b) expanding the 
scope of hospital services to which the measures apply; (c) considering 
the burden on hospitals in collecting chart-abstracted data; (d) 
harmonizing the measures used in the RHQDAPU program with other CMS 
quality programs to align incentives and promote coordinated efforts to 
improve quality; (e) seeking to use measures based on alternative 
sources of data that do not require chart abstraction or that utilize 
data already being reported by many hospitals, such as data that 
hospitals report to clinical data registries, or all-payer claims data 
bases; and (f) weighing the relevance and utility of the measures 
compared to the burden on hospitals in submitting data under the 
RHQDAPU program. Specifically, we give priority to quality measures 
that assess performance on: (a) Conditions that result in the greatest 
mortality and morbidity in the Medicare population; (b) conditions that 
are high volume and high cost for the Medicare program; and (c) 
conditions for which wide cost and treatment variations have been 
reported, despite established clinical guidelines. We have used and 
continue to use these criteria to guide our decisions regarding what 
measures to add to the RHQDAPU program measure set.
    RHQDAPU program measures were initially based solely on a 
hospital's submission of chart-abstracted quality measure data. 
However, in recent years we have adopted measures that do not require 
chart abstraction, including structural and claims-based quality 
measures which we can calculate using other data sources. This supports 
our goal of expanding the measures for the RHQDAPU program while 
minimizing the burden on hospitals and, in particular, without 
significantly increasing the chart abstraction burden.
    In addition to structural and claims-based measures, we previously 
noted that registries \7\ and electronic health records (EHRs) are 
potential alternative sources of hospital data for the RHQDAPU program. 
We observed that many hospitals already submit data to and participate 
in existing registries, and that registries often capture outcome 
information and provide ongoing quality improvement feedback to 
registry participants. We envisioned that instead of requiring 
hospitals to submit the same data to CMS that many hospitals are 
already submitting to registries, that we would collect the data 
directly from the registries. This could enable the expansion of the 
RHQDAPU program measure set without increasing the burden of data 
collection for those hospitals participating in the registries. We 
cited as examples of registries actively used by hospitals the Society 
of Thoracic Surgeons (STS) Cardiac Surgery Registry (with approximately 
90 percent participation by cardiac surgery programs), the AHA Stroke 
Registry (with approximately 1200 hospitals participating), and the 
American Nursing Association (ANA) Nursing Sensitive Measures Registry 
(with approximately 1400 hospitals participating). In the FY 2009 IPPS 
final rule (73 FR 48608 through 48609), we adopted the first RHQDAPU 
program measure related to registries: Participation in a Systematic 
Database for Cardiac Surgery. Subsequently, in the FY 2010 IPPS/RY 2010 
LTCH PPS final rule (74 FR 43870 through 43872), we adopted two 
additional structural measures of registry participation for the topics 
of Stroke and Nursing Sensitive Care. We continue to evaluate the 
feasibility of leveraging registry-based data collection mechanisms for 
the RHQDAPU program and we are proposing to collect such data for the 
FY 2013 payment determination.
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    \7\ A registry is a collection of clinical data for purposes of 
assessing clinical performance, quality of care, and opportunities 
for quality improvement.
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    We also stated our intention to explore mechanisms for data 
submission using EHRs (73 FR 48614; 74 FR 43866, 43892). Establishing 
such a system will require interoperability between EHRs and CMS data 
collection systems, additional infrastructure development on the part 
of hospitals and CMS, and the adoption of standards for the capturing, 
formatting, and transmission of data elements that make up the 
measures. However, once these activities are accomplished, the adoption 
of measures that rely on data obtained directly from EHRs will enable 
us to expand the RHQDAPU program measure set with less cost and burden 
to hospitals.
    In the FY 2009 IPPS final rule, we adopted nine AHRQ measures for 
the RHQDAPU program, one of which is now proposed for retirement for 
the FY 2011 payment determination and subsequent payment determinations 
in this proposed rule. We stated that we would initially calculate the 
measures using Medicare claims data (73 FR 48608). However, we also 
stated that we remained interested in using all-payer claims data to 
calculate them and that we might propose to collect such data in the 
future. In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 
24169), we invited input and suggestions on how all-payer claims data 
can be collected and used by CMS to calculate these measures, as well 
as on additional AHRQ measures that we should consider adopting for 
future RHQDAPU program payment determinations.
    In summary, we will continue to pursue goals regarding the 
expansion and updating of quality measures under the RHQDAPU program 
while minimizing burden. We will take into account the public comments 
we receive on the possible uses of EHRs, registries, and all-payer 
claims data in the RHQDAPU program. We also will consider the measure 
selection criteria suggested by various commenters in prioritizing and 
selecting quality measures for the future.'' In particular, we are 
concerned about the lack of progress in reducing the rates of 
healthcare associated infections that was recently reported in the 2009 
National Healthcare Quality Report (http://www.ahrq.gov/qual/nhqr09/nhqr09.pdf). For example, the report found that rates of postoperative 
sepsis increased by 8 percent. It is evident that more attention needs 
to be paid to ensure health care does not result in avoidable harm and 
that patients are informed about hospitals' performance. We are 
soliciting comment on the option to include among our prioritization 
criteria quality measures that assess performance on healthcare 
associated infections. Also, while the current and proposed measures 
cover many aspects of healthcare associated infections, we are 
soliciting public comment on additional measures that could be added to 
those hospitals would

[[Page 23965]]

report and that CMS would make available to the public in order promote 
improvement in healthcare associated infection rates.
    In the past, we have proposed to add new RHQDAPU program measures 
for one year's payment determination in a given rulemaking cycle. 
Although in prior years we have identified various measures for future 
consideration, we have not proposed or finalized measures for the 
RHQDAPU program beyond those to be collected for the purpose of the 
next sequential payment determination. In this FY 2011 rulemaking 
cycle, we are proposing an expansion to the RHQDAPU program that will 
take place over three payment years, and are proposing to add measures 
not only for the FY 2012 payment determination, but also for the FY 
2013 and FY 2014 payment determinations. To the extent we finalize some 
or all of these proposed measures this year, we believe that we will be 
providing greater certainty for hospitals to plan to meet future 
reporting requirements and implement related quality improvement 
efforts. We will also have more time to prepare, organize and implement 
the necessary infrastructure necessary to collect data on the measures 
and make payment determinations.
    Finally, in section V.A.5.(2) of this proposed rule, we discuss a 
proposal to make RHQDAPU payment determinations beginning with FY 2013 
using, in part, a consecutive calendar year of quality measure data. 
This proposed approach, of synchronizing the quarters for which data on 
these measures must be submitted during each year with the quarters we 
will use to make payment determinations, would apply beginning with 
January 1, 2011 discharges although it would not affect our payment 
determinations until FY 2013. We invite public comment on the measures 
and timeframe for their addition to the RHQDAPU program measure set.
b. Proposed RHQDAPU Program Quality Measures for the FY 2012 Payment 
Determination
(1) Proposed Retention of 45 Existing RHQDAPU Program Quality Measures 
for the FY 2012 Payment Determination
    As noted above, we are proposing to retire the AHRQ Mortality for 
Selected Surgical Procedures Composite for the FY 2011 payment 
determination. We are proposing that the remaining 45 of the 46 quality 
measures for the FY 2011 RHQDAPU program payment determination will be 
used for the FY 2012 RHQDAPU program payment determination. Details 
regarding data submission requirements are discussed in section V.A.5. 
of this proposed rule. We invite comment on the proposal to include all 
FY 2011 measures except for the AHRQ Mortality for Selected Surgical 
Procedures Composite in the FY 2012 RHQDAPU measure set.
    In proposing to retain 45 of the 46 FY 2011 measures, we recognize 
that we are not significantly reducing the burden for hospitals, since 
the one measure that we are proposing to remove is a measure that 
currently is calculated based on Medicare claims. At the same time, we 
are proposing to expand the measures for the FY 2012 and subsequent 
years' payment determinations, which may add additional reporting 
burdens and new focus areas for hospital quality improvement efforts. 
In view of our concern about the burden of reporting for hospitals, 
especially when it comes to reporting chart-abstracted measures, 
another option that we have considered to accommodate the expansion of 
the measure set is the retirement of additional measures. Specifically, 
we have considered retiring one or more of those measures suggested by 
various commenters that were listed in the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule (74 FR 43865). We noted in that final rule that 11 
RHQDAPU program chart-abstracted measures were recommended for 
retirement by commenters. Seven of these 11 measures were recommended 
for retirement based on their performance being uniformly high 
nationwide, with little variability among hospitals. Information on the 
performance rates for hospitals reporting is available at: http://www.cms.hhs.gov/HospitalQualityInits/downloads/HospitalNationalLevelPerformance.pdf. These measures are:
     AMI-1 Aspirin at arrival
     AMI-3 ACEI/ARB for left ventricular systolic dysfunction
     AMI-4 Adult smoking cessation advice/counseling
     AMI-5 Beta-blocker prescribed at discharge
     HF-4 Adult smoking cessation advice/counseling
     PN-4 Adult smoking cessation advice/counseling
     SCIP-Infection-6: Surgery patients with appropriate hair 
removal
    In addition to these ``topped out'' measures, commenters 
recommended we retire four additional measures listed below for reasons 
unrelated to high unvarying performance. These measures are:
     HF-1 Discharge instructions
     PN-3b Blood culture performed before first antibiotic 
received in hospital
     SCIP-Infection-2: Prophylactic antibiotic selection for 
surgical patients
     SCIP-Infection-4: Cardiac Surgery Patients with Controlled 
6AM Postoperative Serum Glucose
    Reasons given by commenters included the following: (1) Care 
process measured has weak or no relationship to better outcomes; (2) 
Collection burden of measure negates or outweighs the benefit of 
reporting the measure; and (3) Measure perceived to be discordant with 
current guidelines.
    We invite comments on the option to retire one or more of these 11 
measures that were suggested for retirement by commenters to the FY 
2010 IPPS proposed rule. We note that some of these measures were 
proposed for electronic reporting under the program for payment 
incentives for meaningful use of electronic health records (75 FR 
1896).
    In addition, we are considering an option under which if we propose 
and finalize measures that are specified to more broadly address a 
clinical topic, and thus would require hospitals to submit the same 
data that they are already submitting on more narrowly specified 
measures that we previously adopted for the RHQDAPU program, we would 
propose to retire the more narrowly specified measures from the RHQDAPU 
measure set. An example of this that we are considering would be to 
retire the current Influenza and Pneumoccocal vaccination measures that 
apply only to the Pneumonia admission inpatient population (PN-2 
Pneumococcal vaccination status; and PN-7 Influenza vaccination status) 
if we proposed and finalized measures of Influenza and Pneumoccocal 
vaccination that apply to all inpatients. We invite comments on this 
option to retire narrowly specified measures in order to accommodate 
more broadly specified measures on a given topic.
(2) Proposed New Claims-Based Measures
    We are proposing to add 10 claims-based measures to the RHQDAPU 
program measure set for the FY 2012 payment determination: 2 AHRQ 
Patient Safety Indicators and 8 Hospital Acquired Condition measures. 
These proposed measures would be calculated using up to three years' of 
Medicare claims for discharges prior to January 1, 2011. These measures 
are discussed below.

[[Page 23966]]

(A) Proposed AHRQ Patient Safety Indicators
    In the FY 2009 IPPS final rule we adopted a number of AHRQ Patient 
Safety Indicators and Inpatient Quality Indicators for the RHQDAPU 
program to be calculated using Medicare claims. The addition of these 
measures to the RHQDAPU program allowed us to expand the RHQDAPU 
program measure set to include measures of patient safety, in-hospital 
mortality, adverse events and complications without increasing the data 
submission burden on hospitals. In the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule, we retained these measures for the FY 2011 payment 
determination. In this proposed rule, we are proposing to retire one of 
those measures (Mortality for Selected Surgical Procedures Composite) 
from the RHQDAPU program measure set for the FY 2011 payment 
determination. For the FY 2012 payment determination, we are proposing 
to adopt 2 additional Patient Safety Indicators developed by the AHRQ. 
These are: PSI-11: Post-Operative Respiratory Failure and PSI-12: Post-
Operative Pulmonary Embolism (PE) or Deep Vein Thrombosis (DVT). Both 
measures address post-operative complications, a topic that is 
currently not well represented in the RHQDAPU program measure set. Both 
measures are NQF-endorsed, and have a Tier 1 evidence rating by AHRQ, 
the measure developer. Indicators given this level of evidentiary 
rating by AHRQ have the strongest evidence base, with established 
evidence in several or most evidentiary areas established by AHRQ, no 
substantial evidence suggesting that the indicators may not be useful 
for comparative reporting purposes, and in most cases the indicators 
have been NQF-endorsed.\8\ The specific measures that we are proposing 
to add are NQF-endorsed, thus reflecting consensus among affected 
parties, and are deemed appropriate for comparative public reporting by 
the measure developer. Like the current AHRQ measures in the RHQDAPU 
program, these indicators are risk-adjusted outcome measures that can 
be calculated based on existing Medicare claims, placing no additional 
reporting burden on hospitals while allowing us to expand outcomes 
measurement in the RHQDAPU program. The specifications for these 
measures can be found at http://www.qualityindicators.ahrq.gov/TechnicalSpecs41.htm#PSI41. We invite comment on our proposal to adopt 
these two AHRQ Patient Safety Indicators for the FY 2012 payment 
determination.
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    \8\ http://www.qualityindicators.ahrq.gov/downloads/publications/AHRQ%20QI%20Guide%20to%20Comparative%20Reporting%20v10.p
df.
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(B) Proposed Hospital Acquired Condition (HAC) Measures
    Section 1886(d)(4)(D) of the Act required the Secretary to select, 
in consultation with the Centers for Disease Control and Prevention 
(CDC), at least two conditions that: (a) Are high cost, high volume, or 
both; (b) are assigned to a higher paying MS-DRG when present as a 
secondary diagnosis (that is, conditions under the MS-DRG system that 
are CCs or MCCs); and (c) could reasonably have been prevented through 
the application of evidence based guidelines. We currently have 10 
categories of Hospital Acquired Conditions (HACs). We refer readers to: 
section II.F. of the FY 2008 IPPS final rule with comment period (72 FR 
47202 through 47218); section II.F. of the FY 2009 IPPS final rule with 
comment period (73 FR 48474 through 48486); and section II.F. of the FY 
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43782 through 43785) for 
detailed discussions regarding the selection of the current 10 HAC 
categories. We refer readers to section II.F. of this proposed rule for 
additional discussion and our proposals for HAC policy for FY 2011.
    We have worked collaboratively with public health and infectious 
disease professionals from across HHS, including CDC, AHRQ, and the 
Office of Public Health and Science, to identify and select preventable 
HACs with input and comment from affected parties. CMS and CDC have 
also collaborated on the process for hospitals to submit a present on 
admission (POA) indicator for each diagnosis listed on IPPS hospital 
Medicare claims and on the payment implications for POA reporting (74 
FR 43783).
    CMS, CDC and AHRQ held jointly sponsored HAC and POA Listening 
Sessions (December 17, 2007 and December 18, 2008) to receive input 
from affected parties, individuals, and organizations regarding the 
selection and definition of HACs. The adoption of HACs were informed 
and continue to be informed by feedback received during the listening 
sessions, as well as through public comment received during the IPPS 
rulemaking process. In addition to receiving comments regarding the 
selection of conditions and POA indicator reporting, in the FY 2010 
IPPS/LTCH PPS final rule (74 FR 43785), commenters suggested that CMS 
consider making aggregate POA information publicly available, and 
providing comparative information as a means of facilitating 
improvements in preventing the incidence of HACs.
    We are proposing to adopt as RHQDAPU measures for the FY 2012 
payment determination eight (of 10) current HACs defined in section 
II.F. of this proposed rule, six of which have been identified by NQF 
as serious reportable events, and to publicly report these measures as 
we do other RHQDAPU program measures. These measures are:
     Foreign Object Retained After Surgery
     Air Embolism
     Blood Incompatibility
     Pressure Ulcer Stages III & IV
     Falls and Trauma: (Includes: Fracture, Dislocation, 
Intracranial Injury, Crushing, Injury, Burn, Electric Shock)
     Vascular Catheter-Associated Infection
     Catheter-Associated Urinary Tract Infection (UTI)
     Manifestations of Poor Glycemic Control
    We do not believe that it is necessary to propose to adopt the 
other two current HAC categories as RHQDAPU measures because the topics 
that they deal with would substantially overlap with other RHQDAPU 
program measures discussed below that we are proposing to adopt for 
future payment determinations as chart-abstracted measures (which 
allows us to collect data on all patients). By contrast, the eight 
proposed HAC measures are claims-based measures for which we can only 
(at this time) collect data only on Medicare beneficiaries.
    We are proposing to utilize Medicare claims data to calculate 
measure rates for these eight HACs using the ICD-9-CM codes in 
conjunction with POA coding of ``N'' or ``U,'' as defined in IPPS 
rulemaking. We refer readers to section II.F.6. of the FY 2008 IPPS 
final rule with comment period (72 FR 47202 through 47218), section 
II.F.7. of the FY 2009 IPPS final rule (73 FR 48474 through 48486), 
section II.F.6. (74 FR 43782 through 43785) of the FY 2010 IPPS/RY 2010 
LTCH PPS final rule, and section II.F. of this proposed rule for 
detailed discussions regarding the use of the POA indicator in 
conjunction with ICD-9-CM coding to determine the presence of HACs. We 
also refer readers to the current ICD-9-CM codes and proposed updates 
for these eight HAC categories in this proposed rule. We are proposing 
to use the ICD-9-CM codes in conjunction with the ``N'' and ``U'' POA 
indicators for the HAC categories that will be finalized in the FY 2011 
IPPS/RY 2011 LTCH PPS final rule to

[[Page 23967]]

calculate the eight HAC measures for the RHQDAPU program.
    We believe that these HAC measures reflect consensus among affected 
parties as required for RHQDAPU program measures by section 
1886(b)(3)(B)(viii)(V) of the Act. In addition to meeting the consensus 
requirement through rulemaking and public comment, Vascular Catheter-
Associated Infection and Catheter-Associated UTI are the subject of a 
quality measure which gained NQF endorsement in August 2009. The 
remaining six HAC categories have been identified as serious reportable 
events through the NQF consensus process and have also been selected as 
HACs through rulemaking and public comment. Data reporting requirements 
for these measures are provided in section V.A.5. of this proposed 
rule. We invite comment on our proposal to adopt these eight HAC 
measures for the FY 2012 payment determination.
(3) Proposed All-Patient Volume Data for Selected MS-DRGs
    CMS currently displays volume data for 70 MS-DRGs, 55 of which 
relate to RHQDAPU program measures on the Hospital Compare Web site. 
However, the volume data currently shown on Hospital Compare is based 
on Medicare claims only. Although we do not consider volume alone to be 
a quality measure unless volume has been determined to be an indicator 
of quality, we believe that to the extent all-patient volume data are 
related to the measures, as they provide context for the quality 
measures in the inpatient hospital setting, and may assist Hospital 
Compare users in understanding the measure calculations. In general, in 
implementing RHQDAPU program measures, we have sought where currently 
possible to measure the care rendered to all patients within a 
hospital, and not just Medicare patients. For this reason, the chart-
abstracted process of care measures we collect and display on Hospital 
Compare are based on the entire inpatient population for the hospital.
    We are proposing that hospitals begin submitting as data on 
measures selected for the RHQDAPU program the all-patient data elements 
discussed in section V.A.5. of this proposed rule for 55 MS-DRGs 
displayed on Hospital Compare that relate to adopted RHQDAPU program 
measures. The specific MS-DRGs are listed below. As stated above, we 
believe that the addition of this data will enable us and Medicare 
beneficiaries to better understand and evaluate the quality of care 
provided by hospitals with respect to both the chart-abstracted and 
claims-based measures. We intend to publicly display this volume data 
along with the corresponding measure results on Hospital Compare. 
Hospitals would begin reporting these data once annually beginning with 
January 1, 2011 discharges by submitting the all-patient data elements 
needed to calculate MS-DRG volume to QualityNet so we can determine the 
volume of cases treated by a hospital for the 55 MS-DRGs currently 
displayed on Hospital Compare. Rather than require hospitals to group 
their all-patient claims data by MS-DRG category themselves, CMS would 
use the data to be submitted by hospitals to group the data.We invite 
comments on this proposal.
    We also invite comment on an alternative that hospitals submit all-
patient volume data based upon specific ICD-9-CM codes related to the 
proposed MS-DRGs rather than all data necessary to calculate the MS-
DRGs.
    The proposed RHQDAPU measure set for the FY 2012 payment 
determination is listed below:
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    We invite comment on these proposed measures for the FY 2012 
payment determination.
c. Proposed RHQDAPU Program Quality Measures for the FY 2013 Payment 
Determination
(1) Proposed Retention of FY 2012 Payment Determination Measures for 
the FY 2013 Payment Determination
    We generally propose to retain RHQDAPU program measures from one 
year to the next. Consistent with this approach, we are proposing to 
retain all of the proposed measures for the FY 2012 RHQDAPU payment 
determination, if finalized, for the FY 2013 payment determination. We 
invite public comment on this proposal.
(2) Proposed New Chart-Abstracted Measure for the FY 2013 Payment 
Determination
    We are proposing to add one new chart-abstracted measure for the FY 
2013 payment determination--AMI-statin at discharge. This measure is 
similar to the NQF-endorsed stroke measure ``Ischemic stroke patients 
with LDL >/= 100 mg/dL, or LDL not measured, or, who were on 
cholesterol reducing therapy prior to hospitalization are discharged on 
a statin medication'' (NQF 0439), only specified for the AMI 
population. Current scientific evidence supports the continuation of 
statins more strongly for AMI patients than for stroke patients. 
Several randomized clinical trials have proven the benefits of statin 
drugs (also known as HMG Co-A reductase inhibitors) in reducing the 
risk of death and recurrent cardiovascular events in a broad range of 
patients with established cardiovascular disease, including those with 
prior myocardial infarction. Current ACC/AHA guidelines place a strong 
emphasis on the initiation or maintenance of statin drugs for patients 
hospitalized with AMI, particularly those with LDL-cholesterol levels 
at or above 100 mg/dL. As a result of the strength of the evidence and 
guideline support, the ACC/AHA has developed a performance measure to 
assess this aspect of care for AMI patients.
    Because statins are generally well-tolerated, most AMI patients are 
appropriate candidates for this therapy. As a result of this clinical 
evidence, the NQF has been asked to review whether it should broaden 
the current endorsed measure specification to include the AMI 
population. This ad hoc review is occurring now and is expected to be 
completed prior to publication of the FY 2011 IPPS/LTCH PPS final rule. 
Information on this project can be found at: http://www.qualityforum.org/Projects/a-b/Ad_Hoc_Reviews/Statin_Medication/Ad_Hoc_Review__Discharged_on_Statin.aspx. We will decide whether 
to finalize this measure based on whether it achieves NQF endorsement 
and public comments. We believe that minimal additional burden would 
result from adoption of this measure into the RHQDAPU program because 
the AMI population that is the focus of this measure is already part of 
data collection efforts for RHQDAPU, and very few additional data 
elements would be needed to be abstracted for the proposed new measure 
on this existing measurement population. We proposed that hospitals 
would begin submission of data for the AMI-statin at discharge measure 
beginning with January 1, 2011 dischares for the RHQDAPU 2013 payment 
determination.
(3) Proposed New Healthcare Associated Infection (HAI) Measures for the 
FY 2013 Payment Determination
    In the FY 2009 and FY 2010 IPPS rulemakings, we listed several 
Healthcare Associated Infection (HAI) measures as being under 
consideration for future adoption. Commenters to the FY 2010 IPPS/RY 
2010 LTCH PPS proposed rule supported the HAI measures that were listed 
as being under consideration for the future and encouraged CMS to 
consider others as well (74 FR 43876). For the measure set to be used 
for the FY 2013 payment determination, we are proposing to adopt two 
new measures of Healthcare Acquired Infections that are currently being 
collected by the CDC via the National Healthcare Safety Network (NHSN). 
These measures are: (1) Central Line Associated Blood Stream Infection 
(NQF 0139) and (2) Surgical Site Infection (NQF 
0299).
    The NHSN is a secure, Internet-based surveillance system maintained 
and managed by the CDC, and can be

[[Page 23971]]

utilized by all types of healthcare facilities in the United States, 
including acute care hospitals, long term acute care hospitals, 
psychiatric hospitals, rehabilitation hospitals, outpatient dialysis 
centers, ambulatory surgery centers, and long term care facilities. The 
NHSN enables healthcare facilities to collect and use data about HAIs, 
adherence to clinical practices known to prevent HAIs, the incidence or 
prevalence of multidrug-resistant organisms within their organizations, 
and other adverse events. Some States use NHSN as a means for 
healthcare facilities to submit data on HAIs mandated through their 
specific State legislation. Currently, 21 States require hospitals to 
report HAIs using NHSN, and CDC supports more than 2000 hospitals that 
are using NHSN.\9\
---------------------------------------------------------------------------

    \9\ http://www.cdc.gov/nhsn/.
---------------------------------------------------------------------------

    Both the Central Line Associated Blood Stream Infection measure and 
the Surgical Site Infection measure are NQF-endorsed, and therefore 
meet the statutory requirement for measure selection of reflecting 
consensus among affected parties. The measures address HAIs, a topic 
area widely acknowledged by the HHS, IOM, the National Priorities 
Partnership and others as a high priority requiring measurement and 
improvement. HAIs are among the leading causes of death in the United 
States. CDC estimates that as many as 2 million infections are acquired 
each year in hospitals and result in approximately 90,000 deaths per 
year.\10\ It is estimated that more Americans die each year from HAIs 
than from auto accidents and homicides combined. HAIs not only put the 
patient at risk, but also increase the days of hospitalization required 
for patients and add considerable health care costs.
---------------------------------------------------------------------------

    \10\ McKibben L, Horan T Guidance on public reporting of 
healthcare-associated infections: recommendations of the Healthcare 
Infection Control Practices Advisory Committee. AJIC 2005;33:217-26.
---------------------------------------------------------------------------

    HAIs are largely preventable through interventions such as better 
hygiene and advanced scientifically tested techniques for surgical 
patients. Therefore, many health care consumers and organizations are 
calling for public disclosure of HAIs, arguing that public reporting of 
HAI rates provides the information health care consumers need to choose 
the safest hospitals, and gives hospitals an incentive to improve 
infection control efforts. Both of the measures we are proposing to add 
for the FY 2013 payment determination are NQF-endorsed, and are 
currently collected using the NHSN as part of State-mandated reporting 
and surveillance requirements for hospitals. NHSN data collection 
occurs via a Web-based tool hosted by CDC provided free of charge to 
hospitals. Additionally, data submission for these measures through 
EHRs may be possible in the near future.
(A) Central Line Associated Blood Stream Infection
    This HAI measure assesses the rate of laboratory-confirmed cases of 
bloodstream infection or clinical sepsis among ICU patients. It was 
endorsed by the NQF in 2004 and was adopted by the HQA in 2007. The 
measure can be stratified by the type of ICU.
(B) Surgical Site Infection
    This HAI measure assesses the number of NHSN-defined operative 
procedures with a surgical site infection (deep incisional or organ 
space) within 30 days, or 1 year if an implant is in place. Infections 
are identified on original admission or upon readmission to the 
facility of original operative procedure within the relevant time frame 
(30 days for no implants; within 1 year for implants). The measure can 
be stratified by procedure type or risk factors. This measure was NQF-
endorsed in 2007 and was adopted by the HQA in 2008.
    We invite comment on our proposal to adopt these two HAI measures 
into the RHQDAPU program for the FY 2013 payment determination. 
Collection of these measures would begin with January 1, 2011 
discharges for the FY 2013 payment determination. We are proposing that 
hospitals use the NHSN infrastructure to report the measures for 
RHQDAPU program purposes. The proposed reporting mechanism for these 
HAI measures is discussed in greater detail in section V.A.5. of this 
proposed rule.
(4) Proposed New Registry-Based Measures
    For the FY 2013 payment determination, we are proposing that 
hospitals choose one of the following four proposed measure topics: (1) 
Implantable Cardioverter Defibrillator (ICD) Complications; (2) Cardiac 
Surgery; (3) Stroke; or (4) Nursing-Sensitive Care. With respect to the 
proposed measure topic selected by a hospital, we are proposing that 
the hospital report data on the proposed measure(s) applicable to the 
measure topic (discussed below) to a qualified registry for the 
specific topic, and direct the registry to both calculate the measure 
results for the hospital and release those results (along with the 
numerator/denominator information and exclusion information) to CMS for 
the RHQDAPU program. We are proposing that hospitals begin submitting 
data to the qualified registry of its choosing for discharges on or 
after January 1, 2011, and we intend to release a list of qualified 
registries before that date. In section V.A.13. of this proposed rule, 
we specify the self-nomination process we are proposing to use to 
qualify registries for each proposed registry-based measure topic. 
Proposed procedural and submission requirements for the proposed 
registry-based measures are discussed in section V.A.5. of this 
proposed rule. Below is a discussion of the proposed registry-based 
measure topics and specific registry-based measures that fall within 
each topic that we are proposing to add to the RHQDAPU program for the 
FY 2013 payment determination.
(A) Proposed Implantable Cardioverter Defibrillator (ICD) Complications 
Registry-Based Topic and Measure
    Implantable Cardioverter Defibrillators (ICDs) reduce the risk of 
sudden cardiac death for select high risk patients, and the number of 
patients undergoing ICD implantation increased from 5,600 in 1990 to 
108,680 by 2005.\11\ ICD implantation is an expensive procedure 
performed on patients with advanced cardiovascular disease and, often, 
significant comorbidities. Despite improvements in technology and 
increasing experience with device implantation, the procedure carries a 
significant risk of complications,\12\ which in turn increases its 
cost, the patient's length of stay, and the patient's risk of 
mortality.\13\ In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43873 through 43875), our list of potential future quality measures 
under consideration included a measure of ICD complications. This 
measure is a risk-adjusted complication and mortality rate following 
implantation of ICDs in Medicare Fee for Service (FFS) patients at 
least 65 years of age, with complication specific outcome time frames. 
The measure (NQF OT1-007-09) is currently undergoing NQF 
review

[[Page 23972]]

under Phase 1 of a call for Patient Outcome Measures initiated in Fall 
of 2009. We are proposing to add the ICD complications topic and 
measure to the RHQDAPU measure set for collection beginning with 
January 1, 2011 discharges for the FY 2013 RHQDAPU payment 
determination pending NQF endorsement. We anticipate that a final 
endorsement decision will occur in the fall of 2010, after publication 
of the FY 2011 IPPS/LTCH PPS final rule. Therefore, the decision 
whether to finalize this measure for the FY 2013 payment determination 
will be made in the CY 2011OPPS/ASC final rule with comment period.
---------------------------------------------------------------------------

    \11\ Brown, D.W., Croft, J.B., et al. (2008). ``Trends in 
Hospitalizations for the Implantation of Cardioverter-Defibrillators 
in the United States, 1990-2005.'' American Journal of Cardiology 
101 (12): 1753-1755.
    \12\ Hammill S and Curtis J. Publicly Reporting Implantable 
Cardioverter Defibrillator Outcomes--Grading the Report Card. Circ 
Arrhythmia Electrophysiol. 2008;1:235-237).
    \13\ Al-Khatib SM, Greiner MA, Peterson ED, Hernandez AF, 
Schulman KA, Curtis LH. Patient and Implanting Physician Factors 
Associated With Mortality and Complications After Implantable 
Cardioverter-Defibrillator Implantation, 2002-2005. Circ Arrhythmia 
Electrophysiol. 2008;1:240-249.
---------------------------------------------------------------------------

    The proposed ICD complications measure was developed based upon 
data submitted to the American College of Cardiology-National 
Cardiovascular Data Registry's (ACC-NCDR) ICD registry, and data from 
that registry has been linked with CMS administrative claims data used 
to identify procedural complications. For this proposed measure, the 
measured outcome for each ICD index admission is one or more 
complications or mortality within 30 or 90 days (depending on the 
complication) following ICD implantation. Complications are counted in 
the measure only if they occur during a hospital admission. 
Complications measured for 30 days include: (1) Pneumothorax or 
hemothorax plus a chest tube; (2) Hematoma plus a blood transfusion or 
evacuation; (3) Cardiac tamponade or pericardiocentesis; and (4) Death. 
Complications measured for 90 days include: (5) Mechanical 
complications requiring a system revision; (6) Device related 
infection; and (7) Additional ICD implantation.
    To comply with a January 2005 National Coverage Determination for 
ICDs for primary prevention, all hospitals in which ICD procedures are 
performed are currently submitting to the ACC-NCDR ICD registry patient 
information needed for us to determine whether the procedure was 
reasonable and necessary. This requirement is documented in section 
20.4 of the following Medicare National Coverage Determination Manual: 
http://www.cms.hhs.gov/manuals/downloads/ncd103c1_Part1.pdf. For 
purposes of the 2005 National Coverage Determination, we require that 
hospitals submit data to the ACC-NCDR ICD registry for primary 
prevention patients only but do not require hospitals to submit data on 
patients undergoing ICD implantation for secondary prevention. However, 
the ICD complication measure as submitted to the NQF for endorsement is 
specified such that it includes all ICD patients, regardless of whether 
they receive an ICD for the primary or secondary prevention of sudden 
cardiac death.
    Therefore, hospitals that choose this registry-based measure topic 
for the RHQDAPU program would submit data on the ICD complications 
measure for both primary and secondary prevention patients to the 
qualified registry. For risk adjustment, data matching, and secondary 
prevention population identification purposes, we are proposing that 
hospitals also submit to the qualified ICD complications registry an 
additional 11 data elements not currently required under the NCD in 
order for the measure to be calculated for RHQDAPU program purposes.
    In sum, we are proposing to add the ICD complications measure topic 
as one of four proposed measure topics that hospitals can choose from 
to submit required data elements to a qualified registry for the FY 
2013 RHQDAPU payment determination. The only measure that we are 
proposing to include in this proposed topic at this time would be the 
ICD complications measure. Because the ICD complications measure is a 
risk-adjusted outcome measure, it is necessary that all data for the 
measure be collected by a single qualified registry in order for that 
registry to be able to accurately calculate the risk adjustment model 
and subsequent measure results. Therefore, we are proposing to qualify 
one registry for this topic. Proposed registry qualification criteria 
are discussed in section V.A.13. of this proposed rule. We note that 
the ACC-NCDR ICD registry has already been qualified to receive and 
transmit data to CMS for a Medicare National Coverage Determination, 
and is currently the only registry to which hospitals submit data for 
this NCD. However, this would not preclude another registry from self-
nominating to become a qualified registry for this proposed topic for 
the RHQDAPU program. Because the ICD complication measure is a risk 
adjusted measure, it requires that all data be collected at a single 
repository for calculation of the measure. Therefore, we anticipate 
qualifying a single registry to collect all of the data for the 
proposed ICD complications registry-based topic.
(B) Proposed Stroke Registry-Based Topic and Measures
    We proposed to add five stroke measures to the RHQDAPU measure set 
in the FY 2009 IPPS proposed rule (73 FR 23648). We indicated that we 
would again consider these measures once NQF reviewed and endorsed the 
measures. Since that time, eight stroke measures received NQF 
endorsement in July of 2008, and in the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule we included these measures in the list of potential future 
measures. We also included these measures in the preview section of the 
Specifications Manual, and have worked with the Office of the National 
Coordinator for Health Information Technology (ONC) and its partners to 
create a set of electronic specifications for these measures to 
facilitate collection through EHRs.
    We are also aware that a number of hospitals are already submitting 
these measures to registries, and in the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule, we finalized a structural measure of participation in a 
systematic clinical database registry for stroke care. Stroke is a 
topic of great relevance to the Medicare population due to its impact 
on morbidity and mortality, and is an area of great potential 
improvement for hospitals. Commenters on the FY 2010 IPPS/RY 2010 LTCH 
PPS proposed rule expressed support for these measures, indicating that 
they accurately measure evidence-based care of the stroke patient to 
minimize secondary strokes and other complications, are widely 
recognized, and have great potential for quality improvement (74 FR 
43875).
    Therefore, we are proposing to include the following eight measures 
in the Stroke registry-based topic:

            Proposed Measures for Stroke Registry-Based Topic
------------------------------------------------------------------------

------------------------------------------------------------------------
STK-1: Venous Thromboembolism  Patients with an ischemic stroke or a
 (VTE) Prophylaxis for          hemorrhagic stroke and who are non-
 patients with ischemic or      ambulatory should start receiving DVT
 hemorrhagic stroke (NQF        prophylaxis by end of hospital day two.
 0434).
STK-2: Ischemic stroke         Patients with an ischemic stroke
 patients discharged on         prescribed antithrombotic therapy at
 antithrombotic therapy. (NQF   discharge.
 0435).
STK-3: Anticoagulation         Patients with an ischemic stroke with
 therapy for atrial             atrial fibrillation discharged on
 fibrillation/flutter. (NQF     anticoagulation therapy.
 0436).

[[Page 23973]]

STK-4: Thrombolytic Therapy    Acute ischemic stroke patients who arrive
 for Acute ischemic stroke      at the hospital within 120 minutes (2
 patients. (NQF 0437).                       whom IV t-PA was initiated at this
                                hospital within 180 minutes (3 hours) of
                                time last known well.
STK-5: Antithrombotic therapy  Patients with ischemic stroke who receive
 by the end of hospital day     antithrombotic therapy by the end of
 two. (NQF 0438).      hospital day two.
STK-6: Discharged on statin    Ischemic stroke patients with LDL >/= 100
 medication. (NQF dL, or LDL not measured, or, who were
 i>0439).                       on cholesterol reducing therapy prior to
                                hospitalization are discharged on a
                                statin medication.
STK-8: Stroke education. (NQF  Patients with ischemic or hemorrhagic
 0440).                stroke or their caregivers who were
                                given education or educational materials
                                during the hospital stay addressing all
                                of the following: personal risk factors
                                for stroke, warning signs for stroke,
                                activation of emergency.
STK-10: Assessed for           Patients with an ischemic stroke or
 rehabilitation services.       hemorrhagic stroke who were assessed for
 (NQF 0441).           rehabilitation services.
------------------------------------------------------------------------

    We are proposing to add the stroke registry-based topic, which 
would include these eight registry-based stroke measures, to the 
RHQDAPU program measure set as one of the four proposed measure topics 
that hospitals can choose from to submit data to a qualified registry 
for the FY 2013 payment determination beginning with January 1, 2011 
discharges. We invite comment on the measures as well as the timing of 
their addition to the RHQDAPU measure set.
(C) Proposed Nursing Sensitive Care Registry-Based Topic and Measures
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we indicated that 
we were considering adopting a number of nursing-sensitive care 
measures for future RHQDAPU program payment determinations. Also in 
that rule, we adopted a structural measure of participation in a 
registry for nursing-sensitive care, under which hospitals submit data 
directly to the QIO Clinical Warehouse.
    For the FY 2013 payment determination, we are proposing to add a 
nursing sensitive care registry-based topic to the RHQDAPU measure set, 
which would include the eight nursing-sensitive care measures listed 
below. All of the proposed nursing sensitive measures are NQF-endorsed. 
Hospitals selecting this topic would begin reporting data on the eight 
proposed nursing-sensitive care registry-based measures to a qualified 
nursing-sensitive care registry beginning with January 1, 2011 
discharges. Hospitals would continue reporting the nursing-sensitive 
care structural measure previously adopted for the RHQDAPU program 
directly to the QIO Clinical Warehouse.
    We invite comment on the proposed addition of a nursing sensitive 
care registry-based topic, which would include 8 proposed nursing 
sensitive care measures, as well as the timing of this addition to the 
RHQDAPU program for the FY 2013 payment determination.

    Proposed Measures for Nursing Sensitive Care Registry-Based Topic
------------------------------------------------------------------------

-------------------------------------------------------------------------
Patient Falls: All documented falls with or without injury, experienced
 by patients on an eligible unit in a calendar month. (NQF 0141).
Falls with Injury: All documented patient falls with an injury level of
 minor or greater. (NQF 0202).
Pressure Ulcer Prevalence (NQF 0201).
Restraint Prevalence (vest and limb) (NQF 0203).
Skill Mix: Percentage of hours worked by: RN, LPN/LVN, UAP, Contract/
 Agency (NQF 0204).
Hours per patient day worked by RN, LPN, and UAP (NQF 0205).
Practice Environment Scale-Nursing Work Index (NQF 0206).
Voluntary turnover for RN, APN, LPN, UAP (NQF 0207).
------------------------------------------------------------------------

(D) Proposed Cardiac Surgery Registry-Based Topic and Measures
    We have previously proposed to add several measures on the topic of 
cardiac surgery to the RHQDAPU measure set (73 FR 48608), and have also 
listed a set of NQF-endorsed cardiac surgery measures in prior rules as 
being under consideration for future adoption (74 FR 43874). We also 
adopted a structural measure of cardiac surgery participation in the FY 
2010 IPPS/RY 2010 LTCH PPS final rule. Cardiac surgery procedures carry 
a significant risk of morbidity and mortality. We believe that the 
nationwide public reporting of the 15 proposed cardiac surgery 
registry-based measures would provide highly meaningful information for 
Medicare beneficiaries because they address procedures widely performed 
on Medicare beneficiaries. Analysis of the structural measure data we 
have received from hospitals indicates that nearly 90 percent of 
hospitals performing these procedures already report these data to 
clinical registries. Therefore, if we adopt this proposed registry-
based topic, a hospital would not face any additional data submission 
burden if it chooses this registry-based topic for purposes of the FY 
2013 payment determination and the registry to which it already submits 
data is qualified for this proposed topic.
    For the FY 2013 payment determination, we are proposing to include 
15 cardiac surgery registry-based measures in the cardiac surgery 
registry-based measure topic. These proposed registry-based measures 
are listed below, and hospitals would submit data on these measures to 
a qualified registry for the cardiac surgery registry-based topic. 
Hospitals would continue submitting data for the cardiac surgery 
structural measure previously adopted for the RHQDAPU program directly 
to the QIO Clinical Warehouse.

[[Page 23974]]

   Proposed Measures for Proposed Cardiac Surgery Registry-Based Topic
------------------------------------------------------------------------

-------------------------------------------------------------------------
Post-operative Renal Failure (NQF 0114).
Surgical Re-exploration (NQF 0115).
Anti-Platelet Medication at Discharge (NQF 0116).
Beta Blockade at Discharge (NQF 0117).
Anti-Lipid Treatment Discharge (NQF 0118).
Risk-Adjusted Operative Mortality for Coronary Artery Bypass Graft CABG
 (NQF 0119)*.
Risk-Adjusted Operative Mortality for Aortic Valve Replacement (AVR)
 (NQF 0120)*.
Risk-Adjusted Operative Mortality for Mitral Valve Replacement/Repair
 (MVR) (NQF 0121)*.
Risk-Adjusted Operative Mortality MVR+CABG Surgery (NQF 0122)*.
Risk-Adjusted Operative Mortality for AVR+CABG (NQF 0123)*.
Pre-Operative Beta Blockade (NQF 0127).
Duration of Prophylaxis for Cardiac Surgery Patients (NQF
 0128).
Prolonged Intubation (ventilation) (NQF 0129).
Deep Sternal Wound Infection Rate (NQF 0130).
Stroke/Cerebrovascular Accident (NQF 0131).
------------------------------------------------------------------------
* Requires risk adjustment.

    Because these measures were endorsed by the NQF in May of 2007, 
they meet the statutory requirement of reflecting consensus among 
affected parties. Hospitals selecting this topic would begin submitting 
data on the proposed measures to a qualified cardiac surgery registry 
beginning with January 1, 2011 discharges. We note that five of these 
measures (indicated with an asterisk in the table above) must be risk-
adjusted in order to be calculated properly. Therefore, the data needed 
to calculate these measures must be collected by a single registry. 
While the remaining measures do not require risk adjustment, we believe 
it may be overly burdensome for hospitals to submit data for this topic 
to more than one registry. For this reason, we anticipate qualifying a 
single registry to collect all of the data for the proposed cardiac 
surgery registry-based topic. We invite comment on this proposal.
    Set out below are the RHQDAPU program topics and quality measures 
we are proposing to adopt for the FY 2013 payment determination:
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d. Proposed RHQDAPU Program Quality Measures for the FY 2014 Payment 
Determination
(1) Proposed Retention of FY 2013 Payment Determination Measures for 
the FY 2014 Payment Determination
    We are proposing to retain all of the measures adopted for the FY 
2013 payment determination for the FY 2014 payment determination. 
Collection of data for these measures would begin with January 1, 2012 
discharges. We invite comment on this proposal.
(2) Proposed New Chart-Abstracted Measures for the FY 2014 Payment 
Determination
    We also are proposing to add the following 4 new chart-abstracted 
measures to the RHQDAPU program measure set for the FY 2014 payment 
determination: (1) ED [Emergency Department]Throughput--Admit Decision 
Time to ED Departure Time for Admitted Patients (NQF 0497); 
(2) ED Throughput--Median time from emergency department arrival to ED 
departure for admitted patients (NQF 0495); (3) Global Flu 
Immunization; and (4) Global Pneumonia Immunization. In proposing to 
adopt these chart-abstracted measures, we recognize that we are 
proposing to increase the chart-abstraction burden on hospitals with 
respect to the RHQDAPU program. However, the burden associated with the 
proposed immunization measures for all inpatients could be 
counterbalanced by future retirement of the two current immunization 
measures that apply only to pneumonia inpatients. This measure 
retirement option is discussed earlier in section V.A.2. of this 
proposed rule. Furthermore, we note that the ED-Throughput measures 
have been specified for EHR-based collection, which may also serve to 
reduce burden associated with these measures in the future.
(A) Emergency Department (ED)-Throughput Measures
    The two ED-Throughput measures we are proposing for the FY 2014 
payment determination are: (1) Median time from admit decision time to 
time of departure from the emergency department for emergency 
department patients admitted to inpatient status; and (2) Median time 
from emergency department arrival to time of departure from the 
emergency room for patients admitted to the facility from the emergency 
department.
    The ED-Throughput measures reflect not only the processes of care 
that occur while the patient is in the emergency department, but also 
reflect the coordination of care, communication, and efficiency of 
service provision beyond the walls of the emergency department. These 
measures have been NQF-endorsed (NQF 0497 and 0495) 
and adopted by HQA. Specifications for these measures are available in 
the preview section of the current Specifications Manual available on 
QualityNet.
    These measures also address ED overcrowding, which the IOM 
identified as a major quality issue. Reducing the time patients remain 
in the ED can improve access to treatment and increase the quality of 
care, and capability of the hospital to provide adequate treatment to 
patients. ED overcrowding may result in delays in the administration of 
medication such as antibiotics for pneumonia and has been associated 
with perceptions of compromised emergency care. For patients with non-
ST-segment-elevation myocardial infarction, long ED stays were 
associated with decreased use of guideline-recommended therapies and a 
higher risk of recurrent myocardial infarction. Overcrowding and heavy 
emergency resource demand have led to a number of problems, including 
ambulance refusals, prolonged patient waiting times, increased 
suffering for those who wait, rushed and unpleasant treatment 
environments, and potentially poor patient outcomes. Finally, when EDs 
are overwhelmed, their ability to respond to community emergencies and 
disasters may be compromised.
(B) Global Immunization Measures
    For the FY 2014 payment determination, we are proposing to adopt 
two global immunization measures: (1) Pneumoccocal Immunization; and 
(2) Influenza Immunization. Increasing influenza (flu) and pneumonia 
vaccination could reduce unnecessary hospitalizations and secondary 
complications particularly among high risk populations such as the 
elderly. About 36,000 adults die annually and over 200,000 are 
hospitalized for flu-related causes. Older adults are more vulnerable, 
and adults over 65 comprise about 90 percent of flu-related deaths. 
Vaccinations can significantly reduce the number of flu related 
illnesses and deaths. The measures we are proposing were endorsed by 
the NQF as part of a

[[Page 23979]]

consensus development project titled ``National Voluntary Consensus 
Standards for Influenza and Pneumococcal Immunizations'' which 
concluded in 2008. This project resulted in the endorsement of 
immunization measures that reflect current consensus among affected 
parties that standard measure specifications for influenza and 
pneumonia immunization should be broadly applicable across conditions, 
populations, and care settings. The technical specifications for these 
global measures will be available for preview in the Specifications 
Manual published in April 2010. The difference between these proposed 
immunization measures, and the two immunization measures that are 
currently part of the RHQDAPU program is that the current measures only 
apply to inpatients admitted for pneumonia, whereas the proposed 
measures apply to all inpatients regardless of admission diagnosis.
    We are proposing to adopt these four chart-abstracted measures into 
the RHQDAPU program measure set for the FY 2014 payment determination. 
Data submission for these measures would begin with January 1, 2012 
discharges. We invite comment on these proposed measures as well as the 
proposed timing of their addition to the RHQDAPU program for the FY 
2014 payment determination. The complete list of proposed quality 
measures for the FY 2014 payment determination is set out below.
BILLING CODE 4120-01-P

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[[Page 23981]]

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[[Page 23982]]

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[GRAPHIC] [TIFF OMITTED] TP04MY10.041

4. Possible New Quality Measures for Future Years
    We are inviting public comment on the following quality measures 
and topics set out below that we are considering for the future. We 
also are seeking suggestions and rationales to support the adoption of 
measures and topics that are not included in this list for the RHQDAPU 
program.

[[Page 23984]]

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[[Page 23985]]

[GRAPHIC] [TIFF OMITTED] TP04MY10.043

BILLING CODE 4120-01-C
5. Form, Manner, and Timing of Quality Data Submission
    Sections 1886(b)(3)(B)(viii)(I) and (II) of the Act provide that 
the payment update for FY 2007 and each subsequent fiscal year be 
reduced by 2.0 percentage points for any subsection (d) hospital that 
does not submit quality data in a form and manner, and at a time, 
specified by the Secretary. The data submission requirements, 
Specifications Manual, and submission deadlines are posted on the 
QualityNet Web site at: http://www.QualityNet.org/. CMS requires that 
hospitals submit data in accordance with the specifications for the 
appropriate discharge periods.
    Hospitals submit quality data through the secure portion of the 
QualityNet Web site (formerly known as QualityNet Exchange) (https://www.QualityNet.org). This Web site meets or exceeds all current Health 
Insurance Portability and Accountability Act (HIPAA) requirements for 
security of protected health information.
a. Proposed RHQDAPU Program Requirements for FY 2012, FY 2013, and FY 
2014
(1) Procedural Requirements for the FY 2012, FY 2013, and FY 2014 
Payment Determinations
    For the FY 2012, FY 2013, and FY 2014 payment determination, we are 
proposing that the following procedures would apply to hospitals 
participating in the RHQDAPU program. These procedures are, for the 
most part, the same as the procedures that apply to the FY 2011 payment 
determination. We identify below where we are proposing to modify a 
procedure.
     Register with QualityNet, before participating hospitals 
initially begin reporting data, regardless of the method used for 
submitting data.
     Identify a QualityNet Administrator who follows the 
registration process located on the QualityNet Web site (http://www.QualityNet.org).
     Complete a Notice of Participation. New subsection (d) 
hospitals and existing hospitals that wish to participate in the 
RHQDAPU program for the first time must complete a revised ``Reporting 
Hospital Quality Data for Annual Payment Update Notice of 
Participation'' form (Notice of Participation form) that includes the 
name and address of each hospital campus that shares the same CMS 
Certification Number (CCN). We will revise the Notice of Participation 
form as needed and will provide appropriate notification of any 
revisions to hospitals and QIOs through the routine RHQDAPU 
communication channels which include memo and e-mail notification and 
QualityNet Web site articles and postings.
    We are proposing that, consistent with our policy for the FY 2011 
payment determination, any hospital that receives a new CCN on or after 
October 15, 2009 (including new subsection (d) hospitals and hospitals 
that have merged) that wishes to participate in the RHQDAPU program and 
has not otherwise submitted a Notice of Participation form using the 
new CCN must submit a completed Notice of Participation form no later 
than 180 days from the date identified as the open date (that is, the 
Medicare acceptance date) on the approved CMS Online System 
Certification and Reporting (OSCAR) system to participate in the 
RHQDAPU program for FY 2012 and future years. We believe that this 
deadline will give these hospitals a sufficient amount of time to get 
their operations up and running while simultaneously providing CMS with 
clarity regarding whether they intend to participate in the RHQDAPU 
program for FY 2012.
(2) Synchronization of RHQDAPU Program Data Submission and Validation 
Quarters With Quarters Used To Make Payment Determinations
    Currently we determine, in part, whether a hospital has met the 
RHQDAPU program requirements for a given fiscal year by looking at 
whether the hospital properly submitted data with respect to a number 
of quarterly discharge periods. However, the quarters that we look at 
for HCAHPS data, chart-abstracted RHQDAPU program measures, and 
structural measures may not be the same for a single payment 
determination. For example, for the FY 2011 payment

[[Page 23986]]

determination, we looked at discharge data submitted by hospitals from 
4th quarter 2008 through 3rd quarter 2009 for AMI, HF, and PN chart-
abstracted RHQDAPU program measures, 1st quarter 2010 for the newly 
added SCIP Infection 9 and 10 measures, April 2008 through March 2009 
data for HCAHPS, and January 1, 2010 through June 30, 2010 data for 
structural measures.
    This lack of synchronization has developed because we have 
generally made payment decisions using the four earliest occurring 
discharge quarters for each measure topic that we did not include in a 
previous year's payment determination, and we have not synchronized 
when hospitals must begin reporting data on new measures.
    Starting with the FY 2013 payment determination, we are proposing 
to determine whether the hospital meets the data submission requirement 
for quality measure data by looking at whether the hospital properly 
submitted data on the applicable measures during the same quarterly 
discharge periods. Specifically, the quarterly discharge periods that 
will apply to a particular payment determination will be the four 
quarters that occur within a calendar year. In other words, beginning 
with the FY 2013 payment determination, we will look at whether the 
hospital properly submitted data for quality measure data for the four 
calendar year quarters of CY 2011.
    With respect to our requirement that hospital data be successfully 
validated in order for the hospital to earn the full payment update for 
a given fiscal year, we are also proposing, beginning with the FY 2013 
payment determination, to validate four discharge quarters, but the 
quarters will be the 4th calendar quarter of the calendar year that 
occurs two years before the payment determination and the first 3 
calendar quarters of the following calendar year. Thus, for the FY 2013 
payment determination, we will validate data from the 4th calendar 
quarter of 2010 through the 3rd calendar quarter of 2011. We believe 
this is appropriate given the time required for the validation 
abstraction and appeal process.
    This proposed synchronization will give us a more complete picture 
of the quality of care provided by a hospital during a given time 
period, thus enabling us to link that quality of care to the applicable 
RHQDAPU payment determination. In addition, this proposal will provide 
clarity to hospitals regarding what data we will look at to make 
payment determinations for a given fiscal year. We believe that this 
synchronization will also assist us to more effectively implement the 
RHQDAPU program because we will be able to achieve operational 
consistency regarding what data applies to what payment determination. 
Further, we believe that this proposal may assist the agency in 
implementing Hospital Value-Based Purchasing as authorized by the 
Patient Protection and Affordable Care Act, Public Law 111-148, because 
it will improve the link between quality, as measured during a single 
period of time, and the payment amounts provided to hospitals. For 
example, under our proposal, the HCAHPS patient experience of care 
measure and chart-abstracted measures for a single set of discharge 
quarters will be used together for a single payment determination. 
Finally, we believe that this proposal will improve hospitals' ability 
to implement quality improvement strategies that affect RHQDAPU program 
measures and their quality of care.
    We will post a table outlining the discharge quarters that will be 
used to make each fiscal year payment determination no later than 
September 15th annually on the QualityNet Web site (http://www.QualityNet.org). We welcome comments on this proposal.
(3) Proposed HCAHPS Requirements for the FY 2012, FY 2013 and FY 2014 
Payment Determinations
    We are proposing that, for the FY 2012, FY 2013 and FY 2014 payment 
determinations, except as noted below, the RHQDAPU program HCAHPS 
requirements we adopted for FY 2011 would continue to apply. Under 
these requirements, a hospital must continuously collect and submit 
HCAHPS data in accordance with the current HCAHPS Quality Assurance 
Guidelines and the quarterly data submission deadlines, both of which 
are posted at http://www.hcahpsonline.org. In order for a hospital to 
participate in the collection of HCAHPS data, a hospital must either: 
(1) Contract with an approved HCAHPS survey vendor that will conduct 
the survey and submit data on the hospital's behalf to the QIO Clinical 
Warehouse; or (2) self-administer the survey without using a survey 
vendor provided that the hospital attends HCAHPS training and meets 
Minimum Survey Requirements as specified on the Web site at: http://www.hcahpsonline.org. A current list of approved HCAHPS survey vendors 
can be found on the HCAHPS Web site at: http://www.hcahpsonline.org.
    We are proposing that the FY 2012 payment determination for the 
RHQDAPU program for HCAHPS will be based on discharges from April 1, 
2010 through December 31, 2010.
    We are proposing that the FY 2013 payment determination for the 
RHQDAPU program for HCAHPS will be based on discharges from January 1, 
2011 through December 31, 2011.
    We are proposing that the FY 2014 payment determination for the 
RHQDAPU program for HCAHPS will be based on discharges from January 1, 
2012 through December 31, 2012.
    Every hospital choosing to contract with a survey vendor should 
provide the sample frame of HCAHPS-eligible discharges to its survey 
vendor with sufficient time to allow the survey vendor to begin 
contacting each sampled patient within 6 weeks of discharge from the 
hospital. (We refer readers to the Quality Assurance Guidelines located 
at http://www.hcahpsonline.org for details about HCAHPS eligibility and 
sample frame creation.) In addition, the hospital must authorize the 
survey vendor to submit data via My QualityNet, the secure part of the 
QualityNet Web site, on the hospital's behalf.
    After the survey vendor submits the data to the QIO Clinical 
Warehouse, we strongly recommend that hospitals employing a survey 
vendor promptly review the two HCAHPS Feedback Reports (the Provider 
Survey Status Summary Report and the Data Submission Detail Report) 
that are available. These reports enable a hospital to ensure that its 
survey vendor has submitted the data on time and the data has been 
accepted into the QIO Clinical Warehouse.
    Any hospital that has five or fewer HCAHPS-eligible discharges in 
any month is no longer required to submit HCAHPS surveys for that 
month, although the hospital may voluntarily choose to submit these 
data. However, the hospital still must submit its total number of 
HCAHPS-eligible cases for that month to the QIO Clinical Warehouse as 
part of its quarterly HCAHPS data submission.
    In order to ensure compliance with HCAHPS survey and administration 
protocols, hospitals and survey vendors must participate in all 
oversight activities. As part of the oversight process, during the 
onsite visits or conference calls, the HCAHPS Project Team will review 
the hospital's or survey vendor's survey systems and assess protocols 
based upon the most recent HCAHPS Quality Assurance Guidelines. All 
materials relevant to survey administration will be subject to review. 
The systems and program review includes, but is not limited to: (a) 
Survey management and data systems; (b) printing and mailing materials 
and facilities; (c) telephone

[[Page 23987]]

and IVR materials and facilities; (d) data receipt, entry and storage 
facilities; and (e) written documentation of survey processes. 
Organizations will be given a defined time period in which to correct 
any problems and provide follow-up documentation of corrections for 
review. As needed, hospitals and survey vendors will be subject to 
follow-up site visits or conference calls. If CMS determines that a 
hospital is not compliant with HCAHPS program requirements, CMS may 
determine that the hospital is not submitting HCAHPS data that meet the 
requirements of the RHQDAPU program.
    We continue to strongly recommend that each new hospital 
participate in an HCAHPS dry run, if feasible, prior to beginning to 
collect HCAHPS data on an ongoing basis to meet RHQDAPU program 
requirements. New hospitals can conduct a dry run in the last month of 
a calendar quarter. The dry run will give newly participating hospitals 
the opportunity to gain first-hand experience collecting and 
transmitting HCAHPS data without the public reporting of results. Using 
the official survey instrument and the approved modes of administration 
and data collection protocols, hospitals/survey vendors will collect 
HCAHPS dry-run data and submit the data to My QualityNet, the secure 
portion of QualityNet.
    We are again encouraging hospitals to regularly check the HCAHPS 
Web site at http://www.hcahpsonline.org for program updates and 
information.
b. Additional Proposed RHQDAPU Program Procedural Requirements for the 
FY 2012, FY 2013 and FY 2014 Payment Determinations
(1) Chart-Abstracted Measures For Which Data Is Submitted Directly to 
CMS (via QualityNet)
    Hospitals must begin submitting RHQDAPU program data starting with 
the first day of the quarter following the date when the hospital 
registers to participate in the program. For purposes of meeting this 
requirement, we interpret the registration date to be the date that the 
hospital submits a completed Notice of Participation form. As proposed 
previously in this section, hospitals must also register with 
QualityNet and identify a QualityNet Administrator who follows the 
QualityNet registration process before submitting RHQDAPU program data.
    Hospitals must continuously collect and report data to CMS (via 
QualityNet) for each of the quality measures under the topic areas that 
require chart abstraction (and are not registry-based topic areas). For 
the FY 2012 and FY 2013 payment determinations, the proposed topic 
areas are AMI, HF, PN, and SCIP. For the FY 2014 payment determination, 
the proposed topic areas are AMI, HF, PN, SCIP, Emergency Department 
Throughput (EDT), and Global Immunization (GIM).
    For FY 2012, we are proposing that hospitals must submit data for 
five calendar year discharge quarters as follows: 4Q CY 2009, 1Q CY 
2010 (AMI, HF and PN only), 2Q CY 2010, 3Q CY 2010 and 4Q CY 2010. For 
the FY 2013 payment determination, we are proposing that hospitals must 
submit data for four consecutive calendar year discharge quarters as 
follows: 1Q CY 2011, 2Q CY 2011, 3Q CY 2011 and 4Q CY 2011. For the FY 
2014 payment determination, hospitals must submit data for four 
consecutive calendar year discharge quarters as follows: 1Q CY 2012, 2Q 
CY 2012, 3Q CY 2012 and 4Q CY 2012. Hospitals must report these data by 
each quarterly deadline.
    Hospitals must submit the data to the QIO Clinical Warehouse using 
the CMS Abstraction & Reporting Tool (CART), The Joint Commission 
ORYX[supreg] Core Measures Performance Measurement System, or another 
third-party vendor tool that meets the measurement specification 
requirements for data transmission to QualityNet. All submissions will 
be executed through My QualityNet, the secure part of the QualityNet 
Web site. Because the information in the QIO Clinical Warehouse is 
considered QIO information, it is subject to the stringent QIO 
confidentiality regulations in 42 CFR Part 480. The QIO Clinical 
Warehouse will submit the data to CMS on behalf of the hospitals.
    Hospitals must submit complete data for each quality measure that 
requires chart abstraction in accordance with the joint CMS/The Joint 
Commission sampling requirements located on the QualityNet Web site. 
These requirements specify that hospitals must submit a random sample 
or complete population of cases for each of the topics covered by the 
quality measures. Hospitals must meet the sampling requirements for 
these quality measures for discharges in each quarter.
    For the FY 2012 payment determination, we are proposing that 
hospitals must submit population and sampling data for three 
consecutive calendar year discharge quarters as follows: 2Q CY 2010, 3Q 
CY 2010 and 4Q CY 2010.
    For the FY 2013 payment determination, we are proposing that 
hospitals must submit population and sampling data for four consecutive 
calendar year discharge quarters as follows: 1Q CY 2011, 2Q CY 2011, 3Q 
CY 2011 and 4Q CY 2011.
    For the FY 2014 payment determination, we are proposing that 
hospitals must submit population and sampling data for four consecutive 
calendar year discharge quarters as follows: 1Q CY 2012, 2Q CY 2012, 3Q 
CY 2012 and 4Q CY 2012.
    Hospitals must submit to CMS on a quarterly basis aggregate 
population and sample size counts for Medicare and non-Medicare 
discharges for the topic areas for which chart-abstracted data must be 
submitted (currently AMI, HF, PN, and SCIP). For clarification, we are 
proposing that hospitals are required to submit a numeric 
representation of their aggregate population and sample size count for 
each topic area even if the hospital has not treated patients in a 
specific topic area. For example, if a hospital has not treated AMI 
patients, the hospital is still required to submit a zero for its 
quarterly aggregate population and sample count for that topic in order 
to meet the requirement.
    In order to reduce the burden on hospitals that treat a low number 
of patients in a RHQDAPU program topic area, a hospital that has five 
or fewer discharges (Medicare and non-Medicare combined) in a topic 
area during a quarter in which data must be submitted is not required 
to submit patient-level data for that topic area for the quarter. The 
hospital must still submit its aggregate population and sample size 
counts for Medicare and non-Medicare discharges for the topic areas 
each quarter. We also note that hospitals meeting the five or fewer 
patient discharge exception may voluntarily submit these data.
    The quarterly data submission deadline for hospitals to submit 
patient level data for the proposed measures that require chart 
abstraction is 4[frac12] months following the last discharge date in 
the calendar quarter. CMS will post the quarterly submission deadline 
schedule on the QualityNet Web site (http://www.QualityNet.org). Chart-
abstracted measures have not been added for the FY 2012 payment 
determination. The collection of new chart-abstracted measures proposed 
for the FY 2013 payment determination would begin with the 1st calendar 
quarter 2011 discharges, for which the submission deadline would be 
August 15, 2011. The collection of new chart-abstracted measures 
proposed for the FY 2014 payment determination would begin with the 1st 
calendar quarter 2012 discharges, for which the submission deadline 
would be August 15, 2012. Hospitals must comply with the

[[Page 23988]]

discharge quarter submission deadlines in any fiscal year for each 
quarter for which data submission is required (Quarter 1--August 15th; 
Quarter 2--November 15th; Quarter 3--February 15th; Quarter 4--May 
15th).
    The data submission deadline for hospitals to submit aggregate 
population and sample size count data for the measures requiring chart 
abstraction is four months following the last discharge date in the 
calendar quarter. This requirement allows CMS to advise hospitals 
regarding their submission status in enough time for them to make 
appropriate revisions before the data submission deadline. We will post 
the aggregate population and sample size count data submission 
deadlines on the QualityNet Web site (http://www.QualityNet.org).
    CMS strongly recommends that hospitals review the QIO Clinical 
Warehouse Feedback Reports and the RHQDAPU Program Provider 
Participation Reports that are available after patient level data are 
submitted to the QIO Clinical Warehouse. CMS generally updates these 
reports on a daily basis to provide accurate information to hospitals 
about their submissions. These reports enable hospitals to ensure that 
their data were submitted on time and accepted into the QIO Clinical 
Warehouse.
(2) Data Submission Requirements for HCAHPS
    Hospitals must continuously collect and submit HCAHPS data in 
accordance with the current HCAHPS Quality Assurance Guidelines, which 
can be found on the HCAHPS Web site, http://www.hcahpsonline.org. The 
QIO Clinical Warehouse is able to accept submissions indicating zero 
HCAHPS-eligible discharges in a month. A hospital with zero HCAHPS-
eligible discharges in a month must submit a zero as its total number 
of HCAHPS-eligible cases to the QIO Clinical Warehouse for that month 
as part of its quarterly HCAHPS data submission.
    In order to reduce the burden on hospitals that treat a low number 
of patients that would be otherwise covered by the HCAHPS submission 
requirements, a hospital that has five or fewer HCAHPS-eligible 
discharges during a month is not required to submit HCAHPS surveys for 
that month. However, hospitals that meet this exception may voluntarily 
submit this data. A hospital with five or fewer HCAHPS-eligible 
discharges must submit its number of HCAHPS-eligible cases to the QIO 
Clinical Warehouse for the month(s) in which it had five or fewer 
HCAHPS-eligible discharges as part of its quarterly HCAHPS data 
submission.
(3) Procedures for Claims-Based Measures
    Hospitals are encouraged to regularly check the QualityNet Web 
site, http://www.QualityNet.org, for program updates and information.
     The following RHQDAPU program claims-based measures would 
be calculated using Medicare claims:
BILLING CODE 4120-01-P

[[Page 23989]]

[GRAPHIC] [TIFF OMITTED] TP04MY10.044

BILLING CODE 4120-01-C
For the claims-based RHQDAPU program measures listed above, hospitals 
are not required to submit the data to the QIO Clinical Warehouse. CMS 
uses the existing Medicare fee-for-service claims to calculate the 
measures. For the FY 2012 payment determination, CMS would use up to 3 
years of discharges prior to January 1, 2011 (as appropriate for the 
measure), to calculate the 30-day mortality and 30-day readmission 
measures AHRQ PSI, IQI and Composite measures (including the AHRQ PSI 
and Nursing Sensitive Care measure, Death among surgical inpatients 
with serious, treatable complications), and the proposed new HAC 
Measures. For the FY 2013 and FY 2014 payment determinations, CMS would 
use up to 3 years of discharges (as appropriate for the measure) prior 
to January 1, 2012, and January 1, 2013 respectively. Hospitals are 
required to appropriately report the POA indicator in conjunction with 
ICD-9-CM coding to determine the presence of HACs so that the proposed 
HAC measures can be calculated for the RHQDAPU program using Medicare 
claims.

[[Page 23990]]

(4) Data Submission Requirements for Structural Measures
     We are proposing that for the FY 2012 payment 
determination, hospitals submit the required registry participation 
information once for the structural measures via a Web-based collection 
tool between July 1, 2011-August 15, 2011 with respect to the time 
period of July 1, 2010 through December 31, 2010.
    Below is the list of structural measures we are proposing to adopt 
for the FY 2012 payment determination:

------------------------------------------------------------------------
                                FY 2012 payment determination: Proposed
            Topic                         structural measures
------------------------------------------------------------------------
Cardiac Surgery..............   Participation in a Systematic
                                Database for Cardiac Surgery.
Stroke Care..................   Participation in a Systematic
                                Clinical Database Registry for Stroke
                                Care.
Nursing Sensitive Care.......   Participation in a Systematic
                                Clinical Database Registry for Nursing
                                Sensitive Care.
------------------------------------------------------------------------

(5) Data Submission of All-Patient Volume Data for Selected MS-DRGs 
Related to RHQDAPU Program Measures
    For submission of the all-patient volume data for selected MS-DRGs, 
we are proposing that hospitals submit patient level information needed 
for CMS to apply the MS-DRG grouper software to calculate the all-
patient MS-DRG volumes, the data elements for which would be defined in 
the Specifications Manual. Hospitals would begin submitting this data 
quarterly via QualityNet beginning with January 1, 2011 discharges.
    We invite comment on an alternative that hospitals submit hospital-
level all-patient volume data based upon specific ICD-9-CM codes that 
are related to the selected MS-DRGs (rather than the patient-level 
data) necessary for CMS to calculate the MS-DRGs. Hospitals would begin 
submitting this data quarterly via QualityNet beginning with January 1, 
2011 discharges.
(6) Proposed Data Submission and Reporting Requirements for HAI 
Measures Reported via NHSN
    We are proposing that hospitals participating in RHQDAPU submit the 
data elements needed to calculate the Central Line Associated Blood 
Stream Infection and Surgical Site Infection measures to the NHSN using 
the standard procedures that have been set forth by CDC for NHSN 
participation in general and for submission of these two measures to 
NHSN in particular. This would include NHSN participation forms and 
indications to CDC allowing CMS to access data for these two measures 
for RHQDAPU program purposes, adherence to training requirements, use 
of standard CDC measure specifications, data element definitions, data 
collection requirements and instructions, and data reporting 
timeframes. Detailed requirements for NHSN participation, measure 
specifications, and data collection can be found at http://www.cdc.gov/nhsn/. Hospitals must use the current specifications and data 
collection tools available on the CDC Web site to submit data for the 
Central Line Associated Bloodstream Infection and Surgical Site 
Infection measures. We are proposing that hospitals would submit data 
for these two measures to CDC's NHSN on a monthly basis for discharges 
occurring on or after January 1, 2011.
    For the FY 2013 payment determination, we are proposing that 
hospitals must submit HAI data via the NHSN for four consecutive 
calendar year discharge quarters as follows: 1Q CY 2011, 2Q CY 2011, 3Q 
CY 2011 and 4Q CY 2011.
    For the FY 2014 payment determination, hospitals must submit HAI 
data for four consecutive calendar year discharge quarters as follows: 
1Q CY 2012, 2Q CY 2012, 3Q CY 2012 and 4Q CY 2012.
    We are proposing that once quarterly each hospital would utilize an 
automated report function that will be made available to submitters in 
the NHSN, to generate a quarterly report containing hospital-level 
numerator, denominator, and exclusion counts for these two CDC measures 
specifically for the RHQDAPU program. The CDC will create this 
automated RHQDAPU report function and add it to NHSN's reporting 
functionalities in the next few months. While hospitals may be 
reporting other data elements to CDC for other reporting programs (that 
is: State mandated surveillance programs), the quarterly RHQDAPU report 
that would be generated within NHSN would only contain those data 
elements needed to calculate the two measures currently being proposed 
for the RHQDAPU program. CMS will access the reports in the NHSN and 
will compile the reports for RHQDAPU program and public reporting 
purposes.
    We invite comment on the proposed mechanism for submitting data for 
the Central Line Associated Blood Stream Infection measure and the 
Surgical Site Infection measure for the RHQDAPU program beginning with 
the FY 2012 payment determination.
(7) Data Submission Requirements for Registry-Based Measures
    We are proposing that hospitals participating in RHQDAPU would be 
required to choose at least one of four registry based measure topics 
(ICD Complications, Stroke, Nursing Sensitive Care, or Cardiac 
Surgery), and would submit the data needed to calculate the measures 
included in the chosen registry-based topic to a qualified registry in 
order to meet the requirements to receive the full FY 2013 annual 
payment update.
    We are proposing that hospitals then would arrange to have the 
qualified registry calculate the measures and submit to the QIO 
Clinical Warehouse the results, as well as the numerator, denominator, 
and exclusions. Any arrangement reached between the hospital and the 
qualified registry must comply with HIPAA. The qualified registry would 
also submit registry-derived hospital-level measure calculations to the 
QIO Clinical Warehouse using a CMS-specified record layout and file 
format that we will make available.
    Our program and its data system must maintain compliance with HIPAA 
requirements for requesting, processing, storing, and transmitting 
data. For the FY 2013 RHQDAPU payment determination, hospitals would 
need to submit data for the proposed registry-based measures to the 
qualified registry in the form and manner and by the deadline(s) 
specified by the registry.
    CMS will begin qualifying registries for the four proposed 
registry-based topics so that hospitals may begin submitting data for 
discharges beginning January 1, 2011. Proposed registry qualification 
criteria are discussed in a section V.A.13. of this proposed rule. We 
are proposing to post on the RHQDAPU program section of the QualityNet 
Web site http://www.qualitynet.org a list of qualified registries for 
the FY 2013 RHQDAPU payment determination, including the registry name, 
contact information, and the measure(s) that the registry has been

[[Page 23991]]

qualified to collect and report for the RHQDAPU program.
    We anticipate posting the list of qualified FY 2011 registries as 
soon as we have completed vetting the registries interested in 
participating in the FY 2013 RHQDAPU program payment determination and 
identified the qualified registries for the FY 2013 RHQDAPU program 
payment determination, which we anticipate will be completed by 
December 31, 2010. Specific data submission requirements for the 
registry-based measures are discussed below:
(A) Hospitals That Choose To Report the ICD Complications Measure
    If the hospital chooses the ICD Complications measure, it would 
submit specified data elements for specified populations to the 
qualified ICD registry. We intend to establish criteria and begin 
qualifying registries for this topic so that hospitals can begin 
submitting data for discharges beginning January 1, 2011. The hospital 
would follow the standard participation and reporting procedures set by 
the registry regarding the submission of data elements for the 
particular measures we have specified for the topic. These data 
elements and population definitions will be listed in the 
Specifications Manual.
    Hospitals must allow the qualified registry it is using to report 
the patient-level data to CMS in order to calculate the ICD 
complications measure.
(B) Hospitals That Choose To Report Either the Stroke, Nursing 
Sensitive Care, or Cardiac Surgery Measures
    If a hospital chooses the Stroke, Nursing Sensitive Care, or 
Cardiac Surgery measure topics, it would submit data on the measures 
listed for these topics to a qualified registry for the topic. CMS 
intends to establish criteria and begin qualifying registries for these 
topics so that hospitals can begin submitting data for discharges 
beginning January 1, 2011. The hospital would follow the standard 
participation and reporting procedures set by the registry regarding 
the submission of data elements for the particular measures CMS has 
specified for the topic. Additionally, the hospital would agree to 
allow the registry to send calculations of the measures, numerator, 
denominator and exclusion counts to CMS for the RHQDAPU program.
6. RHQDAPU Program Disaster Extensions and Waivers
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24176), 
we solicited public comment about rules we could adopt that would 
enable hospitals to request either an extension or a waiver of various 
RHQDAPU program requirements in the event of a disaster (such as a 
hurricane that damages or destroys the hospital).
    Specifically, we welcomed public comment on the following issues:
     Recommendations for rules that we could follow when 
considering whether to grant an extension or waiver of RHQDAPU program 
requirements in the event of a disaster, including suggested criteria 
that we should take into account (for example, specific hospital 
infrastructure damage, hospital closure time period, degree of 
destruction of medical records, impact on data vendors, and long-term 
evacuation of discharged patients impacting HCAHPS survey 
participation).
     The role that QIOs and QIO support contractors should play 
in the event of a disaster, including communicating with affected 
hospitals, communicating with State hospital associations, and 
collecting information directly from hospitals.
     How CMS extension or waiver decisions should be 
communicated to affected hospitals.
     Any other issues commenters deem relevant to a hospital's 
request for an extension or waiver of RHQDAPU program requirements in 
the event of a disaster.
    We responded to public comments in the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule (74 FR 43881). We recognize that there are times when 
hospitals are unable to submit quality data due to extraordinary 
circumstances that are not within their control. It is our goal to not 
penalize hospitals for such circumstances and we do not want to unduly 
increase their burden during these times.
    Therefore, we are proposing a process for hospitals to request and 
for CMS to grant extensions or waivers with respect to the reporting of 
required quality data when there are extraordinary circumstances beyond 
the control of the hospital. Under the proposed process, in the event 
of extraordinary circumstances not within the control of the hospital, 
for the hospital to receive consideration for an extension or waiver of 
the requirement to submit quality data for one or more quarters, a 
hospital must submit to the QIO in the hospital's State a request form 
that will be made available on the QualityNet Web site. The following 
information should be noted on the form:
     Hospital CCN;
     Hospital Name;
     CEO and any other designated personnel contact 
information, including name, e-mail address, telephone number, and 
mailing address (must include a physical address, a post office box 
address is not acceptable);
     Hospital's reason for requesting an extension or waiver;
     Evidence of the impact of the extraordinary circumstances, 
including but not limited to photographs, newspaper and other media 
articles; and
     A date when the hospital will again be able to submit 
RHQDAPU data, and a justification for the proposed date.
    The request form must be signed by the hospital's CEO. A request 
form must be submitted within 45 days of the date that the 
extraordinary circumstance occurred. The QIO in the hospital's state 
will forward the request form to CMS. Following receipt of the request 
form, CMS will: (1) Provide a written acknowledgement using the contact 
information provided in the request, to the CEO and any additional 
designated hospital personnel, notifying them that the hospital's 
request has been received; and (2) provide a formal response to the CEO 
and any additional designated hospital personnel using the contact 
information provided in the request notifying them of our decision.
    This proposal does not preclude CMS from granting waivers or 
extensions to hospitals that have not requested them when we determine 
that an extraordinary circumstance, such as an act of nature (for 
example, hurricane), affects an entire region or locale. If CMS makes 
the determination to grant a waiver or extension to hospitals in a 
region or locale, CMS will communicate this decision through routine 
communication channels to hospitals, vendors and QIOs, including but 
not limited to issuing memos, e-mails and notices on the QualityNet Web 
site. We invite comment on this proposal.
7. Proposed Chart Validation Requirements for Chart-Abstracted Measures
a. Chart Validation Requirements and Methods for the FY 2012 Payment 
Determination
    For the FY 2012 payment determination, we will use the chart 
validation requirements and methods that we adopted for FY 2012 in the 
FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43884 through 43889). 
These requirements, as well as additional information on these 
requirements, will be posted on the QualityNet Web site after we issue 
the FY 2011 IPPS/RY 2011 LTCH PPS final rule.
    Specifically, we will:
     Randomly select on an annual basis 800 participating 
hospitals that

[[Page 23992]]

submitted chart-abstracted data for at least 100 discharges combined in 
the measure topics to be validated. To determine whether a hospital 
meets this ``100-case threshold,'' we will look to the discharge data 
submitted by the hospital during the calendar year three years prior to 
the fiscal year of the relevant payment determination. For example, if 
the 100-case threshold applied for the FY 2011 payment determination 
(which it will not), the applicable measure topics would be AMI, HF, 
PN, and SCIP, and we would choose 800 hospitals that submitted 
discharge data for at least 100 cases combined in these topics during 
calendar year 2008. If a hospital did not submit discharge data for at 
least 100 cases in these topics during CY 2008, we would not select the 
hospital for validation. We will announce the topic areas that apply 
for the FY 2012 payment determination at a later date, and we plan to 
select the first 800 hospitals in July 2010. We will select hospitals 
for the FY 2012 validation if they meet the 100-case threshold during 
CY 2009. We adopted this 100-case threshold because we believe that it 
strikes the appropriate balance between ensuring that the selected 
hospitals have a large enough patient population to be able to submit 
sufficient data to allow us to complete an accurate validation, while 
not requiring validation for hospitals with a low number of submitted 
quarterly cases and relatively unreliable measure estimates. Based on 
previously submitted data, we estimate that 98 percent of participating 
RHQDAPU program hospitals will meet this threshold and, thus, be 
eligible for validation. As noted below, we solicited comments and 
suggestions on how we might be able to target the remaining 2 percent 
of hospitals for validation.
     Validate for each of the 800 hospitals a randomly selected 
stratified sample for each quarter of the validation period. Each 
quarterly sample will include 12 cases, with at least one but no more 
than three cases per topic for which chart-abstracted data was 
submitted by the hospital. However, we recognize that some selected 
hospitals might not have enough cases in all of the applicable topics 
to submit data (for example, if they have 5 or fewer discharges in a 
topic area in a quarter). For those hospitals, we will validate 
measures in only those topic areas for which they have submitted data. 
For the FY 2012 payment determination, we will validate 1st calendar 
quarter 2010 through 3rd calendar quarter 2010 discharge data. We will 
validate 3 quarters of data for FY 2012 in order to provide hospitals 
with enough time to assess their medical record documentation and 
abstraction practices, and to take necessary corrective actions to 
improve these practices, before documenting their 1st calendar quarter 
2010 discharges into medical records that may be sampled as part of 
this proposed validation process.
    The CDAC contractor will, each quarter that applies to the 
validation, ask each of the 800 selected hospitals to submit 12 
randomly selected medical charts from which data was abstracted and 
submitted by the hospital to the QIO Clinical Warehouse. We note that, 
under our current requirements, hospitals must begin submitting RHQDAPU 
program data starting with the first day of the quarter following the 
date when the hospital registers to participate in the program. For 
purposes of meeting this requirement, we interpret the registration 
date to be the date that the hospital submits a completed Notice of 
Participation form. As proposed previously in this section, hospitals 
must also register with QualityNet and identify a QualityNet 
Administrator who follows the QualityNet registration process before 
submitting RHQDAPU program data.
    In addition, we will continue the following timeline with respect 
to CDAC contractor requests for paper medical records for the purpose 
of validating RHQDAPU program data. Beginning with CDAC contractor 
requests for second calendar quarter 2009 paper medical records, the 
CDAC contractor will request paper copies of the randomly selected 
medical charts from each hospital via certified mail (or other 
trackable method that requires a hospital representative to sign for 
the letter), and the hospital will have 45 days from the date of the 
request (as documented on the request letter) to submit the requested 
records to the CDAC contractor. If the hospital does not comply within 
30 days, the CDAC contractor will send a second certified letter to the 
hospital, reminding the hospital that it must return paper copies of 
the requested medical records within 45 calendar days following the 
date of the initial CDAC contractor medical record request. If the 
hospital still does not comply, then the CDAC contractor will assign a 
``zero'' score to each measure in each missing record. The letter from 
the CDAC contractor is addressed to the hospital's medical record staff 
identified by the hospital to their state Quality Improvement 
Organization (QIO). CMS recommends that hospitals routinely check with 
their State QIO to ensure the correct person is listed to receive the 
record request. If CMS has evidence from the CDAC contractor that the 
hospital received both letters requesting medical records (as 
determined by the tracking system used by the CDAC contractor), the 
hospital is responsible for not returning their charts and will not be 
able to submit charts as part of their reconsideration request.
    Under the validation methodology, once the CDAC contractor receives 
the charts, it will re-abstract the same data submitted by the 
hospitals and calculate the percentage of matching RHQDAPU program 
measure numerators and denominators for each measure within each chart 
submitted by the hospital. Specifically, we will estimate the accuracy 
by calculating a match rate percent agreement for all of the variables 
submitted in all of the charts. For any selected record, a measure's 
numerator and denominator can have two possible states, included or 
excluded, depending on whether the hospital accurately included the 
cases in the measure numerator(s) and denominator(s). We will count 
each measure in a selected record as a match if the hospital-submitted 
measure numerator and denominator sets match the measure numerator and 
denominator states independently abstracted by our contractor. For 
example, one heart failure case from which data has been abstracted for 
four RHQDAPU program chart-abstracted measures (that is, HF-1, HF-2, 
HF-3, and HF-4) would receive a 75-percent match if three out of four 
of the hospital-reported heart failure measure numerator and 
denominator states matched the re-abstracted numerator and denominator 
states. This proposed scoring approach is the same as recommended in 
the CMS Hospital Value-Based Purchasing Report to Congress, and is 
illustrated in further detail using an example in pages 83-84 of the 
report which can be found on our Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/downloads/HospitalVBPPlanRTCFINALSUBMITTED2007.pdf. 
We believe that this approach is appropriate, and it was supported by 
many commenters when we requested comment in the FY 2009 and FY 2010 
IPPS final rules for input about the RHQDAPU program validation process 
(73 FR 48622 and 48623, 74 FR 43886 and 43887).
    Under the validation methodology, we will:
     Use, as we currently do, each selected case as a cluster 
comprising one or multiple measures utilized in a validation score 
estimate. Each selected case will have multiple measures included in 
the validation score (for example, for the FY 2011 payment

[[Page 23993]]

determination, a heart failure record will include 4 heart failure 
measures). Specifically, we will continue using the design-specific 
estimate of the variance for the confidence interval calculation, 
which, in this case, is a stratified single stage cluster sample, with 
unequal cluster sizes. (For reference, see Cochran, William G.: 
Sampling Techniques, John Wiley & Sons, New York, chapter 3, section 
3.12 (1977); and Kish, Leslie: Survey Sampling, John Wiley & Sons, New 
York, chapter 3, section 3.3 (1964).) Each quarter and clinical topic 
is treated as a stratum for variance estimation purposes.
    We believe that the clustering approach is a statistically 
appropriate technique for calculating the annual validation confidence 
interval. Because we will not be validating all hospital records, we 
need to calculate a confidence interval that incorporates a potential 
sampling error. Our clustering approach incorporates the degree of 
correlation at the individual data record level, because our previous 
validation experience indicates that hospital data mismatch errors tend 
to be clustered in individual data records. We have used this 
clustering since the inception of the RHQDAPU program validation 
requirement to calculate variability estimates needed for calculating 
confidence intervals (70 FR 47423).
     Use the upper bound of a one-tailed 95 percent confidence 
interval to estimate the validation score; and
     Require all RHQDAPU program participating hospitals 
selected for validation to attain at least a 75 percent validation 
score per quarter to pass the validation requirement.
    We believe that this modified validation methodology incorporates 
many of the principles supported by the vast majority of commenters in 
response to our solicitation for public comments in the FY 2009 and FY 
2010 IPPS proposed rule (73 FR 23658 through 23659, 74 FR 43886 and 
43887). Specifically, we believe that the increased annual sample size 
per hospital will provide more reliable estimates of validation 
accuracy. The sample size of 12 records per quarter would provide a 
total of 36 records across the three sampled quarters for the FY 2012 
payment determination, and 48 records in subsequent years. This 
estimate would improve the reliability of our validation estimate, as 
compared to the current RHQDAPU program annual validation sample of 20 
cases per year. We also believe that modifying the validation score to 
reflect measure numerator and denominator accuracy will ensure that 
accurate data are posted on the Hospital Compare Web site.
    In addition, we believe that stratified quarterly samples by topic 
will improve the feedback provided to hospitals. CMS will provide 
validation feedback to hospitals about all sampled topics submitted by 
the hospitals each quarter. Because all relevant data elements 
submitted by the hospital must match the independently re-abstracted 
data elements to count as a match, we reduced the passing threshold 
from 80 percent to 75 percent. We will use a one-tail confidence 
interval to calculate the validation score because we strongly believe 
that a one-tail test most appropriately reflects the pass or fail 
dichotomous nature of the statistical test regarding whether the 
confidence interval includes or is completely above the 75 percent 
passing validation score.
    We also will continue to allow hospitals that fail to meet the 
passing threshold for the quarterly validation an opportunity to appeal 
the validation results to their State QIO. QIOs are currently tasked by 
CMS to provide education and technical assistance about RHQDAPU program 
data abstraction and measures to hospitals, and the quarterly 
validation appeals process will provide hospitals with an opportunity 
to both appeal their quarterly results and receive education free of 
charge from their State QIO. This State QIO quarterly validation 
appeals process is independent of the proposed RHQDAPU program 
reconsideration procedures for hospital reconsideration requests 
involving validation for the FY 2010 payment update proposed in this 
proposed rule.
b. Proposed Supplements to the Chart Validation Process for the FY 2013 
Payment Determination and Subsequent Years
    For FY 2013 and future years, we are also proposing to adopt the 
same validation requirements that we adopted for the FY 2012 payment 
determination, except as set forth below.
    For FY 2013 and future years, we are proposing to modify our FY 
2012 criteria by adding a targeting criterion, refining our random 
sample approach, and changing our data discharge quarters validated as 
part of our proposed synchronization of RHQDAPU timelines. 
Specifically, we are proposing the following changes for FY 2013:
    We are proposing to validate the data submitted by a hospital if 
the hospital failed the previous year's RHQDAPU program validation. We 
are proposing this targeting criterion to improve data accuracy for all 
hospitals failing our validation requirement in a previous year. We 
believe that this proposal is an appropriate method to ensure data 
accuracy, since it targets our resources on the hospitals with the 
least accurate data based on FY 2012 validation results. We also 
believe that these hospitals must correct the data inaccuracies 
identified in RHQDAPU validation for their internal quality improvement 
and RHQDAPU measures publicly reported on Hospital Compare. Our 
proposal allows CMS to assess the accuracy of these hospitals' data and 
provide feedback to hospitals until they comply with our RHQDAPU 
validation requirement.
    Specifically, we are proposing that all hospitals selected for 
validation for the FY 2012 payment determination and that fail the 
validation will be selected for validation for the FY 2013 payment 
determination. Based on data analysis of past validation results, we 
estimate that targeting these hospitals would add about 20 to 40 
hospitals to our list of validated hospitals to be selected in the FY 
2013 validation sample.
    For FY 2013, we also are proposing the following changes to the FY 
2012 RHQDAPU validation random sample approach:
    Starting in FY 2013, we are proposing to discontinue the 100 case 
minimum threshold for selection in the RHQDAPU 800 hospital random 
sample. We believe that discontinuing this requirement would improve 
the robustness of the RHQDAPU program validation sample by including 
the smallest hospitals participating in the RHQDAPU program in the 
sample. All hospitals successfully submitting at least one RHQDAPU case 
for the third calendar quarter of the year two years prior to the year 
to which the validation applies would be eligible to be selected for 
validation. For example, for the FY 2013 payment determination, we 
would select the sample in early 2011, and all hospitals that submitted 
at least one RHQDAPU case for third quarter 2010 discharges would be 
eligible to be selected. Starting in FY 2013, we are proposing this 
change to the RHQDAPU random validation sample, rather than including 
these hospitals in a targeted sample, to ensure that all RHQDAPU 
participating hospitals are equally likely to be selected in the random 
validation sample.
    For the FY 2013 payment determination, we are proposing to modify 
the quarterly stratified sample selection by reallocating sample cases 
when a hospital has submitted fewer than three cases in a topic within 
a quarter. In these rare cases, we are proposing to randomly reallocate 
the extra sample cases to other topics with more than 3 submitted 
quarterly cases.

[[Page 23994]]

This proposed modification is designed to ensure that CMS selects 12 
cases for all hospitals in a quarter, including those hospitals 
specializing in only one topic. For example, an orthopedic specialty 
surgery hospital submitting only SCIP measure cases in a given quarter 
would have only SCIP measure cases randomly selected in the validation 
sample for that quarter. This would provide a more reliable estimate of 
abstraction and measure accuracy by maintaining the same 12 case total 
quarterly validation sample.
    For the FY 2013 payment determination, we also are proposing to 
validate data from the 4th calendar quarter of 2010 through the 3rd 
calendar quarter of 2011 in accordance with our proposed 
synchronization of RHQDAPU data as outlined in section V.A.5.a.(2) of 
this proposed rule. This lag between the time a hospital submits data 
and the time we can validate that data is necessary because data is not 
due to the QIO Clinical Warehouse until 4\1/2\ months after the end of 
each quarter, and we need additional time to select hospitals and 
complete the validation process.
    We are also considering additional changes to our validation 
approach for future years. Beginning with the FY 2014 payment 
determination, we are considering adding two strata to the current 
RHQDAPU program validation sample of SCIP, AMI, HF, and PN cases. We 
are considering selecting 2 additional validation samples of 3 cases 
per selected hospital per quarter. One additional quarterly sample 
would enable us to validate the Central Line Associated Bloodstream 
Infection (CLABSI) and Surgical Site Infection (SSI) measures that we 
are proposing to add to the RHQDAPU measure set for the FY 2013 payment 
determination, and the second additional quarterly sample would enable 
us to validate the ED-Throughput and the Immunization for Influenza and 
Immunization for Pneumonia global measures that we are proposing to add 
to the RHQDAPU measure set for the FY 2014 payment determination. Thus, 
we would be validating a total of 18 records per quarter per validated 
hospital in six strata (1) SCIP, (2) AMI, (3) HF, (4) PN, (5) CLABSI/
SSI, and (6) ED-Throughput/Immunization measures. We are also 
considering requiring hospitals to sign a written form explicitly 
granting CMS access to their patient level data submitted for the 
proposed Central Line Associated Blood Stream Infection measure and the 
Surgical Site Infection measure. We believe that the CLABSI/SSI stratum 
is necessary to validate the data in the reports that we will access 
from NHSN for the RHQDAPU program. We invite comment on our validation 
proposals and considerations.
    We note that we are considering proposing, beginning with the FY 
2015 payment determination, to add hospitals to our validation sample 
if they were open under their current CCNs in FY 2012 but not selected 
for validation in the three previous annual RHQDAPU validation samples. 
We are considering this addition to supplement our validation approach 
to ensure that all eligible RHQDAPU program hospitals are selected for 
validation at least once every 4 years. We are considering this 
addition beginning with the FY 2015 payment determination because FY 
2015 would be the fourth year that we will be using the random 
validation approach.
8. Data Accuracy and Completeness Acknowledgement Requirements for the 
FY 2011 Payment Determination and Subsequent Years
    For the FY 2011 payment determination and subsequent years, in the 
FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24180), we proposed 
to require hospitals to electronically acknowledge on an annual basis 
the completeness and accuracy of the data submitted for the RHQDAPU 
program payment determination. Hospitals will be able to submit this 
acknowledgement on the same Web page that they use to submit data 
necessary to calculate the structural measures, and we believe that 
this Web page will provide a secure vehicle for hospitals to directly 
acknowledge that their information is complete and accurate to the best 
of their knowledge. A single annual electronic acknowledgement will 
provide us with explicit documentation acknowledging that the 
hospital's data is accurate and complete, but will not unduly burden 
hospitals. We noted that commenters generally supported the idea of 
electronic attestation in the FY 2009 IPPS final rule (73 FR 48625) at 
the point of data submission to the QIO Clinical Warehouse.
    In addition, the Government Accountability Office (GAO) recommended 
in a 2006 report (GAO-06-54) that hospitals self-report that their data 
are complete and accurate. Therefore, in the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule (74 FR 43890) for the FY 2010 payment determination, we 
required hospitals to electronically acknowledge their data accuracy 
and completeness once between July 1, 2009, and August 15, 2009. 
Hospitals will acknowledge that all information that is, or will be, 
submitted as required by the RHQDAPU program for the FY 2010 payment 
determination is complete and accurate to the best of their knowledge.
    We are proposing to require hospitals to electronically acknowledge 
their data accuracy and completeness once between July 1, 2010 and 
August 15, 2010 for data to be used for the FY 2012 RHQDAPU program 
payment determination.
9. Proposed Public Display Requirements for the FY 2012 Payment 
Determination and Subsequent Years
    Section 1886(b)(3)(B)(viii)(VII) of the Act provides that the 
Secretary shall establish procedures for making data submitted under 
the RHQDAPU program available to the public. As we noted in section 
V.A.1.c.(3) of this proposed rule, the RHQDAPU program quality measures 
are typically reported on the Hospital Compare Web site (http://www.hospitalcompare.hhs.gov), but on occasion are reported on other CMS 
Web sites. We require that hospitals sign a Notice of Participation 
form when they first register to participate in the RHQDAPU program. 
Once a hospital has submitted a form, the hospital is considered to be 
an active RHQDAPU program participant until such time as the hospital 
submits a withdrawal form to CMS (72 FR 47360). Hospitals signing this 
form agree that they will allow CMS to publicly report the quality 
measures included in the RHQDAPU program.
    We will continue to display quality information for public viewing 
as required by section 1886(b)(3)(B)(viii)(VII) of the Act. Before we 
display this information, hospitals will be permitted to review their 
information as recorded in the QIO Clinical Warehouse.
10. Proposed Reconsideration and Appeal Procedures for the FY 2011 
Payment Determination
    The general deadline for submitting a request for reconsideration 
in connection with the FY 2011 payment determination is November 1, 
2010. As discussed more fully below, we are proposing that all 
hospitals submit a request for reconsideration and receive a decision 
on that request before they can file an appeal with the Provider 
Reimbursement Review Board (PRRB).
    For the FY 2011 payment determination, we are proposing to continue 
utilizing most of the same procedures that we utilized for the FY 2010 
requests for reconsideration. Under these proposed procedures, the 
hospital must--

[[Page 23995]]

    Submit to CMS, via QualityNet, a Reconsideration Request form 
(available on the QualityNet Web site) containing the following 
information:

--Hospital CMS Certification number (CCN).
--Hospital Name.
--CMS-identified reason for failure (as provided in the CMS 
notification of failure letter to the hospital).
--Hospital basis for requesting reconsideration. This must identify the 
hospital's specific reason(s) for believing it met the RHQDAPU program 
requirements and should receive the full FY 2011 IPPS annual payment 
update.
--CEO contact information, including name, e-mail address, telephone 
number, and mailing address (must include the physical address, not 
just the post office box). We no longer require that the hospital's CEO 
sign the RHQDAPU program reconsideration request. We have found that 
this requirement increases the burden for hospitals because it prevents 
them from electronically submitting the RHQDAPU program reconsideration 
request forms. In addition, to the extent that a hospital can submit a 
request for reconsideration on-line, the burden on our staff is reduced 
and, as a result, we can more quickly review the request.
--QualityNet System Administrator contact information, including name, 
e-mail address, telephone number, and mailing address (must include the 
physical address, not just the post office box).
--Paper medical record requirement for reconsideration requests 
involving validation. We are proposing that if a hospital asks us to 
reconsider an adverse RHQDAPU program payment decision made because the 
hospital failed the validation requirement, the hospital must submit 
paper copies of all the medical records that it submitted to the CDAC 
contractor each quarter for purposes of the validation. Hospitals must 
submit this documentation to a CMS contractor. The contractor will be a 
QIO support contractor, which has authority to review patient level 
information under 42 CFR part 480. We will post the address where 
hospitals can ship the paper charts on the QualityNet Web site after we 
issue the FY 2011 IPPS/LTCH PPS final rule. Hospitals submitting a 
RHQDAPU program validation reconsideration request will have all 
mismatched data reviewed by CMS, and not their State QIO. (As discussed 
in section V.A.6.b. of this proposed rule, the State QIO is available 
to conduct a quarterly validation appeal if so requested by a 
hospital.)

    For the FY 2011 payment determination, the RHQDAPU program data 
that will be validated is 4th calendar quarter 2008 through 3rd quarter 
calendar year 2009 discharge data. Hospitals must provide a written 
justification for each appealed data element classified during the 
validation process as a mismatch. We will review the data elements that 
were labeled as mismatched, as well as the written justifications 
provided by the hospitals, and make a decision on the reconsideration 
request. As we mentioned above, we are proposing that all hospitals 
submit a reconsideration request to CMS and receive a decision on that 
request prior to submitting a PRRB appeal. We believe that the 
reconsideration process is less costly for both CMS and hospitals, and 
that this requirement will decrease the number of PRRB appeals by 
resolving issues earlier in the appeals process.
    Following receipt of a request for reconsideration, we will--
     Provide an e-mail acknowledgement, using the contact 
information provided in the reconsideration request, to the CEO and the 
QualityNet Administrator that the request has been received.
     Provide written notification to the hospital CEO, using 
the contact information provided in the reconsideration request, 
regarding our decision. We expect the process to take approximately 90 
days from the reconsideration request due date of November 1, 2010.
    As we stated in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43892), the scope of our review when a hospital requests 
reconsideration because it failed our validation requirements will be 
as follows:
    1. Hospital requests reconsideration for CDAC contractor-abstracted 
data elements classified as mismatches affecting validation scores. 
Hospitals must timely submit a copy of the entire requested medical 
record to the CDAC contractor during the quarterly validation process 
for the requested case to be eligible to be reconsidered on the basis 
of mismatched data elements.
    2. Hospital requests reconsideration for medical record copies 
submitted during the quarterly validation process and classified as 
invalid record selections. Invalid record selections are defined as 
medical records submitted by hospitals during the quarterly validation 
process that do not match the patient's episode of care information as 
determined by the CDAC contractor (in other words, the contractor 
determines that the hospital returned a medical record that is 
different from that which was requested). If the CDAC contractor 
determines that the hospital has submitted an invalid record selection 
case, it awards a zero validation score for the case because the 
hospital did not submit the entire copy of the medical record for that 
requested case. During the reconsideration process, our review of 
invalid record selections will initially be limited to determining 
whether the record submitted to the CDAC contractor was actually an 
entire copy of the requested medical record. If we determine during 
reconsideration that the hospital did submit the entire copy of the 
requested medical record, then we would abstract data elements from the 
medical record submitted by the hospital.
    3. Hospital requests reconsideration for medical records not 
submitted to the CDAC contractor within the 45 calendar day deadline. 
Our review will initially be limited to determining whether the CDAC 
contractor received the requested record within 45 calendar days, and 
whether the hospital received the initial medical record request and 
reminder notice. If we determine during reconsideration that the CDAC 
contractor did receive a paper copy of the requested medical record 
within 45 calendar days, then we would abstract data elements from the 
medical record submitted by the hospital. If we determine that the 
hospital received two letters requesting medical records and still did 
not submit the requested records within the 45 day period, CMS will not 
accept these records as part of the reconsideration. CMS will not 
abstract data from charts not received timely by the CDAC contractor.
    In sum, we are initially limiting the scope of our reconsideration 
reviews involving validation to information already submitted by the 
hospital during the quarterly validation process, and we will not 
abstract medical records that were not submitted to the CDAC contractor 
during the quarterly validation process. We will expand the scope of 
our review only if we find during the initial review that the hospital 
correctly and timely submitted the requested medical records. In that 
case, then we would abstract data elements from the medical record 
submitted by the hospital as part of our review of its reconsideration 
request.
    If a hospital is dissatisfied with the result of a RHQDAPU program 
reconsideration decision, the hospital may file a claim under 42 CFR 
part 405,

[[Page 23996]]

Subpart R (a PRRB appeal). We are again soliciting public comments on 
the extent to which these proposed procedures will be less costly for 
hospitals, and whether they will lead to fewer PRRB appeals.
11. Proposed RHQDAPU Program Withdrawal Deadlines
    We are proposing to accept RHQDAPU program withdrawal forms for the 
FY 2012 payment determination from hospitals until August 15, 2011. We 
are proposing this deadline so that we would have sufficient time to 
update the FY 2012 payment to hospitals starting on October 1, 2011. If 
a hospital withdraws from the program for the FY 2012 payment 
determination, it will receive a 2.0 percentage point reduction in its 
FY 2012 annual payment update. We noted that once a hospital has 
submitted a Notice of Participation form, it is considered to be an 
active RHQDAPU program participant until such time as the hospital 
submits a withdrawal form to CMS.
12. Electronic Health Records (EHRs)
a. Background
    Starting with the FY 2006 IPPS final rule, we have encouraged 
hospitals to take steps toward the adoption of EHRs (also referred to 
in previous rulemaking documents as electronic medical records) that 
will allow for reporting of clinical quality data from the EHRs 
directly to a CMS data repository (70 FR 47420 through 47421). We 
encouraged hospitals that are implementing, upgrading, or developing 
EHR systems to ensure that the technology obtained, upgraded, or 
developed conforms to standards adopted by HHS. We suggested that 
hospitals also take due care and diligence to ensure that the EHR 
systems accurately capture quality data and that, ideally, such systems 
provide point-of-care decision support that promotes optimal levels of 
clinical performance.
    We also continue to work with standard setting organizations and 
other entities to explore processes through which EHRs could speed the 
collection of data and minimize the resources necessary for quality 
reporting as we have done in the past.
    We note that we have initiated work directed toward enabling EHR 
submission of quality measures through EHR standards development and 
adoption. We have sponsored the creation of electronic specifications 
for quality measures that are currently proposed for the RHQDAPU 
program and measures under future consideration. We look to continue 
this activity in the future.
b. EHR Testing of Quality Measures Submission
    As we have previously stated, we are interested in the reporting of 
quality measures using EHRs, and we continue to encourage hospitals to 
adopt and use EHRs that conform to the certification criteria as will 
be defined by the Office of the National Coordinator for Health 
Information Technology, HHS at 45 CFR part 170. We believe that the 
testing of EHR submission is an important and necessary step to 
establish the ability of EHRs to report clinical quality measures and 
the capacity of CMS to receive such data.
    The electronic specifications and interoperability standards for 
EHR-based collection and transmission of the data elements for the ED 
Throughput, Stroke, and Venous Thromboembolism (VTE) measures have been 
finalized by the Health Information Technology Standards Panel (HITSP) 
and are available for review and testing at http//www.HITSP.org. We 
anticipate testing the components required for the submission of 
clinical quality data extracted from EHRs for these measures, and are 
exploring different mechanisms and formats that will aid the submission 
process, as well as ensure that the summary measure results extracted 
from the EHRs are reliable.
    We anticipate moving forward with testing CMS' technical ability to 
accept data from EHRs for the ED, Stroke, and VTE measures as early as 
summer of 2011. We anticipate building upon the work completed by the 
HITSP in both the Connectathon and Health Information Management 
Systems Society (HIMSS) Interoperability Showcase. This testing will 
encompass an ``end to end'' view of data transmission. Pursuant to the 
Paperwork Reduction Act, we have previously published a Federal 
Register notice and information collection request for CMS-10296 (74 FR 
44366) seeking public comments on the process we intended to follow to 
select EHR vendors/hospitals for testing CMS ability to accept EHR-
based data submissions. We will notify interested parties of changes in 
the process and timeline for testing via the Inpatient EHR testing Web 
site at: http://www.cms.hhs.gov/HospitalQualityInits/15_HospitalInpatientEHRTesting.asp.
    The test measures described above are not currently required under 
the RHQDAPU program. In addition, the posting of the electronic 
specifications for any particular measure should not be interpreted as 
a signal that we intend to select the measure for inclusion in the 
RHQDAPU program measure set.
c. HITECH Act EHR Provisions
    The HITECH Act (Title IV of Division B of the ARRA, together with 
Title XIII of Division A of the ARRA) authorizes payment incentives 
under Medicare for the adoption and use of certified EHR technology 
beginning in FY 2011. Hospitals are eligible for these payment 
incentives if they meet requirements for meaningful use of certified 
EHR technology, which include reporting on quality measures using 
certified EHR technology. With respect to the selection of quality 
measures for this purpose, under section 1886(n)(3)(A)(ii) of the Act, 
as added by section 4102 of the HITECH Act, the Secretary shall select 
measures, including clinical quality measures, that hospitals must 
provide to CMS in order to be eligible for the EHR incentive payments. 
With respect to the clinical quality measures, section 1886(n)(3)(B)(i) 
of the Act requires the Secretary to give preference to those clinical 
quality measures that have been selected for the RHQDAPU program under 
section 1886(b)(3)(B)(viii) of the Act or that have been endorsed by 
the entity with a contract with the Secretary under section 1890(a) of 
the Act. Any measures must be proposed for public comment prior to 
their selection, except in the case of measures previously selected for 
the RHQDAPU program under section 1886(b)(3)(B)(viii) of the Act.
    Thus, the RHQDAPU program and the HITECH Act have important areas 
of overlap and synergy with respect to the reporting of quality 
measures using EHRs. We believe the financial incentives under the 
HITECH Act for the adoption and meaningful use of certified EHR 
technology by hospitals will encourage the adoption and use of 
certified EHRs for the reporting of clinical quality measures under the 
RHQDAPU program. Further, these efforts to test the submission of 
quality data through EHRs may provide a foundation for establishing the 
capacity of hospitals to send, and for CMS to receive, quality measures 
via hospital EHRs for future RHQDAPU program measures.
    We again note that the provisions in this proposed rule do not 
implicate or implement any HITECH statutory provisions. Those 
provisions are the subject of separate rulemaking and public comment.

[[Page 23997]]

13. Qualification of Registries for RHQDAPU Data Submission
    In section V.A.3.c.(3) of this proposed rule, we proposed that 
hospitals would select at least one of four registry-based measure 
topics for which they will report data on proposed measures to a 
qualified registry beginning with January 1, 2011 discharges, and allow 
the registry to calculate and report measure data for the specified 
measures to CMS (via QualityNet) for RHQDAPU program purposes. The 
process and requirements that we are proposing to use to determine 
whether a registry is qualified to collect and submit quality measure 
data are described below. We will post on the RHQDAPU program section 
of the QualityNet Web site http://www.qualitynet.org no later than 
December 31, 2010 a list of qualified registries for the FY 2013 
RHQDAPU payment determination, including the registry name, contact 
information, and the measure(s) for which the registry is qualified and 
will report for the FY 2013 RHQDAPU payment determination. We have 
proposed measures for inclusion in each of the four registry-based 
topics, and a registry seeking to be qualified for a particular topic 
would have to agree to collect and report the measures included in the 
topic. The proposed measures support CMS and HHS priorities for 
improved quality and efficiency of care for Medicare beneficiaries 
(such as, prevention; chronic conditions; high cost and high volume 
conditions; elimination of health disparities; healthcare-associated 
infections and other conditions; and effective management of acute and 
chronic episodes of care). We note, however, that none of the 
registries that we qualify for this purpose will be acting as a CMS 
contractor or agent. In other words, hospitals will still be 
responsible for making sure that the data it submits to the qualified 
registry is successfully processed and transmitted by the registry to 
CMS.
    We are proposing to implement a self-nomination process for 
registries seeking to submit FY 2013 RHQDAPU program quality measures 
(including measure calculations, numerators, denominators, and 
exclusions) on behalf of hospitals beginning with January 1, 2011 
discharges. A registry would be able to self-nominate if it meets the 
following requirements:
     The registry has been collecting data elements needed to 
calculate the particular measures that are being proposed for inclusion 
in the registry-based topic for which the registry is seeking 
qualification for at least 3 years prior to January 1, 2010.
     As of January 1, 2010, the registry has been collecting 
such data from at least 750 hospitals.
     The registry must have the capability to collect from 
hospitals all of the data elements which are included in the measure 
specifications and calculate the results for the specified measures. 
The measures are NQF-endorsed and will be listed in the Specifications 
Manual.
     The registry must agree to report the hospital level 
measure data to CMS (via QualityNet). During the registry qualification 
process, CMS will inform the registries of the specified reporting 
format which will include:
    [cir] The volume of eligible cases (reporting denominator);
    [cir] The volume of numerator events for the quality measure 
(reporting numerator);
    [cir] The number of cases excluded from the measure;
    [cir] The measure results
     The registry must agree to transmit quality measure data 
in a CMS-approved format. We expect that this CMS-specified record 
layout will be made available in late 2010;
     The registry must be able to perform data quality 
validation checks on the data received from hospitals to determine if 
the data submitted by the hospitals are accurate and agree to submit an 
acceptable ``validation strategy'' to CMS by December 15, 2011. A 
validation strategy ascertains whether hospitals have submitted data 
accurately to the registry. An acceptable validation strategy may 
include such provisions as the registry being able to verify the 
accuracy of hospital data through random sampling or through the 
hospital's adherence to a required sampling method;
     The registry must agree to enter into and maintain with 
its participating hospitals an appropriate Business Associate agreement 
that complies with HIPAA.
     The registry must obtain and keep on file signed 
documentation showing that each of its participating hospitals has 
authorized the registry to calculate and submit the quality measure 
hospital-level data specified by CMS to CMS. This documentation must be 
obtained at the time the hospital arranges to submit RHQDAPU program 
quality measure data to the registry;
     The registry must agree to provide CMS with access (if 
requested) to review the data that the hospital submitted to it for 
purposes of the RHQDAPU program;
     The registry must agree to indicate to CMS upon request 
whether a particular hospital has satisfied the registry's 
participation requirements;
     The registry must agree to provide CMS with a signed, 
written attestation statement via mail or e-mail which states that the 
quality measure data that the registry has submitted to CMS on behalf 
of its participating hospitals is accurate and complete.
     The registry must agree to provide at least 1 feedback 
report per year to participating hospitals;
     The registry must agree to provide on-going technical 
assistance to its participating hospitals with respect to the 
hospitals' submission of RHQDAPU data; and
     The registry must agree to participate in periodic RHQDAPU 
program support calls hosted by CMS.
    To apply to be a qualified registry for any of the four proposed 
registry-based topics, a registry must submit a self-nomination letter 
by October 15, 2010 to RHQDAPU_Registries@cms.hhs.gov containing the 
registry name, point of contact, the proposed registry-based measure 
topic for which qualification is being sought, and detailed information 
regarding how the registry satisfies the criteria listed above.

B. Payment for Transfers of Cases From Medicare Participating Acute 
Care Hospitals to Nonparticipating Hospitals and CAHs (Sec.  412.4)

1. Background
    Existing regulations at Sec.  412.4(a) provide that an inpatient is 
considered discharged from a hospital paid under the IPPS when the 
patient is either formally released from the hospital or dies in the 
hospital. Under certain circumstances, a discharge is considered a 
transfer for purposes of payment under the IPPS. Section 412.4(b) 
defines acute care transfers, and Sec.  412.4(c) identifies those 
discharges considered a postacute care transfer. In accordance with 
Sec.  412.4(f), when a patient is transferred and his or her length of 
stay is less than the geometric mean length of stay for the MS-DRG to 
which the case is assigned, the transferring hospital is generally paid 
based on a graduated per diem rate for each day of the stay, not to 
exceed the full MS-DRG payment that would have been made if the patient 
had been discharged without being transferred. In the case of acute 
care transfers, the receiving hospital that ultimately discharges the 
transferred patient receives the full MS-DRG payment, regardless of 
whether the length of the patient's inpatient stay exceeds the 
geometric mean length of stay for the applicable MS-DRG.

[[Page 23998]]

    The per diem rate paid to a transferring hospital is calculated by 
dividing the full MS-DRG payment by the geometric mean length of stay 
for the MS-DRG. Based on an analysis that showed that the first day of 
hospitalization is the most expensive (60 FR 5804), our policy 
generally provides for payment that is double the per diem amount for 
the first day, with each subsequent day paid at the per diem amount up 
to the full DRG payment (Sec.  412.4(f)(1)). Transfer cases also are 
eligible for outlier payments. In general, the outlier threshold for 
transfer cases, as described in Sec.  412.80(b) of the regulations, is 
equal to the fixed-loss outlier threshold for nontransfer cases 
(adjusted for geographic variations in costs), divided by the geometric 
mean length of stay for the MS-DRG, and multiplied by the length of 
stay for the case plus one day.
    The transfer policy adjusts the payments of the transferring 
hospital to approximate the reduced costs of transfer cases. Medicare 
adopted its IPPS transfer policy because, if Medicare were to pay the 
full MS-DRG payment regardless of whether a patient is transferred or 
discharged, there would be a strong incentive for hospitals to transfer 
patients to another IPPS hospital early in their stay in order to 
minimize costs while still receiving the full MS-DRG payment.
b. Proposed Policy Change
    The regulations at Sec.  412.4(b) state that a discharge of a 
hospital inpatient is considered to be an acute care transfer when the 
patient is readmitted on the same day to another hospital that is paid 
under the IPPS, or to a hospital that is excluded from the IPPS because 
of participation in a statewide cost control program, unless the 
readmission is unrelated to the initial discharge. These regulations 
were developed under the authority granted in section 1886(d)(5)(I)(ii) 
of the Act. Because a discharge is only considered an acute care 
transfer if the receiving hospital either is paid under IPPS or 
participates in a statewide cost control program, the current acute 
care transfer policy only applies to transfers between acute care 
hospitals that participate in the Medicare program (``participating 
acute care hospitals''); it does not currently apply to acute care 
hospitals that would otherwise be eligible to be paid under the IPPS, 
but do not have an agreement to participate in the Medicare program 
(``nonparticipating acute care hospitals''). The acute care transfer 
policy also does not currently apply to IPPS acute care hospital 
transfers to CAHs.
    The intent of the acute care transfer policy is to make payment to 
the transferring hospital commensurate with the resources it expends in 
treating Medicare beneficiaries. As stated above, a participating acute 
care hospital that admits a beneficiary from a transferring hospital 
receives a full MS-DRG payment, as long as the receiving hospital does 
not subsequently transfer the beneficiary prior to the geometric mean 
length of stay for that MS-DRG. The transferring hospital receives a 
reduced per diem payment amount. If the acute care transfer policy did 
not exist, Medicare would make separate full MS-DRG payments to each of 
the hospitals involved with the treatment of the beneficiary, even 
though the hospitals shared in one episode of care for the same 
beneficiary and neither provided the full spectrum of care for that 
beneficiary for that episode of care. Such a policy would 
inappropriately pay a ``double'' Medicare payment and would be 
inconsistent with the intent of the acute care transfer policy.
    Although a nonparticipating acute care hospital is generally 
ineligible to receive payments under Medicare, such a hospital may 
still treat Medicare patients. In addition, acute care hospitals that 
do participate in the Medicare program are not precluded from 
transferring a Medicare patient to a nonparticipating acute care 
hospital. We note that a hospital that transfers a patient early in the 
patient's stay (that is, prior to the geometric mean length of stay of 
the patient's MS-DRG) incurs reduced costs for that case, regardless of 
whether the patient is transferred to a Medicare participating acute 
care hospital or a nonparticipating acute care hospital. A hospital 
that sends such a transfer to a CAH incurs similarly reduced costs, 
despite the fact that transfers to CAHs are not currently included 
under the Medicare acute care transfer policy.
    These policy changes are also being proposed in order to avoid 
creating a financial incentive for an IPPS hospital to transfer cases 
to one type of provider versus another. A transfer decision should be 
made based on the clinical merits of the beneficiary's situation and 
the transferring hospital's capabilities. More pointedly, we want to 
avoid providing a Medicare participating acute care hospital with an 
incentive to transfer cases to a nonparticipating acute care hospital 
or a CAH. Without a policy change, these incentives still exists as 
payment issues relating to the IPPS transfer policy. With respect to 
nonparticipating acute care hospitals, it is frequently explained that 
the Medicare conditions of participation provide a certain minimum 
standard of care that beneficiaries can expect, and that Medicare does 
not make payments to nonparticipating acute care hospitals because 
these hospitals do not commit to adhering to these conditions of 
participation. As such, the lack of a policy with regard to transfers 
to nonparticipating acute care hospitals results in an inappropriate 
payment incentive.
    Accordingly, in order to further align the IPPS regulations 
relating to transfer of cases under Sec.  412.4(b) with its original 
intent (that is, that a hospital's payment should be commensurate with 
the resources it expends for the case), in this proposed rule, we are 
proposing to add a new paragraph (b)(3) to Sec.  412.4 to specify that 
an acute care hospital ``transfer case'' includes a transfer to an 
acute care hospital that would otherwise be eligible to be paid under 
the IPPS, but does not have an agreement to participate in the Medicare 
program, and a new paragraph (b)(4) to state that an acute care 
hospital ``transfer'' also includes a transfer to a CAH.
    Hospitals must use patient discharge status code ``66'' 
(Discharged/Transferred to a Critical Access Hospital) on IPPS claims 
to identify transfers to CAHs. For transfers to nonparticipating acute 
care hospitals, hospitals must continue to use patient status code 
``02'' (Discharged/Transferred to a Short-Term General Hospital for 
Inpatient Care) on IPPS claims. We note that the National Uniform 
Billing Committee (NUBC) periodically updates or changes patient status 
codes; therefore, hospitals should check NUBC guidance periodically to 
determine whether there have been any changes to these codes.

C. Technical Change to Regulations

    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43939 
through 43940), in response to public comments we received on the FY 
2010 proposed rule relating to the effects on CAH status arising from 
the redesignation by OMB of three Micropolitan Statistical Areas as 
MSAs, we amended our regulations at Sec.  485.610 by adding a paragraph 
(b)(4) to provide for a transition period for the CAHs that are located 
in counties that are reclassified from rural to urban to obtain a rural 
redesignation. However, when we added the new paragraph (b)(4) to Sec.  
485.610, we inadvertently failed to make a conforming change to the 
introductory text of paragraph (b) to include a reference to paragraph 
(b)(4) as one of the requirements that the CAH must meet in order to 
satisfy the conditions of participation for CAHs.

[[Page 23999]]

We are proposing to make this confirming change.

D. Medicare-Dependent, Small Rural Hospitals (MDHs): Change to Criteria 
(Sec.  412.108)

1. Background
    Under the IPPS, separate special payment protections are provided 
to a Medicare-dependent, small rural hospital (MDH). Section 
1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is 
located in a rural area, has not more than 100 beds, is not an SCH, and 
has a high percentage of Medicare discharges (that is, not less than 60 
percent of its inpatient days or discharges either in its 1987 cost 
reporting year or in two of its most recent three settled Medicare cost 
reporting years). The regulations that set forth the criteria that a 
hospital must meet to be classified as an MDH are at 42 CFR 412.108.
    Although MDHs are paid under an adjusted payment methodology, they 
are still IPPS hospitals paid under section 1886(d) of the Act. Like 
all IPPS hospitals paid under section 1886(d) of the Act, MDHs are paid 
for their discharges based on the DRG weights calculated under section 
1886(d)(4) of the Act.
    Through and including FY 2006, under section 1886(d)(5)(G) of the 
Act, MDHs are paid based on the Federal rate or, if higher, the Federal 
rate plus 50 percent of the amount by which the Federal rate is 
exceeded by the updated hospital-specific rate based on the hospital's 
FY 1982 or FY 1987 costs per discharge, whichever of these hospital-
specific rates is higher. Section 5003(b) of Public Law 109-171 (DRA 
2005) amended section 1886(d)(5)(G) of the Act to provide that, for 
discharges occurring on or after October 1, 2006, MDHs are paid based 
on the Federal rate or, if higher, the Federal rate plus 75 percent of 
the amount by which the Federal rate is exceeded by the updated 
hospital-specific rate based on FY 1982, FY 1987, or FY 2002 costs per 
discharge, whichever of these hospital-specific rates is highest.
    For each cost reporting period, the fiscal intermediary or MAC 
determines which of the payment options will yield the highest 
aggregate payment. Interim payments are automatically made at the 
highest rate using the best data available at the time the fiscal 
intermediary or MAC makes the determination. However, it may not be 
possible for the fiscal intermediary or MAC to determine in advance 
precisely which of the rates will yield the highest aggregate payment 
by year's end. In many instances, it is not possible to forecast the 
outlier payments, the amount of the DSH adjustment or the IME 
adjustment, all of which are applicable only to payments based on the 
Federal rate and not to payments based on the hospital-specific rate. 
The fiscal intermediary or MAC makes a final adjustment at the 
settlement of the cost report after it determines precisely which of 
the payment rates would yield the highest aggregate payment to the 
hospital.
    If a hospital disagrees with the fiscal intermediary's or the MAC's 
determination regarding the final amount of program payment to which it 
is entitled, it has the right to appeal the determination in accordance 
with the procedures set forth in 42 CFR Part 405, Subpart R, which 
govern provider payment determinations and appeals.
2. Medicare-Dependency: Counting Medicare Inpatients
    Currently, in order for an IPPS hospital to qualify as an MDH, at 
least 60 percent of its inpatient days or discharges must be 
attributable to individuals receiving Medicare Part A benefits (Sec.  
412.108(a)(1)(iii) of the regulations).
    The MDH policy, as explained in the FY 1991 final rule (55 FR 35994 
through 35998), does not include in the count of Medicare inpatients 
those Medicare beneficiaries who have exhausted their Medicare Part A 
inpatient benefits. Currently, for purposes of determining DSH payment 
adjustments under the IPPS, section 1886(d)(5)(F)(vi)(I) of the Act and 
our policy include, in the Medicare inpatient count, individuals 
entitled to Medicare Part A benefits, regardless of whether or not they 
have exhausted Medicare Part A coverage. This policy is discussed in 
the FY 2005 IPPS final rule (69 FR 49090 through 49099). In addition, 
section 1886(d)(5)(G)(iv)(IV) of the Act specifies that a hospital is 
Medicare-dependent if ``not less than 60 percent of its inpatient days 
or discharges during the cost reporting period beginning in fiscal year 
1987, or two of the three most recently audited cost reporting periods 
for which the Secretary has a settled cost report, were attributable to 
inpatients entitled to benefits under part A.'' The use of the word 
``entitled'' in the statute would encompass individuals who are 
entitled to Medicare Part A even though they have exhausted their Part 
A hospital days. Individuals who have exhausted their Part A inpatient 
benefit coverage remain ``entitled'' to Medicare Part A because they 
retain the Medicare Part A insurance benefit coverage (for example, 
covered SNF days), and they continue to meet all statutory criteria for 
entitlement to Part A benefits under section 226 of the Act 
(Entitlement to Hospital Insurance Benefits).
    Accordingly, we are proposing to revise the Medicare-dependency 
criterion at Sec.  412.108(a)(1)(iii) of the regulations to replace the 
term ``receiving'' with the phrase ``entitled to''. As a result, we 
would include in the count of Medicare inpatient days or discharges all 
days or discharges attributable to individuals entitled to the Medicare 
Part A insurance benefit, including individuals who have exhausted 
their Medicare Part A inpatient hospital coverage benefit, as well as 
individuals enrolled in Medicare Advantage plans and section 1876 cost 
contracts, that is, health maintenance organizations (HMOs) and 
competitive medical plans (CMPs). We note that, for inpatient care 
provided to Medicare Part A beneficiaries enrolled with an HMO or a 
CMP, we provided that the days and discharges for those stays are 
counted for purposes of determining Medicare-dependency for MDH 
purposes (55 FR 35995). This was the case when HMOs and CMPs were 
included under Medicare Part A, and continues to be the case since 1997 
when HMOs and CMPs were placed under Medicare Part C.

E. Rural Referral Centers (RRCs) (Sec.  412.96)

    Under the authority of section 1886(d)(5)(C)(i) of the Act, the 
regulations at Sec.  412.96 set forth the criteria that a hospital must 
meet in order to qualify under the IPPS as an RRC. For discharges that 
occurred before October 1, 1994, RRCs received the benefit of payment 
based on the other urban standardized amount rather than the rural 
standardized amount (as discussed in the FY 1993 IPPS final rule (59 FR 
45404 through 45409)). Although the other urban and rural standardized 
amounts are the same for discharges occurring on or after October 1, 
1994, RRCs continue to receive special treatment under both the DSH 
payment adjustment and the criteria for geographic reclassification.
    Section 402 of Public Law 108-173 raised the DSH adjustment for 
RRCs such that they are not subject to the 12-percent cap on DSH 
payments that is applicable to other rural hospitals. RRCs are also not 
subject to the proximity criteria when applying for geographic 
reclassification. In addition, they do not have to meet the requirement 
that a hospital's average hourly wage must exceed, by a certain 
percentage, the average hourly wage of the labor market area where the 
hospital is located.

[[Page 24000]]

    Section 4202(b) of Public Law 105-33 states, in part, ``[a]ny 
hospital classified as an RRC by the Secretary * * * for fiscal year 
1991 shall be classified as such an RRC for fiscal year 1998 and each 
subsequent year.'' In the August 29, 1997 IPPS final rule with comment 
period (62 FR 45999), CMS reinstated RRC status for all hospitals that 
lost the status due to triennial review or MGCRB reclassification. 
However, CMS did not reinstate the status of hospitals that lost RRC 
status because they were now urban for all purposes because of the OMB 
designation of their geographic area as urban. Subsequently, in the 
August 1, 2000 IPPS final rule (65 FR 47089), we indicated that we were 
revisiting that decision. Specifically, we stated that we would permit 
hospitals that previously qualified as an RRC and lost their status due 
to OMB redesignation of the county in which they are located from rural 
to urban, to be reinstated as an RRC. Otherwise, a hospital seeking RRC 
status must satisfy all of the other applicable criteria. We use the 
definitions of ``urban'' and ``rural'' specified in Subpart D of 42 CFR 
Part 412. One of the criteria under which a hospital may qualify as an 
RRC is to have 275 or more beds available for use (Sec.  
412.96(b)(1)(ii)). A rural hospital that does not meet the bed size 
requirement can qualify as an RRC if the hospital meets two mandatory 
prerequisites (a minimum CMI and a minimum number of discharges), and 
at least one of three optional criteria (relating to specialty 
composition of medical staff, source of inpatients, or referral 
volume). (We refer readers to Sec.  412.96(c)(1) through (c)(5) and the 
September 30, 1988 Federal Register (53 FR 38513).) With respect to the 
two mandatory prerequisites, a hospital may be classified as an RRC 
if--
     The hospital's CMI is at least equal to the lower of the 
median CMI for urban hospitals in its census region, excluding 
hospitals with approved teaching programs, or the median CMI for all 
urban hospitals nationally; and
     The hospital's number of discharges is at least 5,000 per 
year, or, if fewer, the median number of discharges for urban hospitals 
in the census region in which the hospital is located. (The number of 
discharges criterion for an osteopathic hospital is at least 3,000 
discharges per year, as specified in section 1886(d)(5)(C)(i) of the 
Act.)
1. Case-Mix Index (CMI)
    Section 412.96(c)(1) provides that CMS establish updated national 
and regional CMI values in each year's annual notice of prospective 
payment rates for purposes of determining RRC status. The methodology 
we used to determine the national and regional CMI values is set forth 
in the regulations at Sec.  412.96(c)(1)(ii). The proposed national 
median CMI value for FY 2011 includes data from all urban hospitals 
nationwide, and the proposed regional values for FY 2011 are the median 
CMI values of urban hospitals within each census region, excluding 
those hospitals with approved teaching programs (that is, those 
hospitals that train residents in an approved GME program as provided 
in Sec.  413.75). These proposed values are based on discharges 
occurring during FY 2009 (October 1, 2008 through September 30, 2009), 
and include bills posted to CMS' records through December 2009.
    We are proposing that, in addition to meeting other criteria, if 
rural hospitals with fewer than 275 beds are to qualify for initial RRC 
status for cost reporting periods beginning on or after October 1, 
2010, they must have a CMI value for FY 2009 that is at least--
     1.5127; or
     The median CMI value (not transfer-adjusted) for urban 
hospitals (excluding hospitals with approved teaching programs as 
identified in Sec.  413.75) calculated by CMS for the census region in 
which the hospital is located.
    The proposed median CMI values by region are set forth in the 
following table:
[GRAPHIC] [TIFF OMITTED] TP04MY10.045

    The preceding numbers will be revised in the FY 2011 IPPS final 
rule to the extent required to reflect the updated FY 2009 MedPAR file, 
which will contain data from additional bills received through March 
2010.
    A hospital seeking to qualify as an RRC should obtain its hospital-
specific CMI value (not transfer-adjusted) from its fiscal intermediary 
or MAC. Data are available on the Provider Statistical and 
Reimbursement (PS&R) System. In keeping with our policy on discharges, 
the CMI values are computed based on all Medicare patient discharges 
subject to the IPPS MS-DRG-based payment.
2. Discharges
    Section 412.96(c)(2)(i) provides that CMS set forth the national 
and regional

[[Page 24001]]

numbers of discharges in each year's annual notice of prospective 
payment rates for purposes of determining RRC status. As specified in 
section 1886(d)(5)(C)(ii) of the Act, the national standard is set at 
5,000 discharges. We are proposing to update the regional standards 
based on discharges for urban hospitals' cost reporting periods that 
began during FY 2008 (that is, October 1, 2007 through September 30, 
2008), which are the latest cost report data available at the time this 
proposed rule was developed.
    Therefore, we are proposing that, in addition to meeting other 
criteria, a hospital, if it is to qualify for initial RRC status for 
cost reporting periods beginning on or after October 1, 2010, must 
have, as the number of discharges for its cost reporting period that 
began during FY 2008, at least--
     5,000 (3,000 for an osteopathic hospital); or
     The median number of discharges for urban hospitals in the 
census region in which the hospital is located, as indicated in the 
following table.
[GRAPHIC] [TIFF OMITTED] TP04MY10.046

    These numbers will be revised in the FY 2011 IPPS final rule based 
on the latest available cost report data.
    We note that the median number of discharges for hospitals in each 
census region is greater than the national standard of 5,000 
discharges. Therefore, 5,000 discharges is the minimum criterion for 
all hospitals.
    We reiterate that, if an osteopathic hospital is to qualify for RRC 
status for cost reporting periods beginning on or after October 1, 
2010, the hospital would be required to have at least 3,000 discharges 
for its cost reporting period that began during FY 2008.

F. Indirect Medical Education (IME) Adjustment (Sec.  412.105)

1. Background
    Section 1886(d)(5)(B) of the Act provides for an additional payment 
amount under the IPPS for hospitals that have residents in an approved 
graduate medical education (GME) program in order to reflect the higher 
indirect patient care costs of teaching hospitals relative to 
nonteaching hospitals. The regulations regarding the calculation of 
this additional payment, known as the indirect medical education (IME) 
adjustment, are located at Sec.  412.105.
    Public Law 105-33 (BBA 1987) established a limit on the number of 
allopathic and osteopathic residents that a hospital may include in its 
full-time equivalent (FTE) resident count for direct GME and IME 
payment purposes. Under section 1886(h)(4)(F) of the Act, for cost 
reporting periods beginning on or after October 1, 1997, a hospital's 
unweighted FTE count of residents for purposes of direct GME may not 
exceed the hospital's unweighted FTE count for its most recent cost 
reporting period ending on or before December 31, 1996. Under section 
1886(d)(5)(B)(v) of the Act, a similar limit on the FTE resident count 
for IME purposes is effective for discharges occurring on or after 
October 1, 1997.
2. IME Adjustment Factor for FY 2011
    The IME adjustment to the MS-DRG payment is based in part on the 
applicable IME adjustment factor. The IME adjustment factor is 
calculated by using a hospital's ratio of residents to beds, which is 
represented as r, and a formula multiplier, which is represented as c, 
in the following equation: c x [{1 + r{time}  .405 -1]. The 
formula is traditionally described in terms of a certain percentage 
increase in payment for every 10-percent increase in the resident-to-
bed ratio.
    Section 502(a) of Public Law 108-173 modified the formula 
multiplier (c) to be used in the calculation of the IME adjustment. 
Prior to the enactment of Public Law 108-173, the formula multiplier 
was fixed at 1.35 for discharges occurring during FY 2003 and 
thereafter. In the FY 2005 IPPS final rule, we announced the schedule 
of formula multipliers to be used in the calculation of the IME 
adjustment and incorporated the schedule in our regulations at Sec.  
412.105(d)(3)(viii) through (d)(3)(xii). Section 502(a) modified the 
formula multiplier beginning midway through FY 2004 and provided for a 
new schedule of formula multipliers for FY 2005 and thereafter as 
follows:
     For discharges occurring on or after April 1, 2004, and 
before October 1, 2004, the formula multiplier is 1.47.
     For discharges occurring during FY 2005, the formula 
multiplier is 1.42.
     For discharges occurring during FY 2006, the formula 
multiplier is 1.37.
     For discharges occurring during FY 2007, the formula 
multiplier is 1.32.
     For discharges occurring during FY 2008 and fiscal years 
thereafter, the formula multiplier is 1.35.
    Accordingly, for discharges occurring during FY 2011, the formula 
multiplier is 1.35. We estimate that application of

[[Page 24002]]

this formula multiplier for the FY 2011 IME adjustment will result in 
an increase in IPPS payment of 5.5 percent for every approximately 10-
percent increase in the hospital's resident-to-bed ratio.
3. IME-Related Changes in Other Sections of This Proposed Rule
    We refer readers to section IV.H.2. and IV.H.3. of the preamble of 
this proposed rule for a discussion of proposed changes to the policies 
for identifying ``approved medical residency programs'' and the 
electronic submission of Medicare GME affiliation agreements.

G. Payment Adjustment for Medicare Disproportionate Share Hospitals 
(DSHs): Supplemental Security Income (SSI) Fraction (Sec.  412.106)

1. Background
    Section 1886(d)(5)(F) of the Act provides for additional Medicare 
payments to subsection (d) hospitals that serve a significantly 
disproportionate number of low-income patients. The Act specifies two 
methods by which a hospital may qualify for the Medicare 
disproportionate share hospital (DSH) adjustment. Under the first 
method, hospitals that are located in an urban area and have 100 or 
more beds may receive a Medicare DSH payment adjustment if the hospital 
can demonstrate that, during its cost reporting period, more than 30 
percent of its net inpatient care revenues are derived from State and 
local government payments for care furnished to needy patients with low 
incomes. This method is commonly referred to as the ``Pickle method.''
    The second method for qualifying for the DSH payment adjustment, 
which is the most common, is based on a complex statutory formula under 
which the DSH payment adjustment is based on the hospital's geographic 
designation, the number of beds in the hospital, and the level of the 
hospital's disproportionate patient percentage (DPP). A hospital's DPP 
is the sum of two fractions: The ``Supplemental Security Income (SSI) 
fraction'' and the ``Medicaid fraction.'' The SSI fraction (also known 
as the ``SSI ratio'' or the ``Medicare fraction'') is computed by 
dividing the number of the hospital's inpatient days that are furnished 
to patients who were entitled to both Medicare Part A (including 
patients who are enrolled in a Medicare Advantage (Part C) plan) and 
SSI benefits by the hospital's total number of patient days furnished 
to patients entitled to benefits under Medicare Part A (including 
patients who are enrolled in a Medicare Advantage (Part C) plan). The 
Medicaid fraction is computed by dividing the hospital's number of 
inpatient days furnished to patients who, for such days, were eligible 
for Medicaid, but were not entitled to benefits under Medicare Part A, 
by the hospital's total number of inpatient days in the same period.
    Because the DSH payment adjustment is part of the IPPS, the DSH 
statutory references (under section 1886(d)(5)(F) of the Act) to 
``days'' apply only to hospital acute care inpatient days. Regulations 
located at 42 CFR 412.106 govern the Medicare DSH payment adjustment 
and specify how the DPP is calculated as well as how beds and patient 
days are counted in determining the DSH payment adjustment. Under Sec.  
412.106(a)(1)(i), the number of beds for the Medicare DSH payment 
adjustment is determined in accordance with bed counting rules for the 
IME adjustment under Sec.  412.105(b).
2. CMS' Current Data Matching Process for the SSI Fraction
    From the inception of the Medicare DSH adjustment in 1986, CMS 
(formerly HCFA) has calculated the SSI fraction for each acute care 
hospital paid under the IPPS. This fraction, in combination with the 
Medicaid fraction, is used to determine whether the provider qualifies 
for a DSH payment adjustment and the amount of any such payment (51 FR 
16772, 16777, May 6, 1986 interim final rule). In determining the 
number of inpatient days for individuals entitled to both Medicare Part 
A and SSI, as required for calculation of the numerator of the SSI 
fraction, CMS matches the Medicare records and SSI eligibility records 
for each hospital's patients during the Federal fiscal year, unless the 
provider requests calculation of the SSI fraction on a cost reporting 
period basis (in which case the provider would receive its SSI fraction 
based on its own cost reporting period). The data underlying the match 
process are drawn from: (a) The Medicare Provider Analysis and Review 
(MedPAR) data file; and (b) SSI eligibility data provided by the Social 
Security Administration (SSA). CMS has matched Medicare and SSI 
eligibility records using Title II numbers (included in the SSI 
records) and Health Insurance Claims Account Numbers (HICANs) 
(contained in the MedPAR file). Below we provide a more detailed 
description of both a Title II number and a HICAN.
    Title II Number: If a person qualifies for retirement or disability 
benefits under Title II of the Act (42 U.S.C. 401 et seq.), SSA assigns 
a ``Title II number'' to the individual. If the Title II beneficiary's 
own earnings history (or the individual's disability) were the basis 
for such benefits, the person's Social Security number (SSN) would 
constitute the ``root'' of the individual's Title II number. However, 
if the person's Title II benefits were based on the earnings history of 
another individual (for example, a spouse), that other person's SSN 
would provide the root for the beneficiary's Title II number. In 
addition to a root SSN, each Title II number ends with a Beneficiary 
Identification Code (BIC) that identifies the basis for an individual's 
entitlement to benefits. For example, a person who becomes eligible for 
benefits under his or her own account would be described by his or her 
SSN followed by the BIC ``A'' whereas a wife who becomes eligible for 
benefits under her husband's account would be described by his SSN 
followed by the BIC ``B.'' Children who become eligible under a 
parent's account would be described by the parent's SSN followed by the 
BIC ``C1,'' ``C2,'' etc.
    HICAN: When a person becomes entitled to Medicare benefits, he or 
she is assigned a HICAN for purposes of processing claims submitted on 
his or her behalf for Medicare services. A beneficiary's HICAN (which 
may not necessarily contain his or her SSN) is included on the Medicare 
inpatient hospital claim.
    Each HICAN for a beneficiary should be identical, at the same point 
in time, to that individual's Title II number. This is because HICANs 
and Title II numbers are both assigned on the basis of the same data 
source, the SSA-maintained Master Beneficiary Record, and by using the 
same rules (that is, the rules for determining which person's SSN will 
serve as the root for an individual's HICAN and Title II number and for 
determining the BIC for both types of numbers).
    We note that a person's Title II number and HICAN can change over 
time. For example, if the individual's entitlement to Title II and 
Medicare benefits was originally based on the earnings history of a 
first spouse, but the beneficiary later qualified for such benefits on 
the basis of a second spouse's earnings history, the beneficiary's 
HICAN and Title II number would change accordingly. Specifically, the 
first spouse's SSN would be the root of the beneficiary's original 
HICAN and Title II number; later, the second spouse's SSN would become 
the root of the beneficiary's second HICAN and Title II number.
    The SSI eligibility data that CMS receives from SSA contain monthly

[[Page 24003]]

indicators to denote which month(s) each person was eligible for SSI 
benefits during a specific time period. The current matching process 
uses only one Title II number (which is included in the SSI file) and 
one HICAN (found in the MedPAR file) for each beneficiary. In the 
current matching process, CMS has used the HICAN because it is the 
patient identifier that is provided by hospitals on the Medicare claim. 
Because SSNs are not included on Medicare inpatient claims, CMS has not 
used SSNs in the match process.
    For a given fiscal year, CMS determines the numerator of the 
hospital's SSI fraction (that is, the number of the hospital's 
inpatient days for all of its patients who were simultaneously entitled 
to Medicare Part A benefits and SSI benefits) by calculating the sum of 
the number of the hospital's inpatient days that are associated with 
all of the identical Title II numbers and HICANs for the hospital's 
claims that are found through the data matching process. In turn, CMS 
determines the denominator of the hospital's SSI fraction by 
calculating the sum of the number of the hospital's inpatient days for 
patients entitled to benefits under Medicare Part A (regardless of SSI 
eligibility) that are included in the hospital's inpatient claims for 
the period.
3. Baystate Medical Center v. Leavitt Court Decision
    In Baystate Medical Center v. Leavitt, 545 F. Supp. 2d 20, as 
amended, 587 F. Supp. 2d 37, 44 (D.D.C. 2008), the district court 
concluded that, in certain respects, CMS' current matching process (as 
described above) did not use the ``best available data'' to match 
Medicare patient day information with SSI eligibility data when 
calculating the plaintiff's SSI fractions for FYs 1993 through 1996. 
Specifically, the court found that:
     Stale SSI Records and Forced Pay SSI Records. For the 
earliest years in question in Baystate, the SSI eligibility data did 
not include ``stale'' records--that is, records for individuals whose 
SSI records were no longer active from SSA's perspective. (We note that 
it is our understanding that, as of the year 2000, SSA no longer 
differentiates between inactive and active records and therefore, no 
longer uses the ``stale record'' indicator in its databases.) The court 
also found that the SSI data file only included SSI eligibility 
information for SSI payments that were automated (as opposed to 
manual), thereby excluding those people who, for whatever reason, 
received manual or ``forced pay'' payments. Baystate, 545 F. Supp. 2d 
at 44-46.
     Match Based on Only One Title II Number and One HICAN. The 
court found fault with CMS' use of only a single Title II number and 
one HICAN in the match process. As a beneficiary may receive SSI and 
Medicare Part A benefits under more than one Title II number and HICAN 
over a period of time, CMS would not have matched a beneficiary's 
records if there had been a change in the person's Title II number and 
HICAN between the time of an inpatient stay and when the match process 
was completed. Baystate, 545 F. Supp. 2d at 46-49.
     Retroactive SSI Eligibility Determinations and Lifting of 
Payment Suspensions. The court found that the match process did not 
appropriately account for retroactive eligibility determinations of SSI 
eligibility and the lifting of payment suspensions because the match 
process used SSI eligibility data that did not include more recent 
retroactive determinations of SSI eligibility and the lifting of SSI 
payment suspensions. By not using more recent SSI eligibility 
information that was available to CMS at the time of the hospital's 
cost report settlement, the court concluded that CMS did not use the 
``best available data'' to calculate the provider's SSI fraction. 
Baystate, 545 F. Supp. 2d at 42-44.
    CMS continues to believe that its current data matching process and 
the resultant SSI fraction and DSH payments were lawful. Nonetheless, 
the agency did not appeal the Baystate decision. Accordingly, CMS 
implemented the court's decision by recalculating the plaintiff's SSI 
fractions for 1993 through 1996. In recalculating the SSI fractions at 
issue in the Baystate case, we worked closely with SSA to ensure that 
stale and forced pay SSI records were included in the SSI eligibility 
data. Also, we used a revised data matching process (described in more 
detail below) that comports with the court's decision. As the revised 
data matching process was completed using SSI eligibility data compiled 
between 13 and 16 years beyond the fiscal years at issue in the 
Baystate case, we believe any issues associated with retroactive 
determinations of SSI eligibility and the lifting of payment 
suspensions had been long since resolved. Furthermore, because we 
believe that the revised match process used to implement the Baystate 
decision addressed all of the concerns found by the court, we are 
proposing to use the same revised data matching process for calculating 
hospitals' SSI fractions for FY 2011 and subsequent fiscal years.
4. CMS' Proposed Process for Matching Medicare and SSI Eligibility Data
a. Inclusion of Stale Records and Forced Pay Records in the SSI 
Eligibility Data Files
    In recalculating the SSI fractions at issue in the Baystate case, 
stale records and forced pay records were included in the SSI 
eligibility data files that CMS used in the revised data match for the 
four fiscal years at issue. All SSI payment records, whether the 
payments were automated or manual or were for an individual whose 
record was active or stale, are now included in the data files provided 
by SSA and will continue to be included in the future.
b. Use of SSNs in the Revised Match Process
    As indicated above, the current matching process only uses one 
Title II number and one HICAN in the data match process. By contrast, 
our revised match process would make use of the Medicare Enrollment 
Database (EDB), which is CMS' system of records for all individuals who 
have ever been enrolled in Medicare. The EDB includes SSNs as well as 
all of an individual's HICANs. In our proposed revised match process, 
the individual's SSN, contained in the SSI eligibility data file, would 
be compared to the SSNs in the Medicare EDB, and each matched SSN would 
then be ``cross-walked'' within the EDB to find any and all HICANs 
associated with the individual's SSN. The resulting HICANs would then 
be matched against those HICANs contained in the MedPAR claims data 
files.
    Before explaining our proposed revised match process in more 
detail, we believe it is appropriate to provide some background 
regarding SSNs and the three databases that would be used in our 
proposed match process. An individual should have only one SSN, which 
should be unique to that individual. The SSN may be assigned by SSA 
when the individual begins gainful employment (if not earlier). 
However, if an applicant for SSI benefits does not already have a SSN, 
SSA then assigns a SSN to the person. Thus, in the SSI eligibility data 
that SSA provides to CMS, each individual identified in those data 
should have a unique SSN.
    The first database that we are proposing to use in our revised 
match process is the SSI eligibility data file, which contains a unique 
SSN for every SSI record and would include as many as 10 different 
historical Title II numbers for the records related to one individual. 
We are proposing to use 10 as the maximum number of Title II numbers 
for a beneficiary because that

[[Page 24004]]

is likewise the maximum number of HICANs that can be attributed to any 
one individual in our EDB. However, we note that as a practical matter, 
the greatest number of historical HICANs associated with any 
beneficiary appears to be 7. The SSI eligibility file serves as the 
system of record for whether or not SSA made a payment of SSI benefits 
to an individual who applied for SSI benefits.
    The second relevant database, the Medicare EDB, contains a SSN for 
virtually every record in the EDB. Furthermore, the EDB has the 
capacity to hold up to 10 historical HICANs for a specific Medicare 
enrollee. (It is important to note that, of the more than 100 million 
records in the EDB, less than 0.07 percent (that is, fewer than 7 of 
every 10,000 records) relate to individuals for whom the EDB does not 
include a SSN for the person. The EDB might not include a SSN for an 
individual if, for example, the person lives in another country but is 
entitled to Medicare benefits through his or her spouse.)
    The third relevant database that we are proposing to use in our 
revised match process is the MedPAR file. Hospitals submit claims to 
Medicare for inpatient services provided to Medicare beneficiaries. 
These claims are eventually accumulated in the MedPAR database. It is 
important to note that the MedPAR database does not contain SSNs. The 
MedPAR database contains one HICAN number for each and every record of 
services provided to a Medicare beneficiary who was admitted to a 
Medicare-certified hospital or skilled nursing facility. This database 
allows us to calculate the number of Medicare inpatient hospital days, 
which we use in determining each hospital's DSH SSI fraction.
    Utilizing the steps set forth below, we are proposing to use these 
three databases in a revised match process for FY 2011 and subsequent 
fiscal years:
    Step 1--Use SSNs to find any and all relevant HICANs. Using the SSI 
eligibility data file provided by SSA, we are proposing to compare the 
individual SSNs in that file to the SSNs contained in the Medicare EDB. 
Each matched SSN would then be ``cross-walked'' (within the EDB) to 
find any and all HICANs associated with the individual's SSN. The 
resulting HICANs would then be matched against those HICANs contained 
in the MedPAR claims data files. This process should identify all 
relevant SSI records in which a SSN is associated with an individual 
who is simultaneously enrolled in Medicare Part A and in the SSI 
program.
    Step 2--Utilize any and all Title II numbers. In order to provide 
further assurance that all of the Title II numbers and HICANs for SSI-
eligible individuals have been identified, next we are proposing to 
compare the complete list of Title II numbers from the SSI data file 
(up to 10 Title II numbers for any one individual) to the list of 
HICANs generated through Step 1 above. If the SSI data file includes 
any Title II numbers that were not already identified in Step 1, the 
Title II number will be included in our revised match process and 
compared to any and all HICANs in MedPAR. We note that by including 
this second step (that is, adding all Title II numbers not previously 
identified by Step 1), we are addressing the very small universe of 
individuals for whom the EDB does not include a SSN. If an individual 
is entitled to SSI benefits and Medicare benefits, the new format of 
the SSI eligibility file will contain up to 10 Title II numbers and, if 
they have not already been captured, each of those numbers will be 
included in our revised match process. Even if an individual does not 
have a SSN in the EDB, this second step should ensure that our revised 
match process will include that individual.
    Step 3--Ensure consistency between the HICANs in the EDB, Title II 
numbers, and the HICANs in the MedPAR file. The EDB stores the 
beneficiary's record at the most specific level of detail. For example, 
if the beneficiary's Medicare eligibility was originally based on a 
spouse's earnings history and the spouse subsequently dies, the 
beneficiary would have two HICANs. Both HICANs, which would have the 
same root, but different BICs, would be stored in the EDB. However, the 
inpatient claim in the MedPAR file will only have the individual's 
HICAN at a more general level of detail; in the preceding example, the 
BIC would identify the beneficiary only as a spouse without specifying 
whether the spouse (that is, the ``primary'' beneficiary) was alive or 
deceased. This third step should ensure consistency between the HICANs 
from Step 1 and the Title II numbers from Step 2 by ``equating'' (or 
converting) the BIC identifiers to the identifiers that are on the 
inpatient claim that is included in the MedPAR file. In addition, we 
are proposing that, for any SSI-eligible beneficiary who is receiving 
Medicare benefits based on his or her own account but whose records 
have not been matched already, we will attempt to match the 
beneficiary's HICAN in the MedPAR file. Specifically, we are proposing 
to simply add an ``A'' to all the SSNs in the SSI eligibility data file 
so that, if that individual was not captured by Steps 1 and 2 above 
(for whatever unlikely reason) but MedPAR indicated that the person had 
received Medicare services, the individual would be included in the 
data match process by this third step.
    Step 4--Calculate the SSI fraction. We are not proposing any 
changes with respect to the final step in determining the SSI fraction. 
To calculate the numerator of the SSI fraction, CMS would continue to 
sum a hospital's Medicare inpatient days in the acute care part of the 
hospital (excluding IPPS-exempt units such as rehabilitation and 
psychiatric units) where the Medicare beneficiary was simultaneously 
entitled to SSI benefits. To calculate the denominator, CMS would 
continue to sum a hospital's total Medicare inpatient days in the acute 
care part of the hospital.
c. Timing of the Match
    One of the district court's findings in the Baystate decision was 
that CMS did not use the latest available SSI eligibility file to 
calculate the provider's SSI fractions. As a result, it might be 
possible that if a beneficiary treated at the hospital was later 
determined retroactively to be SSI eligible or if a suspension of the 
individual's SSI payments was later lifted, that inpatient stay might 
not be included in the numerator of the SSI fraction. We believe that, 
in our recalculation of the Baystate hospital's SSI fractions and DSH 
payments, retroactive SSI eligibility determinations and the lifting of 
SSI payment suspensions were not an issue due to the long period of 
time that elapsed between the provider's 1993 through 1996 fiscal years 
and our use of updated SSI eligibility data during our completion of 
the revised match process in 2009. However, we believe that further 
consideration of the timing of both the SSI eligibility information 
that SSA provides to CMS and our proposed revised match process for FY 
2011 and subsequent fiscal years is warranted.
    At present, SSA provides an annual file to CMS with SSI eligibility 
information that is current through March 31, or 6 months after the end 
of the prior Federal fiscal year on September 30 (70 FR 47278, 47440, 
August 12, 2005). Based on this date, for a hospital with an October 1 
to September 30 cost reporting period, the SSI eligibility information 
we currently use contains 6 to 18 months worth of retroactive SSI 
eligibility determinations and payment suspension closures--6 months 
from September (that is, the end of the cost reporting period) and 18 
months from October (that is, the

[[Page 24005]]

beginning of the cost reporting period). The time lag between the close 
of a hospital's cost reporting period and the date that CMS receives 
SSI eligibility information could actually be longer or shorter for 
some hospitals, depending on the hospital's specific cost reporting 
period. We note that SSI fractions are generally based on the Federal 
fiscal year. However, under the regulations at Sec.  412.106(b)(3), a 
hospital with a cost reporting period that differs from the Federal 
fiscal year may request a revised SSI fraction that is based on its own 
cost reporting period rather than the Federal fiscal year. In such a 
case, we would revise the hospital's SSI fraction using SSI and 
Medicare data derived from the data match process for the two Federal 
fiscal years that spanned the hospital's cost reporting period.
    As we stated in the FY 2006 final IPPS rule, we believe that 
administrative finality with respect to the calculation of a hospital's 
SSI fraction is important (70 FR 47440). We continue to believe that it 
is important to find an appropriate balance between administrative 
finality (that is, the final settlement of a hospital's cost report) 
and the inclusion of retroactive SSI eligibility determinations and the 
lifting of SSI payment suspensions by using the best and latest 
available SSI eligibility data at the time of cost report settlement. 
Further, we believe it is important to account for the time period in 
which hospitals are allowed to submit timely Medicare claims in order 
to ensure that the point in time that we perform the match process 
includes as many timely submitted inpatient hospital claims as are 
administratively practicable.
    In accordance with the regulations at 42 CFR 424.44 and the 
Medicare Claims Processing Manual (Pub. L. 100-04), Chapter 1, Section 
70, a hospital must generally file a claim by December 31 of the 
following year (for services furnished during the first 9 months of a 
calendar year) and by December 31 of the second following year (for 
services provided during the last 3 months of the calendar year). 
Therefore, Medicare claims for hospital services furnished in FY 2011 
would have to be submitted no later than December 31, 2012. We note 
that section 6404 of the Patient Protection and Affordable Care Act 
(Pub. L. 111-148), as amended, recently changed these deadlines to no 
more than ``1 calendar year after the date of service'' effective for 
services provided on or after January 1, 2010.
    Generally speaking, providers have a financial incentive to submit 
fee-for-service claims as close as possible to the date of the 
patient's discharge, and providers have no incentive to wait until 
after the end of the fiscal year. Thus, while conducting a data match 
with MedPAR files that were updated 6 months after the end of the 
Federal fiscal year may not capture all of a provider's Medicare 
inpatient claims, we believe that, in large part, the provider's fee-
for-service claims are included in that MedPAR file. The same may not 
be true for the ``information only'' or ``no pay'' claims that 
hospitals are required to submit to their fee-for-service contractor 
for Medicare Advantage (MA) beneficiaries. Because claims for MA 
beneficiaries are paid by MA plans and not the fee-for-service 
contractor, hospitals may not have the same incentive to file these 
claims as close as possible to the date of the patient's discharge.\14\ 
However, in accordance with Transmittal 1396 (issued December 14, 2007) 
and Transmittal 1695 (issued March 6, 2009), which changed the 
instructions in the Medicare Claims Processing Manual (Pub. L. 100-04), 
all IPPS hospitals that do not qualify for IME payments, direct GME 
payments, or nursing and allied health (N&AH) payments are required to 
submit informational-only claims for all MA inpatients to ensure that 
data for MA beneficiaries is included in the SSI fraction. Accordingly, 
we also are considering changes to the timing of the data match process 
to ensure that all of a hospital's MA claims are included in the 
revised matching process given the lack of incentives that exist to 
submit these claims as soon as possible after the time of the patient's 
discharge.
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    \14\ Teaching hospitals have an incentive to submit these claims 
because they receive an indirect medical education payment. The 
claims are also used for a teaching hospital's direct medical 
education payments. Non-teaching DSH hospitals do not have the same 
direct incentives to submit these claims but to the extent that the 
MA beneficiary is also SSI eligible, it would be to the hospital's 
advantage to ensure these claims are included in the match process. 
However, nonteaching DSH hospitals are required to submit MA claims 
for all MA beneficiaries, regardless of whether the beneficiaries 
were eligible for SSI benefits.
---------------------------------------------------------------------------

    In addition, in matching eligibility records for Medicare 
beneficiaries and SSI recipients to calculate the SSI fractions for FY 
2011 and future fiscal years, we are also proposing to use more recent 
SSI eligibility information from SSA and a more updated version of 
MedPAR that is likely to contain more claims data. We currently use SSI 
eligibility data and MedPAR claims data that are updated 6 months after 
the close of the Federal fiscal year. We are proposing to use, for FY 
2011 and subsequent years, SSI eligibility data files compiled by SSA 
and MedPAR claims information that are updated 15 months after the 
close of each Federal fiscal year. This proposal would more closely 
align the timing of the match process with the timing of our 
requirements (described above) for the timely submission of claims. For 
example, to calculate the FY 2011 SSI fractions, we would use the 
December 2012 update of the FY 2011 MedPAR file (containing claims 
information for patient discharges between October 1, 2010 and 
September 30, 2011), and a December 2012 SSI eligibility file 
(containing FY 2011 SSI eligibility data updated through December 2012, 
with a lag time relative to the Federal fiscal year of between 15 and 
27 months). We expect that the FY 2011 SSI fractions would be published 
around March 2013 and would be used to settle cost reports for cost 
reporting periods that began in FY 2011. In addition, we would continue 
our practice of using each hospital's latest available SSI fraction in 
determining IPPS interim payments from the time that the SSI fractions 
are published until the SSI fractions for the next fiscal year are 
published.
    Under current law as amended by section 6404 of Public Law 111-148, 
Medicare inpatient claims for FY 2011 can be submitted no later than 1 
calendar year from the date of service or by September 30, 2012, for 
claims with a September 30, 2011 date of service. Therefore, we believe 
that using the version of MedPAR that is updated 15 months after the 
end of the fiscal year would contain more accurate and complete 
inpatient claims information, as we would be using claims data from 3 
months after the filing deadline for claims with a date of service 
occurring on the last day of the second preceding fiscal year. 
Furthermore, a later update of the SSI eligibility file would contain 
more accurate eligibility information and would account for all 
retroactive changes in SSI eligibility and the lifting of SSI payment 
suspensions through that date.
    The FY 2011 SSI fractions will be used to determine the hospitals' 
Medicare DSH payments for cost reporting periods beginning in FY 2011 
(that is, October 1, 2010 through September 30, 2011). The proposed 
timing of the data match for the SSI fractions, effective for FY 2011, 
would result in FY 2011 SSI fractions being published around March 2013 
and would generally coincide with the final settlement of cost reports 
for cost reporting periods beginning in FY 2011.
    We believe that, by calculating SSI fractions on the basis of SSI 
eligibility data and MedPAR claims data that are

[[Page 24006]]

updated 15 months after the end of the Federal fiscal year, we would be 
using the best data available to us, given the deadlines for the 
submission and final settlement of Medicare cost reports. Cost reports 
must be submitted to the Medicare fiscal intermediary or MAC no later 
than 5 months after the end of the provider's cost reporting period; 
the fiscal intermediary or MAC must make a determination of cost report 
acceptability within 30 days of receipt of the provider's cost report 
(42 CFR 413.24(f)(2)(i) and 413.24(f)(5)(iii)). In accordance with the 
Medicare Financial Manual (Pub. 100-06), Chapter 8, Section 90, the 
fiscal intermediary or MAC is expected to settle each cost report that 
is not scheduled for audit within 12 months of the contractor's 
acceptance of the cost report. We believe that our proposed timing of 
the data match would achieve an appropriate balance between accounting 
for additional retroactive SSI eligibility determinations and the 
lifting of SSI payment suspensions using all timely submitted Part A 
inpatient claims, and facilitating administrative finality through the 
timely final settlement of Medicare cost reports.

                                       Example of Timeline To Calculate FY 2011 SSI Fractions Under Current Policy
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                     Deadline for
  Cost reports that use the FY     timely filing of    MedPAR file used     SSI eligibility      Cost reports      Cost report final     SSI fraction
         2011 SSI ratios                claims                                 file used       normally accepted      settlement           available
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cost reports beginning October    December 2012       March 2012 update   March 2012 update   Generally between   Generally between   Summer 2012.
 1, 2010 through September 30,                         of FY 2011 MedPAR.  of FY 2011 SSI      March 2012 and      March 2013 and
 2011.                                                                     eligibility.        February 2013.      February 2014.
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                       Example of Timeline To Calculate FY 2011 SSI Fractions Under Proposed Rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                     Deadline for
  Cost reports that use the FY     timely filing of    MedPAR file used     SSI eligibility      Cost reports      Cost report final     SSI fraction
         2011 SSI ratios                claims                                 file used      normally  accepted      settlement           available
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cost reports beginning October    December 2012       December 2012       December 2012       Generally between   Generally between   Spring 2013.
 1, 2010 through September 30,                         update of FY 2011   update of FY 2011   March 2012 and      March 2013 and
 2011.                                                 MedPAR.             SSI eligibility.    February 2013.      February 2014.
--------------------------------------------------------------------------------------------------------------------------------------------------------

5. CMS Ruling
    The CMS Administrator has prepared a CMS Ruling that addresses 
three Medicare DSH issues, including CMS' process for matching Medicare 
and SSI eligibility data and calculating hospitals' SSI fractions. With 
respect to the data matching process issue, the Ruling requires the 
Medicare administrative appeals tribunal (that is, the Administrator of 
CMS, the PRRB, the fiscal intermediary hearing officer, or the CMS 
reviewing official) to remand each qualifying appeal to the appropriate 
Medicare contractor. The Ruling also explains how, on remand, CMS and 
the contractor will recalculate the provider's DSH payment adjustment 
and make any payment deemed owing. The Ruling further provides that CMS 
and the Medicare contractors will apply the provisions of the Ruling, 
on the data matching process issue (and two other DSH issues, as 
applicable), in calculating the DSH payment adjustment for each 
hospital cost reporting period where the contractor has not yet final 
settled the provider's Medicare cost report through the issuance of an 
initial notice of program reimbursement (NPR) (42 CFR 405.1801(a) and 
405.1803).
    More specifically, the Ruling provides that, for qualifying appeals 
of the data matching issue and for cost reports not yet final settled 
by an initial NPR, CMS will apply any new data matching process that is 
adopted in the forthcoming FY 2011 IPPS final rule for each appeal that 
is subject to the Ruling. The data matching process provisions of the 
Ruling would apply to properly pending appeals and open cost reports 
for cost reporting periods beginning prior to October 1, 2010 (that is 
those preceding the effective date of the FY 2011 IPPS final rule).
    The Ruling further states that, if a new data matching process is 
not adopted in the forthcoming FY 2011 IPPS final rule, CMS would apply 
to claims subject to the Ruling the same data matching process as the 
agency used to implement the Baystate decision by recalculating that 
provider's SSI fractions.
6. Clarification of Language on Inclusion of Medicare Advantage Days in 
the SSI Fraction of the Medicare DSH Calculation
    In the FY 2005 IPPS final rule (69 FR 49099), we discussed in the 
preamble our policy change to reflect the inclusion of the days 
associated with Medicare + Choice (now Medicare Advantage (MA)) 
beneficiaries under Medicare Part C in the SSI fraction of the DSH 
calculation. In that rule, we indicated that we were revising the 
regulation text at Sec.  412.106(b)(2)(i) to incorporate this policy. 
However, we inadvertently did not make a change in the regulation text 
to conform to the preamble language. We also inadvertently did not 
propose to change Sec.  412.106(b)(2)(iii) in the FY 2005 final rule, 
although we intended to do so. Accordingly, in the FY 2007 IPPS rule 
(72 FR 47384), we made a technical correction to amend the regulations 
at Sec.  412.106(b)(2)(i) and to Sec.  412.106(b)(2)(iii) to make them 
consistent with the preamble language of the FY 2005 IPPS final rule 
and to conform to the policy implemented in that rule. Section 
412.106(b)(2)(i) of the regulations discusses the numerator of the SSI 
fraction of the Medicare disproportionate patient percentage (DPP) 
calculation, while Sec.  412.106(b)(2)(iii) of the regulations 
discusses the denominator of the SSI fraction of the Medicare DPP.
    We are aware that there might be some confusion about our policy to 
include MA days in the SSI fraction, specifically regarding whether we 
have

[[Page 24007]]

implied that MA beneficiaries are not actually ``entitled to receive 
benefits under Part A'' by using the word ``or'' in Sec.  
412.106(b)(2)(i)(B) and Sec.  412.106 (b)(2)(iii)(B) with respect to MA 
days. We note that in the FY 2005 final rule, we stated that we 
believed that Medicare + Choice (now MA) beneficiaries are patients who 
are entitled to benefits under Medicare Part A. With respect to the 
change to the regulatory text that we intended to make in the FY 2005 
IPPS final rule, we stated ``* * * we are adopting a policy to include 
patient days for M+C beneficiaries in the Medicare fraction'' (69 FR 
49099) (emphasis added). In order to further clarify our policy that 
patients days associated with MA beneficiaries are to be included in 
the SSI fraction because they are still entitled to benefits under 
Medicare Part A, we are proposing to replace the word ``or'' with the 
word ``including'' in Sec.  412.106(b)(2)(i)(B) and Sec.  412.106 
(b)(2)(iii)(B).

H. Payments for Direct Graduate Medical Education (GME) (Sec.  413.75)

1. Background
    Under section 1886(a)(4) of the Act, costs of approved educational 
activities are excluded from the operating costs of hospital inpatient 
services. Section 1886(h) of the Act, as implemented in regulations at 
Sec.  413.75 through Sec.  413.83, establishes a methodology for 
determining payments to hospitals for the direct costs of approved GME 
programs. Section 1886(h)(2) of the Act sets forth a methodology for 
the determination of a hospital-specific, base-period per resident 
amount (PRA) that is calculated by dividing a hospital's allowable 
direct costs of GME for a base period by its number of residents in the 
base period. The base period is, for most hospitals, the hospital's 
cost reporting period beginning in FY 1984 (that is, the period of 
October 1, 1983, through September 30, 1984). Medicare direct GME 
payments are calculated by multiplying the PRA by the weighted number 
of full-time equivalent (FTE) residents working in all areas of the 
hospital complex (and nonhospital sites, when applicable), and the 
hospital's Medicare share of total inpatient days. The base year PRA is 
updated annually for inflation.
    Hospitals may receive direct GME and IME payments for residents in 
``approved medical residency training programs.'' Section 1886(h)(5)(A) 
of the Act defines an ``approved medical residency training program'' 
as ``a residency or other postgraduate medical training program 
participation in which may be counted toward certification in a 
specialty or subspecialty and includes formal postgraduate training 
programs in geriatric medicine approved by the Secretary.'' Section 
1886(h)(4)(F) of the Act established a limit on the number of 
allopathic and osteopathic FTE residents that a hospital may include in 
its FTE resident count for purposes of calculating direct GME payments. 
For most hospitals, the limit, or cap, is the unweighted number of 
allopathic and osteopathic FTE residents training in the hospital's 
most recent cost reporting period ending on or before December 31, 
1996.
2. Identifying ``Approved Medical Residency Programs''
    Despite the fact that current policies regarding the counting of 
FTE residents for IME and direct GME purposes have been in effect since 
October 1985, we continue to receive questions as to whether certain 
residents are training in approved medical residency programs, and 
whether these residents should be included in the Medicare direct GME 
and IME FTE counts. Although the fundamental rules defining an approved 
medical residency training program seem straightforward, some confusion 
apparently exists regarding whether certain trainees in a teaching 
hospital should be included in the FTE count for IME and direct GME 
purposes, or whether certain trainees should be treated as physicians 
and should instead bill for their services under Medicare Part B. These 
questions arise most often with regard to subspecialty training and 
``fellows.'' It is important for hospitals to understand when each of 
these types of payment applies.
a. Residents in Approved Medical Residency Programs
    As stated earlier, section 1886(h)(5)(A) of the Act defines an 
``approved medical residency training program'' as ``a residency or 
other postgraduate medical training program participation in which may 
be counted toward certification in a specialty or subspecialty and 
includes formal postgraduate training programs in geriatric medicine 
approved by the Secretary.'' The regulations at Sec.  413.75(b) define 
an ``approved medical residency program'' as a program that meets one 
of the following criteria (emphasis added):
    (1) Is approved by one of the national organizations listed in 
Sec.  415.152 of the regulations.
    (2) May count towards certification of the participant in a 
specialty or subspecialty listed in the current edition of either of 
the following publications:
    (i) The Directory of Graduate Medical Education Programs published 
by the American Medical Association; or
    (ii) The Annual Report and Reference Handbook published by the 
American Board of Medical Specialties.
    (3) Is approved by the Accreditation Council for Graduate Medical 
Education (ACGME) as a fellowship program in geriatric medicine.
    (4) Is a program that would be accredited except for the 
accrediting agency's reliance upon an accreditation standard that 
requires an entity to perform an induced abortion or require, provide, 
or refer for training in the performance of induced abortions, or make 
arrangements for such training, regardless of whether the standard 
provides exceptions or exemptions.
    The regulations at Sec.  415.152 define an ``approved graduate 
medical education program'' as a residency program approved by one of 
the following national organizations (or their predecessors): The 
Accreditation Council for Graduate Medical Education (ACGME) of the 
American Medical Association, the American Osteopathic Association 
(AOA), the Commission on Dental Accreditation (CODA) of the American 
Dental Association, and the Council on Podiatric Medical Education 
(CPME) of the American Podiatric Medical Association. The statutory 
basis for this regulation is at section 1861(b)(6) of the Act, which 
cites these accrediting bodies for residency programs. Thus, in 
general, under Sec.  413.75(b), an ``approved'' program can be a 
program that is accredited by one of these national organizations, or 
one that leads toward board certification by the American Board of 
Medical Specialties (ABMS). In the September 29, 1989 final rule (54 FR 
40295), we explained that, in order to reconcile the two statutory 
definitions of approved programs at sections 1861(b)(6) and 
1886(h)(5)(A) of the Act, we did not limit our regulatory definition of 
``approved medical residency program'' to one that may count toward 
certification in a specialty, but added that a program is also 
``approved'' for purposes of IME and direct GME if it is approved by 
one of the national accrediting bodies. Furthermore, we understood 
that, especially with respect to subspecialty training, there 
historically were some formal programs for which none of the listed 
national accrediting bodies had established standards. However, the 
ABMS had established a national board examination for some of those 
unaccredited programs and, consequently, those programs do count toward 
certification. Accordingly, such

[[Page 24008]]

programs also meet the definition of an ``approved medical residency 
training program.''
b. Determining Whether an Individual Is a Resident or a Physician
    The statute and the regulations (in at least two places in the 
teaching context) define the term ``resident.'' Section 1861(b)(6) of 
the Act refers to services provided in a hospital by an ``intern or 
resident-in-training under a teaching program approved'' by one of the 
listed accrediting bodies for residency programs. In addition, section 
1886(h)(5)(I) of the Act states that the term ``resident'' includes 
``an intern or other participant in an approved medical residency 
training program.'' The regulations at Sec.  413.75(b) state that the 
term resident means ``an intern, resident, or fellow who participates 
in an approved medical residency program, including programs in 
osteopathy, dentistry, and podiatry, as required in order to become 
certified by the appropriate specialty board.''
    As discussed above, an ``approved'' program is one that is 
accredited by one of the listed national organizations, or one that may 
count towards board certification. Generally, residency programs today, 
whether they are core or subspecialty programs, are both accredited, 
and lead toward board certification through an explicit board 
examination for that field. Thus, in the typical instance, a resident 
is accepted into an accredited program in a particular specialty, 
completes that program over the course of what is typically 3 to 5 
years, and then qualifies to take the board certifying examination in 
the particular specialty of that program. This resident may or may not 
train in an additional accredited subspecialty program, which would 
typically last for 1 to 3 years, and which would also lead to board 
certification through an additional board certifying examination which 
the individual would be qualified to take upon completion.
    We receive questions from time to time regarding whether 
individuals are considered to be trainees in approved programs or 
whether they are considered to be physicians and should bill 
accordingly. These questions frequently involve programs of further 
training that certain senior and junior faculty at hospitals, typically 
at large academic medical centers, undertake on their own, not under 
the auspices of any accrediting body, and in an area of practice for 
which there is no board certification. Therefore, there is no actual 
standardized curriculum or formally organized ``program'' in which the 
individual trainee is participating. Another type of trainee about 
which we have received questions is one that has completed an 
accredited program in a certain specialty, but subsequently 
participates in additional training in that specialty that he or she 
could have participated in while still within the accredited program. 
Sometimes this individual may even train with residents who are 
actually still training in that accredited program (for example, an 
individual who has completed a dermatology residency may choose to do 
additional training with PGY4 dermatology residents). In these 
scenarios, in order to decide whether an individual is considered a 
resident or a physician for purposes of Medicare payment, the pertinent 
questions are whether--
    (1) The individual actually needs the training in order to meet 
board certification requirements in that specialty; and
    (2) Whether the individual is formally participating in an 
organized, standardized, structured course of study.
    With regard to the junior faculty who are ``training'' with senior 
faculty to learn highly specialized skills, we believe that individuals 
participating in a course of training that one or more senior 
physicians creates absent the involvement and approval of an 
accrediting body, and for which there is no specific existing board 
certification examination, should not be considered ``residents'' or 
counted for IME and direct GME purposes. Similarly, individuals that 
already completed an accredited residency program, but subsequently 
participate in additional training in that same specialty that they 
could have participated in while still within that accredited program, 
should also not be considered ``residents'' or be included in the IME 
and direct GME count. This is because these individuals have already 
completed accredited residency programs in a particular specialty or 
subspecialty, and do not need to complete the additional training in 
order to meet board certification requirements in that field in which 
they continue to ``train.'' The definition of ``resident'' at Sec.  
413.75(b) is ``an intern, resident, or fellow who participates in an 
approved medical residency program, including programs in osteopathy, 
dentistry, and podiatry, as required in order to become certified by 
the appropriate specialty board'' (emphasis added). Accordingly, the 
individuals described in the scenarios above do not meet the definition 
of ``resident'' at Sec.  413.75(b) for IME and direct GME purposes. 
Instead, these individuals should be treated and receive payment as 
physicians.
    As we explained in the September 29, 1989 Federal Register rule: 
``The costs relating to patient care services of licensed physicians 
who are classified as ``fellows'' but who are not in an identifiable 
formal program leading to certification as defined in section 
1886(h)(5) of the Act but remain at a teaching hospital/medical school 
complex to enhance their expertise in a field of study are payable on a 
Part B reasonable charge basis [now under the Medicare physician fee 
schedule] as physicians' services'' (54 FR 40295). Similarly, in the 
Provider Reimbursement Manual, Part I, section 2405.3.F.2, we state, 
``Intermediaries must not count an individual in the indirect medical 
education adjustment if * * * [A]n individual designated as a 
``fellow'' has elected to remain at a teaching hospital/university 
complex for additional work to gain expertise in a particular field but 
is no longer in a formally organized program to fulfill certification 
requirements. The services of such an individual are generally covered 
as physicians' services payable on a reasonable charge basis'' 
(emphasis added). (Note: Although we used the term ``fellow,'' which is 
defined synonymously with ``resident'' in the regulations at Sec.  
413.75, in these paragraphs in the September 29, 1989 Federal Register 
and in the PRM-I, by stating that such ``fellows'' are not in 
identifiable, formally organized programs and their services should be 
billed under Part B as physician services, we clearly were indicating 
that these ``fellows'' are licensed physicians, not residents, and 
should not be included in the IME and direct GME FTE counts. Perhaps 
``junior faculty'' would have been a more apt characterization of these 
individuals.)
    The passage from the September 29, 1989 Federal Register also 
mentions an ``identifiable formal program leading to certification as 
defined in section 1886(h)(5) of the Act'' which refers to the 
statutory definition of ``approved medical residency program.'' The 
word ``approved'' connotes formality; a planned, structured course of 
study with a curriculum based on national (rather than individual 
physician or hospital) standards with a standardized outcome based on 
standardized evaluations. Since the early days of Medicare, prior to 
the enactment of section 1886(h) of the Act, when hospitals received 
payment on a reasonable cost basis for ``approved educational 
activities,'' we defined such activities as ``formally organized or 
planned programs of study operated or

[[Page 24009]]

supported by an institution, as distinguished from `on-the-job,' 
`inservice,' or similar work-learning programs'' (emphasis added) (PRM-
I, section 402.1). We believe the education that junior faculty receive 
when working closely with senior faculty to gain highly specialized 
skills is more appropriately characterized as on-the-job, or inservice 
training, rather than training in an ``approved medical residency 
program.''
    In order for the training to be considered an ``approved medical 
residency program,'' the training must prepare the individual for 
certification in the particular specialty or subspecialty in which the 
individual is training. The mere possibility that the training could be 
construed as leading toward or counting toward certification in some 
existing board examination is insufficient. For example, an individual 
who is enrolled and participating in a two year accredited subspecialty 
program in allergy and immunology and, as part of that program, 
completes an elective in allergic reactions to insect stings is 
considered a resident during that elective, and may be included in the 
IME and direct GME FTE count (assuming all other requirements are met). 
However, if, after completion of the 2-year allergy and immunology 
subspecialty program, this individual decides to remain at the teaching 
hospital for a year to shadow a physician who has unique expertise in 
allergic reactions to insect stings, this individual would not be 
considered a resident, nor would this training be considered an 
approved program, because this individual is not formally enrolled in a 
planned, structured, standardized course of study, nor is this year of 
training required for any individual to qualify to take the board 
examination in allergy and immunology. This individual already 
completed the 2-year subspecialty program, and therefore, the extra 
year spent studying allergic reactions to insect stings is extraneous. 
Accordingly, this individual would not be viewed as a resident 
participating in an approved medical residency training program. 
Rather, this individual is considered a physician and should bill 
Medicare for services furnished under the physician fee schedule.
c. Formal Enrollment and Participation in a Program
    We understand that the participation of individuals in an approved 
medical residency program under which they would be considered 
residents as defined at Sec.  413.75 is marked by a formal application, 
acceptance, and enrollment process. We believe that in order for an 
individual to be considered a resident for purposes of inclusion in the 
IME and direct GME counts, whether the individual is a graduate of an 
allopathic medical school, an osteopathic medical school, or a school 
of podiatry or dentistry, the individual must be:
    (1) Formally accepted and enrolled in the training program, and
    (2) Fully participating in that training (unless there is a 
documented arrangement for the resident to work part time).
    In general, we would expect formal acceptance to include an 
application process (for example, the national residency match 
process), and an enrollment process which would include letters or 
other official notifications from the hospital or program sponsor 
regarding the resident's acceptance to train in a particular program. 
We would also expect the resident to have an employment contract with 
the institution(s) sponsoring the program and/or the institution(s) in 
which he or she is training. A hospital must be able to document that 
the individual's participation in the particular course of training 
represents a definitive (not hypothetical) path for that individual's 
certification, and that satisfactory completion of such training would 
fulfill all required elements in order for the individual to qualify to 
take a specific board examination.
    In order to make these rules clearer for the future, we are 
proposing to revise the definition of ``resident'' to specify that the 
trainee must be ``formally accepted and enrolled'' in the approved 
program in order to be considered a resident for IME and direct GME 
purposes. Specifically, we are proposing to revise the definition of 
``resident'' at Sec.  413.75(b) to mean ``an intern, resident, or 
fellow who is formally accepted, enrolled, and participating in an 
approved medical residency program, including programs in osteopathy, 
dentistry, and podiatry, as required in order to become certified by 
the appropriate specialty board.'' We also are proposing to make a 
similar conforming change to the definition of ``primary care 
resident'' at Sec.  413.75(b). This change in the definitions of 
``resident'' and ``primary care resident'' would be effective for IME 
and direct GME for cost reporting periods beginning on or after October 
1, 2010.
    In summary, we are proposing to clarify that individuals 
participating in a specialized course of training created by a senior 
physician, and not under the auspices of a national accrediting body, 
and for which there is no explicit existing board certification 
examination, should not be counted for IME and direct GME purposes. 
Such individuals should be treated as physicians, and their services 
should be billed to Medicare for payment as physicians' services. If an 
individual has already successfully completed at least one residency 
program and has met the requirements to be board eligible in a 
specialty (regardless of whether the individual has passed the board 
examination for that specialty), and is engaged in subsequent training 
that will not provide additional knowledge or skills that could be 
applied for board certification in a subspecialty, the individual 
should be treated and bill for services provided as a physician. We 
also are proposing to revise the definition of ``resident'' at Sec.  
413.75(b) to mean ``an intern, resident, or fellow who is formally 
accepted, enrolled, and participating in an approved medical residency 
program, including programs in osteopathy, dentistry, and podiatry, as 
required in order to become certified by the appropriate specialty 
board.'' We are proposing to make a conforming change to the definition 
of ``primary care resident'' to mean ``a resident who is formally 
accepted, enrolled, and participating in an approved medical residency 
training program in family medicine, general internal medicine, general 
pediatrics, preventive medicine, geriatric medicine or osteopathic 
general practice.'' This change in the definitions of ``resident'' and 
``primary care resident'' would be effective for IME and direct GME for 
cost reporting periods beginning on or after October 1, 2010.
3. Electronic Submission of Affiliation Agreements
    Sections 1886(h)(4)(F) and 1886(d)(5)(B)(v) of the Act establish 
limits on the number of allopathic and osteopathic FTE residents that 
hospitals may count for purposes of calculating direct GME payments and 
the IME adjustment. In addition, under the authority granted by section 
1886(h)(4)(H)(ii) of the Act, the Secretary issued regulations on May 
12, 1998 (63 FR 26358) to allow institutions that are members of the 
same Medicare GME affiliated group to elect to apply their direct GME 
and IME FTE resident caps based on the aggregate cap of all hospitals 
that are part of a Medicare GME affiliation group. Under those 
regulations, specified at Sec.  413.79(f) for direct GME and at Sec.  
412.105(f)(1)(vi) for IME, hospitals that are part of the same Medicare 
GME affiliated group are permitted to adjust each hospital's caps

[[Page 24010]]

to reflect the rotation of residents among affiliated hospitals during 
an academic year. Under Sec.  413.75(b), a Medicare GME affiliated 
group may be formed by two or more hospitals if: (1) The hospitals are 
located in the same urban or rural area or in a contiguous area and 
have a shared rotational arrangement as specified at Sec.  
413.79(f)(2); (2) the hospitals are not located in the same or in a 
contiguous area, but have a shared rotational arrangement and they are 
jointly listed as the sponsor, primary clinical site, or major 
participating institution for one or more programs as these terms are 
used in the most recent publication of the Graduate Medical Education 
Directory, or as the sponsor or is listed under ``affiliations and 
outside rotations'' for one or more programs in Opportunities, 
Directory of Osteopathic Post-Doctoral Education Programs; or (3) 
effective beginning July 1, 2003, two or more hospitals are under 
common ownership and have a shared rotational arrangement under Sec.  
413.79(f)(2).
    The existing regulations at Sec.  413.79(f)(1) specify that each 
hospital in a Medicare GME affiliated group must submit a Medicare GME 
affiliation agreement (as defined under Sec.  413.75(b)) to the CMS 
fiscal intermediary or MAC servicing the hospital and send a copy of 
the agreement to CMS' Central Office no later than July 1 of the 
residency program year during which the Medicare GME affiliation 
agreement will be in effect. For example, in order for a hospital to 
receive a temporary adjustment to its FTE resident caps to reflect 
participation in a Medicare GME affiliated group for the academic year 
beginning July 1, 2009, through June 30, 2010, the hospital in the 
affiliated group had to submit a Medicare GME affiliation agreement to 
the fiscal intermediary or MAC servicing the hospital and send a copy 
of the agreement to CMS' Central Office no later than July 1, 2009.
    Over the last several years, we have received numerous inquiries 
regarding the possibility of submitting the Medicare GME affiliation 
agreement electronically. To date, CMS has only accepted signed hard 
copies of Medicare GME affiliation agreements that are received through 
the mail. Facsimile (FAX) and other electronic submissions of 
affiliation agreements have not been acceptable means of transmission 
of affiliation agreements to CMS Central Office in order for a hospital 
to meet the requirements of Sec. Sec.  413.79(f) and 412.105(f)(1)(vi).
    The increasing frequency of these inquiries and our concerns 
regarding environmental and paperwork reduction have prompted us to 
reconsider our procedure for hospitals to submit Medicare GME 
affiliation agreements to the CMS Central Office. Accordingly, we are 
proposing to change our policy to provide for electronic submission of 
the affiliation agreement that is required to be sent to the CMS 
Central Office. This proposal would not affect the authority of the 
fiscal intermediary or MAC to continue to specify its requirements for 
submission for hospitals in its servicing area.
    We are proposing an electronic submission process that would 
consist of either an e-mail mailbox or a Web site where hospitals would 
submit their Medicare GME affiliation agreements to the CMS Central 
Office. As part of this process, a copy of the Medicare GME affiliation 
agreement would need to be received through the electronic system no 
later than 11:59 p.m. on July 1 of each academic year. We are proposing 
that the electronic affiliation agreement would need to be submitted 
either as a scanned copy or a Printer-Friendly Display (PDF) version of 
that hard copy agreement; we are proposing not to accept an agreement 
in any electronic format that could be subject to manipulation. The 
scanned and/or PDF format will enable CMS to ensure that the agreements 
are signed and dated as required in the regulations at Sec.  413.75.
    We believe that allowing an electronic submission of the 
affiliation agreement to the CMS Central Office would assist us in more 
effectively tracking the groups of hospitals that affiliate as well as 
the numbers of FTE cap slots that are being transferred within those 
groups. In addition, we believe an electronic submission process would 
minimize the paperwork burden for hospitals.

I. Certified Registered Nurse Anesthetist (CRNA) Services Furnished in 
Rural Hospitals and CAHs

    Section 2312 of the Deficit Reduction Act of 1984 (Pub. L. 98-369) 
provided for reimbursement to hospitals on a reasonable cost basis for 
the costs that hospitals incur in connection with the services of 
certified registered nurse anesthetists (CRNAs). Section 2312(c) 
provided that pass-through of CRNA costs was effective for cost 
reporting periods beginning on or after October 1, 1984, and before 
October 1, 1987. Section 9320 of the Omnibus Budget Reconciliation Act 
of 1986 (Pub. L. 99-509) (which established a fee schedule for the 
services of nurse anesthetists) amended section 2312(c) of Public Law 
98-369 by extending the CRNA pass-through provision through cost 
reporting periods beginning before January 1, 1989. In addition, Public 
Law 99-509 amended section 1861 of the Act to add a new subsection 
(bb), which provides that CRNA services include anesthesia services and 
related care furnished by a CRNA. Section 608 of the Family Support Act 
of 1988 (Pub. L. 100-485) extended pass-through payments for CRNA 
services through 1991 and amended section 9320 of Public Law 99-509 by 
including language referring to eligibility for pass-through payments 
for CRNA services if the facility is ``* * * a hospital located in a 
rural area (as defined for purposes of section 1886(d) of the Social 
Security Act) * * *.'' Reasonable cost-based payment for CRNA services 
was extended indefinitely by section 6132 of the Omnibus Budget 
Reconciliation Act of 1989 (Pub. L. 101-239).
    Section 1886(d)(2)(D) of the Act defines ``rural'' as any area 
outside an urban area. This definition of ``rural'' was in effect when 
Public Law 100-485 was implemented. In 1999, the Balanced Budget 
Refinement Act (Pub. L. 106-113) amended section 1886(d)(8) of the Act 
by adding a new subparagraph (E), which permits a hospital physically 
located in an urban area to apply for reclassification to be treated as 
rural. In addition, Public Law 106-113 made a corresponding change to 
section 1820(c)(2)(B)(i) of the Act, which specifies the location 
requirements for CAH designation, by adding the phrase ``or is treated 
as being located in a rural area pursuant to section 1886(d)(8)(E).''
    The regulations implementing pass-through payments for anesthesia 
services and related care furnished by qualified nonphysician 
anesthetists employed by a hospital or CAH, including CRNAs, are 
located at Sec.  412.113(c). Section 412.113(c)(2)(i)(A) specifies the 
location requirement for facilities that furnish these services and are 
eligible to be paid based on reasonable cost for the services. The 
regulations require that the hospital or CAH be located in a rural area 
as defined at Sec.  412.62(f) and not be deemed to be located in an 
urban area under the provisions of Sec.  412.64(b)(3). The regulations 
at Sec.  412.62(f) mirror section 1886(d)(2)(D) of the Act and define a 
rural area as ``* * * any area outside an urban area.'' The regulations 
at Sec.  412.64(b)(3) implement section 1886(d)(8)(B) of the Act, also 
known as the ``Lugar'' provision, which requires a hospital located in 
a rural county adjacent to one or more urban areas to be treated as 
being located in the urban metropolitan statistical area to which the 
greatest number of workers in the county commute.
    Under existing regulations, neither CAHs/hospitals that have 
reclassified

[[Page 24011]]

from urban to rural under the regulations at Sec.  412.103 nor CAHs/
hospitals located in Lugar counties are eligible to receive pass-
through payments for anesthesia services and related care furnished by 
qualified nonphysician anesthetists. We believe that because the 
statute, as revised by section 608 of Public Law 100-485, allows for 
reasonable cost payments for CRNA services if the facility is a 
hospital located in a rural area as defined for purposes of section 
1886(d) of the Act, it is appropriate for us to make the regulations 
consistent by permitting urban hospitals that have been reclassified as 
rural to qualify for these payments. Therefore, we are proposing to 
revise Sec.  412.113(c)(2)(i)(A) to state that effective for cost 
reporting periods beginning on or after October 1, 2010, CAHs and 
hospitals that have reclassified pursuant to section 1886(d)(8)(E) of 
the Act and Sec.  412.103 of the regulations are also rural for 
purposes of section 1886(d) of the Act and, therefore, are eligible to 
be paid based on reasonable cost for anesthesia services and related 
care furnished by a qualified nonphysician anesthetist.
    We are not proposing to change our regulations to permit Lugar 
facilities to be paid based on reasonable cost for anesthesia services 
and related care furnished by qualified nonphysician anesthetists. As 
noted above, in order to be paid based on reasonable cost for 
anesthesia services and related care furnished by a qualified 
nonphysician anesthetist, a hospital or CAH must be considered rural 
for purposes of section 1886(d) of the Act. Lugar facilities 
(facilities that have been reclassified under Sec. Sec.  412.63(b)(3) 
and 412.64(b)(3)) are considered urban for purposes of section 1886(d) 
of the Act. As a result, we do not believe it would be consistent with 
the statute and our regulations to permit these facilities to be paid 
on a reasonable cost basis for anesthesia services and related care 
furnished by qualified nonphysician anesthetists.

J. Rural Community Hospital Demonstration Program

    Section 410A(a) of Public Law 108-173 required the Secretary to 
establish a demonstration program to test the feasibility and 
advisability of establishing ``rural community hospitals'' to furnish 
covered inpatient hospital services to Medicare beneficiaries. The 
demonstration pays rural community hospitals for such services under a 
cost-based methodology for Medicare payment purposes for covered 
inpatient hospital services furnished to Medicare beneficiaries. A 
rural community hospital, as defined in section 410A(f)(1), is a 
hospital that--
     Is located in a rural area (as defined in section 
1886(d)(2)(D) of the Act) or is treated as being located in a rural 
area under section 1886(d)(8)(E) of the Act;
     Has fewer than 51 beds (excluding beds in a distinct part 
psychiatric or rehabilitation unit) as reported in its most recent cost 
report;
     Provides 24-hour emergency care services; and
     Is not designated or eligible for designation as a CAH 
under section 1820 of the Act.
    Section 410A(a)(4) of Public Law 108-173 (MMA) specified that the 
Secretary was to select for participation no more than 15 rural 
community hospitals in rural areas of States that the Secretary 
identified as having low population densities. Using 2002 data from the 
U.S. Census Bureau, we identified the 10 States with the lowest 
population density in which rural community hospitals were to be 
located in order to participate in the demonstration: Alaska, Idaho, 
Montana, Nebraska, Nevada, New Mexico, North Dakota, South Dakota, 
Utah, and Wyoming. (Source: U.S. Census Bureau, Statistical Abstract of 
the United States: 2003).
    CMS originally solicited applicants for the demonstration in May 
2004; 13 hospitals began participation with cost report years beginning 
on or after October 1, 2004. (Four of these 13 hospitals withdrew from 
the program and became CAHs). In a notice published in the Federal 
Register on February 6, 2008 (73 FR 6971), we announced a solicitation 
for up to 6 additional hospitals to participate in the demonstration 
program. Four additional hospitals were selected to participate under 
this solicitation. These four additional hospitals began under the 
demonstration payment methodology with the hospital's first cost 
reporting period starting on or after July 1, 2008. Three hospitals (2 
of the hospitals were among the 13 hospitals that originally 
participated in the demonstration and 1 of the hospitals was among the 
4 hospitals that began the demonstration in 2008) withdrew from the 
demonstration during CY 2009. (Two of these hospitals indicated that 
they will be paid more for Medicare inpatient services under the 
rebasing allowed under the SCH methodology allowed by the Medicare 
Improvement for Patients and Providers Act of 2008 (Pub. L. 110-275). 
The other hospital restructured to become a CAH.) There are currently 
10 hospitals participating in the demonstration.
    Section 410A(a)(5) of Public Law 108-173 required a 5-year 
demonstration period of participation. For the seven currently 
participating hospitals that began the demonstration during FY 2005, 
the demonstration was scheduled to end for each of these hospitals on 
the last day of its cost reporting period that ends in FY 2010. The end 
of the participation for the three participating hospitals that began 
the demonstration in CY 2008 was scheduled to be September 30, 2010. A 
5-year extension of the demonstration was mandated in the Patient 
Protection and Affordable Care Act (PPACA, Pub. L. 111-148). We note 
that this proposed rule does not address the relevant changes mandated 
by Public Law 111-148. Public Law 111-148 does affect our proposed FY 
2011 policy with regard to the rural community hospital demonstration. 
However, we will address that provision of Public Law 111-148 and any 
revised policy proposals in a separate rulemaking document in the 
Federal Register.
    Section 410A of Public Law 108-173 required that, ``in conducting 
the demonstration program under this section, the Secretary shall 
ensure that the aggregate payments made by the Secretary do not exceed 
the amount which the Secretary would have paid if the demonstration 
program under this section was not implemented.'' This requirement is 
commonly referred to as ``budget neutrality.''
    Generally, when CMS implements a demonstration program on a budget 
neutral basis, the demonstration program is budget neutral in its own 
terms; in other words, the aggregate payments to the participating 
hospitals do not exceed the amount that would be paid to those same 
hospitals in the absence of the demonstration program. Typically, this 
form of budget neutrality is viable when, by changing payments or 
aligning incentives to improve overall efficiency, or both, a 
demonstration program may reduce the use of some services or eliminate 
the need for others, resulting in reduced expenditures for the 
demonstration program's participants. These reduced expenditures offset 
increased payments elsewhere under the demonstration program, thus 
ensuring that the demonstration program as a whole is budget neutral or 
yields savings. However, the small scale of this demonstration program, 
in conjunction with the payment methodology, makes it extremely 
unlikely that this demonstration program could be viable under the 
usual form of budget neutrality. Specifically, cost-based payments to 
participating small rural hospitals are likely to increase Medicare 
outlays without producing any

[[Page 24012]]

offsetting reduction in Medicare expenditures elsewhere. Therefore, a 
rural community hospital's participation in this demonstration program 
is unlikely to yield benefits to the participant if budget neutrality 
were to be implemented by reducing other payments for these same 
hospitals.
    In the past six IPPS final regulations, spanning the period for 
which the demonstration has been implemented, we have adjusted the 
national inpatient PPS rates by an amount sufficient to account for the 
added costs of this demonstration program, thus applying budget 
neutrality across the payment system as a whole rather than merely 
across the participants in this demonstration program. As we discussed 
in the FY 2005, FY 2006, FY 2007, FY 2008, FY 2009, and FY 2010 IPPS 
final rules (69 FR 49183; 70 FR 47462; 71 FR 48100; 72 FR 47392; 73 FR 
48670; and 74 FR 43922), we believe that the language of the statutory 
budget neutrality requirements permits the agency to implement the 
budget neutrality provision in this manner.
    In this proposed rule, in order to ensure that the demonstration in 
FY 2007 is budget neutral, we are proposing to incorporate a component 
into the adjustment factor to the FY 2011 national IPPS rates that 
would offset the amount by which the costs of the demonstration 
program, as indicated by settled cost reports beginning in FY 2007 for 
hospitals participating in the demonstration during FY 2007, exceeded 
the amount that was identified in the FY 2007 final rule as the budget 
neutrality offset for FY 2007. Specifically, we are proposing the 
following methodology: (1) Calculate the FY 2007 costs of the 
demonstration program according to the settled cost reports that began 
in FY 2007 for the then participating hospitals (which represent the 
third year in the demonstration for each of the then participating 
hospitals); (2) Subtract the amount that was offset by the budget 
neutrality adjustment for FY 2007 ($9,197,870) from the costs of the 
demonstration in FY 2007 as calculated in step 1; and (3) Calculate an 
adjustment factor for the standardized amount for FY 2011 based on the 
dollar amount calculated in step 2 of this proposed methodology. This 
factor would represent the component of the proposed overall budget 
neutrality offset amount for FY 2011 that accounts for the difference 
between the cost of the demonstration in FY 2007 and the amount of the 
budget neutrality adjustment published in the FY 2007 final rule.
    With respect to the first step of this proposed methodology, we 
note that we are proposing to use settled cost reports beginning in FY 
2007 for hospitals participating in the demonstration during FY 2007 
because we believe that these settled cost reports correspond most 
accurately to FY 2007 and because all such costs reports also began in 
FY 2007. Therefore, we believe they correctly represent FY 2007 
inpatient costs for the demonstration during that period. In addition, 
in the process of making adjustments comparing the demonstration's 
costs to the amounts estimated annually for the budget neutrality 
offset over the demonstration's entire period of performance, the cost 
amounts from these hospitals' cost reports correspond most precisely to 
FY 2007. In addition, the settlement process for the demonstration 
hospitals' third year cost reports, that is, cost reporting periods 
starting in FY 2007, has experienced a delay. Therefore, for this FY 
2011 IPPS proposed rule, we are unable to calculate the costs of the 
demonstration corresponding to FY 2007 and as a result are unable to 
propose the specific numeric adjustment that would be applied to the 
national IPPS rates. However, we expect cost reports beginning in FY 
2007 for hospitals that participated in the demonstration during FY 
2007 to be settled before the FY 2011 IPPS final rule is published. 
Therefore, for the FY 2011 IPPS final rule, we will be able to 
calculate the amount by which the costs corresponding to FY 2007 
exceeded the amount offset by the budget neutrality adjustment for FY 
2007.

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

    On March 23, 2010, the Patient Protection and Affordable Care Act 
(PPACA), Public Law 111-148 was enacted. Following the enactment of 
Public Law 111-148, the Health Care and Education Reconciliation Act of 
2010, Public L. 111-152 (enacted on March 30, 2010), amended certain 
provisions of Public Law 111-148. A number of the provisions of Public 
Law 111-148, as amended by Public Law 111-152, affect the IPPS and the 
LTCH PPS and the providers and suppliers addressed in this proposed 
rule. However, due to the timing of the passage of the legislation, we 
are unable to address those provisions in this proposed rule. 
Therefore, the proposed policies and payment rates in this proposed 
rule do not reflect the new legislation. We plan to issue separate 
rulemaking documents in the Federal Register addressing the provisions 
of Public Law 111-148, as amended, that affect our proposed policies 
and payment rates for FY 2011 under the IPPS and LTCH PPS, as well as 
the provisions of Public Law 111-148, as amended, that affect the 
policies and payment rates for FY 2010 under the IPPS and LTCH PPS.

A. Overview

    Section 1886(g) of the Act requires the Secretary to pay for the 
capital-related costs of inpatient acute hospital services ``in 
accordance with a prospective payment system established by the 
Secretary.'' Under the statute, the Secretary has broad authority in 
establishing and implementing the IPPS for acute care hospital 
inpatient capital-related costs. We initially implemented the IPPS for 
capital-related costs in the Federal fiscal year (FY) 1992 IPPS final 
rule (56 FR 43358), in which we established a 10-year transition period 
to change the payment methodology for Medicare hospital inpatient 
capital-related costs from a reasonable cost-based methodology to a 
prospective methodology (based fully on the Federal rate).
    FY 2001 was the last year of the 10-year transition period 
established to phase in the IPPS for hospital inpatient capital-related 
costs. For cost reporting periods beginning in FY 2002, capital IPPS 
payments are based solely on the Federal rate for almost all acute care 
hospitals (other than hospitals receiving certain exception payments 
and certain new hospitals). (We refer readers to the FY 2002 IPPS final 
rule (66 FR 39910 through 39914) for additional information on the 
methodology used to determine capital IPPS payments to hospitals both 
during and after the transition period.) The basic methodology for 
determining capital prospective payments using the Federal rate is set 
forth in Sec.  412.312 of the regulations. For the purpose of 
calculating payments for each discharge, currently the standard Federal 
rate is adjusted as follows:
    (Standard Federal Rate) x (DRG Weight) x (Geographic Adjustment 
Factor (GAF)) x (COLA for hospitals located in Alaska and Hawaii) x (1 
+ Capital DSH Adjustment Factor + Capital IME Adjustment Factor, if 
applicable).

B. Exception Payments

    The regulations at Sec.  412.348(f) provide that a hospital may 
request an additional payment if the hospital incurs unanticipated 
capital expenditures in excess of $5 million due to extraordinary 
circumstances beyond the hospital's control. This policy was

[[Page 24013]]

originally established for hospitals during the 10-year transition 
period, but as we discussed in the FY 2003 IPPS final rule (67 FR 
50102), we revised the regulations at Sec.  412.312 to specify that 
payments for extraordinary circumstances are also made for cost 
reporting periods after the transition period (that is, cost reporting 
periods beginning on or after October 1, 2001). Additional information 
on the exception payment for extraordinary circumstances in Sec.  
412.348(f) can be found in the FY 2005 IPPS final rule (69 FR 49185 and 
49186).
    During the transition period, under Sec. Sec.  412.348(b) through 
(e), eligible hospitals could receive regular exception payments. These 
exception payments guaranteed a hospital a minimum payment percentage 
of its Medicare allowable capital-related costs depending on the class 
of the hospital (Sec.  412.348(c)), but were available only during the 
10-year transition period. After the end of the transition period, 
eligible hospitals can no longer receive this exception payment. 
However, even after the transition period, eligible hospitals receive 
additional payments under the special exceptions provisions at Sec.  
412.348(g), which guarantees all eligible hospitals a minimum payment 
of 70 percent of its Medicare allowable capital-related costs provided 
that special exceptions payments do not exceed 10 percent of total 
capital IPPS payments. Special exceptions payments may be made only for 
the 10 years from the cost reporting year in which the hospital 
completes its qualifying project, and the hospital must have completed 
the project no later than the hospital's cost reporting period 
beginning before October 1, 2001. Thus, an eligible hospital may 
receive special exceptions payments for up to 10 years beyond the end 
of the capital IPPS transition period. Hospitals eligible for special 
exceptions payments are required to submit documentation to the fiscal 
intermediary or MAC indicating the completion date of their project. 
(For more detailed information regarding the special exceptions policy 
under Sec.  412.348(g), we refer readers to the FY 2002 IPPS final rule 
(66 FR 39911 through 39914) and the FY 2003 IPPS final rule (67 FR 
50102).)

C. New Hospitals

    Under the IPPS for capital-related costs, Sec.  412.300(b) of the 
regulations defines a new hospital as a hospital that has operated 
(under current or previous ownership) for less than 2 years. For 
example, the following hospitals are not considered new hospitals: (1) 
A hospital that builds new or replacement facilities at the same or 
another location, even if coincidental with a change of ownership, a 
change in management, or a lease arrangement; (2) a hospital that 
closes and subsequently reopens; (3) a hospital that has been in 
operation for more than 2 years but has participated in the Medicare 
program for less than 2 years; and (4) a hospital that changes its 
status from a hospital that is excluded from the IPPS to a hospital 
that is subject to the capital IPPS. For more detailed information, we 
refer readers to the FY 1992 IPPS final rule (56 FR 43418). During the 
10-year transition period, a new hospital was exempt from the capital 
IPPS for its first 2 years of operation and was paid 85 percent of its 
reasonable costs during that period. Originally, this provision was 
effective only through the transition period and, therefore, ended with 
cost reporting periods beginning in FY 2002. Because, as discussed in 
the FY 2003 IPPS final rule (67 FR 50101), we believe that special 
protection to new hospitals is also appropriate even after the 
transition period, we revised the regulations at Sec.  412.304(c)(2) to 
provide that, for cost reporting periods beginning on or after October 
1, 2002, a new hospital (defined under Sec.  412.300(b)) is paid 85 
percent of its Medicare allowable capital-related costs through its 
first 2 years of operation, unless the new hospital elects to receive 
full prospective payment based on 100 percent of the Federal rate. (We 
refer readers to the FY 2003 IPPS final rule (67 FR 50101 through 
50102) for a detailed discussion of the special payment provisions for 
new hospitals under the capital IPPS after the 10-year transition 
period.)

D. Hospitals Located in Puerto Rico

    Section 412.374 of the regulations provides for the use of a 
blended payment amount for prospective payments for capital-related 
costs to hospitals located in Puerto Rico. Accordingly, under the 
capital IPPS, we compute a separate payment rate specific to Puerto 
Rico hospitals using the same methodology used to compute the national 
Federal rate for capital-related costs. In general, hospitals located 
in Puerto Rico are paid a blend of the applicable capital IPPS Puerto 
Rico rate and the applicable capital IPPS Federal rate.
    Prior to FY 1998, hospitals in Puerto Rico were paid a blended 
capital IPPS rate that consisted of 75 percent of the capital IPPS 
Puerto Rico specific rate and 25 percent of the capital IPPS Federal 
rate. However, effective October 1, 1997 (FY 1998), in conjunction with 
the change to the operating IPPS blend percentage for hospitals located 
in Puerto Rico required by section 4406 of Public Law 105-33, we 
revised the methodology for computing capital IPPS payments to 
hospitals in Puerto Rico to be based on a blend of 50 percent of the 
capital IPPS Puerto Rico rate and 50 percent of the capital IPPS 
Federal rate. Similarly, in conjunction with the change in operating 
IPPS payments to hospitals located in Puerto Rico for FY 2005 required 
by section 504 of Public Law 108-173, we again revised the methodology 
for computing capital IPPS payments to hospitals located in Puerto Rico 
to be based on a blend of 25 percent of the capital IPPS Puerto Rico 
rate and 75 percent of the capital IPPS Federal rate effective for 
discharges occurring on or after October 1, 2004.

E. Proposed Changes for FY 2011: MS-DRG Documentation and Coding 
Adjustment

1. Background on the Prospective MS-DRG Documentation and Coding 
Adjustments for FY 2008 and FY 2009
    In the FY 2008 IPPS final rule with comment period (72 FR 47175 
through 47186), we adopted the MS-DRG patient classification system for 
the IPPS, effective October 1, 2007, to better recognize patients' 
severity of illness in Medicare payment rates. Adoption of the MS-DRGs 
resulted in the expansion of the number of DRGs from 538 in FY 2007 to 
745 in FY 2008. (Currently, there are 746 MS-DRGs, including one 
additional MS-DRG created in FY 2009. For FY 2011, there would be 747 
DRGs with our proposals in this proposed rule to delete one MS- DRG and 
to create two new MS-DRGs.) By increasing the number of DRGs and more 
fully taking into account patients' severity of illness in Medicare 
payment rates, the MS-DRGs encourage hospitals to change their 
documentation and coding of patient diagnoses. In that same final rule 
with comment period (72 FR 47183), we indicated that we believe the 
adoption of the MS-DRGs had the potential to lead to increases in 
aggregate payments without a corresponding increase in actual patient 
severity of illness due to the incentives for changes in documentation 
and coding. Accordingly, we established adjustments to both the 
national operating standardized amount and the national capital Federal 
rate to eliminate the estimated effect of changes in documentation and 
coding resulting from the adoption of the MS-DRGs that do not reflect 
real changes in case-mix. Specifically, we established prospective 
documentation and coding adjustments of -1.2 percent for FY 2008, -1.8 
percent for FY 2009, and -1.8 percent

[[Page 24014]]

for FY 2010. However, to comply with section 7(a) of Public Law 110-90, 
enacted on September 29, 2007, in a final rule published in the Federal 
Register on November 27, 2007 (72 FR 66886 through 66888), we modified 
the documentation and coding adjustment for FY 2008 to -0.6 percent, 
and consequently revised the FY 2008 IPPS operating and capital payment 
rates, factors, and thresholds accordingly, with these revisions 
effective October 1, 2007.
    For FY 2009, section 7(a) of Public Law 110-90 required a 
documentation and coding adjustment of -0.9 percent instead of the -1.8 
percent adjustment established in the FY 2008 IPPS final rule with 
comment period. As discussed in the FY 2008 IPPS final rule with 
comment period (72 FR 48447 and 48733 through 48774), we applied a 
documentation and coding adjustment of -0.9 percent to the FY 2009 IPPS 
national standardized amounts and the capital Federal rate. The 
documentation and coding adjustments established in the FY 2009 IPPS 
final rule, as amended by Public Law 110-90, are cumulative. As a 
result, the -0.9 percent documentation and coding adjustment in FY 2009 
was in addition to the -0.6 percent adjustment in FY 2008, yielding a 
combined effect of -1.5 percent. (For additional details on the 
development and implementation of the documentation and coding 
adjustments for FY 2008 and FY 2009, we refer readers to section II.D. 
of this preamble and the following rules published in the Federal 
Register: August 22, 2007 (72 FR 47175 through 47186 and 47431 through 
47432); November 27, 2007 (72 FR 66886 through 66888); and August 19, 
2008 (73 FR 48447 through 48450 and 48773 through 48775).)
2. Retrospective Evaluation of FY 2008 Claims Data
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, we presented 
the results of a retrospective evaluation of the FY 2008 data for 
claims paid through December 2008. Based on this evaluation, our 
actuaries determined that implementation of the MS-DRG system resulted 
in a 2.5 percent change due to documentation and coding that did not 
reflect real changes in case-mix for discharges occurring during FY 
2008 (74 FR 24092 through 24101). We also sought public comment on our 
methodology and analysis and the proposed -1.9 percent prospective 
adjustment to address the effect of documentation and coding changes 
unrelated to changes in real case-mix in FY 2008 (that is, the 
estimated -2.5 percent documentation and coding effect for FY 2008 
minus the -0.6 percent documentation and coding adjustment that was 
applied to the national capital Federal rate for FY 2008). In addition, 
we sought public comment on addressing in the FY 2011 rulemaking cycle 
any differences between the increase in FY 2009 case-mix due to 
documentation and coding changes that do not reflect real changes in 
case-mix for discharges occurring during FY 2009 and the -0.9 percent 
prospective documentation and coding adjustment applied in determining 
the FY 2009 capital Federal rate established in the FY 2009 IPPS final 
rule. However, after consideration of the public comments received on 
the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, consistent with the 
application of the documentation and coding adjustment to the operating 
IPPS standardized amounts, we determined that it would be appropriate 
to postpone the adoption of any additional documentation and coding 
adjustments to the capital IPPS rates until a full analysis of FY 2009 
case-mix changes could be completed. We stated that although we only 
proposed to make a -1.9 percent adjustment to account for the portion 
of the estimated 2.5 percent change in FY 2008 case-mix due to 
documentation and coding changes that exceeds the -0.6 percent 
prospective documentation and coding adjustment applied to the FY 2008 
capital Federal rate (that is, -2.5 percent minus -0.6 percent = -1.9 
percent), our then current estimate of the MS-DRG documentation and 
coding effect for FY 2009 was 2.3 percent (that is, the 4.8 percent 
total increase minus the 2.5 percent increase from FY 2008). We 
indicated that if the estimated documentation and coding effect 
determined based on a full analysis of FY 2009 claims data is more or 
less than our then current estimates, it would change the anticipated 
cumulative adjustments that we then estimated we would have to make for 
FY 2008 and FY 2009 combined. We indicated that, in future rulemaking, 
we would consider applying a prospective documentation and coding 
adjustment to the capital IPPS rates based on a complete analysis of FY 
2008 and FY 2009 claims data (74 FR 43926 through 43928).
3. Retrospective Analysis of FY 2009 Claims Data
    For this proposed rule, we have performed a thorough retrospective 
evaluation of the most recent available claims data, and the results of 
this evaluation were used by our actuaries to determine any necessary 
payment adjustments beyond the cumulative -1.5 percent adjustment that 
has already been applied to the national capital Federal rate to ensure 
budget neutrality for the implementation of MS-DRGs. Specifically, as 
discussed in greater detail in section II.D.5. of the preamble of this 
proposed rule, we performed a retrospective evaluation of the FY 2009 
claims data updated through December 2009 using the same analysis 
methodology as we did for FY 2008 claims in the FY 2010 IPPS/RY 2010 
LTCH PPS proposed and final rules. Based on this evaluation, our 
actuaries have determined that the implementation of the MS-DRG system 
resulted in a 5.4 percent change in case-mix due to documentation and 
coding that did not reflect real changes in case-mix for discharges 
occurring during FY 2009.
    The 5.4 percent estimate of the cumulative effect of changes in 
documentation and coding under the MS-DRG system that did not reflect 
real changes in case-mix for FYs 2008 and 2009 exceeds the cumulative -
1.5 percent prospective documentation and coding adjustment that has 
already been applied to the national capital Federal rate by 3.9 
percentage points (5.4 percent minus 1.5 percent). An additional 
cumulative adjustment of -3.9 percent to the national capital Federal 
rate would be necessary to eliminate the full effect of the 
documentation and coding changes due to the adoption of the MS-DRGs on 
future payments. We intend to update our analysis with FY 2009 data on 
claims paid through March 2009 for the FY 2011 IPPS/LTCH PPS final 
rule.
4. Proposed Prospective MS-DRG Documentation and Coding Adjustment to 
the National Capital Federal Rate for FY 2011 and Subsequent Years
    We continue to believe that it is appropriate to make adjustments 
to the capital IPPS rates to eliminate the effect of any documentation 
and coding changes as a result of the implementation of the MS-DRGs. 
These adjustments are intended to ensure that future annual aggregate 
IPPS payments are the same as payments that otherwise would have been 
made had the prospective adjustments for documentation and coding 
applied in FY 2008 and FY 2009 accurately reflected the change due to 
documentation and coding that occurred in those years. As noted in 
section V.A. of this preamble, under section 1886(g) of the Act, the 
Secretary has broad authority in establishing and implementing the IPPS 
for acute care hospital inpatient capital-related costs (that is, the 
capital IPPS). We have

[[Page 24015]]

consistently stated since the initial implementation of the MS-DRG 
system that we do not believe it is appropriate for Medicare 
expenditures under the capital IPPS to increase due to MS-DRG related 
changes in documentation and coding. Accordingly, we believe that it is 
appropriate under the Secretary's broad authority under section 1886(g) 
of the Act, in conjunction with section 1886(d)(3)(A)(vi) of the Act 
and section 7(b) of Public Law 110-90, to make adjustments to the 
capital Federal rate to eliminate the full effect of the documentation 
and coding changes resulting from the adoption of the MS-DRGs. We 
believe that this is appropriate because, in absence of such 
adjustments, the effect of the documentation and coding changes 
resulting from the adoption of the MS-DRGs results in inappropriately 
high capital IPPS payments because that portion of the increase in 
aggregate payments is not due to an increase in patient severity of 
illness (and costs).
    As discussed in greater detail in section II.D.7. of this preamble, 
we explain that we are proposing a -2.9 percent adjustment for FY 2011 
under the authority of section 7(b)(1)(B) of Public Law 110-90. We 
refer readers to that section of the preamble for a detailed discussion 
of the issue. In section II.D.6. of this preamble, we also discuss our 
retrospective evaluation of the FY 2009 claims, and our actuaries' 
determination that implementation of the MS-DRG system resulted in a 
5.4 percent change in case-mix due to documentation and coding that did 
not reflect real changes in case-mix for discharges occurring during FY 
2009. The estimated 5.4 percent cumulative documentation and coding 
effect for FYs 2008 and 2009 exceeds the cumulative -1.5 percent 
prospective documentation and coding adjustment that has already been 
applied to the national capital Federal rate. Thus, an additional 
cumulative adjustment of -3.9 percent would be necessary to meet the 
requirements of section 7(b)(1)(A) of Public Law 110-90 to make an 
appropriate prospective adjustment to the IPPS operating average 
standardized amounts in order to eliminate the full effect of the 
documentation and coding changes on future payments. However, we are 
not proposing a prospective adjustment to the IPPS operating average 
standardized amounts under section 7(b)(1)(A) of Public Law 110-90 for 
FY 2011.
    As discussed above in this section, given the increase in payments 
that we have determined is due to documentation and coding, we believe 
it is necessary and appropriate under the Secretary's broad authority 
under section 1886(g) of the Act, in conjunction with section 
1886(d)(3)(A)(vi) of the Act and section 7(b) of Public Law 110-90, to 
make further adjustments to the capital Federal rate to eliminate the 
full effect of the documentation and coding changes resulting from the 
adoption of the MS-DRGs.
    It is often our practice to phase in rate adjustments over more 
than one year in order to moderate the effect on rates in any one year. 
Therefore, consistently with transitional policies we have adopted in 
many similar cases and in order to maintain consistency as far as 
possible with the adjustments that we are proposing to apply to IPPS 
hospitals, we are proposing an adjustment of -2.9 percent in FY 2011 to 
the national capital Federal rate. We believe that this proposed 
adjustment allows us to moderate the effects to hospitals in one year 
and to maintain equity between hospitals paid on the basis of different 
prospective rates. We are seeking public comment on the proposed -2.9 
percent prospective adjustment to the national capital Federal rate for 
FY 2011 and our plans to address in future rulemaking cycles the 
cumulative effect of changes in case-mix due to changes in 
documentation and coding that do not reflect real changes in case-mix 
for discharges occurring during FY 2008 and FY 2009, noting that our 
current estimates of the remaining adjustment to the national capital 
Federal rate is -1.0 percent. We intend to update our analysis with FY 
2009 data on claim paid through March 2009 for the FY 2011 IPPS/LTCH 
PPS final rule.
    Therefore, in this proposed rule, under the Secretary's broad 
authority under section 1886(g) of the Act, in conjunction with section 
1886(d)(3)(A)(vi) of the Act and section 7(b) of Public Law 110-90, we 
are proposing to reduce the capital Federal rate in FY 2011 by -2.9 
percent to account for the cumulative effect of the estimated changes 
in documentation and coding changes under the MS-DRG system in FYs 2008 
and 2009 that did not reflect real changes in case-mix. Furthermore, 
consistent with our proposal for the hospital-specific rates under the 
operating IPPS, we are proposing to leave that proposed -2.9 percent 
adjustment in place for subsequent fiscal years to account for the 
effect in FY 2011 and subsequent years. As noted above, we intend to 
address in future rulemaking cycles the remaining estimated adjustment 
to the national capital Federal rate of -1.0 percent (that is, the 
estimated cumulative effect of documentation and coding changes under 
the MS-DRG system for FYs 2008 and 2009 of -5.4 percent minus the 
existing -0.6 percent and -0.9 adjustments and the proposed FY 2011 of 
-2.9 percent adjustment).
5. Proposed Documentation and Coding Adjustment to the Puerto Rico-
Specific Capital Rate
    Under Sec.  412.74, Puerto Rico hospitals are currently paid based 
on 75 percent of the national capital Federal rate and 25 percent of 
the Puerto Rico-specific capital rate. In the FY 2009 IPPS final rule 
(73 FR 48775), consistent with our development of the FY 2009 Puerto 
Rico-specific operating standardized amount, we did not apply the 
additional -0.9 percent documentation and coding adjustment (or the 
cumulative -1.5 percent adjustment) to the FY 2009 Puerto Rico-specific 
capital rate. However, the statute gives broad authority to the 
Secretary under section 1886(g) of the Act, with respect to the 
development of and adjustments to a capital PPS, and therefore we would 
not be outside the authority of section 1886(g) of the Act in applying 
the documentation and coding adjustment to the Puerto Rico-specific 
portion of the capital payment rate. To date, we had not applied a 
documentation and coding adjustment to the Puerto Rico-specific capital 
rate because we have historically made changes to the capital IPPS 
consistent with those changes made to the operating IPPS. We stated 
that we may propose to apply such an adjustment to the Puerto Rico 
capital rates in the future.
    As discussed in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43928), when we performed a retrospective evaluation of the FY 2008 
claims data of hospitals located in Puerto Rico using the same 
methodology discussed above, we found that the change in case-mix due 
to documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 from hospitals located in 
Puerto Rico was approximately 1.3 percent. Given this case-mix increase 
due to changes in documentation and coding under the MS-DRGs, we had 
proposed to adjust the Puerto Rico-specific capital rate by -1.3 
percent in FY 2010 for the FY 2008 increase in case-mix due to changes 
in documentation and coding under the MS-DRGs. However, in that same 
final rule, postponed the adoption of any documentation and coding 
adjustments to the capital IPPS rates until a full analysis of FY 2009 
case-mix changes could be completed. We indicated that any future 
documentation and coding adjustment to the capital

[[Page 24016]]

Puerto Rico-specific IPPS rates based on a complete analysis of FY 2008 
and FY 2009 claims data for Puerto Rico hospitals would be established 
through the notice and comment rulemaking process.
    As discussed in section II.D.9. of this preamble, when we performed 
a retrospective evaluation of the FY 2009 claims data of hospitals 
located in Puerto Rico using the same methodology discussed above, we 
found that the change in case-mix due to documentation and coding that 
did not reflect real changes in case-mix for discharges occurring 
during FY 2008 from hospitals located in Puerto Rico was approximately 
2.4 percent. Given this case-mix increase due to changes in 
documentation and coding under the MS-DRGs, consistent with our 
proposal to adjust the FY 2011 capital Federal rate presented above and 
consistent with our proposed adjustment to the FY 2011 Puerto Rico-
specific standardized amount discussed in section II.D.9. of the 
preamble of this proposed rule, under the Secretary's broad authority 
under section 1886(g) of the Act, we are proposing to adjust the Puerto 
Rico-specific capital rate by -2.4 percent in FY 2011 for the 
cumulative increase in case-mix due to changes in documentation and 
coding under the MS-DRGs for FYs 2008 and 2009. In addition, consistent 
with our other proposals concerning prospective MS-DRG documentation 
and coding adjustments to the capital Federal rate and operating IPPS 
standardized amounts presented in this proposed rule, we are proposing 
to leave that proposed -2.4 percent adjustment in place for subsequent 
fiscal years in order to ensure that changes in documentation and 
coding resulting from the adoption of the MS-DRGs do not lead to an 
increase in aggregate payments not reflective of an increase in real 
case-mix. We are proposing that the proposed -2.4 percent documentation 
and coding adjustment would be applied to the capital Puerto Rico-
specific rate that accounts for 25 percent of payments to hospitals 
located in Puerto Rico, with the remaining 75 percent based on the 
proposed national capital Federal rate, which we are proposing to 
adjust for documentation and coding as described above. Consequently, 
the proposed overall reduction to the FY 2011 payment rates for 
hospitals located in Puerto Rico to account for documentation and 
coding changes would be slightly less than the reduction for IPPS 
hospitals paid based on 100 percent of the national capital Federal 
rate. As noted above, the Puerto Rico-specific capital rate was not 
adjusted for the cumulative effects of documentation and coding changes 
in FY 2008 or FY 2009 as is the case with the national capital Federal 
rate.

F. Other Proposed Changes for FY 2011

    The proposed annual update to the capital IPPS national and Puerto 
Rico-specific rates, as provided for at Sec.  412.308(c), for FY 2011 
is discussed in section III. of the Addendum to this proposed rule.

VI. Proposed Changes for Hospitals Excluded From the IPPS

A. Excluded Hospitals

    Historically, hospitals and hospital units excluded from the 
prospective payment system received payment for inpatient hospital 
services they furnished on the basis of reasonable costs, subject to a 
rate-of-increase ceiling. A per discharge limit (the target amount as 
defined in Sec.  413.40(a)) was set for each hospital or hospital unit 
based on the hospital's own cost experience in its base year, and 
updated annually by a rate-of-increase percentage. The updated target 
amount was multiplied by total Medicare discharges during that period 
and applied as an aggregate upper limit (the ceiling as defined in 
Sec.  413.40(a)) on total inpatient operating costs for a hospital's 
cost reporting period. Prior to October 1, 1997, these payment 
provisions applied consistently to all categories of excluded 
providers, which included rehabilitation hospitals and units (now 
referred to as IRFs), psychiatric hospitals and units (now referred to 
as IPFs), LTCHs, children's hospitals, and cancer hospitals.
    Payment to children's hospitals and cancer hospitals that are 
excluded from the IPPS continues to be subject to the rate-of-increase 
ceiling based on the hospital's own historical cost experience. (We 
note that, in accordance with Sec.  403.752(a) of the regulations, 
RNHCIs are also subject to the rate-of-increase limits established 
under Sec.  413.40 of the regulations.)
    For FY 2011, we are proposing that the rate-of-increase percentage 
to be applied to the target amount for cancer and children's hospitals 
and RNHCIs would be the proposed FY 2011 percentage increase in the 
IPPS operating market basket. Beginning with FY 2006, we have used the 
percentage increase in the IPPS operating market basket to update the 
target amounts for children's and cancer hospitals. As explained in the 
FY 2006 IPPS final rule (70 FR 47396 through 47398), with IRFs, IPFs, 
and LTCHs being paid under their own PPS, the remaining number of 
providers being paid based on reasonable cost subject to a ceiling 
(that is, children's and cancer hospitals and RNHCIs) is too small and 
the cost report data are too limited to be able to create a market 
basket solely for these hospitals. We are proposing to continue to use 
the IPPS market basket to update the target amounts for children's and 
cancer hospitals and RNHCIs for the reasons discussed in the FY 2006 
IPPS final rule.
    We are proposing to use the revised and rebased FY 2006-based IPPS 
operating market baskets to update the target amounts for children's 
and cancer hospitals and RNHCIs for FY 2011. Based on IHS Global 
Insight, Inc.'s 2010 first quarter forecast, with historical data 
through the 2009 fourth quarter, we are estimating that the FY 2011 
update to the IPPS operating market basket would be 2.4 percent (that 
is, the current estimate of the market basket rate-of-increase).
    We calculated the proposed rate-of-increase in the IPPS operating 
market basket for FY 2011 using the most recent data available. 
However, if data that are more recent become available for the final 
rule, we will use them to calculate the IPPS operating market basket 
update for FY 2011. Therefore, consistent with our proposal that the 
rate-of-increase percentage for cancer and children's hospitals and 
RNHCIs would be the proposed percentage increase in the FY 2011 IPPS 
operating market basket, the proposed FY 2011 rate-of-increase 
percentage that would be applied to FY 2010 target amounts in order to 
calculate the FY 2011 target amounts for cancer and children's 
hospitals and RNHCIs would be 2.4 percent, in accordance with the 
applicable regulations in 42 CFR 413.40.
    We note that IRFs, IPFs, and LTCHs, which were paid previously 
under the reasonable cost methodology, now receive payment under their 
own prospective payment systems, in accordance with changes made to the 
statute. In general, the prospective payment systems for IRFs, IPFs, 
and LTCHs provided transition periods of varying lengths during which 
time a portion of the prospective payment was based on cost-based 
reimbursement rules under Part 413. (However, certain providers do not 
receive a transition period or may elect to bypass the transition 
period as applicable under 42 CFR Part 412, Subparts N, O, and P.) We 
note that the various transition periods provided for under the IRF 
PPS, the IPF PPS, and the LTCH PPS have ended.
    The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually. We

[[Page 24017]]

refer readers to section IV. of the Addendum to this proposed rule for 
the specific proposed update changes to the Federal payment rates for 
LTCHs under the LTCH PPS for RY 2011. The annual updates for the IRF 
PPS and the IPF PPS are issued by the agency in separate Federal 
Register documents.

B. Critical Access Hospitals (CAHs)

1. Background
    Section 1820 of the Act provides for the establishment of Medicare 
Rural Hospital Flexibility Programs (MRHFPs) under which individual 
States may designate certain facilities as critical access hospitals 
(CAHs). Facilities that are so designated and that meet the CAH 
conditions of participation under 42 CFR part 485, Subpart F, will be 
certified as CAHs by CMS. Regulations governing payments to CAHs for 
services to Medicare beneficiaries are located in 42 CFR part 413.
2. CAH Optional Method Election for Payment of Outpatient Services
    Section 1834(g) of the Act establishes the payment rules for 
outpatient services furnished by a CAH. Section 403(d) of Public Law 
106-113 (BBRA) amended section 1834(g) of the Act to provide for two 
methods of payment for outpatient services furnished by a CAH. 
Specifically, section 1834(g)(1) of the Act, as amended by Public Law 
106-113, provided that the amount of payment for outpatient services 
furnished by a CAH is equal to the reasonable cost of providing such 
services, unless the CAH made an election, under section 1834(g)(2) of 
the Act, to receive amounts that were equal to the reasonable cost of 
the CAH for facility services plus, with respect to the professional 
services, the amount otherwise paid for professional services under 
Medicare, less the applicable Medicare deductible and coinsurance 
amount. The election made under section 1834(g)(2) of the Act is 
sometimes referred to as ``method II.'' Throughout this section of this 
preamble, we refer to this election as the ``optional method.'' Section 
202 of Public Law 106-554 (BIPA) amended section 1834(g)(2)(B) of the 
Act to increase the payment for professional services under the 
optional method to 115 percent of the amount otherwise paid for 
professional services under Medicare. In addition, section 405(a)(1) of 
Public Law 108-173 (MMA) amended section 1834(g)(l) of the Act by 
inserting the phrase ``equal to 101 percent of'' before the phrase 
``the reasonable costs.'' However, the MMA made no changes to the 
amount of payment under the optional method at section 1834(g)(2)(A) of 
the Act. As stated earlier, the proposed policies and payment rates in 
this proposed rule do not reflect the provisions of the recently 
enacted Public Law 111-148, as amended by Public Law 111-152. We plan 
to address the provisions of Public Law 111-148, as amended, as they 
affect payments to CAHs in separate documents in the Federal Register 
or through further instructions.
    Accordingly, section 1834(g) of the Act currently provides for two 
methods of payment for outpatient CAH services. Under the method 
specified at section 1834(g)(1) of the Act, facility services are paid 
at 101 percent of reasonable costs to the CAH through the Medicare 
fiscal intermediary or the Medicare Part A/B MAC, while payments for 
physician and other professional services are made to the physician or 
other practitioner under the Medicare Physician Fee Schedule (MPFS) 
through the Medicare carriers. Under section 1834(g)(2) of the Act (the 
optional method), a CAH submits bills for both the facility and the 
professional services to its Medicare fiscal intermediary or its 
Medicare Part A/B MAC. If a CAH chooses this optional method for 
outpatient services, the physician or other practitioner must reassign 
his or her billing rights to the CAH to bill the Medicare program for 
those services. In accordance with section 1834(g)(2) of the Act, under 
this optional method, the CAH receives reasonable cost payment for its 
facility costs and, with respect to the professional services, 115 
percent of the amount otherwise paid for professional services under 
Medicare.
    The existing regulations at Sec.  413.70(b)(3)(i)(A) require that 
if a CAH wishes to elect the optional method, that election must be 
made in writing, made on an annual basis, and delivered to the fiscal 
intermediary servicing the CAH at least 30 days before the start of the 
cost reporting period for which the election is made. The regulations 
at Sec.  413.70(b)(3)(i)(B) specify that once an election is made for a 
cost reporting period, that election remains in effect for all of that 
period. Therefore, under the existing regulations, a CAH that is being 
paid under the optional method is required to submit an election on an 
annual basis if it wishes to continue to be paid under the optional 
method for a subsequent cost reporting period.
    We have been informed that, in past years, some CAHs have submitted 
their elections several days late, which has caused these CAHs to lose 
their optional method election for the entire cost reporting year and 
has resulted in financial hardship for these providers. Such untimely 
submission of the optional method election may be due to staffing 
turnovers at the CAH as well as a change in fiscal intermediary or MAC 
assignments because, in the past, some CAHs received correspondence 
from their fiscal intermediaries or MACs reminding them to elect the 
optional method on an annual basis. Due to the significant consequences 
if a CAH fails to make a timely election, we are proposing to amend the 
regulations at Sec.  413.70(b)(3)(i) to state that, effective for CAH 
cost reporting periods beginning on or after October 1, 2010, if a CAH 
has elected the optional method for its most recent cost reporting 
period beginning prior to October 1, 2010 or chooses to elect the 
optional method for its upcoming cost reporting period, that election 
will remain in place until it is terminated.
    We believe that removing the annual election requirement will 
reduce any perceived burden associated with the election process and 
make it easier for CAHs to maintain their election if they experience 
administrative staffing changes. If a CAH is being paid under the 
traditional method and wishes to elect the optional method, it must 
submit its election in writing to its servicing fiscal intermediary or 
MAC at least 30 days prior to the first cost reporting period for which 
the election is effective. Once that initial election is made, it will 
remain in place until it is terminated.
    We are proposing to revise the regulations to include a mechanism 
for CAHs that are being paid under the optional method to terminate 
that election. Specifically, we are proposing that if a CAH is being 
paid under the optional method and wishes to terminate that election, 
it must submit its termination request to the fiscal intermediary or 
MAC servicing the CAH at least 30 days prior to the start of the next 
cost reporting period. Because the proposed effective date for this 
provision is for cost reporting periods beginning on or after October 
1, 2010, CAHs that have cost reporting periods beginning in October 
2010 or November 2010 may not have sufficient time to terminate their 
optional method election at least 30 days prior to the start of the 
cost reporting period. Therefore, we are proposing that CAHs that have 
cost reporting periods beginning in October 2010 or November 2010 and 
elected the optional method in 2009 that wish to terminate that 
election will have until December 1, 2010, to terminate their prior 
year election. The termination will be effective for the entire FY 2011 
cost reporting period. Thus, if a CAH with a cost reporting period 
beginning in

[[Page 24018]]

October 2010 or November 2010 terminates its optional method election 
after the beginning of its cost reporting period but before December 1, 
2010, the fiscal intermediary or MAC would be instructed to reprocess 
any payments made under the optional method for services provided 
during that period as efficiently as possible.
    Section 1834(g)(2)(B) of the Act provides that if a CAH elects the 
optional method, it is not required that each physician or other 
practitioner providing professional services in the CAH must reassign 
billing rights with respect to the services. Rather, the reassignment 
of billing rights is physician/practitioner specific. For this reason, 
the optional payment method should not apply to the computation of 
payments to the CAH for its facility services in conjunction with 
services furnished by physicians and practitioners who have not 
reassigned such billing rights. Accordingly, if a physician or 
practitioner has not reassigned his or her billing rights to the CAH, 
the CAH will be paid for its facility services at 101 percent of 
reasonable cost, as specified at Sec.  413.70(b)(2)(i) of the 
regulations. If a CAH experiences changes in its physician or 
practitioner staffing, there may be a change in which physicians or 
practitioners choose to reassign their billing rights in order to 
permit the CAH to bill for their professional services. In order to 
ensure appropriate payments, and specifically, in order to ensure that 
there is no duplicate billing for a physician's or practitioner's 
professional services by the CAH to the fiscal intermediary or MAC and 
by the physician or practitioner providing the service to the carrier, 
a CAH must continue to notify its fiscal intermediary or MAC when 
changes in reassignment occur.
    In summary, we are proposing to revise Sec.  413.70(b)(3)(i) to 
specify, under paragraphs (A)(1) and (A)(2), that for CAH cost 
reporting periods beginning on or after October 1, 2010, once a CAH 
elects the optional method, including an election made for its most 
recent cost reporting period beginning prior to October 1, 2010, its 
election will remain in place until it is terminated. That is, CAHs 
would no longer be required to make an annual election in order to 
continue to be paid under the optional method in a subsequent year. If 
a CAH has not elected the optional method for its most recent cost 
reporting period beginning prior to October 1, 2010, and would like to 
be paid for outpatient services under the optional method for a cost 
reporting period beginning on or after October 1, 2010, consistent with 
our existing regulations, it would be required to provide its election 
in writing to its servicing fiscal intermediary or MAC at least 30 days 
prior to the start of the first cost reporting period for which the 
election is effective. In addition, we are proposing to revise the 
regulations to specify that if a CAH wishes to terminate its optional 
method election, it must submit its termination request to the fiscal 
intermediary or MAC servicing the CAH at least 30 days prior to the 
start of the next cost reporting period. We are proposing that CAHs 
that have cost reporting periods beginning in October 2010 or November 
2010 and elected the optional method in 2009, that wish to terminate 
that election, will have until December 1, 2010, to terminate their 
prior year election. The termination would be effective for the entire 
FY 2011 cost reporting period. We also are proposing to make a 
conforming change to paragraph (b)(3)(i)(D).
3. Costs of Provider Taxes as Allowable Costs for CAHs
a. Background and Statutory Basis
    Currently, certain taxes assessed against a provider may be 
allowable costs under Medicare to the extent that such taxes are 
related to the reasonable and necessary cost of providing patient care 
and represent costs actually incurred. Reasonable cost reimbursement is 
addressed in section 1861(v)(1)(A) of the Act. Section 1861(v)(1)(A) of 
the Act defines ``reasonable cost,'' in part, as the cost actually 
incurred, excluding costs found to be unnecessary in the efficient 
delivery of needed health services and are determined in accordance 
with regulations establishing the method or methods to be used and the 
items to be included. Section 1861(v)(1)(A) of the Act does not 
specifically address the determination of reasonable costs, but 
authorizes the Secretary to promulgate regulations and principles to be 
applied in determining reasonable costs.
    We have issued regulations implementing this provision of the Act, 
including 42 CFR 413.9(a) which provide that the determination of 
reasonable cost ``must be based on the reasonable cost of services 
covered under Medicare and related to the care of beneficiaries.'' In 
addition, Sec.  413.9(c) requires that the provision for payment of 
reasonable cost of services is intended to meet the actual costs 
incurred in providing services. Therefore, in accordance with the 
statute, the regulations include two principles that help guide the 
determination of which expenses may be considered allowable reasonable 
costs that can be paid under Medicare; that is, such costs must be 
``related'' to the care of Medicare beneficiaries, and such costs must 
actually be ``incurred.''
    Consistent with these provisions, we also have issued policy 
instructions in the Provider Reimbursement Manual (PRM) for determining 
allowable reasonable costs under Medicare. Specifically, section 2122 
of the PRM sets forth Medicare policy on determining when taxes levied 
on providers are allowable costs and provides a list of taxes that are 
considered unallowable costs. Specifically, section 2122.1 (General 
Rule) of the PRM states: ``The general rule is that taxes assessed 
against the provider, in accordance with the levying enactments of the 
several States and lower levels of government and for which the 
provider is liable for payment, are allowable costs. Tax expenses 
should not include fines and penalties.'' Section 2122.2 (Taxes Not 
Allowable as Costs) of the PRM lists certain taxes that are levied on 
providers that are not allowable costs. The listed taxes are:
     Federal income and excess profit taxes, including any 
interest or penalties paid thereon (A).
     State or local income and excess profit taxes (B).
     Taxes in connection with financing, refinancing, or 
refunding operations, such as taxes on the issuance of bonds, property 
transfers, issuance or transfer of stocks, etc. Generally, these costs 
are either amortized over the life of the securities or depreciated 
over the life of the asset. They are not, however, recognized as tax 
expense. (C)
     Taxes from which exemptions are available to the provider. 
(D)
     Special assessments on land which represent capital 
improvements such as sewers, water, and pavements should be capitalized 
and depreciated over their estimated useful lives. (E)
     Taxes on property which is not used in the rendition of 
covered services. (F)
     Taxes, such as sales taxes, levied against the patient and 
collected and remitted by the provider. (G)
     Self-employment (FICA) taxes applicable to individual 
proprietors, partners, members of a joint venture, etc. (H)
b. Proposed Clarification of Payment Policy for Provider Taxes
    We have learned that there is some confusion relating to the 
determination of whether a tax is an allowable cost. We believe that 
much of this confusion

[[Page 24019]]

has arisen because it may be possible to read sections 2122.1 and 
2122.2 of the PRM as permitting all taxes assessed on a provider by a 
State that are not specifically listed in section 2122.2 to be treated 
as allowable costs. Section 2122 of the PRM was last updated in 1979 
when States typically raised revenue only from income, sales, and 
property taxes. The list in section 2212.2 is incomplete now, as it 
does not reflect the variety of provider taxes imposed by States. In 
addition, we are concerned that, even if a particular tax may be an 
allowable cost that is related to the care of Medicare beneficiaries, 
providers may not, in fact, ``incur'' the entire amount of these 
assessed taxes. For example, in accordance with the Medicaid statute 
and regulations, some States levy tax assessments on hospitals. The 
assessed taxes may be paid by the hospitals into a fund that includes 
all taxes paid, all Federal matching monies, and any penalties for 
nonpayment. The State is then authorized to disburse monies from the 
fund to the hospitals. We believe that these types of subsequent 
disbursements to providers are associated with the assessed taxes and 
may, in fact, offset some, if not all, of the taxes originally paid by 
the hospitals.
    We believe that the treatment of these types of payments on the 
Medicare cost report should be analogous to the adjustments described 
at Sec.  413.98 of the regulations. Specifically, Sec.  413.98(d) 
provides that the ``true cost of the goods or services is the net 
amount actually paid for them.'' Section 413.98 specifically addresses 
the purchase of goods and services and reflects the statutory mandate 
that a provider's allowable costs are the net expenses it incurs for 
items and services. In situations in which payments that are associated 
with the assessed tax are made to providers specifically to make the 
provider whole or partly whole for the tax expenses, Medicare should 
similarly recognize only the net expense incurred by the provider. 
Thus, while a tax may be an allowable Medicare cost in that it is 
related to beneficiary care, the provider may only treat as a 
reasonable cost the net tax expense; that is, the tax paid by the 
provider, reduced by payments the provider received that are associated 
with the assessed tax. In addition, we do not believe that 
determinations made regarding whether the structure of specific taxes 
and subsequent reimbursements are consistent with Medicaid ``hold 
harmless'' provisions necessarily require the Medicare program to find 
that the same tax is an allowable cost. The Medicare statute and 
regulations set forth a different standard that requires a 
determination of how much of the allowable tax expense is actually 
``incurred'' by the provider.
    In this proposed rule, we are proposing to clarify our policy 
concerning when provider taxes may be considered allowable costs under 
Medicare. As stated above, section 2122 of the PRM was last updated in 
1979, and it no longer reflects the variety of provider taxes that may 
be imposed by States. Although some of the more recently enacted 
provider taxes may be allowable costs, we are concerned that some of 
these taxes may not be ``related to the care of beneficiaries'' and 
that some, if not all, of the costs of these taxes might not be 
actually ``incurred'' by the providers. This payment policy may not 
directly affect providers that are paid under a Medicare prospective 
payment system unless a cost-based prospective payment system is 
rebased on more current reported reasonable costs. However, this policy 
clarification could impact certain providers that are paid on the basis 
of their incurred reasonable costs, such as CAHs.
    Therefore, we are proposing to clarify the policy set forth in 
sections 2122.1 and 2122.2 of the PRM to reflect our concerns set forth 
above regarding when certain provider taxes may be allowable costs 
under the Medicare program. We will modify the PRM consistent with 
these principles. We believe that the proposed revision would clarify 
that our Medicare contractors will determine the allowability of 
provider taxes on a case-by-case basis, based on reasonable cost 
principles, and will determine if a reduction of the allowable tax 
expenses is proper to account for payments providers receive that are 
associated with the assessed tax.

VII. Proposed Changes to the Long-Term Care Hospital Prospective 
Payment System (LTCH PPS) for FY 2011

A. Background of the LTCH PPS

1. Legislative and Regulatory Authority
    Section 123 of the Medicare, Medicaid, and SCHIP (State Children's 
Health Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA) 
(Pub. L. 106-113) as amended by section 307(b) of the Medicare, 
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 
(BIPA) (Pub. L. 106-554) provides for payment for both the operating 
and capital-related costs of hospital inpatient stays in long-term care 
hospitals (LTCHs) under Medicare Part A based on prospectively set 
rates. The Medicare prospective payment system (PPS) for LTCHs applies 
to hospitals that are described in section 1886(d)(1)(B)(iv) of the 
Social Security Act (the Act), effective for cost reporting periods 
beginning on or after October 1, 2002.
    Section 1886(d)(1)(B)(iv)(I) of the Act defines a LTCH as ``a 
hospital which has an average inpatient length of stay (as determined 
by the Secretary) of greater than 25 days.'' Section 
1886(d)(1)(B)(iv)(II) of the Act also provides an alternative 
definition of LTCHs: Specifically, a hospital that first received 
payment under section 1886(d) of the Act in 1986 and has an average 
inpatient length of stay (LOS) (as determined by the Secretary of 
Health and Human Services (the Secretary)) of greater than 20 days and 
has 80 percent or more of its annual Medicare inpatient discharges with 
a principal diagnosis that reflects a finding of neoplastic disease in 
the 12-month cost reporting period ending in FY 1997.
    Section 123 of the BBRA requires the PPS for LTCHs to be a ``per 
discharge'' system with a diagnosis-related group (DRG) based patient 
classification system that reflects the differences in patient 
resources and costs in LTCHs.
    Section 307(b)(1) of the BIPA, among other things, mandates that 
the Secretary shall examine, and may provide for, adjustments to 
payments under the LTCH PPS, including adjustments to DRG weights, area 
wage adjustments, geographic reclassification, outliers, updates, and a 
disproportionate share adjustment.
    In the August 30, 2002 Federal Register, we issued a final rule 
that implemented the LTCH PPS authorized under the BBRA and BIPA (67 FR 
55954). This system currently uses information from LTCH patient 
records to classify patients into distinct MS-long-term care diagnosis-
related groups (MS-LTC-DRGs) based on clinical characteristics and 
expected resource needs. Payments are calculated for each MS-LTC-DRG 
and provisions are made for appropriate payment adjustments. Payment 
rates under the LTCH PPS are updated annually and published in the 
Federal Register.
    The LTCH PPS replaced the reasonable cost-based payment system 
under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) 
(Pub. L. 97-248) for payments for inpatient services provided by a LTCH 
with a cost reporting period beginning on or after October 1, 2002. 
(The regulations implementing the TEFRA reasonable cost-based payment 
provisions are located at 42 CFR Part 413.) With the implementation of 
the

[[Page 24020]]

PPS for acute care hospitals authorized by the Social Security 
Amendments of 1983 (Pub. L. 98-21), which added section 1886(d) to the 
Act, certain hospitals, including LTCHs, were excluded from the PPS for 
acute care hospitals and were paid their reasonable costs for inpatient 
services subject to a per discharge limitation or target amount under 
the TEFRA system. For each cost reporting period, a hospital-specific 
ceiling on payments was determined by multiplying the hospital's 
updated target amount by the number of total current year Medicare 
discharges. (Generally, in section VIII. of this preamble, when we 
refer to discharges, the intent is to describe Medicare discharges.) 
The August 30, 2002 final rule further details the payment policy under 
the TEFRA system (67 FR 55954).
    In the August 30, 2002 final rule, we provided for a 5-year 
transition period. During this 5-year transition period, a LTCH's total 
payment under the PPS was based on an increasing percentage of the 
Federal rate with a corresponding decrease in the percentage of the 
LTCH PPS payment that is based on reasonable cost concepts. However, 
effective for cost reporting periods beginning on or after October 1, 
2006, total LTCH PPS payments are based on 100 percent of the Federal 
rate.
    In addition, in the August 30, 2002 final rule, we presented an in-
depth discussion of the LTCH PPS, including the patient classification 
system, relative weights, payment rates, additional payments, and the 
budget neutrality requirements mandated by section 123 of the BBRA. The 
same final rule that established regulations for the LTCH PPS under 42 
CFR part 412, Subpart O also contained LTCH provisions related to 
covered inpatient services, limitation on charges to beneficiaries, 
medical review requirements, furnishing of inpatient hospital services 
directly or under arrangement, and reporting and recordkeeping 
requirements. We refer readers to the August 30, 2002 final rule for a 
comprehensive discussion of the research and data that supported the 
establishment of the LTCH PPS (67 FR 55954).
    In the June 6, 2003 Federal Register, we published a final rule 
that set forth the FY 2004 annual update of the payment rates for the 
Medicare PPS for inpatient hospital services furnished by LTCHs (68 FR 
34122). It also changed the annual period for which the payment rates 
were to be effective, such that the annual updated rates were effective 
from July 1 through June 30 instead of from October 1 through September 
30. We referred to the July through June time period as a ``long-term 
care hospital rate year'' (LTCH PPS rate year). In addition, we changed 
the publication schedule for the annual update to allow for an 
effective date of July 1. The payment amounts and factors used to 
determine the annual update of the LTCH PPS Federal rate are based on a 
LTCH PPS rate year. In the past, while the LTCH payment rate updates 
were effective July 1, the annual update of the DRG classifications and 
relative weights for LTCHs continued to be linked to the annual 
adjustments of the acute care hospital inpatient DRGs and were 
effective each October 1.
    As discussed in detail in section VIII.A.1. of the May 9, 2008 RY 
2009 LTCH PPS final rule (73 FR 26788), we again changed the schedule 
for the annual updates of the LTCH PPS Federal payment rates beginning 
with RY 2010. We consolidated the rulemaking cycle for the annual 
update of the LTCH PPS Federal payment rates and description of the 
methodology and data used to calculate these payment rates with the 
annual update of the MS-LTC-DRG classifications and associated 
weighting factors for LTCHs so that the updates to the rates and the 
weights now occur on the same schedule and appear in the same 
publication. As a result, the updates to the rates and the weights are 
now effective on October 1 (on a Federal fiscal year schedule), and the 
annual updates to the LTCH PPS Federal rates are no longer published 
with a July 1 effective date (73 FR 26797 through 26798).
    Public Law 110-173 (MMSEA), enacted on December 29, 2007, included 
provisions that have various effects on the LTCH PPS. In addition to 
amending section 1861 of the Act to add a subsection (ccc) which 
provided an additional definition of LTCHs, Public Law 110-173 also 
required the Secretary to submit, no later than 18 months after the 
date of enactment of the law, a report to Congress on a study of 
national long-term care hospital facility and patient criteria that 
included ``recommendations for such legislation and administrative 
actions, including timelines for the implementation of LTCH patient 
criteria or other actions, as the Secretary determines appropriate.'' 
The payment policy provisions under sections 114(c)(1) and 114(c)(2) of 
Public Law 110-173 focused on providing 3 years of relief for certain 
LTCHs from the percentage threshold payment adjustment policy at 42 CFR 
412.534 and 412.536. However, because of the original implementation 
schedule of those sections of the regulations, the payment provisions 
had varying timeframes of applicability (73 FR 29701 through 29704). In 
addition, section 114(c)(3) of Public Law 110-173 provided that the 
Secretary shall not apply, for the 3-year period beginning on the date 
of enactment of the Act the revision to the short-stay outlier (SSO) 
policy that was finalized in the RY 2008 LTCH PPS final rule (72 FR 
26904 and 26992). In addition, section 114(c)(4) of Public Law 110-173 
provided that the Secretary shall not, for the 3-year period beginning 
on the date of enactment of the Act, make the one-time adjustment to 
the payment rates provided for in Sec.  412.523(d)(3) or any similar 
provision (73 FR 26800 through 26804). The statute also provided that 
the base rate for RY 2008 be the same as the base rate for RY 2007 (the 
revised base rate, however, does not apply to discharges occurring on 
or after July 1, 2007, and before April 1, 2008) (73 FR 24875 through 
24877). Section 114(d) of Public Law 110-173 established a 3-year 
moratorium (with specified exceptions) on the establishment and 
classification of new LTCHs, LTCH satellites, and on the increase in 
the number of LTCH beds in existing LTCHs or satellite facilities. 
Finally, section 114(f) of Public Law 110-173 provided for an expanded 
review of medical necessity for admission and continued stay at LTCHs.
    In the RY 2009 LTCH PPS final rule (73 FR 26804 through 26812), we 
established the applicable Federal rates for RY 2009, consistent with 
section 1886(m)(2) of the Act as amended by Public Law 110-173. We also 
revised the regulations at Sec.  412.523(d)(3) to change the 
methodology for the one-time budget neutrality adjustment and to comply 
with section 114(c)(4) of Public Law 110-173. Other policy revisions 
that were necessary as a result of the statutory changes of Public Law 
110-173 were addressed in separate interim final rules with comment 
period (73 FR 24871 and 73 FR 29699). In the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule (74 FR 43976 through 43990), we address all of the 
public comments received and finalized these two interim final rules 
with comment period.
    Section 4302 of the ARRA, Public Law 111-5, enacted on February 17, 
2009, included several amendments to the provisions set forth in 
section 114 of Public Law 110-173. Specifically, section 4302(a) 
modified the effective dates of the provisions of section 114(c) of 
Public Law 110-173, described above, and added an additional category 
of LTCHs or satellite facilities that would not be subject to the 
percentage threshold payment adjustment at Sec.  412.536 for a 3-year 
period. In

[[Page 24021]]

addition, section 4302(a)(2)(A) of Public Law 111-5 added 
``grandfathered'' satellites (specified in Sec.  412.22(h)(3)(i) of the 
regulations) to those ``applicable'' LTCHs (specified in Sec.  
412.534(g) of the regulations) originally granted relief under section 
114(c) of Public Law 110-173. We issued instructions to the fiscal 
intermediaries and MACs interpreting the provisions of section 4302 of 
Public Law 111-5 (Change Request 6444). In addition, in the FY 2010 
IPPS/RY 2010 LTCH PPS final rule (43990 through 43992), we implemented 
the provisions of section 4302 of Public Law 111-5 through an interim 
final rule with comment period. We received one piece of timely 
correspondence regarding the provisions of section 4302 of Public Law 
111-5 that were implemented through the interim final rule with comment 
period that was included in the FY 2010 IPPS/RY 2010 LTCH PPS final 
rule. We plan to address this public comment and finalize the interim 
final rule with comment period in the FY 2011 IPPS/LTCH PPS final rule, 
which is scheduled to be issued by August l, 2010.
    On March 23, 2010, the Patient Protection and Affordable Care Act 
(PPACA), Public Law 111-148 was enacted. Following the enactment of 
Public Law 111-148, the Health Care and Education Reconciliation Act of 
2010, Public L. 111-152 (enacted on March 30, 2010), amended certain 
provisions of Public Law 111-148. A number of the provisions of Public 
Law 111-148, as amended by Public Law 111-152, affect the IPPS and the 
LTCH PPS and the providers and suppliers addressed in this proposed 
rule. However, due to the timing of the passage of the legislation, we 
are unable to address those provisions in this proposed rule. 
Therefore, the proposed policies and payment rates in this proposed 
rule do not reflect the new legislation. We plan to issue separate 
documents in the Federal Register addressing the provisions of Public 
Law 111-148, as amended, that affect our proposed policies and payment 
rates for FY 2011 under the IPPS and the LTCH PPS. In addition, we plan 
to issue further instructions implementing the provisions of Public Law 
111-148, as amended, that affect the policies and payment rates for FY 
2010 under the IPPS and for RY 2010 under the LTCH PPS.
2. Criteria for Classification as a LTCH
a. Classification as a LTCH
    Under the existing regulations at Sec.  412.23(e)(1) and (e)(2)(i), 
which implement section 1886(d)(1)(B)(iv)(I) of the Act, to qualify to 
be paid under the LTCH PPS, a hospital must have a provider agreement 
with Medicare and must have an average Medicare inpatient length of 
stay (LOS) of greater than 25 days. Alternatively, Sec.  
412.23(e)(2)(ii) states that for cost reporting periods beginning on or 
after August 5, 1997, a hospital that was first excluded from the PPS 
in 1986 and can demonstrate that at least 80 percent of its annual 
Medicare inpatient discharges in the 12-month cost reporting period 
ending in FY 1997 have a principal diagnosis that reflects a finding of 
neoplastic disease must have an average inpatient length of stay for 
all patients, including both Medicare and non-Medicare inpatients, of 
greater than 20 days.
b. Hospitals Excluded from the LTCH PPS
    The following hospitals are paid under special payment provisions, 
as described in Sec.  412.22(c), and therefore, are not subject to the 
LTCH PPS rules:
     Veterans Administration hospitals.
     Hospitals that are reimbursed under State cost control 
systems approved under 42 CFR Part 403.
     Hospitals that are reimbursed in accordance with 
demonstration projects authorized under section 402(a) of the Social 
Security Amendments of 1967 (Pub. L. 90-248) (42 U.S.C. 1395b-1) or 
section 222(a) of the Social Security Amendments of 1972 (Pub. L. 92-
603) (42 U.S.C. 1395b-1 (note)) (Statewide all-payer systems, subject 
to the rate-of-increase test at section 1814(b) of the Act).
     Nonparticipating hospitals furnishing emergency services 
to Medicare beneficiaries.
3. Limitation on Charges to Beneficiaries
    In the August 30, 2002 final rule, we presented an in-depth 
discussion of beneficiary liability under the LTCH PPS (67 FR 55974 
through 55975). In the RY 2005 LTCH PPS final rule (69 FR 25676), we 
clarified that the discussion of beneficiary liability in the August 
30, 2002 final rule was not meant to establish rates or payments for, 
or define Medicare-eligible expenses. Under Sec.  412.507, if the 
Medicare payment to the LTCH is the full LTC-DRG payment amount, as 
consistent with other established hospital prospective payment systems, 
a LTCH may not bill a Medicare beneficiary for more than the deductible 
and coinsurance amounts as specified under Sec.  409.82, Sec.  409.83, 
and Sec.  409.87 and for items and services as specified under Sec.  
489.30(a). However, under the LTCH PPS, Medicare will only pay for days 
for which the beneficiary has coverage until the SSO threshold is 
exceeded. Therefore, if the Medicare payment was for a SSO case (Sec.  
412.529) that was less than the full LTC-DRG payment amount because the 
beneficiary had insufficient remaining Medicare days, the LTCH could 
also charge the beneficiary for services delivered on those uncovered 
days (Sec.  412.507).
4. Administrative Simplification Compliance Act (ASCA) and Health 
Insurance Portability and Accountability Act (HIPAA) Compliance
    Claims submitted to Medicare must comply with both the 
Administrative Simplification Compliance Act (ASCA) (Pub. L. 107-105), 
and the Health Insurance Portability and Accountability Act of 1996 
(HIPAA) (Pub. L. 104-191). Section 3 of the ASCA requires that the 
Medicare Program deny payment under Part A or Part B for any expenses 
incurred for items or services ``for which a claim is submitted other 
than in an electronic form specified by the Secretary.'' Section 
1862(h) of the Act (as added by section 3(a) of the ASCA) provides that 
the Secretary shall waive such denial in two specific types of cases 
and may also waive such denial ``in such unusual cases as the Secretary 
finds appropriate'' (68 FR 48805). Section 3 of the ASCA operates in 
the context of the HIPAA regulations, which include, among other 
provisions, the transactions and code sets standards requirements 
codified at 45 CFR parts 160 and 162, subparts A and I through R 
(generally known as the Transactions Rule). The Transactions Rule 
requires covered entities, including covered health care providers, to 
conduct certain electronic healthcare transactions according to the 
applicable transactions and code sets standards.

B. Proposed Medicare Severity Long-Term Care Diagnosis-Related Group 
(MS-LTC-DRG) Classifications and Relative Weights

1. Background
    Section 123 of the BBRA requires that the Secretary implement a PPS 
for LTCHs (that is, a per discharge system with a diagnosis-related 
group (DRG)-based patient classification system reflecting the 
differences in patient resources and costs). Section 307(b)(1) of the 
BIPA modified the requirements of section 123 of the BBRA by requiring 
that the Secretary examine ``the feasibility and the impact of basing 
payment under such a system [the long-term care hospital (LTCH) PPS] on 
the use of existing (or refined) hospital

[[Page 24022]]

DRGs that have been modified to account for different resource use of 
LTCH patients, as well as the use of the most recently available 
hospital discharge data.''
    When the LTCH PPS was implemented for cost reporting periods 
beginning on or after October 1, 2002, we adopted the same DRG patient 
classification system (that is, the CMS DRGs) that was utilized at that 
time under the IPPS. As a component of the LTCH PPS, we refer to this 
patient classification system as the ``long-term care diagnosis-related 
groups (LTC-DRGs). Although the patient classification systems used 
under both the LTCH PPS and the IPPS are the same, the relative weights 
are different. The established relative weight methodology and data 
used under the LTCH PPS result in relative weights under the LTCH PPS 
that reflect ``the differences in patient resource use * * *'' of LTCH 
patients (section 123(a)(1) of the BBRA (Pub. L. 106-113)).
    As part of our efforts to better recognize severity of illness 
among patients, in the FY 2008 IPPS final rule with comment period (72 
FR 47130), the MS-DRGs and the Medicare severity long-term care 
diagnosis-related groups (MS-LTC-DRGs) were adopted under the IPPS and 
the LTCH PPS, respectively, effective beginning October 1, 2007 (FY 
2008). For a full description of the development and implementation and 
rationale for the use of the MS-DRGs and MS-LTC-DRGs, we refer readers 
to the FY 2008 IPPS final rule with comment period (72 FR 47141 through 
47175 and 47277 through 47299). (We note that, in that same final rule, 
we revised the regulations at Sec.  412.503 to specify that for LTCH 
discharges occurring on or after October 1, 2007, when applying the 
provisions of 42 CFR part 412, Subpart O applicable to LTCHs for policy 
descriptions and payment calculations, all references to LTC-DRGs would 
be considered a reference to MS-LTC-DRGs. For the remainder of this 
section, we present the discussion in terms of the current MS-LTC-DRG 
patient classification system unless specifically referring to the 
previous LTC-DRG patient classification system that was in effect 
before October 1, 2007.) We believe the MS-DRGs (and by extension, the 
MS-LTC-DRGs) represent a substantial improvement over the previous CMS 
DRGs in their ability to differentiate cases based on severity of 
illness and resource consumption.
    The MS-DRGs adopted in FY 2008 represent an increase in the number 
of DRGs by 207 (that is, from 538 to 745) (72 FR 47171). In FY 2009, an 
additional MS-DRG was adopted for a total of 746 distinct groupings (73 
FR 48497). For FY 2011, we are proposing to delete one MS-DRG and 
create two new MS-DRGs, for a net gain of one MS-DRG, as noted in 
section II. of the preamble of this proposed rule. This would result in 
747 distinct MS-DRG groupings for FY 2011. Consistent with section 123 
of the BBRA, as amended by section 307(b)(1) of the BIPA, and Sec.  
412.515, we use information derived from LTCH PPS patient records to 
classify LTCH discharges into distinct MS-LTC-DRGs based on clinical 
characteristics and estimated resource needs. We then assign an 
appropriate weight to the MS-LTC-DRGs to account for the difference in 
resource use by patients exhibiting the case complexity and multiple 
medical problems characteristic of LTCHs.
    In a departure from the IPPS, and as discussed in greater detail 
below in section VII.B.3.f. of this preamble, we use low-volume MS-LTC-
DRGs (that is, MS-LTC-DRGs with less than 25 LTCH cases) in determining 
the MS-LTC-DRG relative weights because LTCHs do not typically treat 
the full range of diagnoses as do acute care hospitals. For purposes of 
determining the relative weights for the large number of low-volume MS-
LTC-DRGs, we group all of the low-volume MS-LTC-DRGs into five 
quintiles based on average charge per discharge. (A detailed discussion 
of the initial development and application of the quintile methodology 
appears in the August 30, 2002 LTCH PPS final rule (67 FR 55978).) We 
also account for adjustments to payments for short-stay outlier (SSO) 
cases (that is, cases where the covered LOS at the LTCH is less than or 
equal to five-sixths of the geometric ALOS for the MS-LTC-DRG). 
Furthermore, we make adjustments to account for nonmonotonically 
increasing weights, when necessary. That is, theoretically, cases under 
the MS-LTC-DRG system that are more severe require greater expenditure 
of medical care resources and will result in higher average charges 
such that, in the severity levels within a base MS-LTC-DRG, the weights 
should increase monotonically with severity from the lowest to highest 
severity level. (We discuss nonmonotonicity in greater detail and our 
methodology to adjust the RY 2010 MS-LTC-DRG relative weights to 
account for nonmonotonically increasing relative weights in section 
VII.B.3.g. (Step 6) of this preamble.)
2. Patient Classifications Into MS-LTC-DRGs
a. Background
    The MS-DRGs (used under the IPPS) and the MS-LTC-DRGs (used under 
the LTCH PPS) are based on the CMS DRG structure. As noted above in 
this section, we refer to the DRGs under the LTCH PPS as MS-LTC-DRGs 
although they are structurally identical to the MS-DRGs used under the 
IPPS.
    The MS-DRGs are organized into 25 major diagnostic categories 
(MDCs), most of which are based on a particular organ system of the 
body; the remainder involve multiple organ systems (such as MDC 22, 
Burns). Within most MDCs, cases are then divided into surgical DRGs and 
medical DRGs. Surgical DRGs are assigned based on a surgical hierarchy 
that orders operating room (O.R.) procedures or groups of O.R. 
procedures by resource intensity. The GROUPER software program does not 
recognize all ICD-9-CM procedure codes as procedures affecting DRG 
assignment. That is, procedures that are not surgical (for example, 
EKG), or minor surgical procedures (for example, biopsy of skin and 
subcutaneous tissue (procedure code 86.11)) do not affect the MS-LTC-
DRG assignment based on their presence on the claim.
    Generally, under the LTCH PPS, a Medicare payment is made at a 
predetermined specific rate for each discharge and that payment varies 
by the MS-LTC-DRG to which a beneficiary's stay is assigned. Cases are 
classified into MS-LTC-DRGs for payment based on the following six data 
elements:
     Principal diagnosis;
     Additional or secondary diagnoses;
     Surgical procedures;
     Age;
     Sex; and
     Discharge status of the patient.
    Through FY 2010, the number of secondary or additional diagnoses 
and the number of surgical procedures considered for MS-DRG assignment 
was limited to eight and six, respectively. Elsewhere in this proposed 
rule, however, we are proposing that, for claims submitted on the 5010 
format beginning January 1, 2011, we would increase the capacity to 
process diagnosis and procedure codes up to 25 diagnoses and 25 
procedures. This will include one principal diagnosis and up to 24 
secondary diagnoses for severity of illness determinations. We refer 
readers to section II.G.11.c. of this preamble for a complete 
discussion of this proposed change.
    Upon the discharge of the patient from a LTCH, the LTCH must assign

[[Page 24023]]

appropriate diagnosis and procedure codes from the most current version 
of the International Classification of Diseases, Ninth Revision, 
Clinical Modification (ICD-9-CM). HIPAA Transactions and Code Sets 
Standards regulations at 45 CFR parts 160 and 162 require that no later 
than October 16, 2003, all covered entities must comply with the 
applicable requirements of Subparts A and I through R of Part 162. 
Among other requirements, those provisions direct covered entities to 
use the ASC X12N 837 Health Care Claim: Institutional, Volumes 1 and 2, 
Version 4010, and the applicable standard medical data code sets for 
the institutional health care claim or equivalent encounter information 
transaction (45 CFR 162.1002 and 45 CFR 162.1102). For additional 
information on the ICD-9-CM Coding System, we refer readers to the FY 
2008 IPPS final rule with comment period (72 FR 47241 through 47243 and 
47277 through 47281). We also refer readers to the detailed discussion 
on correct coding practices in the August 30, 2002 LTCH PPS final rule 
(67 FR 55981 through 55983). Additional coding instructions and 
examples are published in the Coding Clinic for ICD-9-CM, a product of 
the American Hospital Association. (We refer readers to section 
II.G.11. of this preamble for additional information on the annual 
revisions to the ICD-9-CM codes.)
    With respect to the ICD-9-CM coding system, we have been discussing 
the conversion to the ICD-10-CM and the ICD-10-PCS coding systems for 
many years. As is discussed in detail in section II.G.11. of this 
preamble, the ICD-10 coding systems applicable to hospital inpatient 
services will be implemented on October 1, 2013. In order for the 
industry to make the necessary conversions from ICD-9-CM to ICD-10-CM 
and ICD-10-PCS, we proposed, through the ICD-9-CM Coordination and 
Maintenance Committee, to consider a moratorium on updates to the ICD-
9-CM and ICD-10 coding sets. We refer readers to section II.G.11. of 
this preamble for additional information on the adoption of ICD-10-CM 
and ICD-10-PCS.
    To create the MS-DRGs (and by extension, the MS-LTC-DRGs), 
individual DRGs were subdivided according to the presence of specific 
secondary diagnoses designated as complications or comorbidities (CCs) 
into three, two, or one level, depending on the impact of the CCs on 
resources used for those cases. Specifically, there are sets of MS-DRGs 
that are split into 2 or 3 subgroups based on the presence or absence 
of a CC or a major complication and comorbidity (MCC). We refer readers 
to section II.D. of the FY 2008 IPPS final rule with comment period for 
a detailed discussion about the creation of MS-DRGs based on severity 
of illness levels (72 FR 47141 through 47175).
    Medicare contractors (that is, fiscal intermediaries and MACs) 
enter the clinical and demographic information submitted by LTCHs into 
their claims processing systems and subject this information to a 
series of automated screening processes called the Medicare Code Editor 
(MCE). These screens are designed to identify cases that require 
further review before assignment into a MS-LTC-DRG can be made. During 
this process, certain cases are selected for further development (74 FR 
43949).
    After screening through the MCE, each claim is classified into the 
appropriate MS-LTC-DRG by the Medicare LTCH GROUPER software on the 
basis of diagnosis and procedure codes and other demographic 
information (age, sex, and discharge status). The GROUPER software used 
under the LTCH PPS is the same GROUPER software program used under the 
IPPS. Following the MS-LTC-DRG assignment, the Medicare contractor 
determines the prospective payment amount by using the Medicare PRICER 
program, which accounts for hospital-specific adjustments. Under the 
LTCH PPS, we provide an opportunity for LTCHs to review the MS-LTC-DRG 
assignments made by the Medicare contractor and to submit additional 
information within a specified timeframe as provided in Sec.  
412.513(c).
    The GROUPER software is used both to classify past cases to measure 
relative hospital resource consumption to establish the MS-LTC-DRG 
weights and to classify current cases for purposes of determining 
payment. The records for all Medicare hospital inpatient discharges are 
maintained in the MedPAR file. The data in this file are used to 
evaluate possible MS-DRG and MS-LTC-DRG classification changes and to 
recalibrate the MS-DRG and MS-LTC-DRG relative weights during our 
annual update under both the IPPS (Sec.  412.60(e)) and the LTCH PPS 
(Sec.  412.517), respectively.
b. Proposed Changes to the MS-LTC-DRGs for FY 2011
    As specified by our regulations at Sec.  412.517(a), which requires 
that the LTC-MS-DRG classifications and relative weights be updated 
annually and consistent with our historical practice of using the same 
patient classification system under the LTCH PPS as is used under the 
IPPS, in this proposed rule, we are proposing to modify and revise the 
MS-LTC-DRG classifications effective October 1, 2010, through September 
30, 2011 (FY 2011) consistent with the proposed changes to specific MS-
DRG classifications presented above in section II.G. of this proposed 
rule (that is, proposed GROUPER Version 28.0). Therefore, the MS-LTC-
DRGs for FY 2011 presented in this proposed rule are the same as the 
proposed MS-DRGs that would be used under the IPPS for FY 2011. In 
addition, because the proposed MS-LTC-DRGs for FY 2011 are the same as 
the proposed MS-DRGs for FY 2011, the other changes that would affect 
MS-DRG (and by extension MS-LTC-DRG) assignments under Version 28.0 of 
the GROUPER discussed in section II.G. of the preamble of this proposed 
rule, including the proposed changes to the MCE software and proposed 
changes to the ICD-9-CM coding system, would also be applicable under 
the LTCH PPS for FY 2011.
3. Development of the Proposed FY 2011 MS-LTC-DRG Relative Weights
a. General Overview of the Development of the MS-LTC-DRG Relative 
Weights
    As we stated in the August 30, 2002 LTCH PPS final rule (67 FR 
55984), one of the primary goals for the implementation of the LTCH PPS 
is to pay each LTCH an appropriate amount for the efficient delivery of 
medical care to Medicare patients. The system must be able to account 
adequately for each LTCH's case-mix in order to ensure both fair 
distribution of Medicare payments and access to adequate care for those 
Medicare patients whose care is more costly. To accomplish these goals, 
we have annually adjusted the LTCH PPS standard Federal prospective 
payment system rate by the applicable relative weight in determining 
payment to LTCHs for each case.
    Although the adoption of the MS-LTC-DRGs resulted in some 
modifications of existing procedures for assigning weights in cases of 
zero volume and/or nonmonotonicity (as discussed in the FY 2008 IPPS 
final rule with comment period (72 FR 47289 through 47295) and the FY 
2009 IPPS final rule (73 FR 48542 through 48550)), the basic 
methodology for developing the proposed FY 2011 MS-LTC-DRG relative 
weights in this proposed rule continues to be determined in accordance 
with the general methodology established in the August 30, 2002 LTCH 
PPS final rule (67 FR 55989 through 55991). Under the LTCH PPS, 
relative weights for each MS-LTC-DRG are a primary element used to

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account for the variations in cost per discharge and resource 
utilization among the payment groups (Sec.  412.515). To ensure that 
Medicare patients classified to each MS-LTC-DRG have access to an 
appropriate level of services and to encourage efficiency, we calculate 
a relative weight for each MS-LTC-DRG that represents the resources 
needed by an average inpatient LTCH case in that MS-LTC-DRG. For 
example, cases in an MS-LTC-DRG with a relative weight of 2 will, on 
average, cost twice as much to treat as cases in an MS-LTC-DRG with a 
weight of 1.
b. Development of the Proposed MS-LTC-DRG Relative Weights for FY 2011
    Beginning with the FY 2008 update, we established a budget neutral 
requirement for the annual update to the MS-LTC-DRG classifications and 
relative weights at 42 CFR 412.517(b) (in conjunction with Sec.  
412.503), such that estimated aggregate LTCH PPS payments would be 
unaffected, that is, would be neither greater than nor less than the 
estimated aggregate LTCH PPS payments that would have been made without 
the classification and relative weight changes (May 11, 2007 LTCH PPS 
final rule, 72 FR 26882 through 26884).
    Consistent with Sec.  412.517(b), we apply a two-step budget 
neutrality methodology, which is based on the current year MS-LTC-DRG 
classifications and relative weights. (For additional information on 
the established two-step budget neutrality methodology, we refer 
readers to the FY 2008 IPPS final rule (72 FR 47295 through 47296).) 
Thus, the proposed annual update to the MS-LTC-DRG classifications and 
relative weights for FY 2011 is based on the FY 2010 MS-LTC-DRG 
classifications and relative weights.
c. Data
    In this proposed rule, to calculate the proposed MS-LTC-DRG 
relative weights for FY 2011, we are proposing to obtain total Medicare 
allowable charges from FY 2009 Medicare LTCH bill data from the 
December 2009 update of the MedPAR file, which are the best available 
data at this time, and to use the proposed Version 28.0 of the GROUPER 
to classify LTCH cases (as discussed above). We also are proposing that 
if more recent data become available, we would use those data and the 
finalized Version 28.0 of the GROUPER in establishing the FY 2011 MS-
LTC-DRG relative weights in the final rule.
    Consistent with our historical methodology, we excluded the data 
from LTCHs that are all-inclusive rate providers and LTCHs that are 
reimbursed in accordance with demonstration projects authorized under 
section 402(a) of Public Law 90-248 or section 222(a) of Public Law 92-
603. In addition, as is the case with the IPPS, Medicare Advantage 
(Part C) claims are now included in the MedPAR files (74 FR 43808). 
Consistent with IPPS policy, we are proposing to exclude such claims in 
the calculations for the relative weights under the LTCH PPS that are 
used to determine payments for fee-for-service Medicare claims. 
Specifically, we have added an edit to the relative weight calculation 
to remove any claims from the MedPAR files that have a GHO Paid 
indicator value of ``1,'' which effectively removes Medicare Advantage 
claims from the relative weight calculations (73 FR 48532). 
Accordingly, in the development of the proposed FY 2011 MS-LTC-DRG 
relative weights in this proposed rule, we excluded the data of 13 all-
inclusive rate providers and the 2 LTCHs that are paid in accordance 
with demonstration projects that had claims in the FY 2009 MedPAR file, 
as well as any Medicare Advantage claims.
d. Hospital-Specific Relative Value (HSRV) Methodology
    By nature, LTCHs often specialize in certain areas, such as 
ventilator-dependent patients and rehabilitation and wound care. Some 
case types (DRGs) may be treated, to a large extent, in hospitals that 
have, from a perspective of charges, relatively high (or low) charges. 
This nonrandom distribution of cases with relatively high (or low) 
charges in specific MS-LTC-DRGs has the potential to inappropriately 
distort the measure of average charges. To account for the fact that 
cases may not be randomly distributed across LTCHs, consistent with the 
methodology we have used since the implementation of the LTCH PPS, we 
are proposing to continue to use a hospital-specific relative value 
(HSRV) methodology to calculate the proposed MS-LTC-DRG relative 
weights. We believe this method removes this hospital-specific source 
of bias in measuring LTCH average charges (67 FR 55985). Specifically, 
we are reducing the impact of the variation in charges across providers 
on any particular proposed MS-LTC-DRG relative weight by converting 
each LTCH's charge for a case to a relative value based on that LTCH's 
average charge.
    Under the HSRV methodology, we standardize charges for each LTCH by 
converting its charges for each case to hospital-specific relative 
charge values and then adjust those values for the LTCH's case-mix. The 
adjustment for case-mix is needed to rescale the hospital-specific 
relative charge values (which, by definition, average 1.0 for each 
LTCH). The average relative weight for a LTCH is its case-mix, so it is 
reasonable to scale each LTCH's average relative charge value by its 
case-mix. In this way, each LTCH's relative charge value is adjusted by 
its case-mix to an average that reflects the complexity of the cases it 
treats relative to the complexity of the cases treated by all other 
LTCHs (the average case-mix of all LTCHs).
    In accordance with our established methodology, we continue to 
standardize charges for each case by first dividing the adjusted charge 
for the case (adjusted for SSOs under Sec.  412.529 as described in 
section VII.B.3.g. (step 3) of the preamble of this proposed rule) by 
the average adjusted charge for all cases at the LTCH in which the case 
was treated. SSO cases are cases with a length of stay that is less 
than or equal to five-sixths the average length of stay of the MS-LTC-
DRG (Sec.  412.529 and Sec.  412.503). The average adjusted charge 
reflects the average intensity of the health care services delivered by 
a particular LTCH and the average cost level of that LTCH. The 
resulting ratio is multiplied by that LTCH's case-mix index to 
determine the standardized charge for the case. (67 FR 55989)
    Multiplying by the LTCH's case-mix index accounts for the fact that 
the same relative charges are given greater weight at a LTCH with 
higher average costs than they would at a LTCH with low average costs, 
which is needed to adjust each LTCH's relative charge value to reflect 
its case-mix relative to the average case-mix for all LTCHs. Because we 
standardize charges in this manner, we count charges for a Medicare 
patient at a LTCH with high average charges as less resource intensive 
than they would be at a LTCH with low average charges. For example, a 
$10,000 charge for a case at a LTCH with an average adjusted charge of 
$17,500 reflects a higher level of relative resource use than a $10,000 
charge for a case at a LTCH with the same case-mix, but an average 
adjusted charge of $35,000. We believe that the adjusted charge of an 
individual case more accurately reflects actual resource use for an 
individual LTCH because the variation in charges due to systematic 
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e. Treatment of Severity Levels in Developing the Proposed MS-LTC-DRG 
Relative Weights
    For purposes of determining the proposed MS-LTC-DRG relative 
weights, there are three different categories of DRGs based on volume 
of cases within specific MS-LTC-DRGs. MS-LTC-DRGs with at least 25 
cases are each assigned a unique proposed relative weight; low-volume 
proposed MS-LTC-DRGs (that is, proposed MS-LTC-DRGs that contain 
between 1 and 24 cases based on a given year's claims data) are grouped 
into quintiles (as described below) and assigned the proposed relative 
weight of the quintile. No-volume proposed MS-LTC-DRGs (that is, no 
cases in the given year's claims data were assigned to those proposed 
MS-LTC-DRGs) are crosswalked to other proposed MS-LTC-DRGs based on the 
clinical similarities and assigned the relative weight of the 
crosswalked MS-LTC-DRG (as described in greater detail below). (We 
provide in-depth discussions of our policy regarding weight-setting for 
low-volume MS-LTC-DRGs in section VII.B.3.f. of the preamble of this 
proposed rule and for no-volume MS-LTC-DRGs, under Step 5 in section 
VII.B.3.g. of the preamble of this proposed rule.)
    As also noted above, while the LTCH PPS and the IPPS use the same 
patient classification system, the methodology that is used to set the 
DRG relative weights for use in each payment system differs because the 
overall volume of cases in the LTCH PPS is much less than in the IPPS. 
In general, consistent with our existing methodology, we are proposing 
to determine the proposed FY 2011 relative weights for the proposed MS-
LTC-DRGs using the following steps: (1) If a proposed MS-LTC-DRG has at 
least 25 cases, it is assigned its own proposed relative weight; (2) if 
a proposed MS-LTC-DRG has between 1 and 24 cases, it is assigned to a 
quintile for which we compute a proposed relative weight for all of the 
proposed MS-LTC-DRGs assigned to that quintile; and (3) if a proposed 
MS-LTC-DRG has no cases, it is crosswalked to another proposed MS-LTC-
DRG based upon clinical similarities to assign an appropriate proposed 
relative weight (as described below in detail in Step 5 of section 
VII.B.3.g. of this preamble). Furthermore, in determining the proposed 
FY 2011 MS-LTC-DRG relative weights, when necessary, we are proposing 
to make adjustments to account for nonmonotonicity, as discussed in 
greater detail below in Step 6 of section VII.B.3.g. of this preamble. 
We refer readers to the discussion in the FY 2010 IPPS/RY LTCH PPS 
final rule for our rationale for including an adjustment for 
nonmonotonicity (74 FR 43953 through 43954).
f. Low-Volume MS-LTC-DRGs
    In order to account for proposed MS-LTC-DRGs with low volume (that 
is, with fewer than 25 LTCH cases), consistent with our existing 
methodology, for purposes of determining the MS-LTC-DRG relative 
weights, we are proposing to continue to employ this quintile 
methodology for low-volume proposed MS-LTC-DRGs, such that we group 
those ``low-volume MS-LTC-DRGs'' (that is, MS-LTC-DRGs that contained 
between 1 and 24 cases annually) into one of five categories 
(quintiles) based on average charges (67 FR 55984 through 55995 and 72 
FR 47283 through 47288). In determining the proposed FY 2011 MS-LTC-DRG 
relative weights in this proposed rule, in cases where the initial 
assignment of a low-volume proposed MS-LTC-DRG to quintiles results in 
nonmonotonicity within a base-DRG, in order to ensure appropriate 
Medicare payments, consistent with our historical methodology, we are 
proposing to make adjustments to the treatment of low-volume proposed 
MS-LTC-DRGs to preserve monotonicity, as discussed in detail below in 
section VII.B.3.g. (Step 6) in this preamble.
    In this proposed rule, using LTCH cases from the December 2009 
update of the FY 2009 MedPAR file, we identified 283 MS-LTC-DRGs that 
contained between 1 and 24 cases. This list of proposed MS-LTC-DRGs was 
then divided into one of the 5 low-volume quintiles, each containing a 
minimum of 56 proposed MS-LTC-DRGs (283/5 = 56 with 3 proposed MS-LTC-
DRG as the remainder). We are proposing to assign a low-volume proposed 
MS-LTC-DRG to a specific low-volume quintile by sorting the low-volume 
proposed MS-LTC-DRGs in ascending order by average charge in accordance 
with our established methodology. Furthermore, because the number of 
proposed MS-LTC-DRGs with less than 25 cases was not evenly divisible 
by 5, the average charge of the low-volume quintile was used to 
determine which of the low-volume quintiles would contain the 3 
additional low-volume proposed MS-LTC-DRGs. Specifically, after sorting 
the 283 low-volume proposed MS-LTC-DRGs by ascending order by average 
charge, we are proposing to assign the first fifth (1st through 56th) 
of low-volume proposed MS-LTC-DRGs (with the lowest average charge) 
into Quintile 1. The proposed MS-LTC-DRGs with the highest average 
charge cases would be assigned into Quintile 5. Because the average 
charge of the 113th low-volume proposed MS-LTC-DRG in the sorted list 
is closer to the average charge of the 112th low-volume proposed MS-
LTC-DRG (assigned to Quintile 2) than to the average charge of the 
114th low-volume MS-LTC-DRG (assigned to Quintile 3), we are proposing 
to place it into Quintile 2 (such that Quintile 2 would contain 57 low-
volume proposed MS-LTC-DRGs before any adjustments for nonmonotonicity, 
as discussed below). This process was repeated through the remaining 
low-volume proposed MS-LTC-DRGs so that 2 of the 5 low-volume quintiles 
contain 56 MS-LTC-DRGs (Quintiles 1 and 4) and the other 3 low-volume 
quintiles contain 57 MS-LTC-DRGs (Quintiles 2, 3, and 5).
    Accordingly, in order to determine the proposed FY 2011 relative 
weights for the proposed MS-LTC-DRGs with low volume, we are proposing 
to use the 5 low-volume quintiles described above. The composition of 
each of the 5 low-volume quintiles shown in the chart below was used in 
determining the proposed FY 2011 MS-LTC-DRG relative weights (as shown 
in Table 11 of the Addendum to this proposed rule). We determined a 
proposed relative weight and (geometric) average length of stay for 
each of the 5 low-volume quintiles using the methodology that we 
applied to the proposed MS-LTC-DRGs (25 or more cases), as described in 
section VII.B.3.g. of the preamble of this proposed rule. We are 
proposing to assign the same proposed relative weight and average 
length of stay to each of the low-volume proposed MS-LTC-DRGs that make 
up an individual low-volume quintile. We note that, as this system is 
dynamic, it is possible that the number and specific type of MS-LTC-
DRGs with a low volume of LTCH cases will vary in the future. We use 
the best available claims data in the MedPAR file to identify low-
volume MS-LTC-DRGs and to calculate the proposed relative weights based 
on our methodology.
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    We note that we will continue to monitor the volume (that is, the 
number of LTCH cases) in the low-volume quintiles to ensure that our 
quintile assignments used in determining the proposed MS-LTC-DRG 
relative weights result in appropriate payment for such cases and do 
not result in an unintended financial incentive for LTCHs to 
inappropriately admit these types of cases.
g. Steps for Determining the Proposed FY 2011 MS-LTC-DRG Relative 
Weights
    In general, we are proposing to determine the FY 2011 MS-LTC-DRG 
relative weights based on our existing methodology. For additional 
information on the original development of this methodology, and 
modifications to it since the adoption of the MS-LTC-DRGs, we refer 
readers to the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 
55995) and the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43951 
through 43966).
    In summary, for FY 2011, to determine the proposed FY 2011 MS-LTC-
DRG relative weights, we are proposing to group LTCH cases to the 
appropriate proposed MS-LTC-DRG, while taking into account the low-
volume proposed MS-LTC-DRGs (as described above). After grouping the 
cases to the appropriate MS-LTC-DRG (or low-volume quintile), we 
calculate the proposed FY 2011 relative weights by first removing 
statistical outliers and cases with a length of stay of 7 days or less 
(as discussed in greater detail below). Next, we adjust the number of 
cases in each proposed MS-LTC-DRG (or low-volume quintile) for the 
effect of SSO cases (step 3 below). After removing statistical outliers 
(step 1 below) and cases with a length of stay of less than 8 days 
(step 2 below), the SSO adjusted discharges and corresponding charges 
are then used to calculate ``relative adjusted weights'' for each 
proposed MS-LTC-DRG (or low-volume quintile) using the HSRV method.
    Below we discuss in detail the steps for calculating the proposed 
FY 2011 MS-LTC-DRG relative weights. We note that, as we stated in 
section VII.B.3.c. of this preamble, we excluded the data of all-
inclusive rate LTCHs, LTCHs that are paid in accordance with 
demonstration projects, and any Medicare Advantage claims in the FY 
2009 MedPAR file.
    Step 1--Remove statistical outliers.
    The first step in the calculation of the proposed FY 2011 MS-LTC-
DRG relative weights is to remove statistical outlier cases. Consistent 
with our historical relative weight methodology, we are proposing to 
continue to define statistical outliers as cases that are outside of 
3.0 standard deviations from the mean of the log distribution of both 
charges per case and the charges per day for each MS-LTC-DRG. These 
statistical outliers are removed prior to calculating the proposed 
relative weights because we believe that they may represent aberrations 
in the data that distort the measure of average resource use. Including 
those LTCH cases in the calculation of the proposed relative weights 
could result in an inaccurate

[[Page 24034]]

relative weight that does not truly reflect relative resource use among 
the MS-LTC-DRGs. (For additional information on this step of the 
relative weight methodology, we refer readers to 67 FR 55989 and 74 FR 
43959.)
    Step 2--Remove cases with a length of stay of 7 days or less.
    The MS-LTC-DRG relative weights reflect the average of resources 
used on representative cases of a specific type. Generally, cases with 
a length of stay of 7 days or less do not belong in a LTCH because 
these stays do not fully receive or benefit from treatment that is 
typical in a LTCH stay, and full resources are often not used in the 
earlier stages of admission to a LTCH. If we were to include stays of 7 
days or less in the computation of the proposed FY 2011 MS-LTC-DRG 
relative weights, the value of many proposed relative weights would 
decrease and, therefore, payments would decrease to a level that may no 
longer be appropriate. We do not believe that it would be appropriate 
to compromise the integrity of the payment determination for those LTCH 
cases that actually benefit from and receive a full course of treatment 
at a LTCH by including data from these very short-stays. Therefore, 
consistent with our historical relative weight methodology, in 
determining the proposed FY 2011 MS-LTC-DRG relative weights, we are 
proposing to remove LTCH cases with a length of stay of 7 days or less. 
(For additional information on this step of the relative weight 
methodology, we refer readers to 67 FR 55989 and 74 FR 43959.)
    Step 3--Adjust charges for the effects of SSOs.
    After removing cases with a length of stay of 7 days or less, we 
are left with cases that have a length of stay of greater than or equal 
to 8 days. As the next step in the calculation of the proposed FY 2011 
MS-LTC-DRG relative weights, consistent with our historical relative 
weight methodology, we are proposing to adjust each LTCH's charges per 
discharge for those remaining cases for the effects of SSOs (as defined 
in Sec.  412.529(a) in conjunction with Sec.  412.503).
    We make this adjustment by counting an SSO case as a fraction of a 
discharge based on the ratio of the length of stay of the case to the 
average length of stay for the MS-LTC-DRG for non-SSO cases. This has 
the effect of proportionately reducing the impact of the lower charges 
for the SSO cases in calculating the average charge for the MS-LTC-DRG. 
This process produces the same result as if the actual charges per 
discharge of an SSO case were adjusted to what they would have been had 
the patient's length of stay been equal to the average length of stay 
of the MS-LTC-DRG.
    Counting SSO cases as full discharges with no adjustment in 
determining the proposed RY 2011 MS-LTC-DRG relative weights would 
lower the proposed FY 2011 MS-LTC-DRG relative weight for affected MS-
LTC-DRGs because the relatively lower charges of the SSO cases would 
bring down the average charge for all cases within an MS-LTC-DRG. This 
would result in an ``underpayment'' for non-SSO cases and an 
``overpayment'' for SSO cases. Therefore, we are proposing to adjust 
for SSO cases under Sec.  412.529 in this manner because it results in 
more appropriate payments for all LTCH cases. (For additional 
information on this step of the relative weight methodology, we refer 
readers to 67 FR 55989 and 74 FR 43959.)
    Step 4--Calculate the proposed FY 2011 MS-LTC-DRG relative weights 
on an iterative basis.
    Consistent with our historical relative weight methodology, we are 
proposing to calculate the proposed FY 2011 MS-LTC-DRG relative weights 
using the HSRV methodology, which is an iterative process. First, for 
each LTCH case, we calculate a hospital-specific relative charge value 
by dividing the SSO adjusted charge per discharge (see Step 3) of the 
LTCH case (after removing the statistical outliers (see Step 1)) and 
LTCH cases with a length of stay of 7 days or less (see Step 2) by the 
average charge per discharge for the LTCH in which the case occurred. 
The resulting ratio is then multiplied by the LTCH's case-mix index to 
produce an adjusted hospital-specific relative charge value for the 
case. An initial case-mix index value of 1.0 is used for each LTCH.
    For each proposed MS-LTC-DRG, the proposed FY 2011 relative weight 
was calculated by dividing the average of the adjusted hospital-
specific relative charge values (from above) for the proposed MS-LTC-
DRG by the overall average hospital-specific relative charge value 
across all cases for all LTCHs. Using these recalculated proposed MS-
LTC-DRG relative weights, each LTCH's average relative weight for all 
of its cases (that is, its case-mix) is calculated by dividing the sum 
of all the LTCH's proposed MS-LTC-DRG relative weights by its total 
number of cases. The LTCHs' hospital-specific relative charge values 
above is multiplied by these hospital-specific case-mix indexes. These 
hospital-specific case-mix adjusted relative charge values are then 
used to calculate a new set of proposed MS-LTC-DRG relative weights 
across all LTCHs. This iterative process was continued until there is 
convergence between the weights produced at adjacent steps, for 
example, when the maximum difference is less than 0.0001.
    Step 5--Determine a proposed FY 2011 relative weight for MS-LTC-
DRGs with no LTCH cases.
    As we stated above, we are proposing to determine the proposed FY 
2011 relative weight for each proposed MS-LTC-DRG using total Medicare 
allowable charges reported in the best available LTCH claims data (that 
is, the December 2009 update of the FY 2009 MedPAR file for this 
proposed rule). Using these data, we identified a number of proposed 
MS-LTC-DRGs for which there were no LTCH cases in the database, such 
that no patients who would have been classified to those proposed MS-
LTC-DRGs were treated in LTCHs during FY 2009 and, therefore, no charge 
data were available for these proposed MS-LTC-DRGs. Thus, in the 
process of determining the proposed MS-LTC-DRG relative weights, we 
were unable to calculate proposed relative weights for the proposed MS-
LTC-DRGs with no LTCH cases using the methodology described in Steps 1 
through 4 above. However, because patients with a number of the 
diagnoses under these proposed MS-LTC-DRGs may be treated at LTCHs, 
consistent with our historical methodology, we are proposing to assign 
a proposed relative weight to each of the no-volume proposed MS-LTC-
DRGs based on clinical similarity and relative costliness (with the 
exception of ``transplant'' proposed MS-LTC-DRGs and ``error'' proposed 
MS-LTC-DRGs, as discussed below). (For additional information on this 
step of the relative weight methodology, we refer readers to 67 FR 
55991 and 74 FR 43959 through 43960.)
    In general, we determined proposed FY 2011 relative weights for the 
proposed MS-LTC-DRGs with no LTCH cases in the FY 2009 MedPAR file used 
in this proposed rule (that is, ``no-volume'' proposed MS-LTC-DRGs) by 
crosswalking each no-volume proposed MS-LTC-DRG to another proposed MS-
LTC-DRG with a calculated proposed relative weight (determined in 
accordance with the methodology described above). Then, the ``no-
volume'' proposed MS-LTC-DRG is assigned the same proposed relative 
weight (and average length of stay) of the proposed MS-LTC-DRG to which 
it was crosswalked (as described in greater detail below).
    Of the 747 proposed MS-LTC-DRGs for FY 2011, we identified 223 
proposed MS-LTC-DRGs for which there were no LTCH cases in the database 
(including

[[Page 24035]]

the 8 ``transplant'' proposed MS-LTC-DRGs and 2 ``error'' proposed MS-
LTC-DRGs). As stated above, we are proposing to assign proposed 
relative weights for each of the 213 no-volume proposed MS-LTC-DRGs 
(with the exception of the 8 ``transplant'' proposed MS-LTC-DRGs and 
the 2 ``error'' proposed MS-LTC-DRGs, which are discussed below) based 
on clinical similarity and relative costliness to one of the remaining 
524 (747--223 = 524) proposed MS-LTC-DRGs for which we were able to 
determine proposed relative weights based on FY 2009 LTCH claims data 
using the steps described above. (For the remainder of this discussion, 
we refer to the proposed ``crosswalked'' MS-LTC-DRGs as the proposed 
MS-LTC-DRGs to which we are proposing to crosswalk one of the 213 ``no 
volume'' proposed MS-LTC-DRGs for purposes of determining a proposed 
relative weight.) Then, we are proposing to assign the no-volume 
proposed MS-LTC-DRG the proposed relative weight of the proposed 
crosswalked MS-LTC-DRG. (As explained below in Step 6, when necessary, 
we made adjustments to account for nonmonotonicity.)
    In this proposed rule, we are proposing to use the following 
methodology for determining the proposed FY 2011 relative weights for 
the no-volume proposed MS-LTC-DRGs: We crosswalk the no-volume proposed 
MS-LTC-DRG to a proposed MS-LTC-DRG for which there were LTCH cases in 
the FY 2009 MedPAR file and to which it is similar clinically in 
intensity of use of resources and relative costliness as determined by 
criteria such as care provided during the period of time surrounding 
surgery, surgical approach (if applicable), length of time of surgical 
procedure, postoperative care, and length of stay. We evaluate the 
relative costliness in determining the applicable proposed MS-LTC-DRG 
to which a no-volume proposed MS-LTC-DRG was crosswalked in order to 
assign an appropriate proposed relative weight for the no-volume MS-
LTC-DRGs in FY 2011. (For more detail on our process for evaluating 
relative costliness, we refer readers to the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule (73 FR 48543).) We believe in the rare event that there 
would be a few LTCH cases grouped to one of the no-volume proposed MS-
LTC-DRGs in FY 2011, the proposed relative weights assigned based on 
the crosswalked proposed MS-LTC-DRGs would result in an appropriate 
LTCH PPS payment because the proposed crosswalks, which are based on 
similar clinical similarity and relative costliness, generally require 
equivalent relative resource use.
    We then assign the proposed relative weight of the crosswalked 
proposed MS-LTC-DRG as the proposed relative weight for the no-volume 
proposed MS-LTC-DRG such that both of these MS-LTC-DRGs (that is, the 
no-volume proposed MS-LTC-DRG and the crosswalked proposed MS-LTC-DRG) 
would have the same proposed relative weight for FY 2011. We note that 
if the crosswalked proposed MS-LTC-DRG had 25 cases or more, its 
proposed relative weight, which is calculated using the methodology 
described in Steps 1 through 4 above, is assigned to the no-volume 
proposed MS-LTC-DRG as well. Similarly, if the MS-LTC-DRG to which the 
no-volume proposed MS-LTC-DRG is crosswalked has 24 or less cases and, 
therefore, is designated to one of the low-volume quintiles for 
purposes of determining the proposed relative weights, we assign the 
proposed relative weight of the applicable low-volume quintile to the 
no-volume proposed MS-LTC-DRG such that both of these proposed MS-LTC-
DRGs (that is, the no-volume proposed MS-LTC-DRG and the crosswalked 
proposed MS-LTC-DRG) have the same proposed relative weight for FY 
2011. (As we noted above, in the infrequent case where nonmonotonicity 
involving a no-volume proposed MS-LTC-DRG results, additional measures 
as described in Step 6 are required in order to maintain monotonically 
increasing proposed relative weights.)
    For this proposed rule, a list of the no-volume MS-LTC-DRGs and the 
proposed MS-LTC-DRG to which it is crosswalked (that is, the 
crosswalked MS-LTC-DRG) for FY 2011 is shown in the chart below.
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BILLING CODE 4120-01-C
    To illustrate this methodology for determining the proposed 
relative weights for the proposed FY 2011 MS-LTC-DRGs with no LTCH 
cases, we are providing the following example, which refers to the no-
volume proposed MS-LTC-DRGs crosswalk information for FY 2011 provided 
in the chart above.

    Example:  There were no cases in the FY 2009 MedPAR file used 
for this proposed rule for MS-LTC-DRG 61 (Acute Ischemic Stroke with 
Use of Thrombolytic Agent with MCC). We determined that proposed MS-
LTC-DRG 70 (Nonspecific Cebrovascular Disorders with MCC) was 
similar clinically and based on resource use to MS-LTC-DRG 61. 
Therefore, we assigned the same proposed relative weight of MS-LTC-
DRG 70 of 0.9204 for FY 2011 to MS-LTC-DRG 61 (Table 11 of the 
Addendum to this proposed rule).

[[Page 24042]]

    Furthermore, for FY 2011, consistent with our historical relative 
weight methodology, we are proposing to establish MS-LTC-DRG relative 
weights of 0.0000 for the following transplant proposed MS-LTC-DRGs: 
Heart Transplant or Implant of Heart Assist System with MCC (proposed 
MS-LTC-DRG 1); Heart Transplant or Implant of Heart Assist System 
without MCC (proposed MS-LTC-DRG 2); Liver Transplant with MCC or 
Intestinal Transplant (proposed MS-LTC-DRG 5); Liver Transplant without 
MCC (proposed MS-LTC-DRG 6); Lung Transplant (proposed MS-LTC-DRG 7); 
Simultaneous Pancreas/Kidney Transplant (proposed MS-LTC-DRG 8); 
Pancreas Transplant (proposed MS-LTC-DRG 10); and Kidney Transplant 
(proposed MS-LTC-DRG 652). This is because Medicare will only cover 
these procedures if they are performed at a hospital that has been 
certified for the specific procedures by Medicare and presently no LTCH 
has been so certified. At the present time, we only include these eight 
transplant MS-LTC-DRGs in the GROUPER program for administrative 
purposes only. Because we use the same GROUPER program for LTCHs as is 
used under the IPPS, removing these MS-LTC-DRGs would be 
administratively burdensome. (For additional information regarding our 
treatment of transplant MS-LTC-DRGs, we refer readers to the RY 2010 
LTCH PPS final rule (74 FR 43964).) Again, we note that, as this system 
is dynamic, it is entirely possible that the number of MS-LTC-DRGs with 
no volume of LTCH cases based on the system will vary in the future. We 
used the most recent available claims data in the MedPAR file to 
identify no-volume MS-LTC-DRGs and to determine the proposed relative 
weights in this proposed rule.
    Step 6--Adjust the proposed FY 2011 MS-LTC-DRG relative weights to 
account for nonmonotonically increasing relative weights.
    As discussed earlier in this section, the MS-DRGs contain base DRGs 
that have been subdivided into one, two, or three severity of illness 
levels. Where there are three severity levels, the most severe level 
has at least one code that is referred to as an MCC (that is, major 
complication or comorbidity). The next lower severity level contains 
cases with at least one code that is a CC (that is, complication or 
comorbidity). Those cases without an MCC or a CC are referred to as 
``without CC/MCC.'' When data do not support the creation of three 
severity levels, the base DRG is subdivided into either two levels or 
the base DRG is not subdivided. The two-level subdivisions could 
consist of the with CC/MCC and the without CC/MCC. Alternatively, the 
other type of two-level subdivision may consist of the MCC and without 
MCC.
    In those base MS-LTC-DRGs that are split into either two or three 
severity levels, cases classified into the ``without CC/MCC'' MS-LTC-
DRG are expected to have a lower resource use (and lower costs) than 
the ``with CC/MCC'' MS-LTC-DRG (in the case of a two-level split) or 
both the ``with CC'' and the ``with MCC'' MS-LTC-DRGs (in the case of a 
three-level split). That is, theoretically, cases that are more severe 
typically require greater expenditure of medical care resources and 
will result in higher average charges. Therefore, in the three severity 
levels, relative weights should increase by severity, from lowest to 
highest. If the relative weights decrease as severity decreased (that 
is, if within a base MS-LTC-DRG, an MS-LTC-DRG with CC has a higher 
relative weight than one with MCC, or the MS-LTC-DRG without CC/MCC has 
a higher relative weight than either of the others), they are 
nonmonotonic. We continue to believe that utilizing nonmonotonic 
relative weights to adjust Medicare payments would result in 
inappropriate payments because the payment for the cases in the higher 
severity level in a base MS-LTC-DRG (which are generally expected to 
have higher resource use and costs) would be lower than the payment for 
cases in a lower severity level within the same base MS-LTC-DRG (which 
are generally expected to have lower resource use and costs). 
Consequently, in determining the proposed FY 2011 MS-LTC-DRG relative 
weights in this proposed rule, consistent with our historical 
methodology, we are proposing to combine MS-LTC-DRG severity levels 
within a base MS-LTC-DRG for the purpose of computing a relative weight 
when necessary to ensure that monotonicity is maintained. For a 
comprehensive description of our existing methodology to adjust for 
nonmonotonicity, we refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule (74 FR 43964 through 43966). Any adjustments for 
nonmonotonicity that were made in determining the proposed FY 2011 MS-
LTC-DRG relative weights in this proposed rule by applying this 
methodology are denoted in Table 11 of the Addendum to this proposed 
rule.
    Step 7-- Calculate the proposed FY 2011 budget neutrality factor.
    As we established in the RY 2008 LTCH PPS final rule (72 FR 26882), 
under the broad authority conferred upon the Secretary to develop the 
LTCH PPS under section 123 of Public Law 106-113, as amended by section 
307(b) of Public Law 106-554, beginning with the MS-LTC-DRG update for 
FY 2008, the annual update to the MS-LTC-DRG classifications and 
relative weights is done in a budget neutral manner such that estimated 
aggregate LTCH PPS payments would be unaffected, that is, would be 
neither greater than nor less than the estimated aggregate LTCH PPS 
payments that would have been made without the MS-LTC-DRG 
classification and relative weight changes (Sec.  412.517(b) in 
conjunction with Sec.  412.503). (For a detailed discussion on the 
establishment of the budget neutrality requirement to update the MS-
LTC-DRG classifications and relative weights, we refer readers to the 
RY 2008 LTCH PPS final rule (72 FR 26881).)
    The MS-LTC-DRG classifications and relative weights are updated 
annually based on the most recent available LTCH claims data to reflect 
changes in relative LTCH resource use (Sec.  412.517(a) in accordance 
with Sec.  412.503). Under the budget neutrality requirement at Sec.  
412.517(b), for each annual update, the MS-LTC-DRG relative weights are 
uniformly adjusted to ensure that estimated aggregate payments under 
the LTCH PPS would not be affected (that is, decreased or increased). 
Consistent with that provision, we are proposing to update the proposed 
MS-LTC-DRG classifications and relative weights for FY 2011 based on 
the most recent available LTCH data, and to apply a budget neutrality 
adjustment in determining the proposed FY 2011 MS-LTC-DRG relative 
weights.
    To ensure budget neutrality in the proposed update to the MS-LTC-
DRG classifications and relative weights under Sec.  412.517(b), we are 
proposing to continue to use our established two-step budget neutrality 
methodology. Specifically, in the first step of our MS-LTC-DRG budget 
neutrality methodology, we calculate and apply a normalization factor 
to the proposed recalibrated relative weights (the result of Steps 1 
through 6 above) to ensure that estimated payments are not influenced 
by changes in the composition of case types or the changes to the 
classification system. That is, the normalization adjustment is 
intended to ensure that the recalibration of the proposed MS-LTC-DRG 
relative weights (that is, the process itself) neither increases nor 
decreases the average CMI.
    To calculate the proposed normalization factor for FY 2011 (the 
first step of our budget neutrality methodology), we are proposing to 
use

[[Page 24043]]

the following three steps: (1.a.) We use the most recent available LTCH 
claims data (FY 2009) and group them using the proposed FY 2011 GROUPER 
(Version 28.0) and the proposed recalibrated FY 2011 MS-LTC-DRG 
relative weights (determined in steps 1 through 6 of the Steps for 
Determining the Proposed FY 2011 MS-LTC-DRG Relative Weights above) to 
calculate the average CMI; (1.b.) we group the same LTCH claims data 
(FY 2009) using the FY 2010 GROUPER (Version 27.0) and FY 2010 MS-LTC-
DRG relative weights and calculate the average CMI; and (1.c.) we 
compute the ratio of these average CMIs by dividing the average CMI for 
FY 2010 (determined in Step 1.b.) by the average CMI for FY 2011 
(determined in step 1.a.). In determining the proposed MS-LTC-DRG 
relative weights for FY 2011, each recalibrated MS-LTC-DRG relative 
weight is multiplied by 1.10362 in the first step of the budget 
neutrality methodology, which produces ``normalized relative weights.''
    In the second step of our MS-LTC-DRG budget neutrality methodology, 
we determine a budget neutrality factor to ensure that estimated 
aggregate LTCH PPS payments (based on the most recent available LTCH 
claims data) after reclassification and recalibration (that is, the 
proposed FY 2011 MS-LTC-DRG classifications and relative weights) are 
equal to estimated aggregate LTCH PPS payments before reclassification 
and recalibration (that is, the FY 2010 MS-LTC-DRG classifications and 
relative weights). Accordingly, consistent with our existing 
methodology, we are proposing to use FY 2009 discharge data to simulate 
payments and compare estimated aggregate LTCH PPS payments using the FY 
2010 MS-LTC-DRGs and relative weights to estimate aggregate LTCH PPS 
payments using the proposed FY 2011 MS-LTC-DRGs and relative weights. 
As noted above, the most recent available LTCH claims data for this 
proposed rule are from the December 2009 update of the FY 2009 MedPAR 
file. Consistent with our historical policy of using the best available 
data, we are proposing to use the most recently available claims data 
for determining the budget neutrality adjustment factor in the final 
rule.
    For this proposed rule, we determined the proposed FY 2011 budget 
neutrality adjustment factor rule using the following three steps: 
(2.a.) we simulate estimated total LTCH PPS payments using the 
normalized proposed relative weights for FY 2011 and GROUPER Version 
28.0 (as described above); (2.b.) we simulate estimated total LTCH PPS 
payments using the FY 2010 GROUPER (Version 27.0) and the FY 2010 MS-
LTC-DRG relative weights shown in Table 11 of the FY 2010 IPPS/RY 2010 
LTCH PPS final rule (74 FR 44183 through 44192); and (2.c.) we 
calculate the ratio of these estimated total LTCH PPS payments by 
dividing the estimated total LTCH PPS payments using the FY 2010 
GROUPER (Version 27.0) and the FY 2010 MS-LTC-DRG relative weights 
(determined in step 2.b.) by the estimated total LTCH PPS payments 
using the proposed FY 2011 GROUPER (Version 28.0) and the normalized 
proposed MS-LTC-DRG relative weights for FY 2011 (determined in Step 
2.a.). In determining the proposed FY 2011 MS-LTC-DRG relative weights, 
each normalized proposed relative weight is multiplied by a budget 
neutrality factor of 0.987575 in the second step of the budget 
neutrality methodology to determine the proposed budget neutral FY 2011 
relative weight for each MS-LTC-DRG.
    Accordingly, in determining the proposed FY 2011 MS-LTC-DRG 
relative weights in this proposed rule, consistent with our existing 
methodology, we are proposing to apply a normalization factor of 
1.10362 and a budget neutrality factor of 0.987575 (computed as 
described above).
    Table 11 in the Addendum to this proposed rule lists the proposed 
MS-LTC-DRGs and their respective proposed relative weights, geometric 
mean length of stay, and five-sixths of the geometric mean length of 
stay (used in determining SSO payments under Sec.  412.529) for FY 
2011. The proposed FY 2011 MS-LTC-DRG relative weights in Table 11 in 
the Addendum to this proposed rule reflect both the proposed 
normalization factor of 1.10362 and the proposed budget neutrality 
factor of 0.987575.

C. Proposed Changes to the LTCH Payment Rates and Other Changes to the 
FY 2011 LTCH PPS

1. Overview of Development of the LTCH Payment Rates
    The LTCH PPS was effective beginning with a LTCH's first cost 
reporting period beginning on or after October 1, 2002. Effective 
beginning with that cost reporting period, LTCHs were paid, during a 5-
year transition period, a total LTCH prospective payment that was 
comprised of an increasing proportion of the LTCH PPS Federal rate and 
a decreasing proportion based on reasonable cost-based principles, 
unless the hospital made a one-time election to receive payment based 
on 100 percent of the Federal rate, as specified in Sec.  412.533. New 
LTCHs (as defined at Sec.  412.23(e)(4)) are paid based on 100 percent 
of the Federal rate, with no phase-in transition payments.
    The basic methodology for determining LTCH PPS Federal prospective 
payment rates is set forth at Sec.  412.515 through Sec.  412.536. In 
this section, we discuss the factors that would be used to update the 
LTCH PPS standard Federal rate for the FY 2011 that would be effective 
for LTCH discharges occurring on or after October 1, 2010 through 
September 30, 2011.
    For further details on the development of the FY 2003 standard 
Federal rate, we refer readers to the August 30, 2002 LTCH PPS final 
rule (67 FR 56027 through 56037), and for subsequent updates to the 
LTCH PPS Federal rate, we refer readers to the following final rules: 
RY 2004 LTCH PPS final rule (68 FR 34134 through 34140), RY 2005 LTCH 
PPS final rule (69 FR 25682 through 25684), RY 2006 LTCH PPS final rule 
(70 FR 24179 through 24180), RY 2007 LTCH PPS final rule (71 FR 27819 
through 27827), RY 2008 LTCH PPS final rule (72 FR 26870 through 
27029), RY 2009 LTCH PPS final rule (73 FR 26800 through 26804), and RY 
2010 LTCH PPS final rule (74 FR 44021 through 44030). The proposed 
update to the LTCH PPS standard Federal rate for FY 2011 is presented 
in section V.A. of the Addendum to this proposed rule. The two 
components of the proposed update to the LTCH PPS standard Federal rate 
for FY 2011 are discussed below.
2. Market Basket for LTCHs Reimbursed Under the LTCH PPS
a. Overview
    Historically, the Medicare program has used a market basket to 
account for price increases in the services furnished by providers. The 
market basket used for the LTCH PPS includes both operating and 
capital-related costs of LTCHs because the LTCH PPS uses a single 
payment rate for both operating and capital-related costs. With the 
initial implementation of the LTCH PPS for FY 2003, we established the 
use of the excluded hospital with capital market basket as the LTCH PPS 
market basket (67 FR 56016 through 56017). The development of the 
initial LTCH PPS standard Federal rate for FY 2003, using the excluded 
hospital with capital market basket, is discussed in further detail in 
the August 30, 2002 LTCH PPS final rule (67 FR 56027 through 56033). 
For further details on the development of the excluded hospital with 
capital market basket, we refer readers to the RY 2004 LTCH PPS final 
rule (68 FR 34134 through 34137).

[[Page 24044]]

    Beginning in RY 2007, we adopted the rehabilitation, psychiatric, 
long-term care (RPL) hospital market basket based on FY 2002 data as 
the appropriate market basket of goods and services under the LTCH PPS 
for discharges occurring on or after July 1, 2006. As discussed in the 
RY 2007 LTCH PPS final rule (71 FR 27810), based on our research, we 
did not develop a market basket specific to LTCH services. We were 
unable to create a separate market basket specifically for LTCHs at 
that time due to the small number of facilities and the limited amount 
of data that was reported.
    For further details on the development of the FY 2002-based RPL 
market basket, we refer readers to the RY 2007 LTCH PPS final rule (71 
FR 27810 through 27817).
b. Market Basket Under the LTCH PPS for FY 2011
    When we initially created the FY 2002-based RPL market basket, we 
were unable to create a separate market basket specifically for LTCHs 
due, in part, to the small number of facilities and the limited data 
that were provided in the Medicare cost reports. Over the last several 
years, however, the number of LTCH facilities submitting valid Medicare 
cost report data has increased. Based on this development, as well as 
our desire to move from one RPL market basket to three stand-alone and 
provider-specific market baskets (for IRFs, IPFs, and LTCHs, 
respectively), we plan to begin exploring the viability of creating 
these market baskets for future use. However, as we discussed in the RY 
2010 LTCH PPS final rule (74 FR 43967 through 43968), we are conducting 
further research to assist us in understanding the reasons for the 
variations in costs and cost structure between freestanding IRFs and 
hospital-based IRFs. We also are researching the reasons for similar 
variations in costs and cost structure between freestanding IPFs and 
hospital-based IPFs. Therefore, as we continue to explore the 
development of stand-alone market baskets for LTCHs, IRFs and IPFs, 
respectively, we believe that it is appropriate to continue to use the 
FY 2002-based RPL market basket for LTCHs, IRFs and IPFs under their 
respective PPSs.
    In addition, for the reasons discussed when we adopted the RPL 
market basket for use under the LTCH PPS in the RY 2007 LTCH PPS final 
rule (71 FR 27810 through 27817), we continue to believe that the RPL 
market basket appropriately reflect the cost structure of LTCHs. For 
the reasons explained above, in this proposed rule, we are proposing to 
continue to use the FY 2002-based RPL market basket under the LTCH PPS 
for FY 2011. We are hopeful that progress can be made in the near 
future with respect to creating stand-alone market baskets for LTCHs, 
IRFs, and IPFs and, as a result, may propose to rebase the appropriate 
market basket(s) for subsequent updates in the future.
c. Proposed Market Basket Update for LTCHs for FY 2011
    Consistent with our historical practice, we estimate the RPL market 
basket update based on IHS Global Insight, Inc.'s forecast using the 
most recent available data. IHS Global Insight, Inc. is a nationally 
recognized economic and financial forecasting firm that contracts with 
CMS to forecast the components of the hospital market baskets. Based on 
IHS Global Insight Inc.'s first quarter 2010 forecast, the proposed FY 
2011 market basket estimate for the LTCH PPS using the FY 2002-based 
RPL market basket is 2.4 percent. Consistent with our historical 
practice of using market basket estimates based on the most recent 
available data, we are proposing that if more recent data are available 
when we develop the final rule, we would use such data, if appropriate. 
(We note that in section V. of the Addendum to this proposed rule, for 
FY 2011, we are proposing to update the LTCH PPS standard Federal rate 
by -0.1 percent. This proposed update reflects an adjustment based on 
the most recent market basket estimate (currently 2.4 percent, as 
discussed above) and a proposed adjustment to account for the increase 
in case-mix in the prior periods (FYs 2008 through 2009) that resulted 
from changes in documentation and coding practices rather than 
increases in patients' severity of illness.)
d. Proposed Labor-Related Share Under the LTCH PPS for FY 2011
    As discussed in section V.B. of the Addendum to this proposed rule, 
under the authority of section 123 of the BBRA as amended by section 
307(b) of the BIPA, we established an adjustment to the LTCH PPS 
payments to account for differences in LTCH area wage levels at Sec.  
412.525(c). The labor-related portion of the LTCH PPS Federal rate, 
hereafter referred to as the labor-related share, is adjusted to 
account for geographic differences in area wage levels by applying the 
applicable LTCH PPS wage index.
    The labor-related share is determined by identifying the national 
average proportion of operating and capital costs that are related to, 
influenced by, or vary with the local labor market. We continue to 
classify a cost category as labor-related if the costs are labor-
intensive and vary with the local labor market. Consistent with our 
proposal to continue to use the FY 2002-based RPL market basket under 
the LTCH PPS for FY 2011 discussed above, we are proposing to continue 
to define the labor-related share as the national average proportion of 
operating costs that are attributable to wages and salaries, employee 
benefits, contract labor, professional fees, labor-intensive services, 
and a labor-related portion of capital based on the FY 2002-based RPL 
market basket. (Additional information on the development of the FY 
2002-based RPL market basket used under the LTCH PPS can be found in 
the RY 2007 LTCH PPS final rule (71 FR 27809 through 27818).)
    Furthermore, for FY 2011, we are proposing to continue to define 
the LTCH PPS labor-related share as the national average proportion of 
operating costs (wages and salaries, employee benefits, professional 
fees, and all other labor-intensive services) and a labor-related 
portion of capital costs based on the FY 2002-based RPL market basket. 
Consistent with our historical practice of using the best available 
data, we are proposing to use IHS Global Insight, Inc.'s first quarter 
2010 forecast of the FY 2002-based RPL market basket for FY 2011 to 
determine the proposed labor-related share for the LTCH PPS for FY 2011 
that would be effective for discharges occurring on or after October 1, 
2010, and through September 30, 2011, as these are the most recent 
available data.
    The proposed labor-related share for FY 2011 would be the sum of 
the proposed FY 2011 relative importance of each labor-related cost 
category, and would reflect the different rates of price change for 
these cost categories between the base year (FY 2002) and FY 2011. The 
sum of the proposed relative importance for FY 2011 for operating costs 
(wages and salaries, employee benefits, professional fees, and all-
other labor-intensive services) would be 71.537 percent, as shown in 
the chart below. The portion of capital that is influenced by the local 
labor market is estimated to be 46 percent. Because the relative 
importance for capital in FY 2011 would be 8.414 percent of the FY 
2002-based RPL market basket, we are proposing to take 46 percent of 
8.414 percent to determine the proposed labor-related share of capital 
for FY 2011. The result would be 3.870 percent, which we are proposing 
to add to 71.537 percent for the operating cost amount to determine the 
total proposed

[[Page 24045]]

labor-related share for FY 2011. Thus, the labor-related share that we 
are proposing to use for LTCH PPS in FY 2011 would be 75.407 percent.
    The chart below shows the proposed FY 2011 relative importance 
labor-related share using the FY 2002-based RPL market basket.

   Proposed FY 2011 Labor-Related Share Based on the FY 2002-Based RPL
                              Market Basket
------------------------------------------------------------------------
                                                     FY 2011 relative
                 Cost category                     importance (percent)
------------------------------------------------------------------------
Wages and Salaries.............................                   52.590
Employee Benefits..............................                   13.987
Professional Fees..............................                    2.848
All Other Labor-Intensive Services.............                    2.112
                                                ------------------------
    Subtotal...................................                   71.537
                                                ========================
Labor-Related Share of Capital Costs (46                           3.870
 percent x 8.414)..............................
------------------------------------------------------------------------
    Total Labor-Related Share..................                   75.407
------------------------------------------------------------------------

    Accordingly, under the authority set forth in section 123 of the 
BBRA as amended by section 307(b) of the BIPA, we are proposing to 
establish a labor-related share of 75.407 percent under the LTCH PPS 
for the FY 2011. Furthermore, consistent with our historical practice 
of using the best data available, we also are proposing that if more 
recent data are available to determine the labor-related share used 
under the LTCH PPS for FY 2011, we would use these data for determining 
the FY 2011 LTCH PPS labor-related share in the final rule.
3. Proposed Adjustment for Changes in LTCHs' Case-Mix Due to Changes in 
Documentation and Coding Practices That Occurred in a Prior Period
a. Background
    Beginning in RY 2007, in updating the standard Federal rate for the 
LTCH PPS, we have accounted for increases in payments from a past 
period that were due to changes in case-mix due to changes in 
documentation and coding practices. For additional information on the 
adjustments established for changes in LTCHs' case-mix due to changes 
in documentation and coding practices that occurred in a prior period, 
we refer readers to the following final rules published in the Federal 
Register: The RY 2007 LTCH PPS final rule (71 FR 27820); the RY 2008 
LTCH PPS final rule (72 FR 26880 through 26890); the RY 2009 LTCH PPS 
final rule (73 FR 26805 through 26812); and the FY 2010IPPS/RY 2010 
LTCH PPS final rule (74 FR 43969 through 43970).
    For RY 2010, we performed an analysis of LTCHs' case-mix index 
(CMI) changes in the prior periods (FY 2007 and FY 2008) and 
established a methodology to determine if an adjustment to account for 
changes in documentation and coding practices was applicable (74 FR 
43969 through 43970). This methodology is consistent with the 
methodology established for case-mix analysis under the IPPS. In 
general, under our established methodology, in order to isolate the 
documentation and coding effect, we divided the combined effect of the 
changes in documentation and coding and measurement by the measurement 
effect (74 FR 43970).
    For the RY 2010 LTCH PPS proposed rule, we performed a 
retrospective evaluation of the FY 2007 and FY 2008 data for LTCH 
claims paid through December 2008. Based on this evaluation, our 
actuaries determined that case-mix increased 0.5 percent in FY 2007 and 
1.3 percent in FY 2008 due to documentation and coding that did not 
reflect real changes in case-mix. In light of this analysis, in the RY 
2010 LTCH PPS proposed rule, we proposed to apply a cumulative 
adjustment for changes in documentation and coding that do not reflect 
an increase in patients' severity of illness of -1.8 percent (that is, 
-0.5 percent for FY 2007 plus -1.3 percent for FY 2008). We also 
invited public comment on our proposed methodology and analysis. (For 
additional information on our methodology and the results of the 
retrospective evaluation, we refer reader to sections VIII.C.3. of the 
preamble of the FY 2010 IPPS/RY 2010 LTCH PPS proposed and final rules 
(74 FR 24229 through 24230 and 74 FR 43970 through 43972, 
respectively).)
    In the FY 2010 IPPS/LTCH PPS final rule, we responded to comments 
on our methodology for the retrospective evaluation of FY 2007 and FY 
2008 claims data, as well as our proposed -1.8 percent documentation 
and coding adjustment for RY 2010. In that same final rule, we 
finalized our proposal and established an adjustment of -0.5 percent to 
account for the documentation and coding increase that occurred in FY 
2007. However, after consideration of public comments, and consistent 
with the decision to postpone the application of the prospective 
adjustment for estimated FY 2008 documentation and coding increases 
under the IPPS, we delayed the application of the FY 2008 documentation 
and coding adjustment of -1.3 percent that was proposed under the LTCH 
PPS for RY 2010. We also stated our intent to address any future 
documentation and coding adjustment to the LTCH PPS standard Federal 
rate based on our analysis of the FY 2008 LTCH claims data in the FY 
2011 rulemaking cycle through the notice-and-comment rulemaking 
process. (74 FR 43970 through 43972)
b. Evaluation of FY 2009 Claims Data
    For this proposed rule, we have performed a thorough retrospective 
evaluation of the most recent available claims data (that is, FY 2009 
claims updated through December 2009) using the methodology that was 
adopted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule and that was 
used to assess whether an adjustment for RY 2010 to account for changes 
in documentation and coding practices that occurred in a prior period 
was appropriate. (We refer readers to the explanation of our rationale 
for adopting this methodology as well as its intended purpose in the FY 
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43970 through 43972).)
    We performed this analysis by first dividing the CMI obtained by 
grouping the FY 2009 LTCH claims through the FY 2009 GROUPER (Version 
26.0) by the CMI obtained by grouping these same FY 2009 LTCH claims 
through the FY 2007 GROUPER (Version 24.0). This resulted in a value of 
1.0248. Because

[[Page 24046]]

this CMI analysis is based on the same FY 2009 cases grouped using the 
Versions 24.0 and 26.0 of the GROUPER, we attribute this increase in 
average CMI primarily to two factors: (1) The effect of changes in 
documentation and coding under the MS-DRG system; and (2) the 
measurement effect from the calibration of the GROUPER. Next, we 
estimated the measurement effect from the calibration of the GROUPER by 
dividing the CMI obtained by grouping the FY 2007 LTCH claims through 
the FY 2009 GROUPER (Version 26.0) by the CMI obtained by grouping 
these same LTCH claims through the FY 2007 GROUPER (Version 24.0). This 
resulted in a value of 0.9999. In order to isolate the documentation 
and coding effect, we then divided the combined effect of the changes 
in documentation and coding measurement (1.0248) by the measurement 
effect (0.9999) to yield 1.025. Therefore, based on the results of this 
analysis, we estimate that the cumulative effect of documentation and 
coding changes that occurred in FYs 2008 and 2009 was 2.5 percent. We 
note that, in applying the methodology we established for determining 
the effects of documentation and coding in the FY 2010 IPPS/RY 2010 
LTCH PPS proposed and final rules, we applied such methodology 
separately to FY 2007 and FY 2008 LTCH claims data because those data 
were generated under different patient classification systems (that is, 
FY 2007 was the last year under the CMS LTC-DRGs and FY 2008 was the 
first year under the MS-LTC-DRGs). Because the same patient 
classification system was in effect for both FY 2008 and FY 2009 (that 
is, the MS-LTC-DRGs), consistent with the application of this 
methodology under the IPPS (discussed in section II.D.5. of this 
preamble), we believe it is appropriate to propose to apply our 
established methodology for determining the cumulative effects of 
documentation and coding for FYs 2008 and 2009, rather than proposing 
to applying the methodology separately to FY 2008 and FY 2009 LTCH 
claims data. We seek public comment on our proposal to determine the 
cumulative effects of documentation and coding in FYs 2008 and 2009. 
(We note that the FY 2007 and FY 2009 (as well as FY 2008) MedPAR files 
are available to the public to allow independent analysis of the 
documentation and coding effect in FYs 2008 and 2009.)
c. Proposed FY 2011 Documentation and Coding Adjustment
    Based on analysis of the most recent available LTCH claims data as 
described above, we are proposing to apply a cumulative adjustment for 
changes in documentation and coding in a prior period (FYs 2008 and 
2009) that do not reflect an increase in patients' severity of illness 
of -2.5 percent. Accordingly, as discussed in section V.A.2. of the 
Addendum to this proposed rule, we are proposing to update the proposed 
FY 2011 LTCH PPS standard Federal rate by -0.1 percent, which is based 
on the most recent estimate of the market basket increase (2.4 percent) 
and a proposed adjustment to account for changes in documentation and 
coding practices (-2.5 percent). We also are proposing that if more 
recent data are available for the final rule, we would use those data 
to establish a final update to the FY 2011 LTCH PPS standard Federal 
rate, if applicable.

D. Proposed Change in Terminology From ``Rate Year'' to ``Fiscal Year'' 
and Other Proposed Changes

    Beginning with the annual update to the LTCH PPS that took effect 
on October 1, 2009, we consolidated the rulemaking cycle for the annual 
update of the LTCH PPS Federal payment rates with the annual update of 
the MS-LTC-DRG classifications and associated weighting factors for 
LTCHs so that the updates to the rates and the weights now occur on the 
same schedule and appear in the same Federal Register document. As a 
result, the updates to the LTCH standard Federal rates and the MS-LTC-
DRG relative weights are now effective on October 1 (on a Federal 
fiscal year schedule), and the annual updates to the LTCH standard 
Federal rates are no longer published with a July 1 effective date. To 
reflect this change to the annual payment rate update cycle, we revised 
the regulations at Sec.  412.503 to specify that, beginning on or after 
October 1, 2009, the LTCH PPS rate year is defined as October 1 through 
September 30 (73 FR 26797 through 26798 and 26838).
    In this proposed rule, we are proposing to change the terminology 
used under the LTCH PPS to designate the annual payment update and MS-
DRG relative weight recalibration cycle from ``rate year'' to ``fiscal 
year,'' in order to conform with the standard definition of the Federal 
fiscal year (October 1 through September 30) used by the IPPS. We 
believe that this proposed change is appropriate because both the 
yearly update cycle of the LTCH standard Federal rates (and associated 
factors) and the annual reclassification and recalibration of the MS-
LTC-DRG relative weights (which were always updated on October 1, 
consistent with the IPPS) are now concurrent with the IPPS update and 
implementation schedule of October 1 through September 30. Because the 
annual updates to both the LTCH standard Federal rates (and associated 
factors) and the MS-LTC-DRG relative weights now occur at the same time 
as the annual updates under the IPPS, we believe we would eliminate any 
possible confusion that may be caused by continuing to identify the 
LTCH PPS update cycle as a ``rate year.'' We believe that changing the 
``fiscal year'' terminology would provide important clarity for the 
LTCH provider community, particularly because both the proposed and 
final rules for the IPPS and the LTCH PPS are generally published in 
the same Federal Register document. Consequently, we are proposing to 
use the term ``fiscal year'' when referring to the annual updates for 
the LTCH standard Federal payment rates and MS-LTC-DRG relative weights 
as well as to the publication cycle for rulemaking for the LTCH PPS, 
consistent with the IPPS. We are proposing to revise our definition of 
``rate year'' in the regulations at Sec.  412.503 to reflect this 
proposed terminology change.
    This proposed terminology revision from ``rate year'' to ``fiscal 
year'' would clarify the fact that since October 1, 2003, when we 
implemented the LTCH PPS, at different times, we have used the terms 
``rate year'' and ``fiscal year'' when referring to the payment year 
under the LTCH PPS. In existing regulations at Sec.  412.503, we 
specify the time periods during which each term was used. We also are 
proposing to add a definition of ``long-term care hospital prospective 
payment system payment year'' to Sec.  412.503 in order to encompass 
both the long-term care hospital prospective payment system rate year 
and the long-term care hospital prospective payment system fiscal year. 
This proposed term would be used when describing ongoing policy 
features of the LTCH PPS for which, depending upon the time period, 
either the term ``long-term care hospital prospective payment system 
rate year'' or ``long-term care hospital prospective payment system 
fiscal year'' would be applicable. We believe that creating this term 
would minimize confusion by keeping the regulation text as simple as 
possible because this term would apply to the ``long-term care hospital 
prospective payment system rate year'' or to the ``long-term care 
hospital prospective payment system fiscal year.'' In this respect, 
existing regulation text (for example, Sec.  412.525(a)) would not need 
to be revised to address the specific time periods during which the 
terms ``long-

[[Page 24047]]

term care hospital prospective payment system rate year'' and ``long-
term care hospital prospective payment system fiscal year'' are used.
    In addition, as a conforming change, we are proposing to change the 
terminology in Sec.  412.525(a)(1) and (a)(2), which describes the 
high-cost outlier policy (an ongoing feature of the LTCH PPS from its 
inception), from ``long-term care hospital prospective payment system 
rate year'' to ``long-term care hospital prospective payment system 
payment year''. We believe that this proposed change, which would 
reference the proposed new definition of the long-term care hospital 
prospective payment system payment year period at Sec.  412.503, 
clearly reflects the application of the high-cost outlier policy for 
the period encompassed by both the current ``rate year'' terminology 
and the proposed change to ``fiscal year'' terminology, described 
above. We believe that these proposed changes present a straightforward 
way to provide additional clarity to our regulations in a circumstance 
that reflects changes in terminology but do not entail any change to 
the high-cost outlier policy. Furthermore, consistent with this 
proposal, for purposes of clarity, in this proposed rule, when 
discussing the annual update for the LTCH PPS, we employ ``FY'' rather 
than RY'' because it is our intent that ``FY'' be used prospectively in 
all circumstances dealing with the LTCH PPS.

VIII. Effective Date of Provider Agreements and Supplier Approvals

A. Background

    Section 1866 of the Act states that any provider of services as 
defined under section 1861(u) of the Act (except a fund designated for 
purposes of sections 1814(g) and 1835(e) of the Act) shall be qualified 
to participate in the Medicare program and shall be eligible for 
Medicare payments if it files with the Secretary a Medicare provider 
agreement and abides by the requirements applicable to Medicare 
provider agreements. These requirements are incorporated into our 
regulations in 42 CFR part 489, Subparts A and B. Section 1866(b)(2) of 
the Act provides that the Secretary may refuse to enter into, or may 
terminate, an agreement with a provider for various reasons, including 
the provider's failure to comply with the provisions of the agreement 
and if it has been determined that the provider fails to meet the 
applicable provisions of section 1861 of the Act, including health and 
safety standards. Certain suppliers are also required under the Act to 
meet health and safety standards specified by the Secretary: section 
1861(aa)(2)(K), with respect to rural health clinics; section 
1832(a)(2)(F)(i), with respect to ambulatory surgical centers; and 
section 1881(b)(1)(A), with respect to providers of renal dialysis 
services.
    Under section 1864(a) of the Act, the Secretary enters into 
agreements with State agencies to determine if providers and suppliers 
meet the requisite Medicare requirements. Section 1865 of the Act 
permits CMS to ``deem'' facilities that have been accredited by a 
national accreditation organization under a CMS-approved accreditation 
program as having met the Medicare health and safety standards. Section 
1871 of the Act authorizes the Secretary to adopt such regulations as 
may be necessary to carry out the requirements of Title XVIII of the 
Act.
    On August 18, 1997, we adopted regulations, effective September 17, 
1997 (1997 final rule), establishing uniform criteria for determining 
the effective dates of provider agreements and supplier approvals in 
the Medicare and Medicaid programs (62 FR 43931). Included in these 
regulations was 42 CFR 489.13, governing the determination of the 
effective date of a Medicare provider agreement or supplier approval 
for health care facilities that are subject to survey and 
certification. Facilities subject to survey and certification are those 
that must comply with Medicare health and safety standards, that is, 
the conditions of participation (CoPs), long-term care requirements, 
conditions for coverage (CfC), or conditions for certification, 
depending on the type of facility. (The regulations exempt clinical 
laboratories, community mental health centers, and federally qualified 
health centers from its general provisions, establishing alternative 
requirements for these entities.) Compliance with the applicable health 
and safety standards is determined through an onsite survey by a State 
survey agency, CMS staff, or a CMS contractor, or, in accordance with 
section 1865 of the Act, CMS may ``deem'' an entity to have satisfied 
these requirements if it has been accredited by a national 
accreditation program approved by CMS. Currently, we have approved 15 
accreditation programs offered by 7 national accreditation 
organizations for the following types of providers or suppliers: 
Hospitals, CAHs, HHAs, hospices, and ambulatory surgical centers.
    Under Sec.  489.13(b) of the regulations, the date the survey is 
completed is the effective date of the provider agreement or supplier 
approval, if all applicable Federal requirements have been met on that 
date. Similarly, Sec.  489.13(d) provides that the effective date for a 
provider or supplier accredited by a national accreditation 
organization under a CMS-approved program, and which is subject to 
additional requirements not contained in the approved program, is the 
date on which all Federal requirements have been met, including the 
additional requirements. We have interpreted these provisions to mean 
not only that the survey/accreditation decision must show that the 
prospective provider or supplier is in compliance with all of the 
applicable health and safety standards, but also that all other Federal 
requirements related to the prospective provider's or supplier's 
participation in the Medicare program have been met.
    Other Federal requirements include, but are not limited to, the 
submission of an application to enroll in the Medicare program that has 
been reviewed by our legacy fiscal intermediaries, legacy carriers, or 
MACs, as applicable, and has been found to meet the enrollment 
requirements established in 42 CFR part 424, Subpart P. Other Federal 
requirements also include, for providers, compliance with Office for 
Civil Rights requirements. There also are additional Federal 
requirements specific to certain provider types, such as IPPS exclusion 
requirements for certain types of hospitals, capitalization and surety 
bond requirements for home health agencies, among others.
    Under our current process, section 2003B of the State Operations 
Manual (SOM) (Publication No. 100-07) states that: ``The SA [State 
Survey agency] should not perform a survey of a new facility until it 
has received notice from the FI [fiscal intermediary] or carrier that 
the information provided on the enrollment application has been 
verified.'' Section 2005 of the SOM further states: ``The MAC/legacy FI 
will process the Form CMS-855A and the MAC/legacy Carrier will process 
the Form CMS-855B, depending on which contractor is responsible for 
processing bills or claims for the provider/supplier. * * * The State 
Survey Agency will be responsible for surveying initial applicants 
following the contractor's recommendation for approval, and providing 
the initial certification package.'' (Emphasis added.)
    In accordance with Sec.  488.8(a)(2) of the regulations, one of the 
requirements for our approval of a national accreditation program is 
the comparability of its survey process to that of State survey 
agencies. Consistent with this requirement, in Survey and Certification 
Policy Memorandum S&C-09-08, dated October 17, 2008, we indicated that 
a

[[Page 24048]]

CMS-approved national accreditation organization also must not conduct 
a survey of a facility seeking a Medicare provider agreement or 
supplier approval until after the MAC, the legacy fiscal intermediary, 
or the legacy carrier has completed its review of the enrollment 
application and notified the applicant that its review has been 
completed and a recommendation has been made to CMS.
    Therefore, historically, in the normal course of events, the health 
and safety survey (including the Life Safety Code survey, if 
applicable) of a prospective provider or supplier has usually occurred 
after it has demonstrated that it meets the Medicare enrollment 
requirements, and, as a result, the effective date of a provider 
agreement or supplier approval is generally later than the date when 
the contractor has verified that all enrollment requirements have been 
met. However, on occasion, a survey can take place before the CMS 
contractor has verified that enrollment requirements have been met. 
This has tended to happen more frequently in the case of facilities 
that seek to satisfy Medicare participation requirements through 
accreditation by a CMS-approved accreditation program, because the 
accreditation organization relies upon the facility to advise it when 
it has received notice of completion of the review of its enrollment 
application. This can result in the date of an accreditation decision 
preceding the date when the CMS contractor determination has occurred. 
In addition, in order to prevent fraud and abuse, there may be other 
situations in which the CMS contractor performs additional enrollment 
verification activities even after a health and safety survey has been 
performed.
    In cases where the CMS contractor determines that the prospective 
provider's or supplier's compliance with enrollment requirements did 
not occur until after a survey by the State survey agency or after the 
accreditation survey and accreditation decision take place, it is our 
policy, consistent with our interpretation of Sec.  489.13(b), to make 
the effective date of the provider agreement or supplier approval the 
date when the enrollment requirements are considered to have been met, 
that is, the date determined by the CMS contractor, pursuant to its 
review and verification activities, to be the date when the applicant 
is in compliance with all enrollment requirements and the CMS 
contractor is prepared to convey Medicare billing privileges to the 
provider or supplier, unless there are still other Federal requirements 
that remain to be satisfied, such as submission of required civil 
rights compliance documentation or satisfaction of the specialized 
requirements governing IPPS-excluded hospitals. If there are other 
unsatisfied requirements, the effective date would be the date when the 
last requirement has been satisfied, as determined by CMS.

B. Departmental Appeals Board Decision

    In a decision dated September 28, 2009, the Appellate Division of 
the Departmental Appeals Board (DAB), in the case of Renal CarePartners 
of Delray Beach, LLC v. Centers for Medicare and Medicaid Services (DAB 
Decision No. 2271), rejected our longstanding interpretation of Sec.  
489.13(b). In this case, a State survey agency completed an initial 
certification survey on July 6, 2007, of an end-stage renal disease 
supplier, Renal CarePartners, prior to the CMS contractor's November 
21, 2007 recommendation of approval of the supplier's enrollment 
application. The DAB concluded that there was no basis in regulation or 
policy issuances for our position that CMS contractor approval is a 
requirement a supplier must satisfy ``before it may furnish services 
for which it will be reimbursed under Medicare once it is enrolled and 
obtains billing privileges'' (DAB Decision No. 2271, page 2). The DAB 
further characterized the issue as ``* * * not whether the effective 
date may be earlier than the date Renal CarePartners complied with a 
prerequisite it was required to meet in order to enroll, but whether 
the effective date must be delayed until the date the Medicare 
contractor notified CMS that the requirements were met'' (DAB Decision 
No. 2271, page 5) (emphasis in original). The DAB agreed with Renal 
CarePartners that the requirement for the Medicare contractor to verify 
and determine whether an application should be approved is not a 
requirement for the supplier to meet, but a requirement for Medicare 
contractor action (DAB Decision No. 2271, page 5). The DAB further 
cited the provisions of Sec.  489.13(d), concerning accredited 
facilities, as an example to bolster its contention that there is 
precedent for providers or suppliers to be retroactively reimbursed for 
services provided before the date of approval of the supplier or 
provider agreement (DAB Decision No. 2271, page 7).
    We disagree with the DAB's reading of our existing regulations. We 
believe that the intent of the existing regulations is to require that 
all applicable Federal requirements, including a determination of 
whether the enrollment requirements have been satisfied, must be met 
before a provider agreement or supplier approval may be effective. Any 
other reading of the regulations could result in a provider or supplier 
being permitted to bill the Medicare program for services provided at a 
time when its compliance with Medicare's requirements is unknown and 
possibly deficient. For example, in the event a State survey precedes 
the CMS contractor's review of the enrollment application of a 
prospective provider or supplier, it might be possible that the 
application originally submitted to the CMS contractor is incomplete or 
incorrect, or both, and the applicant must provide additional 
information to the CMS contractor to demonstrate compliance with the 
enrollment requirements. It would not be consistent with our duty to 
protect the Medicare Trust Funds from unsupported claims against it to 
permit payment for services furnished by a health care facility after 
it has passed a State survey or been accredited, but before it has 
satisfied all other Medicare participation requirements, including 
enrollment requirements.
    Such a reading also might undermine the incentives inherent in our 
longstanding policy, affirmed in the June 1, 1994 decision of the U.S. 
Court of Appeals for the Fifth Circuit in U.S. v. Vernon Home Health, 
Inc. (21 F.3d 693 (5th Cir. 1994), cert. denied, 115 S.Ct. 575 (1994)). 
Under that policy, a buyer of a Medicare-participating facility that 
chooses not to assume the provider agreement or supplier approval of 
the seller must be treated as an initial applicant to the Medicare 
program, with a necessary break in Medicare payments for services 
furnished to beneficiaries during the period between the effective date 
of the change of ownership, and the effective date of the new owner's 
provider agreement or supplier approval. Assumption of the seller's 
provider agreement or supplier approval includes assumption of the 
assets and liabilities associated with that agreement or approval, 
which has proven to be an important tool in protecting the Medicare 
Trust Funds through continuity in the ability to recover outstanding 
overpayments. Any requirement to make payments retroactive to the date 
of a State survey or accreditation decision, despite the fact that all 
other Federal requirements may not yet have been met, could provide an 
incentive for more buyers to refuse assumption of the seller's provider 
agreement or supplier approval, because there would potentially be no 
break in payments. Therefore, effectively, a buyer who does

[[Page 24049]]

not assume the seller's active provider agreement could begin receiving 
Medicare payments (assuming it meets all the requirements), but not be 
responsible for any existing liabilities of the provider agreement. 
This would also be an incentive for existing providers or suppliers 
with civil money penalties or overpayments to sell their facilities in 
order to escape any financial responsibility to the Medicare program.

C. Proposed Revisions to Regulations

    We are proposing to amend Sec.  489.13 and make a technical 
amendment to Sec.  489.1 in order to clarify our policy. Specifically, 
we are proposing to revise Sec.  489.13(a) to make it clearer that it 
is only CMS that determines whether health care facilities have 
satisfied the requirements for participation in the Medicare program, 
not State survey agencies or national accreditation organizations. We 
note that, although this CMS determination is sometimes referred to as 
a ``certification,'' or ``certification decision,'' Sec.  488.1 defines 
``certification'' as ``a recommendation made by the State survey agency 
on the compliance of providers and suppliers with the conditions of 
participation, requirements (for SNFs and NFs), and conditions of 
coverage.'' Further, Sec.  488.12 provides that CMS makes the 
determination on whether a provider or supplier is eligible to 
participate in or be covered by the Medicare program, based on the 
State survey agency's recommendation, or on the facility's 
accreditation.
    We also are proposing to add language to Sec.  489.13(a) in order 
to clarify that surveys of nonaccredited facilities may be conducted 
not only by State survey agencies, but also by CMS staff or 
contractors, as appropriate. We have used contractors to conduct 
certain types of surveys, such as life safety code, transplant program 
and psychiatric hospital special conditions surveys, and may continue 
to do so in the future. In addition, certain types of facilities, such 
as Indian Health Services (IHS) facilities and RNHCIs, have 
traditionally been surveyed by CMS employees rather than State survey 
agencies.
    We are proposing to revise Sec.  489.13(b) to make explicit that 
the effective date of a provider agreement or supplier approval may not 
be earlier than the latest of the dates on which each applicable 
Federal requirement is determined to be met. We also are proposing to 
state explicitly that ``Federal requirements'' include, but are not 
limited to, the enrollment requirements established in 42 CFR part 424, 
Subpart P, that have been determined by CMS to have been met. In 
addition, we are proposing to revise Sec.  489.13(b) to include 
language concerning accredited facilities, to assure that accredited 
and nonaccredited facilities are treated in the same manner.
    We wish to further explain the rationale behind the proposed change 
to Sec.  489.13(b), particularly with respect to the requirements in 
the provider/supplier enrollment process.
    A CMS contractor will review and conduct an initial assessment of a 
prospective provider's or supplier's enrollment. If the contractor 
finds that a prospective provider or supplier meets the basic 
enrollment requirements to participate in the Medicare program for its 
identified certified provider or supplier type, the contractor will 
notify the appropriate CMS Regional Office. Essentially, the 
contractor's initial assessment means that it has concluded its 
preliminary review of the application and has concluded that the survey 
and certification process can be initiated, and, consequently, it 
issues a recommendation of approval. In order to help ensure compliance 
with enrollment requirements throughout this process, the contractor 
may continue to perform a number of enrollment verification tasks even 
after it has issued a recommendation for approval. These include, but 
are not limited to, conducting onsite visits of the prospective 
provider or supplier to ensure that it is still operational; verifying 
an HHA applicant's compliance with the capitalization provisions in 42 
CFR 489.28; and requesting the provider or supplier applicant to 
reaffirm the accuracy of the information it furnished on its initial 
enrollment application. Given the potentially significant length of 
time between when the contractor issues its recommendation of approval 
after its initial assessment and when the health and safety survey (or 
accreditation) and certification process is completed, we believe that 
it is essential for the contractor to verify that a provider or 
supplier applicant continues to meet enrollment requirements prior to 
the issuance of a Medicare provider agreement or supplier approval and 
the issuance of Medicare billing privileges.
    To that end, we believe that the CMS contractor should verify that 
a provider or supplier is in compliance with all enrollment 
requirements when an enrollment application is submitted, during the 
period in which a provider or supplier is undergoing the health and 
safety survey and certification process and before the issuance of a 
Medicare provider agreement or supplier approval and billing 
privileges. If a provider or supplier is determined to be in compliance 
with all Medicare requirements, including the enrollment requirements, 
the enrollment process will be completed, and the Medicare provider 
agreement or supplier approval and billing privileges will be issued to 
the applicant. However, if a provider or supplier is determined to be 
out of compliance with Medicare enrollment requirements prior to the 
issuance of a Medicare provider agreement or supplier approval and 
billing privileges to the applicant, we believe that CMS must deny 
Medicare billing privileges using the applicable denial reason found in 
42 CFR 424.530 and afford the applicant with the applicable Medicare 
appeal rights.
    We are proposing to revise Sec.  489.13(c) to make clear that this 
paragraph addresses those situations in which a facility has met all 
other Federal requirements but, upon survey, has been found to not meet 
all applicable CoPs, long-term care requirements, CfCs, or conditions 
for certification. We also are proposing to revise this paragraph to 
include language concerning accredited facilities, to assure that 
accredited and nonaccredited facilities are treated in the same manner.
    We are proposing to remove Sec.  489.13(d), concerning the 
determination of the effective date for accredited facilities. We see 
no reason for differential treatment of accredited and nonaccredited 
facilities with respect to the determination of their effective date, 
and, in practice, we have not treated them differentially. In 
particular, as a matter of policy, we have not exercised the discretion 
permitted under Sec.  489.13(d)(2) to grant accredited facilities an 
effective date retroactive up to 1 year prior to what otherwise would 
be their effective date. Permitting such retroactive payment would 
provide accredited facilities an unwarranted advantage when compared to 
nonaccredited facilities. It would also seriously undermine our policy 
concerning change of ownership without assumption of the seller's 
provider agreement or supplier approval. However, the existence of this 
discretionary provision appears to cause confusion among accredited 
providers and suppliers who incorrectly believe they are entitled to a 
retroactive effective date.
    This discretionary provision was included in the 1997 final rule as 
a result of public comments that concerned the Medicaid program. The 
commenters were concerned that the proposed rule would not have allowed 
for a retroactive agreement for a facility

[[Page 24050]]

that was already accredited and cited two Medicaid program scenarios to 
illustrate their concern. In one scenario, a facility participates in 
its own State's Medicaid program and provides services to a Medicaid 
recipient from another State. In the other scenario, a facility does 
not participate in Medicaid but provides services to a Medicaid 
recipient before learning of the individual's Medicaid status. Neither 
of these scenarios is pertinent to the Medicare program because 
Medicare enrollment is managed nationally. However, the stated intent 
of the 1997 final rule was to use a standard approach for both Medicare 
and Medicaid to determine the effective date of a provider agreement 
and a supplier approval, and, as a result, the provisions of Sec.  
489.13(d)(2) are identical to those at Sec.  431.108(d)(2) for the 
Medicaid program.
    Upon further consideration, we believe it is important to recognize 
the significant differences resulting from a State-based versus 
national system of beneficiary enrollment, and to ensure that the 
provisions of Sec.  489.13 are tailored to the requirements of the 
Medicare program. As stated, as a matter of longstanding policy, 
reflected in issuances dating back at least as far as 1994, we have 
required new owners who do not accept the seller's Medicare provider 
agreement or supplier approval to be treated as initial applicants to 
the Medicare program. In a 1999 issuance, reaffirmed in several 
subsequent issuances, including the 2004 publication of the online 
version of the SOM and in Survey and Certification Memorandum S&C-09-08 
issued on October 17, 2008, we explicitly state that this policy 
applies to accredited facilities as well. Therefore, we believe it is 
appropriate to remove Sec.  489.13(d), and to instead make appropriate 
reference to the situation of accredited facilities in Sec. Sec.  
489.13(b) and (c).
    Finally, we are proposing to make several technical amendments to 
Sec.  489.1. Specifically, we are proposing to revise that section to 
add a reference to section 1865 of the Act, which permits CMS to 
``deem'' facilities that have been accredited by a national 
accreditation organization under a CMS-approved accreditation program 
as having met the Medicare health and safety standards. We also are 
proposing to revise and renumber the existing provision of Sec.  489.1 
and to add references to ``the Act'' where the section refers to a 
provision of the Social Security Act.

IX. Proposed Changes to Medicare Conditions of Participation Affecting 
Hospital Rehabilitation Services and Respiratory Care Services

    Recently, CMS received several public requests for clarification of 
the Medicare conditions of participation (CoPs) for hospitals relating 
to rehabilitation services at Sec.  482.56 and respiratory care 
services at Sec.  482.57. The questions concerning these conditions 
have been in the context of apparent inconsistencies between the two 
COPs themselves, and between the two CoPs and many State laws, 
regarding which practitioners are allowed to order rehabilitation and 
respiratory care services in the hospital setting.
    Many States, under their scope-of-practice laws and other 
regulations, allow qualified, licensed practitioners (including nurse 
practitioners (NPs) and physician assistants (PAs)) to order 
rehabilitation services and respiratory care services, in addition to 
other common hospital services such as dietary and social work 
services. We also found that most States limit the types of 
practitioners allowed to order rehabilitation services, respiratory 
care services, and other hospital services to physicians and other 
qualified, licensed practitioners such as NPs and PAs.
    However, the current standard at Sec.  482.56(b) (Delivery of 
services) requires only that hospital rehabilitation services (for 
example, physical therapy, occupational therapy, audiology, and speech-
pathology services) be ordered by ``practitioners who are authorized by 
the medical staff to order the services.'' We believe that this 
requirement may be too open for interpretation and is not consistent 
with various State laws that limit the ordering of hospital services 
(including diagnostic tests, drugs and biologicals, and inpatient 
treatment modalities) to qualified, licensed practitioners who are 
responsible for the care of the patient and who are, most importantly, 
working within a State's delineated scope of practice for these types 
of practitioners. As this requirement is currently written, it would be 
conceivable for a hospital's medical staff to grant ordering privileges 
for rehabilitation services to personnel who are responsible for 
providing such services, that is, physical therapists, occupational 
therapists, audiologists, and speech-language pathologists. Such a 
situation would not only constitute a conflict of interest (for 
example, a physical therapists ordering physical therapy services for a 
patient for which medical necessity has not been established), but it 
would also potentially compromise coordination of care and patient 
safety if the practitioners who are responsible for the care of 
patients (that is, doctors of medicine, doctors of osteopathy, NPs, and 
PAs) are unaware of which services have been ordered for their 
patients.
    Conversely, the current requirement for respiratory care services 
at Sec.  482.57(b)(3) explicitly states that these services ``must be 
provided only on, and in accordance with, the orders of a doctor of 
medicine or osteopathy.'' Similar to our finding that the requirement 
for the ordering of rehabilitation services is too broad in its 
parameters for determining which practitioners should be allowed to 
order those services, we find the parameters for the ordering of 
respiratory care services to be too narrow. While doctors of medicine 
or doctors of osteopathy have the option of delegating this task to NPs 
and PAs, this delegation requires physicians to countersign all orders 
by NPs or PAs for respiratory care services. We have not found any 
evidence that indicates that the ordering of respiratory care services 
should be kept to a different, and possibly higher, standard than 
rehabilitation and other hospital services. Nor have we found any 
documented studies indicating that qualified, licensed practitioners 
such as NPs and PAs should be restricted from ordering these necessary 
services for their patients. Further, we believe that the process of 
physician countersignature of orders written by qualified, licensed NPs 
and PAs, specifically for common hospital services such as 
rehabilitation and respiratory care services, is burdensome to 
practitioners (physicians as well as NPs and PAs) and the hospitals 
that they serve. In addition, we believe that this process also runs 
counter to what many States have already decided for NPs and PAs in 
their individual State regulations and scope-of-practice laws.
    As a result of our analysis of the issues surrounding conflict of 
the Medicare CoPs with State laws, and conflict of the Medicare CoP 
with each other, we are proposing several revisions to the existing 
regulations. We are proposing to revise Sec.  482.56 to clarify the 
types of practitioners who are allowed to order rehabilitation 
services. Further, we are proposing to limit those types of individuals 
to qualified, licensed practitioners who are responsible for the care 
of the patient and who are acting within the scope of practice under 
State law. We also are proposing that these practitioners would need to 
be authorized to order rehabilitation services by the hospital's 
medical staff, in accordance with both

[[Page 24051]]

hospital policies and procedures and State laws.
    In addition, we are proposing changes to the existing requirements 
for the ordering of respiratory care services at Sec.  482.57. Existing 
requirements only allow for services to be provided on the orders of a 
doctor of medicine or osteopathy. As stated above, we recently received 
several public requests (including requests from various hospitals as 
well as from The Joint Commission) for clarification of this 
requirement in the context of what is currently allowed under many 
State laws. Many States, under their scope-of-practice laws and other 
regulations, allow qualified, licensed practitioners (including NPs and 
PAs) to order respiratory care services. We are proposing to revise the 
existing requirements at Sec.  482.57 to allow these practitioners, in 
addition to physicians as currently allowed, to order these services as 
long as such privileges are authorized by the medical staff and are in 
accordance with both hospital policies and procedures and State laws. 
As is required under the CoPs for all patient orders, the ordering 
practitioner must also be an individual who is responsible for the care 
of the patient.
    In both of the CoPs for rehabilitation services and respiratory 
care services, we also are proposing that all orders for these services 
be documented in accordance with the requirements at Sec.  482.24, 
Medical records.

X. Proposed Changes to the Accreditation Requirements for Medicaid 
Providers of Inpatient Psychiatric Services for Individuals Under Age 
21

A. Background

    Inpatient psychiatric services provided to individuals under the 
age of 21 were authorized as part of the Medicaid program by the Social 
Security Amendments of 1972 (Pub. L. 92-603). At that time, these 
services were only permitted to be provided by psychiatric hospitals 
accredited by the Joint Commission on Accreditation of Hospitals (later 
renamed as the Joint Commission on Accreditation of Healthcare 
Organizations and now named The Joint Commission). In 1984, Congress 
eliminated the requirement that such hospitals be accredited 
exclusively by The Joint Commission (section 2340(b) of Pub. L. 98-
369).
    Through statutory and regulatory amendments, inpatient psychiatric 
services provided to individuals under the age of 21 were also 
authorized to be provided in inpatient psychiatric programs within 
hospitals and in psychiatric facilities other than hospitals, called 
psychiatric residential treatment facilities (PRTFs). While PRTFs were 
given flexibility through rulemaking in 1998 to obtain accreditation 
from several specific accrediting organizations, or any other 
accrediting body with comparable standards recognized by the State, 
accreditation by The Joint Commission has remained a requirement for 
psychiatric hospitals and inpatient psychiatric programs within 
hospitals.
    We have been contacted by several psychiatric hospitals and 
hospitals with inpatient psychiatric programs asking for relief of The 
Joint Commission accreditation requirement. In addition, The Joint 
Commission has previously expressed concern with the mandate for Joint 
Commission accreditation contained in existing regulation, as its 
policy is for facilities to seek accreditation voluntarily.

B. Proposed Revision of Policy and Regulations

    In response to the concerns described above, we are proposing to 
remove the requirement that psychiatric hospitals and hospitals with 
inpatient psychiatric programs providing inpatient psychiatric services 
to individuals under age 21 must obtain accreditation from The Joint 
Commission in order to provide these services under the Medicaid 
program. Under our proposed policy change, psychiatric hospitals would 
have the choice of meeting the requirements to participate in Medicare 
as a psychiatric hospital under 42 CFR 482.60 or obtaining 
accreditation from a national accrediting organization whose 
psychiatric hospital accrediting program has been approved by CMS. 
Hospitals with inpatient psychiatric programs would have the choice of 
meeting the requirements for participation in Medicare as a hospital as 
specified in 42 CFR part 482 or obtaining accreditation from a national 
accrediting organization whose hospital accreditation program has been 
approved by CMS. These national accreditation bodies must provide 
reasonable assurance to CMS that their hospital accrediting programs 
require adherence to requirements that are at least as stringent as the 
Medicare requirements.
    In addition, we are proposing to revise the accreditation 
requirements for PRTFs by removing any specific references to 
accreditation organizations to afford them flexibility in obtaining 
accreditation by a national accrediting organization whose program has 
been approved by CMS, or by any other accrediting organization with 
comparable standards that is recognized by the State. This proposed 
revision would remove specific reference to national accrediting bodies 
to provide appropriate administrative flexibility to account for any 
changes in qualifying accrediting organizations. Accrediting bodies 
approved by CMS must have accrediting requirements for an entity 
comparable to the CMS requirements for the same entity, and must have 
survey procedures comparable to those of State survey agencies.
    The regulations at 42 CFR 488.4 describe the procedures to be 
followed by accrediting organizations applying or reapplying for 
approval of deeming authority for Medicare requirements. The 
regulations at 42 CFR 488.5(b) and 488.6(b) allow providers and 
suppliers deemed eligible for Medicare by these accrediting 
organizations to be also deemed eligible for Medicaid participation in 
the absence of Medicaid regulations requiring adherence to a different 
standard. In addition, the regulations at 42 CFR 488.8 detail the 
procedures that CMS will follow in reviewing and approving national 
accreditation organizations. Nothing in this proposed rule would alter 
the implementation of these regulatory provisions.
    We believe this flexibility in obtaining accreditation would 
facilitate the provision of medically necessary, Medicaid-reimbursable 
psychiatric services to vulnerable children, while maintaining the high 
quality of care demanded by the Medicaid program. While services may be 
provided in different settings, the requirements of 42 CFR 441.150 
through 441.182 must be adhered to by any provider of services. We are 
inviting public comments on our suggestions for improving current 
protections for children.
    To incorporate the proposed changes described above in our 
regulations, we are proposing to revise Sec.  440.160(b)(1) and Sec.  
441.151(a)(2)(i) by removing the requirement for accreditation by The 
Joint Commission of psychiatric hospitals and hospitals with inpatient 
psychiatric programs. Psychiatric hospitals would have the choice of 
meeting the requirements to participate in Medicare as a psychiatric 
hospital under 42 CFR 482.60 or obtaining accreditation from a national 
accrediting organization whose psychiatric hospital accrediting program 
has been approved by CMS. Hospitals with inpatient psychiatric programs 
would have the choice of meeting the requirements for participation in 
Medicare as a hospital as specified in 42 CFR part 482 or obtaining 
accreditation by a national accrediting organization whose hospital 
accrediting program has been approved

[[Page 24052]]

by CMS. We are proposing to revise Sec.  440.160(b)(2) and Sec.  
441.151(a)(2)(ii) by removing an specific references to accreditation 
organizations to afford PRTFs the flexibility in obtaining 
accreditation by a national accrediting organization whose program has 
been approved by CMS, or by any other accrediting organization with 
comparable standards that is recognized by the State.

XI. MedPAC Recommendations

    Under section 1886(e)(4)(B) of the Act, the Secretary must consider 
MedPAC's recommendations regarding hospital inpatient payments. Under 
section 1886(e)(5) of the Act, the Secretary must publish in the annual 
proposed and final IPPS rules the Secretary's recommendations regarding 
MedPAC's recommendations. We have reviewed MedPAC's March 2010 ``Report 
to the Congress: Medicare Payment Policy'' and have given the 
recommendations in the report careful consideration in conjunction with 
the policies set forth in this proposed rule.
    MedPAC's Recommendation 2A-1 states that ``The Congress should 
increase payment rates for the acute inpatient and outpatient 
prospective payment systems in 2011 by the projected rate of increase 
in the hospital market basket index, concurrent with implementation of 
a quality incentive payment program.'' This recommendation for the IPPS 
is discussed in Appendix B to this proposed rule.
    MedPAC's Recommendation 2A-2 states that ``To restore budget 
neutrality, the Congress should require the Secretary to fully offset 
increases in inpatient payments due to hospitals' documentation and 
coding improvements. To accomplish this goal, the Secretary must reduce 
payment rates in the inpatient prospective payment system by the same 
percentage (not to exceed 2 percentage points) each year in 2011, 2012, 
and 2013. The lower rates would remain in place until overpayments are 
fully recovered.''
    Response to Recommendation 2A-2: Beginning in FY 2008, CMS adopted 
the new MS-DRG patient classification system for the IPPS to better 
recognize severity of illness in Medicare payment rates. Adoption of 
the MS-DRGs resulted in the expansion of the number of DRGs from 538 in 
FY 2007 to 745 in FY 2008. The increase in the number of DRGs provides 
incentives for hospitals to change documentation and coding that can 
increase Medicare expenditures without any corresponding increase in 
underlying patient severity. Consistent with the statutory requirement 
to maintain budget neutrality, we established prospective documentation 
and coding adjustments of -1.2 percent for FY 2008, -1.8 percent for FY 
2009, and -1.8 percent for FY 2010 when the new MS-DRG system was 
implemented in FY 2008. Subsequent to issuance of the FY 2008 IPPS 
final rule, section 7 of the TMA of 2007 (Pub. L. 110-90) divided in 
half the documentation and coding adjustments for the MS-DRG system 
that we adopted in the FY 2008 IPPS final rule to -0.6 percent for FY 
2008 and -0.9 percent for FY 2009. Section 7 requires that, if the 
implementation of the new MS-DRG payment system resulted in actual 
changes in documentation and coding in FY 2008 or FY 2009, or both 
years, that are different from those reflected in the -0.6 percent and 
-0.9 percent documentation and coding adjustments applied to payment 
rates in FY 2008 and FY 2009, respectively, the Secretary further 
adjust operating IPPS rates. This further adjustment must offset the 
estimated amount of the increase or decrease in aggregate payments for 
discharges occurring during FY 2008 and FY 2009, and must be made 
during FY 2010, FY 2011, and/or FY 2012. These adjustments are referred 
to as the recoupment adjustments and apply only to acute IPPS operating 
payments. In addition, the law requires that the Secretary eliminate 
the effect of all actual documentation and coding changes occurring in 
FY 2008 and FY 2009 incorporated into FY 2010 IPPS operating rates not 
already accounted for beyond the -0.6 and -0.9 percent adjustments. 
These adjustments are referred to as the prospective adjustments. As 
discussed in section II.D. of the preamble of this proposed rule, our 
current estimate is that an aggregate adjustment of 9.7 percent would 
be necessary to satisfy these requirements.
    We discuss our proposed adjustments to correct for the effects of 
improved documentation and coding on Medicare payments to hospitals in 
section II.D. of the preamble of this proposed rule for IPPS operating 
payments, in section V.E. of the preamble of this proposed rule for 
IPPS capital payments, and in section VII.C.3. of the preamble of this 
proposed rule for LTCH PPS payments. In this context, we note that, in 
considering whether to adopt MedPAC's recommendation, we took into 
consideration the statutory requirement that the adjustment must offset 
the estimated amount of the increase or decrease in aggregate payments 
for discharges occurring during FY 2008 and FY 2009 must be made during 
FY 2010, FY 2011, and/or FY 2012.
    For further information relating specifically to the MedPAC reports 
or to obtain a copy of the reports, contact MedPAC at (202) 653-7226, 
or visit MedPAC's Web site at: http://www.medpac.gov.

XII. Other Required Information

A. Requests for Data From the Public

    In order to respond promptly to public requests for data related to 
the prospective payment system, we have established a process under 
which commenters can gain access to raw data on an expedited basis. 
Generally, the data are now available on compact disc (CD) format. 
However, many of the files are available on the Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS. Data files and the cost for each 
file, if applicable, are listed below. Anyone wishing to purchase data 
tapes, cartridges, or diskettes should submit a written request along 
with a company check or money order (payable to CMS-PUF) to cover the 
cost of the following address: Centers for Medicare & Medicaid 
Services, Public Use Files, Accounting Division, P.O. Box 7520, 
Baltimore, MD 21207-0520, (410) 786-3691. Files on the Internet may be 
downloaded without charge.
1. CMS Wage Data Public Use File
    This file contains the hospital hours and salaries from Worksheet 
S-3, Parts II and III from FY 2007 Medicare cost reports used to create 
the proposed FY 2011 prospective payment system wage index. Multiple 
versions of this file are created each year. For a complete schedule on 
the release of different versions of this file, we refer readers to the 
wage index schedule in section III.K. of the preamble of this proposed 
rule.

------------------------------------------------------------------------
    Processing year           Wage data year          PPS Fiscal year
------------------------------------------------------------------------
             2010                     2007                    2011
             2009                     2006                    2010
             2008                     2005                    2009
             2007                     2004                    2008
------------------------------------------------------------------------

    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
    Periods Available: FY 2007 through FY 2011 IPPS Update.
2. CMS Occupational Mix Data Public Use File
    This file contains the 2007-2008 occupational mix survey data to be 
used to compute the occupational mix adjustment wage indexes. Multiple 
versions of this file are created each

[[Page 24053]]

year. For a complete schedule on the release of different versions of 
this file, we refer readers to the wage index schedule in section 
III.K. of the preamble of this proposed rule.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
    Period Available: FY 2011 IPPS Update.
3. Provider Occupational Mix Adjustment Factors for Each Occupational 
Category Public Use File
    This file contains each hospital's occupational mix adjustment 
factors by occupational category. Two versions of these files are 
created each year. They support the following:
     Notice of proposed rulemaking published in the Federal 
Register.
     Final rule published in the Federal Register.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
    Period Available: FY 2011 IPPS Update.
4. Other Wage Index Files
    CMS releases other wage index analysis files after each proposed 
and final rule.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
    Periods Available: FY 2007 through FY 2011 IPPS Update.
5. FY 2011 IPPS SSA/FIPS CBSA State and County Crosswalk
    This file contains a crosswalk of State and county codes used by 
the Social Security Administration (SSA) and the Federal Information 
Processing Standards (FIPS), county name, and a historical list of 
Metropolitan Statistical Areas (MSAs).
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
    Period Available: FY 2011 IPPS Update.
6. HCRIS Cost Report Data
    The data included in this file contain cost reports with fiscal 
years ending on or after September 30, 1996. These data files contain 
the highest level of cost report status.
    Media: Internet at: http://www.cms.hhs.gov/CostReports/02_HospitalCostReport.asp and Compact Disc (CD).
    File Cost: $100.00 per year.
7. Provider-Specific File
    This file is a component of the PRICER program used in the fiscal 
intermediary's or the MAC's system to compute DRG/MS-DRG payments for 
individual bills. The file contains records for all prospective payment 
system eligible hospitals, including hospitals in waiver States, and 
data elements used in the prospective payment system recalibration 
processes and related activities. Beginning with December 1988, the 
individual records were enlarged to include pass-through per diems and 
other elements.
    Media: Internet at: http://www.cms.hhs.gov/ProspMedicareFeeSvcPmtGen/03_psf_text.asp.
    Period Available: FY 2011 IPPS Update.
8. CMS Medicare Case-Mix Index File
    This file contains the Medicare case-mix index by provider number 
as published in each year's update of the Medicare hospital inpatient 
prospective payment system. The case-mix index is a measure of the 
costliness of cases treated by a hospital relative to the cost of the 
national average of all Medicare hospital cases, using DRG/MS-DRG 
weights as a measure of relative costliness of cases. Two versions of 
this file are created each year. They support the following:
     Notice of proposed rulemaking published in the Federal 
Register.
     Final rule published in the Federal Register.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
    Periods Available: FY 1985 through FY 2011.
9. MS-DRG Relative Weights (Also Table 5--MS-DRGs)
    This file contains a listing of MS-DRGs, MS-DRG narrative 
descriptions, relative weights, and geometric and arithmetic mean 
lengths of stay as published in the Federal Register. There are two 
versions of this file as published in the Federal Register.
     Notice of proposed rulemaking.
     Final rule.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
    Periods Available: FY 2006 through 2011 IPPS Update.
10. IPPS Payment Impact File
    This file contains data used to estimate payments under Medicare's 
hospital inpatient prospective payment systems for operating and 
capital-related costs. The data are taken from various sources, 
including the Provider-Specific File, Minimum Data Sets, and prior 
impact files. The data set is abstracted from an internal file used for 
the impact analysis of the changes to the prospective payment systems 
published in the Federal Register.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage and http://www.cms.hhs.gov/AcuteInpatientPPS/HIF/list.asp#TopOfPage.
    Periods Available: FY 1994 through FY 2011 IPPS Update.
11. AOR/BOR Tables
    This file contains data used to develop the MS-DRG relative 
weights. It contains mean, maximum, minimum, standard deviation, and 
coefficient of variation statistics by MS-DRG for length of stay and 
standardized charges. The BOR tables are ``Before Outliers Removed'' 
and the AOR is ``After Outliers Removed.'' (Outliers refer to 
statistical outliers, not payment outliers.)
    Two versions of this file are created each year. They support the 
following:
     Notice of proposed rulemaking published in the Federal 
Register.
     Final rule published in the Federal Register.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
    Periods Available: FY 2006 through FY 2011 IPPS Update.
12. Prospective Payment System (PPS) Standardizing File
    This file contains information that standardizes the charges used 
to calculate relative weights to determine payments under the hospital 
inpatient operating and capital prospective payment systems. Variables 
include wage index, cost-of-living adjustment (COLA), case-mix index, 
indirect medical education (IME) adjustment, disproportionate share, 
and the Core-based Statistical Area (CBSA). The file supports the 
following:
     Notice of proposed rulemaking published in the Federal 
Register.
     Final rule published in the Federal Register.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
    Period Available: FY 2011 IPPS Update.
    For further information concerning these data tapes, contact the 
CMS Public Use Files Hotline at (410) 786-3691.
    Commenters interested in discussing any data used in constructing 
this proposed rule should contact Nisha Bhat at (410) 786-5320.

[[Page 24054]]

B. Collection of Information Requirements

1. Legislative Requirement for Solicitation of Comments
    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements (ICRs).
2. Requirements in Regulation Text
a. ICRs Regarding Withdrawing an Application, Terminating an Approved 
3-Year Reclassification, or Canceling a Previous Withdrawal or 
Termination (Proposed Revised Sec.  412.273)
    Proposed revised Sec.  412.273(b) states that the MGCRB allows a 
hospital, or group of hospitals, to withdraw its application or to 
terminate an already existing 3-year reclassification. Proposed revised 
Sec.  412.273(c) further specifies the timing requirements for the 
withdrawal or termination requirements. Proposed Sec.  412.273(c)(1) 
provides that a request for withdrawal must be received by the MGCRB at 
any time before the MGCRB issues a decision on the application; or 
after the MGCRB issues a decision, provided that the request for 
withdrawal is received by the MGCRB within 45 days of publication of 
CMS' annual notice of proposed rulemaking concerning changes to the 
IPPS and proposed payment rates for the fiscal year for which the 
application has been filed.
    The burden associated with this requirement is the time and effort 
necessary for a hospital to submit a written withdrawal request to the 
MGCRB. While this requirement is subject to the PRA, we cannot 
accurately quantify the burden associated with this requirement. We 
currently review each request on a case-by-case basis. We believe the 
associated burden is thereby exempt from the PRA as stipulated under 5 
CFR 1320.3(h)(6).
    Proposed revised Sec.  412.273(c)(2) provides that a request for 
termination must be received by the MGCRB within 45 days of the 
publication of CMS' annual notice of proposed rulemaking concerning 
changes to the IPPS and proposed payment rates for the fiscal year for 
which the termination is to apply. The burden associated with this 
requirement is the time and effort necessary for a hospital to submit a 
written termination request to the MGCRB. While this requirement is 
subject to the PRA, we cannot accurately quantify the burden associated 
with this requirement. We currently review each request on a case-by-
case basis. We believe the associated burden is thereby exempt from the 
PRA as stipulated under 5 CFR 1320.3(h)(6).
    Proposed revised Sec.  412.273(d)(1) states that a hospital (or 
group of hospitals) may cancel a withdrawal or termination in a 
subsequent year and request the MGCRB to reinstate the wage index 
reclassification for the remaining fiscal year(s) of the 3-year period. 
Proposed revised Sec.  412.273(d)(2) would require that cancellation 
requests be received in writing by the MGCRB no later than the deadline 
for submitting reclassification applications for the following fiscal 
year, as specified in Sec.  412.256(a)(2). The burden associated with 
this requirement is the time and effort necessary for a hospital to 
submit a written request to the MGCRB, requesting that the current 
withdrawal or termination request be cancelled. While this requirement 
is subject to the PRA, we cannot accurately quantify the burden 
associated with this requirement. We currently review each request on a 
case-by-case basis. We believe the associated burden is thereby exempt 
from the PRA as stipulated under 5 CFR 1320.3(h)(6).
    Proposed Sec.  412.273(d)(3) states that a hospital would be able 
to apply for reclassification to a different area (that is, an area 
different from the one to which it was originally reclassified for the 
3-year period). If the application is approved, the reclassification 
will be effective for 3 years. Once a 3-year reclassification becomes 
effective, a hospital may no longer cancel a withdrawal or termination 
of another 3-year reclassification, regardless of whether the 
withdrawal or termination request is made within 3 years from the date 
of the withdrawal or termination. The burden associated with the 
reapplication requirement is the time and effort necessary for a 
hospital to submit a reclassification request to the MGCRB. While this 
requirement is subject to the PRA, the associated burden is approved 
under OMB control number 0938-0573, with an expiration date of December 
31, 2011.
    Proposed Sec.  412.273(f)(1) states that a hospital may file an 
appeal of the MGCRB's denial of its request for withdrawal or 
termination, or of the MGCRB's denial of its request for a cancellation 
of such withdrawal or termination, to the Administrator. The appeal 
must be received within 15 days of the date of the notice of the 
denial. The burden associated with this requirement is the time and 
effort necessary for a hospital to file a written appeal of the MGCRB's 
denial. While this requirement is subject to the PRA, the associated 
burden is exempt under 5 CFR 1320.4. The burden associated with 
collection of information as part of or subsequent to an administrative 
action is not subject to the PRA.
b. ICRs Regarding Condition of Participation: Respiratory Care Services 
(Sec.  482.57)
    Proposed Sec.  482.57(b)(4) imposes a recordkeeping requirement. 
This section would require all respiratory care services orders to be 
documented in the patient's medical record according to the 
requirements at Sec.  482.24. The burden associated with this 
requirement is the time and effort necessary for hospital staff to 
document and maintain the respiratory care services orders in a 
patient's medical record. While these requirements are subject to the 
PRA, the associated burden is exempt from the PRA under 5 CFR 
1320.3(b)(2). We believe hospitals will not incur any burden above and 
beyond that associated with the usual and customary business practice 
of maintaining detailed patient medical records.
3. Additional Information Collection Requirements
    This proposed rule imposes collection of information requirements 
as outlined in the regulation text and specified above. However, this 
proposed rule also makes reference to several associated information 
collections that are not discussed in the regulation text contained in 
this document. The following is a discussion of these information 
collections, some of which have already received OMB approval.
a. Present on Admission (POA) Indicator Reporting
    Section II.F.6. of the preamble of this proposed rule discusses the 
POA

[[Page 24055]]

indicator reporting program. As stated earlier, collection of POA 
indicator data is necessary to identify which conditions were acquired 
during hospitalization for the HAC payment provision and for broader 
public health uses of Medicare data. Through Change Request 5499 dated 
May 11, 2007, CMS issued instructions that require IPPS hospitals to 
submit POA indicator data for all diagnosis codes on Medicare claims.
    The burden associated with this requirement is the time and effort 
necessary to place the appropriate POA indicator codes on Medicare 
claims. This requirement is subject to the PRA; however, the associated 
burden is currently approved under OMB control number 0938-0997, with 
an expiration date of October 31, 2012.
b. Add-On Payments for New Services and Technologies
    Section II.I.1. of the preamble of this proposed rule discusses 
add-on payments for new services and technologies. Specifically, this 
section states that applicants for add-on payments for new medical 
services or technologies for FY 2011 must submit a formal request. A 
formal request includes a full description of the clinical applications 
of the medical service or technology and the results of any clinical 
evaluations demonstrating that the new medical service or technology 
represents a substantial clinical improvement. In addition, the request 
must contain a significant sample of the data to demonstrate that the 
medical service or technology meets the high-cost threshold. We 
detailed the burden associated with this requirement in the September 
7, 2001, IPPS final rule (66 FR 46902). As stated in that final rule, 
collection of the information for this requirement is conducted on an 
individual case-by-case basis. We believe the associated burden is 
thereby exempt from the PRA as stipulated under 5 CFR 1320.3(h)(6). 
Similarly, we also believe the burden associated with this requirement 
is exempt from the PRA under 5 CFR 1320.3(c), which defines the agency 
collection of information subject to the requirements of the PRA as 
information collection imposed on 10 or more persons within any 12-
month period. This information collection does not impact 10 or more 
entities in a 12-month period. In FYs 2008, 2009, 2010, and 2011 we 
received 1, 4, 5, and 3 applications, respectively.
c. Reporting of Hospital Quality Data for Annual Hospital Payment 
Update
    As discussed in section V.A. of this proposed rule, the RHQDAPU 
program was originally established to implement section 501(b) of 
Public Law 108-173. The RHQDAPU program originally consisted of a 
``starter set'' of 10 quality measures. OMB approved the collection of 
data associated with the original starter set of quality measures under 
OMB control number 0938-0918, with a current expiration date of January 
31, 2011.
    As part of our implementation of section 5001(a) of the DRA, we 
expanded the number of quality measures reported in the RHQDAPU 
program. Specifically, section 1886(b)(3)(B)(viii)(III) of the Act, 
added by section 5001(a) of the DRA, requires that the Secretary expand 
the ``starter set'' of 10 quality measures that were established by the 
Secretary as of November 1, 2003, to include measures ``that the 
Secretary determines to be appropriate for the measurement of the 
quality of care (including medication errors) furnished by hospitals in 
inpatient settings.'' Under this provision, we established additional 
program measures to bring the total number of measures to 30. The 
burden associated with these reporting requirements is currently 
approved under OMB control number 0938-1022, with a current expiration 
date of June 30, 2011.
    In the FY 2010 IPPS proposed rule (74 FR 24168), we solicited 
public comments on several considerations for expanding and updating 
quality measures. We responded to the public comments received in the 
FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43866 through 43868). 
We also expanded and finalized the RHQDAPU program measure set for the 
FY 2011 payment determination. As part of the expansion effort, we 
finalized 46 measures in the FY 2010 IPPS/RY 2010 LTCH PPS final rule 
(74 FR 43872).
    In this FY 2011 IPPS/LTCH PPS proposed rule, we are proposing to 
retire one measure for the FY 2011 payment determination. For the FY 
2012 through FY 2014 payment determinations, we are proposing to retain 
the remaining 45 of the 46 current measures; and for FY 2012, to add 10 
new measures and to require all-patient volume data for selected MS-
DRGs that relate to RHQDAPU program measures; for FY 2013, to retain 
the FY 2012 measures and add 35 new measures; and for FY 2014, to 
retain the FY 2013 measures and to add 4 new measures. In addition, we 
have listed 28 new measures that are under consideration for adoption 
in future years. We are proposing that beginning with CY 2011 
discharges, hospitals submit some of the new measure data to a 
qualified registry. We are also soliciting public comments on retiring 
one or more of the 11 additional measures suggested by commenters in 
the FY 2010 IPPS/RY 2010 LTCH PPS final rule based on topped out 
performance and other rationales.
    In summary, we are proposing to retire one measure for the FY 2011 
annual payment update and seeking comments on whether to retire 11 
additional measures suggested by commenters in the FY 2010 IPPS/RY 2010 
LTCH PPS final rule. In addition, we are proposing to expand the 
RHQDAPU program measure set to: 55 measures for the FY 2012 annual 
payment update (taking into account our proposal to retire one measure 
for the FY 2011 annual payment update); 90 measures for the FY 2013 
annual payment update, and 94 measures for the FY 2014 annual payment 
update. We also list 28 additional measures under consideration for 
adoption in future years which may increase these numbers if we propose 
and adopt them in future IPPS rulemaking. Finally, we are proposing 
that, beginning with the FY 2012 annual payment update, hospitals that 
participate in the RHQDAPU program submit all-patient volume data for 
selected MS-DRGs that relate to RHQDAPU program measures. This proposal 
would require hospitals to report these data beginning with CY 2011 
discharges.
    We submitted a revised version of the information collection 
request approved under OMB control number 0938-1022, to obtain approval 
for the proposed new measures.
    Section V.A.10. of this proposed rule addresses the reconsideration 
and appeal procedures for a hospital that we believe did not meet the 
RHQDAPU program requirements. If a hospital disagrees with our 
determination, it may submit a written request to CMS to reconsider our 
decision. The hospital's request for reconsideration must explain the 
reasons why it believes it satisfied the RHQDAPU program requirements. 
While this is a reporting requirement, the burden associated with it is 
not subject to the PRA under 5 CFR 1320.4(a)(2). The burden associated 
with information collection requirements imposed subsequent to an 
administrative action is not subject to the PRA.
d. Proposed Occupational Mix Adjustment to the FY 2011 Index (Hospital 
Wage Index Occupational Mix Survey)
    Section II.D. of the preamble of this proposed rule discusses the 
proposed occupational mix adjustment to the FY

[[Page 24056]]

2011 wage index. While the preamble does not contain any new ICRs, it 
is important to note that there is an OMB approved information 
collection request associated with the hospital wage index.
    Section 304(c) of Public Law 106-554 amended section 1886(d)(3)(E) 
of the Act to require CMS to collect data at least once every 3 years 
on the occupational mix of employees for each short-term, acute care 
hospital participating in the Medicare program in order to construct an 
occupational mix adjustment to the wage index. We collect the data via 
the occupational mix survey.
    The burden associated with this information collection requirement 
is the time and effort required to collect and submit the data in the 
Hospital Wage Index Occupational Mix Survey to CMS. The aforementioned 
burden is subject to the PRA; however, it is currently approved under 
OMB control number 0938-0907, with an expiration date of February 28, 
2013.
e. Hospital Applications for Geographic Reclassifications by the MGCRB
    Section III.I.3. of the preamble of this proposed rule discusses 
revisions to the wage index based on hospital redesignations. As stated 
in that section, under section 1886(d)(10) of the Act, the MGCRB has 
the authority to accept short-term IPPS hospital applications 
requesting geographic reclassification for wage index or standardized 
payment amounts and to issue decisions on these requests by hospitals 
for geographic reclassification for purposes of payment under the IPPS.
    The burden associated with this application process is the time and 
effort necessary for an IPPS hospital to complete and submit an 
application for reclassification to the MGCRB. While this requirement 
is subject to the PRA, the associated burden is currently approved 
under OMB control number 0938-0573, with an expiration date of December 
31, 2011.
f. Direct GME Payments: General Requirements
    Existing regulations at Sec.  413.75(b) permit hospitals that share 
residents to elect to form a Medicare GME affiliated group if they are 
in the same or contiguous urban or rural areas, if they are under 
common ownership, or if they are jointly listed as program sponsors or 
major participating institutions in the same program. The purpose of a 
Medicare GME affiliated group is to provide flexibility to hospitals in 
structuring rotations under an aggregate FTE resident cap when they 
share residents. The existing regulations at Sec.  413.79(f)(1) specify 
that each hospital in a Medicare GME affiliated group must submit a 
Medicare GME affiliation agreement (as defined under Sec.  413.75(b)) 
to the Medicare fiscal intermediary or MAC servicing the hospital and 
send a copy to CMS' Central Office no later than July 1 of the 
residency program year during which the Medicare GME affiliation 
agreement will be in effect.
    In section V.H.3. of the preamble of this proposed rule, we are 
proposing to allow hospitals to electronically submit the copy of the 
affiliation agreement that is required to be sent to the CMS Central 
Office. As stated earlier in the preamble, the proposed electronic 
submission process would consist of either an e-mail mailbox or a Web 
site where hospitals would submit their Medicare GME affiliation 
agreements to the CMS Central Office to a designated online mailbox. We 
are proposing that a copy of the Medicare GME affiliation agreement 
would need to be received through the electronic system no later than 
11:59 p.m. on July 1 of each academic year. We are proposing that the 
electronic affiliation agreement would need to be submitted either as a 
scanned copy or a Printer-Friendly Display (PDF) version of that hard 
copy agreement; we are proposing not to accept an agreement in any 
electronic format that could be subject to manipulation. The scanned 
and/or PDF format will enable CMS to ensure that the agreements are 
signed and dated as required in the regulations at Sec.  413.75. Under 
this proposal, hospitals would have the option to continue to submit a 
hard copy of its affiliation agreement to the CMS Central Office. In 
addition, each fiscal intermediary or MAC would continue to have the 
authority to specify its requirements for submittal of the Medicare GME 
affiliation agreement by hospitals that are part of the affiliation.
    The burden associated with this requirement is the time and effort 
it would take for the new hospital to develop and submit the Medicare 
GME affiliation agreement, to submit it the agreement to its fiscal 
intermediary or MAC, and to submit a copy to CMS. In the proposed and 
final rules that published on May 22, 2009 (74 FR 24080) and August 27, 
2009 (74 FR 43754), we stated that it was difficult for us to estimate 
the annual burden associated with this requirement because we cannot 
estimate the additional number of hospitals that will be permitted to 
submit Medicare GME affiliation agreements in any given year as a 
result of the change. However, we now have better data available to 
quantify the burden associated with the existing requirement for 
hospitals to submit GME affiliation agreements to the fiscal 
intermediary or MAC servicing the hospital and new requirement for the 
electronic submission of a copy of the affiliation agreement to CMS. We 
are submitting a new information collection request to OMB for review 
and approval of the associated burden.
    We anticipate receiving between 100 and 150 GME affiliation 
agreements annually. For the purposes of our information collection 
request, we estimate that we will receive 125 agreements annually. CMS 
provides a two-page sample agreement for hospitals; however, some 
facilities may submit additional information that is not required. We 
estimate that it will take 1 hour for a hospital to develop a GME 
affiliation agreement or to follow the format provided by CMS. 
Similarly, we estimate that it will take each hospital 15 minutes to 
submit a hard copy of the affiliation agreement to its fiscal 
intermediary or MAC. Finally, we estimate that it will take each 
hospital 5 minutes to submit an electronic copy of its GME affiliation 
agreement to CMS. The total annual burden associated with developing 
the affiliation agreement is 125 hours. The total annual burden 
associated with submitting a hard copy of the affiliation agreement is 
31 hours. The total annual burden associated with submitting the 
agreement electronically is 10 hours. The total annual burden 
associated with all of the requirements in this section is 166 hours. 
The total cost associated with this requirement is $5,000 ($40.00 x 125 
agreements).
    If you comment on these information collection and recordkeeping 
requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Attention: CMS Desk Officer, 
CMS-1498-P; Fax: (202) 395-6974; or E-mail: OIRA_submission@omb.eop.gov.

C. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

[[Page 24057]]

List of Subjects

42 CFR Part 412

    Administrative practice and procedure, Health facilities, Medicare, 
Puerto Rico, Reporting and recordkeeping requirements.

42 CFR Part 413

    Health facilities, Kidney diseases, Medicare, Puerto Rico, 
Reporting and recordkeeping requirements.

42 CFR Part 440

    Grant program-health, Medicaid.

42 CFR Part 441

    Family planning, Grant program-health, Infants and children, 
Medicaid, Penalties, Prescription drugs, Reporting and recordkeeping 
requirements.

42 CFR Part 482

    Grant program-health, Hospitals, Medicaid, Medicare, Reporting and 
rcordkeeping requirements.

42 CFR Part 485

    Grant programs-health, Health facilities, Medicaid, Medicare, 
Reporting and recordkeeping requirements.

42 CFR Part 489

    Health facilities, Medicare, Reporting and recordkeeping 
requirements.

    For the reasons stated in the preamble of this proposed rule, the 
Centers for Medicare & Medicaid Services is proposing to amend 42 CFR 
Chapter IV as follows:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

    1. The authority citation for Part 412 continues to read as 
follows:

    Authority:  Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh), and sec. 124 of Public Law 106-113 (113 
Stat. 1501A-332).

    2. Section 412.4 is amended by--
    a. Republishing the introductory language of paragraph (b).
    b. Removing the word ``or'' at the end of paragraph (b)(1).
    c. Removing the period at the end of paragraph (b)(2) and adding in 
its place a semicolon.
    d. Adding new paragraphs (b)(3) and (b)(4).
    The additions read as follows:

Sec.  412.4  Discharges and transfers.

* * * * *
    (b) Acute care transfers. A discharge of a hospital inpatient is 
considered to be a transfer for purposes of payment under this part if 
the patient is readmitted the same day (unless the readmission is 
unrelated to the initial discharge) to another hospital that is--
* * * * *
    (3) An acute care hospital that would otherwise be eligible to be 
paid under the IPPS, but does not have an agreement to participate in 
the Medicare program; or
    (4) A critical access hospital.
* * * * *

Sec.  412.106  [Amended]

    3. Section 412.106 is amended by--
    a. In paragraph (b)(2)(i)(B), removing the word ``or'' and adding 
in its place the word ``including''.
    b. In paragraph (b)(2)(iii)(B), removing the word ``or'' and adding 
in its place the word ``including''.

Sec.  412.108  [Amended]

    4. Amend Sec.  412.108 (a)(1)(iii) introductory text by removing 
the word ``receiving'' and adding in its place the words ``entitled 
to''.
    5. Section 412.113 is amended by revising paragraph (c)(2)(i)(A) to 
read as follows:

Sec.  412.113  Other payments.

* * * * *
    (c) * * *
    (2)(i) * * *
    (A) The hospital or CAH is located in a rural area as defined in 
Sec.  412.62(f) and is not deemed to be located in an urban area under 
the provisions of Sec.  412.64(b)(3). For cost reporting periods 
beginning on or after October 1, 2010, the hospital or CAH is either 
located in a rural area as defined in Sec.  412.62(f) and is not deemed 
to be located in an urban area under the provisions of Sec.  
412.64(b)(3) or the hospital or CAH has reclassified as rural under the 
provisions at Sec.  412.103.
* * * * *
    6. Section 412.273 is revised to read as follows:

Sec.  412.273  Withdrawing an application, terminating an approved 3-
year reclassification, or canceling a previous withdrawal or 
termination.

    (a) Definitions. For purposes of this section, the following 
definitions apply.
    Termination refers to the termination of an already existing 3-year 
MGCRB reclassification where such reclassification has already been in 
effect for 1 or 2 years, and there are 1 or 2 years remaining on the 3-
year reclassification. A termination is effective only for the full 
fiscal year(s) remaining in the 3-year period at the time the request 
is received. Requests for terminations for part of a fiscal year are 
not considered.
    Withdrawal refers to the withdrawal of a 3-year MGCRB 
reclassification that has not yet gone into effect or where the MGCRB 
has not yet issued a decision on the application.
    (b) General rule. The MGCRB allows a hospital, or group of 
hospitals, to withdraw its application or to terminate an already 
existing 3-year reclassification, in accordance with this section.
    (c) Timing. (1) A request for withdrawal must be received by the 
MGCRB--
    (i) At any time before the MGCRB issues a decision on the 
application; or
    (ii) After the MGCRB issues a decision, provided that the request 
for withdrawal is received by the MGCRB within 45 days of publication 
of CMS' annual notice of proposed rulemaking concerning changes to the 
inpatient hospital prospective payment system and proposed payment 
rates for the fiscal year for which the application has been filed.
    (2) A request for termination must be received by the MGCRB within 
45 days of the publication of CMS' annual notice of proposed rulemaking 
concerning changes to the inpatient hospital prospective payment system 
and proposed payment rates for the fiscal year for which the 
termination is to apply.
    (d) Reapplication within the approved 3-year period, cancellations 
of terminations and withdrawals, and prohibition on overlapping 
reclassification approvals.
    (1) Cancellation of terminations or withdrawals. Subject to the 
provisions of this section, a hospital (or group of hospitals) may 
cancel a withdrawal or termination in a subsequent year and request the 
MGCRB to reinstate the wage index reclassification for the remaining 
fiscal year(s) of the 3-year period. (Withdrawals may be cancelled only 
in cases where the MGCRB issued a decision on the geographic 
reclassification request.)
    (2) Timing and process of cancellation request. Cancellation 
requests must be received in writing by the MGCRB no later than the 
deadline for submitting reclassification applications for the following 
fiscal year, as specified in Sec.  412.256(a)(2).
    (3) Reapplications. A hospital may apply for reclassification to a 
different area (that is, an area different from the one to which it was 
originally reclassified for the 3-year period). If the application is 
approved, the reclassification will be effective for 3 years. Once a 3-
year reclassification becomes effective, a hospital may no longer 
cancel a withdrawal or

[[Page 24058]]

termination of another 3-year reclassification, regardless of whether 
the withdrawal or termination request is made within 3 years from the 
date of the withdrawal or termination.
    (4) Termination of existing 3-year reclassification. In a case in 
which a hospital with an existing 3-year wage index reclassification 
applies to be reclassified to another area, its existing 3-year 
reclassification will be terminated when a second 3-year wage index 
reclassification goes into effect for payments for discharges on or 
after the following October 1.
    (e) Written request only. A request to withdraw an application must 
be made in writing to the MGCRB by all hospitals that are party to the 
application. A request to terminate an approved reclassification may be 
made in writing to the MGCRB by an individual hospital or by an 
individual hospital that is party to a group classification.
    (f) Appeal of the MGCRB's denial of a hospital's request for 
withdrawal or termination, or for cancellation of a withdrawal or 
termination.
    (1) A hospital may file an appeal of the MGCRB's denial of its 
request for withdrawal or termination, or of the MGCRB's denial of its 
request for a cancellation of such withdrawal or termination, to the 
Administrator. The appeal must be received within 15 days of the date 
of the notice of the denial.
    (2) Within 20 days of receipt of the hospital's request for appeal, 
the Administrator affirms or reverses the denial.
    7. Section 412.503 is amended by--
    a. Adding a definition of ``long-term care hospital prospective 
payment system fiscal year''.
    b. Adding a definition of ``long-term care hospital prospective 
payment system payment year''.
    c. Revising paragraph (3) of the definition of ``long-term care 
hospital prospective payment system rate year''.
    The additions and revision read as follows:

Sec.  412.503  Definitions.

* * * * *
    Long-term care hospital prospective payment system fiscal year 
means, beginning October 1, 2010, the 12-month period of October 1 
through September 30.
    Long-term care hospital prospective payment system payment year 
means the general term that encompasses both the definition of ``long-
term care hospital prospective payment system rate year'' and ``long-
term care hospital prospective payment system fiscal year'' specified 
in this section.
    Long-term care hospital prospective payment system rate year 
means--
* * * * *
    (3) From October 1, 2009 through September 30, 2010, the 12-month 
period of October 1 through September 30.
* * * * *
    8. Section 412.523 is amended by adding a new paragraph (c)(3)(vii) 
to read as follows:

Sec.  412.523  Methodology for calculating the Federal prospective 
payment rate.

* * * * *
    (c) * * *
    (3) * * *
    (vii) For long-term care hospital prospective payment system fiscal 
year beginning October 1, 2010, and ending September 30, 2011. The 
standard Federal rate for the long-term care hospital prospective 
payment system fiscal year beginning October 1, 2010, and ending 
September 30, 2011, is the standard Federal rate for the previous long-
term care hospital prospective payment system rate year updated by -0.1 
percent. The standard Federal rate is adjusted, as appropriate, as 
described in paragraph (d) of this section.
* * * * *
    9. Section 412.525 is amended by revising paragraphs (a)(1) and 
(a)(2) to read as follows:

Sec.  412.525  Adjustments to the Federal prospective payment.

    (a) Adjustments for high-cost outliers. (1) CMS provides for an 
additional payment to a long-term care hospital if its estimated costs 
for a patient exceed the adjusted LTC-MS-DRG payment plus a fixed-loss 
amount. For each long-term care hospital prospective payment system 
payment year, as described in Sec.  412.503, CMS determines a fixed-
loss amount that is the maximum loss that a hospital can incur under 
the prospective payment system for a case with unusually high costs.
    (2) The fixed-loss amount is determined for the long-term care 
hospital prospective payment system payment year, as defined in Sec.  
412.503, using the LTC-MS-DRG relative weights that are in effect at 
the start of the applicable long-term care hospital prospective payment 
system payment year, as defined in Sec.  412.503.
* * * * *

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED 
PAYMENT RATES FOR SKILLED NURSING FACILITIES

    10. The authority citation for Part 413 continues to read as 
follows:

    Authority:  Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i), 
and (n), 1861(v), 1871, 1881, 1883, and 1886 of the Social Security 
Act (42 U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and 
(n), 1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww); and sec. 124 of 
Public Law 106-133 (113 Stat. 1501A-332).

    11. Section 413.70 is amended by--
    a. Revising paragraph (b)(3)(i)(A).
    b. Revising paragraph (b)(3)(i)(B).
    c. Revising paragraph (b)(3)(i)(D).
    The revisions read as follows:

Sec.  413.70  Payment for services of a CAH.

* * * * *
    (b) * * *
    (3) * * *
    (i) * * *
    (A)(1) For cost reporting periods beginning before October 1, 2010. 
The election must be made in writing, made on an annual basis, and 
delivered to the fiscal intermediary or MAC servicing the CAH at least 
30 days before the start of the cost reporting period for which the 
election is made. An election, once made for a cost reporting period, 
remains in effect for all of that period.
    (2) For cost reporting periods beginning on or after October 1, 
2010. If a CAH had elected the method specified in paragraph (b)(3)(i) 
of this section in its most recent cost reporting period beginning 
prior to October 1, 2010, that election remains in effect for all of 
that period and for all subsequent cost reporting periods, unless the 
CAH submits a termination request to the fiscal intermediary or MAC 
servicing the CAH at least 30 days before the start of the next cost 
reporting period. If a CAH had not, in its most recent cost reporting 
period, elected the method described in paragraphs (b)(3)(ii) and 
(b)(3)(iii) of this section and chooses to elect this method on or 
after October 1, 2010, the election must be made in writing and 
delivered to the fiscal intermediary or MAC servicing the CAH at least 
30 days before the start of the first cost reporting period for which 
the election is made. Once the election is made, it remains in effect 
for all of that period and for all subsequent cost reporting periods 
unless the CAH submits a termination request to the fiscal intermediary 
or MAC servicing

[[Page 24059]]

the CAH at least 30 days before the start of the next cost reporting 
period. For cost reporting periods beginning in October 2010 and 
November 2010, if a CAH wishes to terminate its election, the CAH must 
submit a termination request to the fiscal intermediary or MAC 
servicing the CAH prior to December 1, 2010.
    (B) An election of the payment method specified under paragraph 
(b)(3)(i) of this section applies to all services furnished to 
outpatients by a physician or other practitioner who has reassigned his 
or her rights to bill for those services to the CAH in accordance with 
subpart F of Part 424 of this chapter. If a physician or other 
practitioner does not reassign his or her billing rights to the CAH in 
accordance with subpart F of Part 424 of this chapter, payment for the 
physician's or practitioner's services furnished to CAH outpatients 
will be made on a fee schedule or other applicable basis as specified 
in subpart B of Part 414 of this subchapter.
* * * * *
    (D) An election made under paragraph (b)(3)(i) of this section is 
effective as provided for under paragraph (b)(3)(i)(A) or paragraph 
(b)(3)(i)(C) of this section and does not apply to an election that was 
terminated prior to the start of the cost reporting period for which it 
would otherwise apply.
* * * * *
    12. Section 413.75 is amended by revising the definitions of 
``Primary care resident'' and ``Resident'' under paragraph (b) to read 
as follows:

Sec.  413.75  Direct GME payments: General requirements.

* * * * *
    (b) * * *
    Primary care resident is a resident who is enrolled in an approved 
medical residency training program in family medicine, general internal 
medicine, general pediatrics, preventive medicine, geriatric medicine 
or osteopathic general practice. Effective for cost reporting periods 
beginning on or after October 1, 2010, primary care resident is a 
resident who is formally accepted, enrolled, and participating in an 
approved medical residency training program in family medicine, general 
internal medicine, general pediatrics, preventive medicine, geriatric 
medicine or osteopathic general practice.
* * * * *
    Resident means an intern, resident, or fellow who participates in 
an approved medical residency program, including programs in 
osteopathy, dentistry, and podiatry, as required in order to become 
certified by the appropriate specialty board. Effective for cost 
reporting periods beginning on or after October 1, 2010, resident means 
an intern, resident, or fellow who is formally accepted, enrolled, and 
participating in an approved medical residency program, including 
programs in osteopathy, dentistry, and podiatry, as required in order 
to become certified by the appropriate specialty board.
* * * * *

PART 440--SERVICES: GENERAL PROVISIONS

    13. The authority citation for Part 440 continues to read as 
follows:

    Authority:  Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

    18. Section 440.160 is amended by revising paragraphs (b)(1) and 
(b)(2) to read as follows:

Sec.  440.160  Inpatient psychiatric services for individuals under age 
21.

* * * * *
    (b) * * *
    (1) A psychiatric hospital that meets the requirements for 
participation in Medicare as a psychiatric hospital as specified in 
Sec.  482.60 of this chapter, or is accredited by a national 
organization whose psychiatric hospital accrediting program has been 
approved by CMS, or a hospital with an inpatient psychiatric program 
that meets the requirements for participation in Medicare as a hospital 
as specified in Part 482 of this chapter or is accredited by a national 
accrediting organization whose hospital accrediting program has been 
approved by CMS.
    (2) A psychiatric facility that is not a hospital and is accredited 
by a national accrediting organization whose program has been approved 
by CMS, or by any other accrediting organization with comparable 
standards that is recognized by the State.
* * * * *

PART 441--SERVICES: REQUIREMENTS AND LIMITS APPLICABLE TO SPECIFIC 
SERVICES

    14. The authority citation for Part 441 continues to read as 
follows:

    Authority:  Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

    15. Section 441.151 is amended by revising paragraphs (a)(2)(i) and 
(a)(2)(ii) to read as follows:

Sec.  441.151  General requirements.

    (a) * * *
    (2) * * *
    (i) A psychiatric hospital that meets the requirements for 
participation in Medicare as a psychiatric hospital as specified in 
Sec.  482.60 of this chapter, or is accredited by a national 
organization whose psychiatric hospital accrediting program has been 
approved by CMS, or a hospital with an inpatient psychiatric program 
that meets the requirements for participation in Medicare as a hospital 
as specified in Part 482 of this chapter or is accredited by a national 
accrediting organization whose hospital accrediting program has been 
approved by CMS.
    (ii) A psychiatric facility that is not a hospital and is 
accredited by a national accrediting organization whose program has 
been approved by CMS, or by any other accrediting organization with 
comparable standards that is recognized by the State.
* * * * *

PART 482--CONDITIONS OF PARTICIPATION FOR HOSPITALS

    16. The authority citation for Part 482 continues to read as 
follows:

    Authority:  Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395(hh)).

    17. Section 482.56 is amended by revising paragraph (b) to read as 
follows:

Sec.  482.56  Condition of participation: Rehabilitation services.

* * * * *
    (b) Standard: Delivery of services. Services must only be provided 
under the orders of a qualified and licensed practitioner who is 
responsible for the care of the patient, acting within his or her scope 
of practice under State law, and who is authorized by the hospital's 
medical staff to order the services in accordance with hospital 
policies and procedures and State laws.
    (1) All rehabilitation services orders must be documented in the 
patient's medical record according to the requirements at Sec.  482.24.
    (2) The provision of care and the personnel qualifications must be 
in accordance with national acceptable standards of practice and must 
also meet the requirements of Sec.  409.17 of this chapter.
    18. Section 482.57 is amended by revising paragraph (b)(3) and 
adding paragraph (b)(4) to read as follows:

Sec.  482.57  Condition of participation: Respiratory care services.

* * * * *
    (b) * * *
    (3) Services must only be provided under the orders of a qualified 
and licensed practitioner who is responsible for the care of the 
patient, acting within his or her scope of practice under State law, 
and who is authorized by the hospital's medical staff to order the

[[Page 24060]]

services in accordance with hospital policies and procedures and State 
laws.
    (4) All respiratory care services orders must be documented in the 
patient's medical record according to the requirements at Sec.  482.24.

PART 485--CONDITIONS OF PARTICIPATION: SPECIALIZED PROVIDERS

    19. The authority citation for Part 485 continues to read as 
follows:

    Authority:  Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395(hh)).

    20. Section 485.610 is amended by revising the introductory text of 
paragraph (b) to read as follows:

Sec.  485.610  Condition of participation: Status and location.

* * * * *
    (b) Standard: Location in a rural area or treatment as rural. The 
CAH meets the requirements of either paragraph (b)(1) or (b)(2) of this 
section or the requirements of either (b)(3) or (b)(4) of this section.
* * * * *

PART 489--PROVIDER AGREEMENTS AND SUPPLIER APPROVAL

    21. The authority citation for Part 489 continues to read as 
follows:

    Authority:  Secs. 1102, 1819, 1820(e), 1861, 1864(m), 1866, 
1869, and 1871 of the Social Security Act (42 U.S.C. 1302, 1395i-3, 
1395x, 1395aa(m), 1395cc, 1395ff, and 1395hh).

    22. Section 489.1 is revised to read as follows:

Sec.  489.1  Statutory basis.

    (a) This part implements section 1866 of the Social Security Act 
(the Act). Section 1866 of the Act specifies the terms of provider 
agreements, the grounds for terminating a provider agreement, the 
circumstances under which payment for new admissions may be denied, and 
the circumstances under which payment may be withheld for failure to 
make timely utilization review. The sections of the Act specified in 
paragraphs (a)(1) through (a)(4) of this section are also pertinent.
    (1) Section 1861 of the Act defines the services covered under 
Medicare and the providers that may be reimbursed for furnishing those 
services.
    (2) Section 1864 of the Act provides for the use of State survey 
agencies to ascertain whether certain entities meet the conditions of 
participation.
    (3) Section 1865(a)(1) of the Act provides that an entity 
accredited by a national accreditation body found by the Secretary to 
satisfy the Medicare conditions of participation, conditions for 
coverage, or conditions of certification or requirements for 
participation shall be treated as meeting those requirements. Section 
1865(a)(2) of the Act requires the Secretary to consider when making 
such a finding, among other things, the national accreditation body's 
accreditation requirements and survey procedures.
    (4) Section 1871 of the Act authorizes the Secretary to prescribe 
regulations for the administration of the Medicare program.
    (b) Although section 1866 of the Act speaks only to providers and 
provider agreements, the effective date rules in this part are made 
applicable also to the approval of suppliers that meet the requirements 
specified in Sec.  489.13.
    (c) Section 1861(o)(7) of the Act requires each HHA to provide CMS 
with a surety bond.
    23. Section 489.13 is revised to read as follows:

Sec.  489.13  Effective date of agreement or approval.

    (a) Applicability--(1) General rule. Except as provided in 
paragraph (a)(2) of this section, this section applies to Medicare 
provider agreements with, and supplier approval of, entities that, as a 
basis for participation in Medicare are subject to a determination by 
CMS on the basis of--
    (i) A survey conducted by the State survey agency or CMS staff 
surveyors; or
    (ii) Accreditation by an accreditation organization whose program 
has CMS approval at the time of the accreditation survey and 
accreditation decision.
    (2) Exceptions. (i) For an agreement with a community mental health 
center (CMHC) or a federally qualified health center (FQHC), the 
effective date is the date on which CMS accepts a signed agreement 
which assures that the CMHC or FQHC meets all Federal requirements.
    (ii) A Medicare supplier approval of a laboratory is effective only 
while the laboratory has in effect a valid CLIA certificate issued 
under Part 493 of this chapter, and only for the specialty and 
subspecialty tests it is authorized to perform.
    (b) All health and safety standards are met on the date of survey. 
The agreement or approval is effective on the date the State agency, 
CMS staff, or the CMS contractor survey (including the Life Safety Code 
survey, if applicable) is completed, or on the date of the 
accreditation decision, as applicable, if on that date the provider or 
supplier meets all applicable Federal requirements as set forth in this 
chapter. (If the agreement or approval is time-limited, the new 
agreement or approval is effective on the day following the expiration 
of the current agreement or approval.) However, the effective date of 
the agreement or approval may not be earlier than the latest of the 
dates on which CMS determines that each applicable Federal requirement 
is met. Federal requirements include, but are not limited to--
    (1) Enrollment requirements established in Part 424, Subpart P, of 
this chapter. CMS determines, based upon its review and verification of 
the prospective provider's or supplier's enrollment application, the 
date on which enrollment requirements have been met;
    (2) The requirements identified in Sec. Sec.  489.10 and 489.12; 
and
    (3) The applicable Medicare health and safety standards, such as 
the applicable conditions of participation, the requirements for 
participation, the conditions for coverage, or the conditions for 
certification.
    (c) All health and safety standards are not met on the date of 
survey. If, on the date the survey is completed, the provider or 
supplier has failed to meet any one of the applicable health and safety 
standards, the following rules apply for determining the effective date 
of the provider agreement or supplier approval, assuming that no other 
Federal requirements remain to be satisfied. The effective date of the 
agreement or approval may not be earlier than the latest of the dates 
on which each applicable Federal requirement is met.
    (1) For an agreement with an SNF, the effective date is the date on 
which--
    (i) The SNF is in substantial compliance (as defined in Sec.  
488.301 of this chapter) with the requirements for participation; and
    (ii) CMS or the State survey agency receives from the SNF, if 
applicable, an approvable waiver request.
    (2) For an agreement with, or an approval of, any other provider or 
supplier, (except those specified in paragraph (a)(2) of this section), 
the effective date is the earlier of the following:
    (i) The date on which the provider or supplier meets all applicable 
conditions of participation, conditions for coverage, or conditions for 
certification; or, if applicable, the date of a CMS-approved 
accreditation organization program's positive accreditation decision, 
issued after the accreditation organization has determined that the 
provider or supplier meets all applicable conditions.
    (ii) The date on which a provider or supplier is found to meet all 
conditions of participation, conditions for coverage,

[[Page 24061]]

or conditions for certification, but has lower-level deficiencies, 
and--
    (A) CMS or the State survey agency receives an acceptable plan of 
correction for the lower-level deficiencies (the date of receipt is the 
effective date regardless of when the plan of correction is approved); 
or, if applicable, a CMS-approved accreditation organization program 
issues a positive accreditation decision after it receives an 
acceptable plan of correction for the lower-level deficiencies; or
    (B) CMS receives an approvable waiver request (the date of receipt 
is the effective date regardless of when CMS approves the waiver 
request).
    (C) For an agreement with any other provider or an approval of any 
other supplier (except those specified in paragraph (a)(2) of this 
section) that is found to meet all conditions of participation, 
conditions for coverage, or conditions for certification, but has 
lower-level deficiencies and has submitted both an approvable plan of 
correction/positive accreditation decision and an approvable waiver 
request, the effective date is the later of the dates that result when 
calculated in accordance with paragraph (c)(2)(ii)(A) or (c)(2)(ii)(B) 
of this section.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; Program No. 93.774, Medicare--
Supplementary Medical Insurance Program; and Program No. 93.778, 
Medical Assistance)

    Dated: April 6, 2010.
Charlene Frizzera,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: April 16, 2010.
Kathleen Sebelius,
Secretary.[

    Editorial Note:  The following Addendum and appendixes will not 
appear in the Code of Federal Regulations.]

Addendum--Proposed Schedule of Standardized Amounts, Update Factors, 
and Rate-of-Increase Percentages Effective With Cost Reporting Periods 
Beginning on or After October 1, 2010

I. Summary and Background

    In this Addendum, we are setting forth a description of the methods 
and data we used to determine the proposed prospective payment rates 
for Medicare hospital inpatient operating costs and Medicare hospital 
inpatient capital-related costs for FY 2011 for acute care hospitals. 
We note that on March 23, 2010, the Patient Protection and Affordable 
Care Act (PPACA), Pub. L. 111-148 was enacted. Following the enactment 
of Public Law 111-148, the Health Care and Education Reconciliation Act 
of 2010, Public L. 111-152 (enacted on March 30, 2010), amended certain 
provisions of Public Law 111-148. A number of the provisions of Public 
Law 111-148, as amended by Public Law 111-152, affect the IPPS and the 
LTCH PPS and the providers and suppliers addressed in this proposed 
rule. However, due to the timing of the passage of the legislation, we 
are unable to address those provisions in this proposed rule. 
Therefore, the proposed policies and payment rates in this proposed 
rule do not reflect the new legislation. We plan to issue separate 
documents in the Federal Register addressing the provisions of Public 
Law 111-148, as amended, that affect our proposed policies and payment 
rates for FY 2011 under the IPPS and the LTCH PPS. In addition, we plan 
to issue further instructions implementing the provisions of Public Law 
111-148, as amended, that affect the policies and payment rates for FY 
2010 under the IPPS and for RY 2010 under the LTCH PPS.
    We also are setting forth the proposed rate-of-increase percentages 
for updating the target amounts for certain hospitals excluded from the 
IPPS for FY 2011. We note that, because certain hospitals excluded from 
the IPPS are paid on a reasonable cost basis subject to a rate-of-
increase ceiling (and not by the IPPS), these hospitals are not 
affected by the figures for the standardized amounts, offsets, and 
budget neutrality factors. Therefore, in this proposed rule, we are 
proposing to establish the rate-of-increase percentages for updating 
the target amounts for certain hospitals excluded from the IPPS that 
are effective for cost reporting periods beginning on or after October 
1, 2010.
    In addition, we are setting forth a description of the methods and 
data we used to determine the proposed standard Federal rate that will 
be applicable to Medicare LTCHs for FY 2011.
    In general, except for SCHs, MDHs, and hospitals located in Puerto 
Rico, each hospital's payment per discharge under the IPPS is based on 
100 percent of the Federal national rate, also known as the national 
adjusted standardized amount. This amount reflects the national average 
hospital cost per case from a base year, updated for inflation.
    Currently, SCHs are paid based on whichever of the following rates 
yields the greatest aggregate payment: The Federal national rate; the 
updated hospital-specific rate based on FY 1982 costs per discharge; 
the updated hospital-specific rate based on FY 1987 costs per 
discharge; the updated hospital-specific rate based on FY 1996 costs 
per discharge; or the updated hospital-specific rate based on the FY 
2006 costs per discharge.
    Under section 1886(d)(5)(G) of the Act, MDHs historically have been 
paid based on the Federal national rate or, if higher, the Federal 
national rate plus 50 percent of the difference between the Federal 
national rate and the updated hospital-specific rate based on FY 1982 
or FY 1987 costs per discharge, whichever was higher. However, section 
5003(a)(1) of Public Law 109-171 extended and modified the MDH special 
payment provision that was previously set to expire on October 1, 2006, 
to include discharges occurring on or after October 1, 2006, but before 
October 1, 2011. Under section 5003(b) of Public Law 109-171, if the 
change results in an increase to an MDH's target amount, we must rebase 
an MDH's hospital-specific rates based on its FY 2002 cost report. 
Section 5003(c) of Public Law 109-171 further required that MDHs be 
paid based on the Federal national rate or, if higher, the Federal 
national rate plus 75 percent of the difference between the Federal 
national rate and the updated hospital-specific rate. Further, based on 
the provisions of section 5003(d) of Public Law 109-171, MDHs are no 
longer subject to the 12-percent cap on their DSH payment adjustment 
factor.
    For hospitals located in Puerto Rico, the payment per discharge is 
based on the sum of 25 percent of an updated Puerto Rico-specific rate 
based on average costs per case of Puerto Rico hospitals for the base 
year and 75 percent of the Federal national rate. (We refer readers to 
section II.D.3. of this Addendum for a complete description.)
    As discussed below in section II. of this Addendum, we are 
proposing to make changes in the determination of the prospective 
payment rates for Medicare inpatient operating costs for acute care 
hospitals for FY 2011. In section III. of this Addendum, we discuss our 
proposed policy changes for determining the prospective payment rates 
for Medicare inpatient capital-related costs for FY 2011. In section 
IV. of this Addendum, we are setting forth our proposed changes for 
determining the rate-of-increase limits for certain hospitals excluded 
from the IPPS for FY 2011. In section V. of this Addendum, we are 
proposing to make changes in the determination of the standard Federal 
rate for LTCHs under the LTCH PPS for FY 2011. The tables to which we 
refer in the preamble of this proposed rule are presented in section 
VI. of this Addendum.

[[Page 24062]]

II. Proposed Changes to Prospective Payment Rates for Hospital 
Inpatient Operating Costs for Acute Care Hospitals for FY 2011

    The basic methodology for determining prospective payment rates for 
hospital inpatient operating costs for acute care hospitals for FY 2005 
and subsequent fiscal years is set forth at Sec.  412.64. The basic 
methodology for determining the prospective payment rates for hospital 
inpatient operating costs for hospitals located in Puerto Rico for FY 
2005 and subsequent fiscal years is set forth at Sec. Sec.  412.211 and 
412.212. Below we discuss the factors used for determining the proposed 
prospective payment rates for FY 2011.
    In summary, the proposed standardized amounts set forth in Tables 
1A, 1B, and 1C of section VI. of this Addendum reflect--
     Equalization of the standardized amounts for urban and 
other areas at the level computed for large urban hospitals during FY 
2004 and onward, as provided for under section 1886(d)(3)(A)(iv)(II) of 
the Act, updated by the applicable percentage increase required under 
sections 1886(b)(3)(B)(i)(XX) and 1886(b)(3)(B)(viii) of the Act.
     The labor-related share that is applied to the 
standardized amounts and Puerto Rico-specific standardized amounts to 
give the hospital the highest payment, as provided for under sections 
1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act.
     Proposed updates of 2.4 percent for all areas (that is, 
the estimated full market basket percentage increase of 2.4 percent), 
as required by section 1886(b)(3)(B)(i)(XX) of the Act, as amended by 
section 5001(a)(1) of Public Law 109-171, and reflecting the 
requirements of section 1886(b)(3)(B)(viii) of the Act, as added by 
section 5001(a)(3) of Public Law 109-171, to reduce the applicable 
percentage increase by 2.0 percentage points for a hospital that fails 
to submit data, in a form and manner, and at the time specified by the 
Secretary, relating to the quality of inpatient care furnished by the 
hospital.
     A proposed update of 2.4 percent to the Puerto Rico-
specific standardized amount (that is, the full estimated rate-of-
increase in the hospital market basket for IPPS hospitals), as provided 
for under Sec.  412.211(c), which states that we update the Puerto 
Rico-specific standardized amount using the percentage increase 
specified in Sec.  412.64(d)(1), or the percentage increase in the 
market basket index for prospective payment hospitals for all areas.
     An adjustment to the standardized amount to ensure budget 
neutrality for DRG recalibration and reclassification, as provided for 
under section 1886(d)(4)(C)(iii) of the Act.
     An adjustment to ensure the wage index changes are budget 
neutral, as provided for under section 1886(d)(3)(E)(i) of the Act. We 
note that section 1886(d)(3)(E)(i) of the Act requires that we do not 
consider the labor-related share of 62 percent to compute wage index 
budget neutrality.
     An adjustment to ensure the effects of geographic 
reclassification are budget neutral, as provided for in section 
1886(d)(8)(D) of the Act, by removing the FY 2010 budget neutrality 
factor and applying a revised factor.
     An adjustment to remove the FY 2010 outlier offset and 
apply an offset for FY 2011, as provided for in section 1886(d)(3)(B) 
of the Act.
     As discussed below and in section II.D. of the preamble to 
this proposed rule, an adjustment to meet the requirements of section 
7(b)(1)(B) of Public Law 110-90 to adjust the standardized amounts to 
offset the estimated amount of the increase in aggregate payments 
(including interest) due to documentation and coding that did not 
reflect real changes in case-mix for discharges occurring during FY 
2008 and FY 2009.
    For FY 2011 (in the absence of the provisions of Public Law 111-148 
as amended by Pub. L. 111-152), the requirement under section 410A of 
Public Law 108-173 to conduct a rural community hospital demonstration 
program and under section 410A(c)(2) of Public Law 108-173 to adjust 
the standardized amount to ensure the effects of the rural community 
hospital demonstration are budget neutral has expired. Therefore, for 
this proposed rule, there is no adjustment applied to the standardized 
amount to ensure the effects of the rural community hospital 
demonstration are budget neutral.
    We note that, beginning in FY 2008, we applied the budget 
neutrality adjustment for the rural floor to the hospital wage indices 
rather than the standardized amount. As we did for FY 2010, for FY 
2011, we are proposing to continue to apply the rural floor budget 
neutrality adjustment to hospital wage indices rather than the 
standardized amount. In addition, instead of applying the budget 
neutrality adjustment for the imputed floor adopted under section 
1886(d)(3)(E) of the Act to the standardized amount, for FY 2011, we 
are proposing to continue to apply the imputed floor budget neutrality 
adjustment to the wage indices. Consistent with the policy we 
established in the FY 2009 IPPS final rule (in absence of the 
provisions of Pub. L. 111-148, as amended by Pub. L. 111-152), we also 
are proposing to continue to apply the budget neutrality adjustments 
for the rural floor and imputed rural floor at the State level rather 
than the national level. For a complete discussion of the budget 
neutrality changes concerning the rural floor and the imputed floor, 
including the within-State budget neutrality adjustment, we refer 
readers to section III.B.2. of the preamble of the FY 2009 IPPS final 
rule and this proposed rule.

A. Calculation of the Adjusted Standardized Amount

1. Standardization of Base-Year Costs or Target Amounts
    In general, the national standardized amount is based on per 
discharge averages of adjusted hospital costs from a base period 
(section 1886(d)(2)(A) of the Act), updated and otherwise adjusted in 
accordance with the provisions of section 1886(d) of the Act. For 
Puerto Rico hospitals, the Puerto Rico-specific standardized amount is 
based on per discharge averages of adjusted target amounts from a base 
period (section 1886(d)(9)(B)(i) of the Act), updated and otherwise 
adjusted in accordance with the provisions of section 1886(d)(9) of the 
Act. The September 1, 1983 interim final rule (48 FR 39763) contained a 
detailed explanation of how base-year cost data (from cost reporting 
periods ending during FY 1981) were established for urban and rural 
hospitals in the initial development of standardized amounts for the 
IPPS. The September 1, 1987 final rule (52 FR 33043 and 33066) contains 
a detailed explanation of how the target amounts were determined and 
how they are used in computing the Puerto Rico rates.
    Sections 1886(d)(2)(B) and 1886(d)(2)(C) of the Act require us to 
update base-year per discharge costs for FY 1984 and then standardize 
the cost data in order to remove the effects of certain sources of cost 
variations among hospitals. These effects include case-mix, differences 
in area wage levels, cost-of-living adjustments for Alaska and Hawaii, 
IME costs, and costs to hospitals serving a disproportionate share of 
low-income patients.
    In accordance with section 1886(d)(3)(E) of the Act, the Secretary 
estimates, from time-to-time, the proportion of hospitals' costs that 
are attributable to wages and wage-related costs. In general, the 
standardized

[[Page 24063]]

amount is divided into labor-related and nonlabor-related amounts; only 
the proportion considered to be the labor-related amount is adjusted by 
the wage index. Section 1886(d)(3)(E) of the Act requires that 62 
percent of the standardized amount be adjusted by the wage index, 
unless doing so would result in lower payments to a hospital than would 
otherwise be made. (Section 1886(d)(9)(C)(iv)(II) of the Act extends 
this provision to the labor-related share for hospitals located in 
Puerto Rico.)
    For FY 2011, we are proposing to continue to use a labor-related 
share of 68.8 percent for discharges occurring on or after October 1, 
2010 for the national standardized amounts and 62.1 percent for the 
Puerto Rico-specific standardized amount. Consistent with section 
1886(d)(3)(E) of the Act, we are applying the wage index to a labor-
related share of 62 percent for all IPPS hospitals whose wage index 
values are less than or equal to 1.0000. For all IPPS hospitals whose 
wage indices are greater than 1.0000, we are applying the wage index to 
a labor-related share of 68.8 percent of the national standardized 
amount. For FY 2011, all Puerto Rico hospitals have a wage index less 
than 1.0. Therefore, the national labor-related share will always be 62 
percent because the wage index for all Puerto Rico hospitals is less 
than 1.0.
    For hospitals located in Puerto Rico, we are applying a labor-
related share of 62.1 percent if its Puerto Rico-specific wage index is 
greater than 1.0000. For hospitals located in Puerto Rico whose Puerto-
Rico specific wage index values are less than or equal to 1.0000, we 
are applying a labor share of 62 percent.
    The proposed standardized amounts for operating costs appear in 
Table 1A, 1B, and 1C of the Addendum to this proposed rule.
2. Computing the Average Standardized Amount
    Section 1886(d)(3)(A)(iv)(II) of the Act requires that, beginning 
with FY 2004 and thereafter, an equal standardized amount be computed 
for all hospitals at the level computed for large urban hospitals 
during FY 2003, updated by the applicable percentage update. Section 
1886(d)(9)(A)(ii)(II) of the Act equalizes the Puerto Rico-specific 
urban and rural area rates. Accordingly, we are proposing to calculate 
the FY 2011 national and Puerto Rico standardized amounts irrespective 
of whether a hospital is located in an urban or rural location.
3. Updating the Average Standardized Amount
    In accordance with section 1886(d)(3)(A)(iv)(II) of the Act, we are 
proposing to update the equalized standardized amount for FY 2011 by 
the full estimated market basket percentage increase for hospitals in 
all areas, as specified in section 1886(b)(3)(B)(i)(XX) of the Act, as 
amended by section 5001(a)(1) of Public Law 109-171. The percentage 
increase in the market basket reflects the average change in the price 
of goods and services comprising routine, ancillary, and special care 
unit hospital inpatient services. The most recent forecast of the 
hospital market basket increase for FY 2011 is 2.4 percent. Thus, for 
FY 2011, the proposed update to the average standardized amount is 2.4 
percent for hospitals in all areas. The estimated market basket 
increase of 2.4 percent is based on IHS Global Insight, Inc.'s 2010 
first quarter forecast of the hospital market basket increase (as 
discussed in Appendix B of this proposed rule).
    Section 1886(b)(3)(B) of the Act specifies the mechanism to be used 
to update the standardized amount for payment for inpatient hospital 
operating costs. Section 1886(b)(3)(B)(viii) of the Act, as added by 
section 5001(a)(3) of Public Law 109-171, provides for a reduction of 
2.0 percentage points from the update percentage increase (also known 
as the market basket update) for FY 2007 and each subsequent fiscal 
year for any ``subsection (d) hospital'' that does not submit quality 
data, as discussed in section V.A. of the preamble of this final rule. 
The proposed standardized amounts in Tables 1A through 1C of section 
VI. of this Addendum reflect these differential amounts.
    Section 412.211(c) states that we update the Puerto Rico-specific 
standardized amount using the percentage increase specified in Sec.  
412.64(d)(1), or the percentage increase in the market basket index for 
prospective payment hospitals for all areas. We are proposing to apply 
the full rate-of-increase in the hospital market basket for IPPS 
hospitals to the Puerto Rico-specific standardized amount. Therefore, 
the proposed update to the Puerto Rico-specific standardized amount is 
2.4 percent.
    Although the update factors for FY 2011 are set by law, we are 
required by section 1886(e)(4) of the Act to recommend, taking into 
account MedPAC's recommendations, appropriate update factors for FY 
2011 for both IPPS hospitals and hospitals and hospital units excluded 
from the IPPS. Section 1886(e)(5)(A) of the Act requires that we 
publish our proposed recommendations in the Federal Register for public 
comment. Our recommendation on the update factors is set forth in 
Appendix B of this proposed rule.
4. Other Adjustments to the Average Standardized Amount
    As in the past, we are proposing to adjust the FY 2011 standardized 
amount to remove the effects of the FY 2010 geographic 
reclassifications and outlier payments before applying the FY 2011 
updates. We then apply budget neutrality offsets for outliers and 
geographic reclassifications to the standardized amount based on FY 
2011 payment policies.
    We do not remove the prior year's budget neutrality adjustments for 
reclassification and recalibration of the DRG weights and for updated 
wage data because, in accordance with sections 1886(d)(4)(C)(iii) and 
1886(d)(3)(E) of the Act, estimated aggregate payments after updates in 
the DRG relative weights and wage index should equal estimated 
aggregate payments prior to the changes. If we removed the prior year's 
adjustment, we would not satisfy these conditions.
    Budget neutrality is determined by comparing aggregate IPPS 
payments before and after making changes that are required to be budget 
neutral (for example, changes to DRG classifications, recalibration of 
the DRG relative weights, updates to the wage index, and different 
geographic reclassifications). We include outlier payments in the 
simulations because they may be affected by changes in these 
parameters.
    Similar to last year, because IME Medicare Advantage payments are 
made to IPPS hospitals under section 1886(d) of the Act, we believe 
these payments must be part of these budget neutrality calculations. 
However, we note that it is not necessary to include Medicare Advantage 
IME payments in the outlier threshold calculation or the outlier offset 
to the standardized amount because the statute requires that outlier 
payments be not less than 5 percent nor more than 6 percent of total 
``operating DRG payments,'' which does not include IME and DSH 
payments. In order to account for these Medicare Advantage IME payments 
in determining the budget neutrality adjustments for this proposed 
rule, we identified Medicare Advantage claims from IPPS teaching 
hospitals in the MedPAR data. The GHO Paid indicator with a value of 
``1'' on the MedPAR file indicates that the claim was paid by a 
Medicare Advantage plan

[[Page 24064]]

(other than the IPPS IME payment specified at Sec.  412.105(g)). For 
these Medicare Advantage claims from IPPS teaching hospitals, we 
computed a transfer-adjusted CMI by provider based on the FY 2009 MS-
DRG GROUPER Version 27.0 assignment and relative weights. We also 
computed a transfer-adjusted CMI for these Medicare Advantage claims 
from IPPS teaching hospitals based on the FY 2010 MS-DRG GROUPER 
Version 28.0 assignments and relative weights. These transfer-adjusted 
CMIs (and corresponding case counts) were used to calculate an IME 
teaching add-on payment in accordance with Sec.  412.105(g). The total 
Medicare Advantage IME payment amount was then added to the total 
Federal payment amount for each provider (where applicable) in order to 
account for the Medicare Advantage IME payment in determining the 
budget neutrality adjustments. We note that we did not include Medicare 
Advantage IME claims when estimating outlier payments for providers 
because Medicare Advantage claims are not eligible for outlier payments 
under the IPPS.
a. Proposed Recalibration of DRG Weights and Updated Wage Index--Budget 
Neutrality Adjustment
    Section 1886(d)(4)(C)(iii) of the Act specifies that, beginning in 
FY 1991, the annual DRG reclassification and recalibration of the 
relative weights must be made in a manner that ensures that aggregate 
payments to hospitals are not affected. As discussed in section II. of 
the preamble of this proposed rule, we normalized the recalibrated DRG 
weights by an adjustment factor so that the average case weight after 
recalibration is equal to the average case weight prior to 
recalibration. However, equating the average case weight after 
recalibration to the average case weight before recalibration does not 
necessarily achieve budget neutrality with respect to aggregate 
payments to hospitals because payments to hospitals are affected by 
factors other than average case weight. Therefore, as we have done in 
past years, we are proposing to make a budget neutrality adjustment to 
ensure that the requirement of section 1886(d)(4)(C)(iii) of the Act is 
met.
    Section 1886(d)(3)(E)(i) of the Act requires us to update the 
hospital wage index on an annual basis beginning October 1, 1993. This 
provision also requires us to make any updates or adjustments to the 
wage index in a manner that ensures that aggregate payments to 
hospitals are not affected by the change in the wage index. Section 
1886(d)(3)(E)(i) of the Act requires that we implement the wage index 
adjustment in a budget neutral manner. However, section 
1886(d)(3)(E)(ii) of the Act sets the labor-related share at 62 percent 
for hospitals with a wage index less than or equal to 1.0, and section 
1886(d)(3)(E)(i) of the Act provides that the Secretary shall calculate 
the budget neutrality adjustment for the adjustments or updates made 
under that provision as if section 1886(d)(3)(E)(ii) of the Act had not 
been enacted. In other words, this section of the statute requires that 
we implement the updates to the wage index in a budget neutral manner, 
but that our budget neutrality adjustment should not take into account 
the requirement that we set the labor-related share for hospitals with 
indices less than or equal to 1.0 at the more advantageous level of 62 
percent. Therefore, for purposes of this budget neutrality adjustment, 
section 1886(d)(3)(E)(i) of the Act prohibits us from taking into 
account the fact that hospitals with a wage index less than or equal to 
1.0 are paid using a labor-related share of 62 percent. Consistent with 
current policy, for FY 2011, we are proposing to adjust 100 percent of 
the wage index factor for occupational mix. We describe the proposed 
occupational mix adjustment in section III.D. of the preamble of this 
proposed rule.
    For FY 2011, to comply with the requirement that DRG 
reclassification and recalibration of the relative weights be budget 
neutral for the Puerto Rico standardized amount and the hospital-
specific rates, we used FY 2009 discharge data to simulate payments and 
compared aggregate payments using the FY 2010 labor-related share 
percentages, the FY 2010 relative weights, and the FY 2010 pre-
reclassified wage data to aggregate payments using the FY 2010 labor-
related share percentages, the proposed FY 2011 relative weights, and 
the FY 2010 pre-reclassified wage data. Based on this comparison, we 
computed a proposed budget neutrality adjustment factor equal to 
0.996963. As discussed in section IV. of this Addendum, we would also 
apply the proposed DRG reclassification and recalibration budget 
neutrality factor of 0.996856 to the hospital-specific rates that are 
to be effective for cost reporting periods beginning on or after 
October 1, 2010.
    In order to meet the statutory requirements that we do not take 
into account the labor-related share of 62 percent when computing wage 
index budget, it was necessary to use a three-step process to comply 
with the requirements that DRG reclassification and recalibration of 
the relative weights and the updated wage index and labor-related share 
have no effect on aggregate payments for IPPS hospitals. We first 
determined a proposed DRG reclassification and recalibration budget 
neutrality factor of 0.996856 by using the same methodology described 
above to determine the proposed DRG reclassification and recalibration 
budget neutrality factor for the Puerto Rico standardized amount and 
hospital-specific rates. Secondly, to compute a budget neutrality 
factor for wage index and labor-related share changes, we used FY 2009 
discharge data to simulate payments and compared aggregate payments 
using proposed FY 2011 relative weights and FY 2010 pre-reclassified 
wage indices, and applied the FY 2010 labor-related share of 68.8 
percent to all hospitals (regardless of whether the hospital's wage 
index was above or below 1.0) to aggregate payments using the proposed 
FY 2011 relative weights and the proposed FY 2011 pre-reclassified wage 
indices, and applied the labor-related share for FY 2011 of 68.8 
percent to all hospitals (regardless of whether the hospital's wage 
index was above or below 1.0). In addition, we applied the proposed DRG 
reclassification and recalibration budget neutrality factor (derived in 
the first step) to the rates that were used to simulate payments for 
this comparison of aggregate payments from FY 2010 to FY 2011. By 
applying this methodology, we determined a proposed budget neutrality 
factor of 1.000107 for changes to the wage index. Finally, we 
multiplied the proposed DRG reclassification and recalibration budget 
neutrality factor of 0.996856 (derived in the first step) by the 
proposed budget neutrality factor of 1.000107 for changes to the wage 
index (derived in the second step) to determine the proposed DRG 
reclassification and recalibration and updated wage index budget 
neutrality factor of 0.996963.
b. Reclassified Hospitals--Proposed Budget Neutrality Adjustment
    Section 1886(d)(8)(B) of the Act provides that, effective with 
discharges occurring on or after October 1, 1988, certain rural 
hospitals are deemed urban. In addition, section 1886(d)(10) of the Act 
provides for the reclassification of hospitals based on determinations 
by the MGCRB. Under section 1886(d)(10) of the Act, a hospital may be 
reclassified for purposes of the wage index.
    Under section 1886(d)(8)(D) of the Act, the Secretary is required 
to adjust the standardized amount to ensure that aggregate payments 
under the IPPS after implementation of the provisions of

[[Page 24065]]

sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal to 
the aggregate prospective payments that would have been made absent 
these provisions. We note that the wage index adjustments provided 
under section 1886(d)(13) of the Act are not budget neutral. Section 
1886(d)(13)(H) of the Act provides that any increase in a wage index 
under section 1886(d)(13) shall not be taken into account ``in applying 
any budget neutrality adjustment with respect to such index'' under 
section 1886(d)(8)(D) of the Act. To calculate the proposed budget 
neutrality factor for FY 2011, we used FY 2009 discharge data to 
simulate payments and compared total IPPS payments with proposed FY 
2011 relative weights, FY 2011 labor share percentages, and proposed FY 
2011 wage data prior to any reclassifications under sections 
1886(d)(8)(B) and (C) and 1886(d)(10) of the Act to total IPPS payments 
with proposed FY 2011 relative weights, FY 2011 labor share 
percentages, and proposed FY 2011 wage data after such 
reclassifications. Based on these simulations, we calculated a proposed 
adjustment factor of 0.991756 to ensure that the effects of these 
provisions are budget neutral, consistent with the statute.
    The proposed FY 2011 budget neutrality adjustment factor is applied 
to the standardized amount after removing the effects of the FY 2010 
budget neutrality adjustment factor. We note that the proposed FY 2011 
budget neutrality adjustment reflects proposed FY 2011 wage index 
reclassifications approved by the MGCRB or the Administrator. 
Furthermore, for this proposed rule, we note that the proposed FY 2011 
wage index reclassifications approved by the MGCRB or the Administrator 
are in the absence of the provisions of Public Law 111-148, as amended 
by Public Law 111-152.
c. Proposed Rural Floor and Imputed Floor Budget Neutrality Adjustment
    CMS makes an adjustment to the wage index to ensure that aggregate 
payments after implementation of the rural floor under section 4410 of 
the BBA (Pub. L. 105-33) and the imputed floor under Sec.  412.64(h)(4) 
of the regulations are made in a manner that ensures that aggregate 
payments to hospitals are not affected. As discussed in section III.B. 
of the preamble of the FY 2009 IPPS final rule (73 FR 48570 through 
48574), we adopted as final State-level budget neutrality for the rural 
and imputed floors, effective beginning with the FY 2009 wage index. In 
response to the public's concerns and taking into account the 
potentially significant payment cuts that could occur to hospitals in 
some States if we implemented this change with no transition, we 
decided to phase in, over a 3-year period, the transition from the 
national rural floor budget neutrality adjustment on the wage index to 
the State-level rural floor budget neutrality adjustment on the wage 
index. In FY 2009, hospitals received a blended wage index that was 
comprised of 20 percent of the wage index adjusted by applying the 
State-level rural and imputed floor budget neutrality adjustment and 80 
percent of the wage index adjusted by applying the national budget 
neutrality adjustment. For FY 2010, the blended wage index was 
determined by adding 50 percent of the wage index adjusted by applying 
the State-level rural and imputed floor budget neutrality adjustment 
and 50 percent of the wage index adjusted by applying the national 
budget neutrality adjustment. In FY 2011 (in the absence of provisions 
of Pub. L. 111-148, as amended by Public Law 111-152), the proposed 
adjustment will be completely transitioned to the State-level 
methodology, such that the wage index will be determined by applying 
100 percent of the State-level budget neutrality adjustment. As stated 
earlier, we note that the rural floor budget neutrality adjustment is 
applied to the wage index and not the standardized amount. However, 
because the 100 percent State-level rural and imputed floor budget 
neutrality adjustment is used in calculating the proposed FY 2011 
outlier threshold (as discussed below), we are explaining our 
calculation of the proposed rural floor budget neutrality adjustments 
(in this section) below.
    In order to compute a budget neutral wage index that is 100 percent 
of the wage index adjusted by the State-level rural and imputed floor 
budget neutrality adjustment, we used FY 2009 discharge data with 
proposed FY 2011 relative weights, proposed FY 2011 labor share 
percentages, and proposed FY 2011 post reclassified wage indices to 
simulate IPPS payments. To determine each State's rural or imputed 
floor budget neutrality adjustment, we compared each State's total 
simulated payments with and without the rural or imputed floor applied. 
These State-level rural and imputed floor budget neutrality factors 
were then applied to the wage indices to produce a State-level rural 
and imputed floor budget neutral wage index, which was used in 
determining the FY 2011 wage indices.
d. Proposed Case-Mix Budget Neutrality Adjustment
(1) Adjustment to the FY 2011 IPPS Standardized Amount
    As stated earlier, beginning in FY 2008, we adopted the MS-DRG 
patient classification system for the IPPS to better recognize 
patients' severity of illness in Medicare payment rates. In the FY 2008 
IPPS final rule with comment period (73 FR 47175 through 47186), we 
indicated that we believe the adoption of the MS-DRGs had the potential 
to lead to increases in aggregate payments without a corresponding 
increase in actual patient severity of illness due to the incentives 
for changes in documentation and coding. In that final rule, using the 
Secretary's authority under section 1886(d)(3)(A)(vi) of the Act to 
maintain budget neutrality by adjusting the national standardized 
amounts to eliminate the effect of changes in documentation and coding 
that do not reflect real change in case-mix, we established prospective 
documentation and coding adjustments of -1.2 percent for FY 2008, -1.8 
percent for FY 2009, and -1.8 percent for FY 2010 (for a total 
adjustment of -4.8 percent). On September 29, 2007, Public Law 110-90 
was enacted. Section 7 of Public Law 110-90 included a provision that 
reduces the documentation and coding adjustment for the MS-DRG system 
that we adopted in the FY 2008 IPPS final rule with comment period to -
0.6 percent for FY 2008 and -0.9 percent for FY 2009. To comply with 
the provision of section 7(a) of Public Law 110-90, in a final rule 
that appeared in the Federal Register on November 27, 2007 (72 FR 
66886), we changed the IPPS documentation and coding adjustment for FY 
2008 to -0.6 percent, and revised the FY 2008 national standardized 
amounts (as well as other payment factors and thresholds) accordingly, 
with these revisions being effective as of October 1, 2007. For FY 
2009, section 7(a) of Public Law 110-90 required a documentation and 
coding adjustment of -0.9 percent instead of the -1.8 percent 
adjustment specified in the FY 2008 IPPS final rule with comment 
period. As required by statute, we applied a documentation and coding 
adjustment of -0.9 percent to the FY 2009 IPPS national standardized 
amounts. The documentation and coding adjustments established in the FY 
2008 IPPS final rule with comment period are cumulative. As a result, 
the -0.9 percent documentation and coding adjustment in FY 2009 was in 
addition to the -0.6 percent adjustment

[[Page 24066]]

in FY 2008, yielding a combined effect of -1.5 percent.
    In the FY 2010 IPPS proposed and final rules, we discussed our 
analysis of FY 2008 claims data which showed an increase in case-mix of 
2.5 percent due to changes in documentation and coding that do not 
reflect real changes in case-mix for discharges occurring during FY 
2008. For FY 2010, we proposed to reduce the average standardized 
amounts under section 1886(d) of the Act in FY 2010 by -1.9 percent, 
which represents the difference between changes in documentation and 
coding that do not reflect real changes in case-mix for discharges 
occurring during FY 2008 and the prospective adjustment applied under 
Public Law 110-90. As discussed in section II.D. of the preamble of the 
FY 2010 IPPS final rule, after consideration of the public comments we 
received on our analysis and proposals presented in the proposed rule, 
we decided to postpone adopting documentation and coding adjustments as 
authorized under section 7(a) of Public Law 110-90 and section 
1886(d)(3)(A)(vi) of the Act until a full analysis of FY 2009 case-mix 
changes could be completed. Accordingly, in the FY 2010 IPPS final 
rule, for FY 2010, we did not apply any additional documentation and 
coding adjustments to the average standardized amounts under section 
1886(d) of the Act.
    As indicated in section II.D.in the preamble to this proposed rule, 
the change due to documentation and coding that did not reflect real 
changes in case mix for discharges occurring during FY 2008 and FY 2009 
exceeded the -0.6 and -0.9 percent prospective documentation and coding 
adjustment applied under section 7(a) of Public Law 110-90 for those 2 
years respectively by 1.9 percentage points in FY 2008 and 3.9 
percentage points in FY 2009. In total, this change exceeded the 
cumulative prospective adjustments by 5.8 percentage points. Our 
actuaries currently estimate that this 5.8 percentage point increase 
resulted in an increase in aggregate payments of approximately $6.9 
billion. Therefore, an aggregate adjustment of -5.8 percent in FYs 2011 
and 2012, subject to actuarial adjustment to reflect accumulated 
interest, is necessary in order to meet the requirements of section 
7(b)(1)(B) of Public Law 110-90 to adjust the standardized amounts for 
discharges occurring in FYs 2010, 2011, and/or 2012 to offset the 
estimated amount of the cumulative increase in aggregate payments 
(including interest) in FYs 2008 and 2009. We refer the reader to 
section II.D. of the preamble to this proposed rule for more 
discussion.
    It is often our practice to phase in rate adjustments over more 
than one year in order to moderate the effect on rates in any one year. 
Therefore, we are proposing to make an adjustment to the standardized 
amount of -2.9 percent, representing half of the aggregate adjustment 
required under section 7(b)(1)(B) of Public Law 110-90, for FY 2011. As 
we have previously noted, unlike the prospective adjustment to the 
standardized amounts under section 7(b)(1)(A) of Public Law 110-90 
described earlier, the recoupment or repayment adjustment to the 
standardized amounts under section 7(b)(1)(B) of Public Law 110-90 is 
not cumulative, but would be removed for subsequent fiscal years once 
we have offset the increase in aggregate payments for discharges for FY 
2008 expenditures and FY 2009 expenditures. We note that we are not 
making a formal proposal for the further implementation of section 
7(b)(1)(B) of Public Law 110-90 in FY 2012 in this proposed rule.
(2) Proposed Adjustment to the FY 2011 Hospital-Specific Rates for SCHs 
and MDHs
    As discussed in section II.D. of the preamble of this proposed 
rule, because hospitals (SCHs and MDHs) paid based in whole or in part 
on the hospital-specific rate use the same MS-DRG system as other 
hospitals, we believe they have the potential to realize increased 
payments from documentation and coding changes that do not reflect real 
increases in patients' severity of illness. Under section 
1886(d)(3)(A)(vi) of the Act, Congress stipulated that hospitals paid 
based on the standardized amount should not receive additional payments 
based on the effect of documentation and coding changes that do not 
reflect real changes in case-mix. Similarly, we believe that hospitals 
paid based on the hospital-specific rate should not have the potential 
to realize increased payments due to documentation and coding changes 
that do not reflect real increases in patients' severity of illness. 
While we continue to believe that section 1886(d)(3)(A)(vi) of the Act 
does not provide explicit authority for application of the 
documentation and coding adjustment to the hospital-specific rates, we 
believe that we have the authority to apply the documentation and 
coding adjustment to the hospital-specific rates using our special 
exceptions and adjustment authority under section 1886(d)(5)(I)(i) of 
the Act.
    As discussed in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule, 
based on our analysis of FY 2008 claims data, we found that, 
independently for both SCHs and MDHs, the change due to documentation 
and coding that did not reflect real changes in case-mix for discharges 
occurring during FY 2008 slightly exceeded the 2.5 percent result 
discussed earlier, but did not significantly differ from that result.
    Therefore, in FY 2010, we proposed to use our authority under 
section 1886(d)(5)(I)(i) of the Act to prospectively adjust the 
hospital-specific rates by -2.5 percent in FY 2011 for our estimated 
documentation and coding effect in FY 2008 that does not reflect real 
changes in case-mix. We also noted that, unlike the national 
standardized rates, the FY 2010 hospital-specific rates were not 
previously reduced in order to account for anticipated changes in 
documentation and coding that do not reflect real changes in case-mix 
resulting from the adoption of the MS-DRGs.
    Consistent with our approach for determining the national average 
standardized amounts discussed earlier, after consideration of the 
public comments we received on our analysis and proposals presented in 
the FY 2010 IPPS proposed rule, for FY 2010, we also postponed adoption 
of a documentation and coding adjustment to the hospital-specific rate 
until a full analysis of FY 2009 case-mix changes could be completed. 
Accordingly, for FY 2010, we did not apply a documentation and coding 
adjustment to the hospital-specific rates.
    As we discuss in section II.D. of the preamble of this proposed 
rule, because SCHs and MDHs use the same DRG system as all other 
hospitals, we believe they have the potential to realize increased 
payments from documentation and coding changes that do not reflect real 
increases in patients' severity of illness. Therefore, we believe they 
should be equally subject to a prospective budget neutrality adjustment 
that we are applying for adoption of the MS-DRGs to all other 
hospitals. While the findings of the effects documentation and coding 
are different for SCHs/MDHs and other IPPS hospitals, we continue to 
believe that the documentation and coding adjustments for all 
subsection (d) hospitals should be the same. We continue to believe 
that this is the appropriate policy so as to neither advantage nor 
disadvantage different types of providers.
    As we have also discussed in section II.D. of the preamble to this 
proposed rule, our best estimate, based on the most recently available 
data, is that a cumulative adjustment of -5.4 percent

[[Page 24067]]

is required to eliminate the full effect of the documentation and 
coding changes on future payments. Unlike the case of standardized 
amounts paid to IPPS hospitals, we have not made any previous 
adjustments to the hospital specific rates paid to SCHs and MDHs to 
account for documentation and coding changes. Therefore, the entire -
5.4 percent adjustment remains to be implemented. Therefore, in order 
to maintain consistency as far as possible with the adjustments applied 
to IPPS hospitals, we are proposing an adjustment of -2.9 percent in FY 
2011 to the hospital-specific rates paid to SCHs and MDHs. We believe 
that this proposed adjustment is the most appropriate means to take 
into full account the effect of documentation and coding changes on 
payments, and to maintain equity between hospitals paid on the basis of 
different prospective rates.
(3) Proposed Adjustment to the FY 2011 Puerto Rico Standardized Amount
    As stated in section II.D. of the preamble of this proposed rule, 
we believe that we have the authority to apply the documentation and 
coding adjustment to the Puerto Rico-specific standardized amount using 
our special exceptions and adjustment authority under section 
1886(d)(5)(I)(i) of the Act. Similar to SCHs and MDHs that are paid 
based on the hospital-specific rate, we believe that Puerto Rico 
hospitals that are paid based on the Puerto Rico-specific standardized 
amount should not have the potential to realize increased payments due 
to documentation and coding changes that do not reflect real increases 
in patients' severity of illness. In the FY 2010 IPPS proposed rule, we 
discussed our analysis of FY 2008 claims data for Puerto Rico 
hospitals, which showed that, for Puerto Rico hospitals, the increase 
in payments for discharges occurring during FY 2008 due to 
documentation and coding changes that did not reflect real changes in 
case-mix for discharges occurring during FY 2008 was approximately 1.1 
percent. We noted that, unlike the national standardized rates, the FY 
2009 Puerto Rico-specific standardized amount was not previously 
reduced in order to account for anticipated changes in documentation 
and coding that do not reflect real changes in case-mix resulting from 
the adoption of the MS-DRGs. Therefore, for FY 2010, we proposed to use 
our authority under section 1886(d)(5)(I)(i) of the Act to adjust the 
Puerto Rico-specific standardized amount by -1.1 percent in FY 2010 to 
account for the FY 2008 documentation and coding changes that are not 
due to changes in real case-mix and to leave that adjustment in place 
for subsequent fiscal years.
    Consistent with our approach for determining the national average 
standardized amounts and hospital-specific rates of SCHs and MDHs 
discussed above, after consideration of the public comments we received 
on our analysis and proposals presented in the FY 2010 IPPS proposed 
rule, for FY 2010, we also postponed adoption of a documentation and 
coding adjustment to the Puerto Rico-specific rates until a full 
analysis of FY 2009 case-mix changes can be completed. Accordingly, in 
the FY 2010 IPPS final rule, for FY 2010, we did not apply a 
documentation and coding adjustment to the Puerto Rico-specific rates.
    As we have noted above, similar to SCHs and MDHs, hospitals in 
Puerto Rico use the same DRG system as all other hospitals and we 
believe they have the potential to realize increased payments from 
documentation and coding changes that do not reflect real increases in 
patients' severity of illness. Therefore, we believe they should be 
equally subject to a prospective budget neutrality adjustment that we 
are applying for adoption of the MS-DRGs to all other hospitals.
    As we have discussed in section II.D. of the preamble of this 
proposed rule, our best estimate, based on the most recently available 
data, is that a cumulative adjustment of -2.4 percent is required to 
eliminate the full effect of the documentation and coding changes on 
future payments from the Puerto Rico-specific rate. Unlike the case of 
standardized amounts paid to IPPS hospitals, we have not made any 
previous adjustments to the hospital-specific rates paid to Puerto Rico 
hospitals to account for documentation and coding changes. Therefore, 
the entire -2.4 percent adjustment remains to be implemented. In order 
to maintain consistency as far as possible with the adjustments applied 
to IPPS hospitals but to take into consideration the fact that the 
cumulative impact was smaller in Puerto Rico hospitals, we are 
therefore proposing an adjustment of -2.4 percent in FY 2011 to Puerto 
Rico-specific rate that accounts for 25 percent of payments to Puerto 
Rico hospitals, with the remaining 75 percent based on the national 
standardized amount, which are proposing to adjust as described above. 
Consequently, the overall reduction to rates for Puerto Rico hospitals 
to account for the documentation and coding changes will be slightly 
less than the reduction for IPPS hospitals based on 100 percent of the 
national standardized amount. We note that this proposed -2.4 percent 
prospective adjustment would eliminate the full effect of the 
documentation and coding changes on future payments from the Puerto 
Rico-specific rate. We believe that this proposed adjustment is the 
most appropriate means to take into full account the effect of 
documentation and coding changes on payments, and to maintain equity 
between hospitals paid on the basis of different prospective rates.
e. Proposed Outlier Payments
    Section 1886(d)(5)(A) of the Act provides for payments in addition 
to the basic prospective payments for ``outlier'' cases involving 
extraordinarily high costs. To qualify for outlier payments, a case 
must have costs greater than the sum of the prospective payment rate 
for the DRG, any IME and DSH payments, any new technology add-on 
payments, and the ``outlier threshold'' or ``fixed-loss'' amount (a 
dollar amount by which the costs of a case must exceed payments in 
order to qualify for an outlier payment). We refer to the sum of the 
prospective payment rate for the DRG, any IME and DSH payments, any new 
technology add-on payments, and the outlier threshold as the outlier 
``fixed-loss cost threshold.'' To determine whether the costs of a case 
exceed the fixed-loss cost threshold, a hospital's CCR is applied to 
the total covered charges for the case to convert the charges to 
estimated costs. Payments for eligible cases are then made based on a 
marginal cost factor, which is a percentage of the estimated costs 
above the fixed-loss cost threshold. The marginal cost factor for FY 
2011 is 80 percent, the same marginal cost factor we have used since FY 
1995 (59 FR 45367).
    In accordance with section 1886(d)(5)(A)(iv) of the Act, outlier 
payments for any year are projected to be not less than 5 percent nor 
more than 6 percent of total operating DRG payments plus outlier 
payments. We note that the statute requires outlier payments to be not 
less than 5 percent nor more than 6 percent of total ``operating DRG 
payments'' (which does not include IME and DSH payments) plus outlier 
payments. When setting the outlier threshold, we compute the 5.1 
percent target by dividing the total operating outlier payments by the 
total operating DRG payments plus outlier payments. We do not include 
any other payments such as IME and DSH within the outlier target 
amount. Therefore, it is not necessary to include Medicare Advantage 
IME payments in the outlier threshold calculation. Section

[[Page 24068]]

1886(d)(3)(B) of the Act requires the Secretary to reduce the average 
standardized amount by a factor to account for the estimated proportion 
of total DRG payments made to outlier cases. Similarly, section 
1886(d)(9)(B)(iv) of the Act requires the Secretary to reduce the 
average standardized amount applicable to hospitals located in Puerto 
Rico to account for the estimated proportion of total DRG payments made 
to outlier cases. More information on outlier payments may be found on 
the CMS Web site at http://www.cms.hhs.gov/AcuteInpatientPPS/04_outlier.asp#TopOfPage.
(1) Proposed FY 2011 Outlier Fixed-Loss Cost Threshold
    For FY 2011, we are proposing to continue to use the same 
methodology used for FY 2009 (73 FR 48763 through 48766) to calculate 
the outlier threshold. Similar to the methodology used in the FY 2009 
IPPS final rule, for FY 2011, we are proposing to apply an adjustment 
factor to the CCRs to account for cost and charge inflation (as 
explained below). As we have done in the past, to calculate the 
proposed FY 2011 outlier threshold, we simulated payments by applying 
the proposed FY 2011 rates and policies using cases from the FY 2009 
MedPAR files. Therefore, in order to determine the proposed FY 2011 
outlier threshold, we inflated the charges on the MedPAR claims by 2 
years, from FY 2009 to FY 2011.
    We are proposing to continue to use a refined methodology that 
takes into account the lower inflation in hospital charges that are 
occurring as a result of the outlier final rule (68 FR 34494), which 
changed our methodology for determining outlier payments by 
implementing the use of more current CCRs. Our refined methodology uses 
more recent data that reflect the rate-of-change in hospital charges 
under the new outlier policy.
    Using the most recent data available, we calculated the 1-year 
average annualized rate-of-change in charges-per-case from the last 
quarter of FY 2008 in combination with the first quarter of FY 2008 
(July 1, 2008 through December 31, 2008) to the last quarter of FY 2009 
in combination with the first quarter of FY 2010 (July 1, 2009 through 
December 31, 2009). This rate of change was 5.16 percent (1.0516) or 
10.59 percent (1.1059) over 2 years.
    As we have done in the past, we established the proposed FY 2011 
outlier threshold using hospital CCRs from the December 2009 update to 
the Provider-Specific File (PSF)--the most recent available data at the 
time of this proposed rule. This file includes CCRs that reflect 
implementation of the changes to the policy for determining the 
applicable CCRs that became effective August 8, 2003 (68 FR 34494).
    As discussed in the FY 2007 IPPS final rule (71 FR 48150), we 
worked with the Office of Actuary to derive the methodology described 
below to develop the CCR adjustment factor. For FY 2011, we are 
proposing to continue to use the same methodology to calculate the CCR 
adjustment by using the FY 2009 operating cost per discharge increase 
in combination with the actual FY 2009 operating market basket 
percentage increase determined by IHS Global Insight, Inc., as well as 
the charge inflation factor described above to estimate the adjustment 
to the CCRs. (We note that the FY 2009 actual (otherwise referred to as 
``final'') operating market basket percentage increase reflects 
historical data, whereas the published FY 2009 operating market basket 
update factor was based on IHS Global Insight, Inc.'s 2008 second 
quarter forecast with historical data through the first quarter of 
2008. We also note that while the FY 2009 published operating market 
basket update was based on the FY 2002-based IPPS market basket, the 
actual or ``final'' market basket percentage increase is based on the 
FY 2006-based IPPS market basket. Similarly, the FY 2009 published 
capital market basket upate factor was based on the FY 2002-based 
capital market basket and the actual or ``final'' capital market basket 
percentage increase is based on the FY 2006-based capital market 
basket.) By using the operating market basket percentage increase and 
the increase in the average cost per discharge from hospital cost 
reports, we are using two different measures of cost inflation. For FY 
2011, we determined the adjustment by taking the percentage increase in 
the operating costs per discharge from FY 2007 to FY 2008 (1.0513) from 
the cost report and dividing it by the final operating market basket 
percentage increase from FY 2008 (1.04). This operation removes the 
measure of pure price increase (the market basket) from the percentage 
increase in operating cost per discharge, leaving the nonprice factors 
in the cost increase (for example, quantity and changes in the mix of 
goods and services). We repeated this calculation for 2 prior years to 
determine the 3-year average of the rate of adjusted change in costs 
between the operating market basket percentage increase and the 
increase in cost per case from the cost report (the FY 2005 to FY 2006 
percentage increase of operating costs per discharge of 1.0577 divided 
by the FY 2006 final operating market basket percentage increase of 
1.04, the FY 2006 to FY 2007 percentage increase of operating costs per 
discharge of 1.0466 divided by FY 2007 final operating market basket 
percentage increase of 1.0360). For FY 2011, we averaged the 
differentials calculated for FY 2006, FY 2007, and FY 2008, which 
resulted in a mean ratio of 1.0127. We multiplied the 3-year average of 
1.0127 by the FY 2009 final operating market basket percentage increase 
of 1.027, which resulted in an operating cost inflation factor of 4.00 
percent or 1.0400. We then divided the operating cost inflation factor 
by the 1-year average change in charges (1.0515) and applied an 
adjustment factor of 0.989016 to the operating CCRs from the PSF 
(calculation performed on unrounded numbers).
    As stated in the FY 2009 IPPS final rule (73 FR 48763), we continue 
to believe it is appropriate to apply only a 1-year adjustment factor 
to the CCRs. On average, it takes approximately 9 months for a fiscal 
intermediary or MAC to tentatively settle a cost report from the fiscal 
year end of a hospital's cost reporting period. The average ``age'' of 
hospitals' CCRs from the time the fiscal intermediary or the MAC 
inserts the CCR in the PSF until the beginning of FY 2009 is 
approximately 1 year. Therefore, as stated above, we believe a 1-year 
adjustment factor to the CCRs is appropriate.
    We used the same methodology for the capital CCRs and determined 
the adjustment by taking the percentage increase in the capital costs 
per discharge from FY 2007 to FY 2008 (1.0800) from the cost report and 
dividing it by the final capital market basket percentage increase from 
FY 2008 (1.015). We repeated this calculation for 2 prior years to 
determine the 3-year average of the rate of adjusted change in costs 
between the capital market basket percentage increase and the increase 
in cost per case from the cost report (the FY 2005 to FY 2006 
percentage increase of capital costs per discharge of 1.0464 divided by 
the FY 2006 final capital market basket percentage increase of 1.011, 
the FY 2006 to FY 2007 percentage increase of capital costs per 
discharge of 1.0512 divided by the FY 2007 final capital market basket 
percentage increase of 1.012). For FY 2011, we averaged the 
differentials calculated for FY 2006, FY 2007, and FY 2008, which 
resulted in a mean ratio of 1.0459. We multiplied the 3-year average of 
1.0459 by the FY 2009 final capital market basket percentage increase 
of 1.014, which resulted in a

[[Page 24069]]

capital cost inflation factor of 6.06 percent or 1.0606. We then 
divided the capital cost inflation factor by the 1-year average change 
in charges (1.0516) and applied an adjustment factor of 1.008534 to the 
capital CCRs from the PSF (calculation performed on unrounded numbers). 
We are proposing to use the same charge inflation factor for the 
capital CCRs that was used for the operating CCRs. The charge inflation 
factor is based on the overall billed charges. Therefore, we believe it 
is appropriate to apply the charge factor to both the operating and 
capital CCRs.
    As stated above, for FY 2011, we applied the proposed FY 2011 rates 
and policies using cases from the FY 2009 MedPAR files in calculating 
the proposed outlier threshold. In FY 2010, for purposes of estimating 
the proposed outlier threshold, we took into account the remaining 
projected case-mix growth when calculating the outlier threshold that 
results in outlier payments being 5.1 percent of total payments for FY 
2010. As explained in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 
FR 44008), for the FY 2010 analysis, we inflated the FY 2008 claims 
data by an additional 1.6 percent for the additional case-mix growth 
projected to have occurred since FY 2008. If we did not take into 
account the remaining 1.6 percent projected case-mix growth, our 
estimate of total FY 2010 payments would have been too low, and, as a 
result, the FY 2010 final outlier threshold would have been too high, 
such that estimated outlier payments would be less than our projected 
5.1 percent of total payments. For this proposed rule, we are using the 
FY 2009 claims data to calculate the FY 2011 proposed outlier 
threshold. Our estimate of the cumulative effect of changes in 
documentation and coding due to the adoption of the MS-DRGs through FY 
2009 is 5.4 percent, which is already included within the claims data 
(FY 2009 MedPAR files) used to calculate the proposed FY 2011 outlier 
threshold. Furthermore, we currently estimate that there will be no 
continued changes in documentation and coding in FYs 2010 and 2011. 
Therefore, the cumulative effect of documentation and coding that has 
occurred is already reflected within the FY 2009 MedPAR claims data, 
and we do not believe there is any need to inflate FY 2009 claims data 
for any additional case-mix growth projected to have occurred since FY 
2009.
    Using this methodology, we are proposing an outlier fixed-loss cost 
threshold for FY 2011 equal to the prospective payment rate for the 
DRG, plus any IME and DSH payments, and any add-on payments for new 
technology, plus $23,970.
    As we did in establishing the FY 2009 outlier threshold (73 FR 
57891), in our projection of FY 2011 outlier payments, we are not 
proposing to make any adjustments for the possibility that hospitals' 
CCRs and outlier payments may be reconciled upon cost report 
settlement. We continue to believe that, due to the policy implemented 
in the June 9, 2003 outlier final rule (68 FR 34494), CCRs will no 
longer fluctuate significantly and, therefore, few hospitals will 
actually have these ratios reconciled upon cost report settlement. In 
addition, it is difficult to predict the specific hospitals that will 
have CCRs and outlier payments reconciled in any given year. We also 
noted that reconciliation occurs because hospitals' actual CCRs for the 
cost reporting period are different than the interim CCRs used to 
calculate outlier payments when a bill is processed. Our simulations 
assume that CCRs accurately measure hospital costs based on information 
available to us at the time we set the outlier threshold. For these 
reasons, we are proposing not to make any assumptions about the effects 
of reconciliation on the outlier threshold calculation.
(2) Other Proposed Changes Concerning Outliers
    As stated in the FY 1994 IPPS final rule (58 FR 46348), we 
establish an outlier threshold that is applicable to both hospital 
inpatient operating costs and hospital inpatient capital-related costs. 
When we modeled the combined operating and capital outlier payments, we 
found that using a common threshold resulted in a lower percentage of 
outlier payments for capital-related costs than for operating costs. We 
project that the thresholds for FY 2011 will result in outlier payments 
that will equal 5.1 percent of operating DRG payments and 5.8 percent 
of capital payments based on the Federal rate.
    In accordance with section 1886(d)(3)(B) of the Act, we are 
proposing to reduce the FY 2011 standardized amount by the same 
percentage to account for the projected proportion of payments paid as 
outliers.
    The outlier adjustment factors that would be applied to the 
standardized amount for the proposed FY 2011 outlier threshold are as 
follows:

----------------------------------------------------------------------------------------------------------------
                                                         Operating standardized
                                                                 amounts                Capital federal rate
----------------------------------------------------------------------------------------------------------------
National............................................                      0.948999                      0.942415
Puerto Rico.........................................                      0.951686                      0.924977
----------------------------------------------------------------------------------------------------------------

    We are proposing to apply the outlier adjustment factors to the 
proposed FY 2011 rates after removing the effects of the FY 2010 
outlier adjustment factors on the standardized amount.
    To determine whether a case qualifies for outlier payments, we 
apply hospital-specific CCRs to the total covered charges for the case. 
Estimated operating and capital costs for the case are calculated 
separately by applying separate operating and capital CCRs. These costs 
are then combined and compared with the outlier fixed-loss cost 
threshold.
    Under our current policy at Sec.  412.84, for hospitals for which 
the fiscal intermediary or MAC computes operating CCRs greater than 
1.176 or capital CCRs greater than 0.154, or hospitals for whom the 
fiscal intermediary or MAC is unable to calculate a CCR (as described 
at Sec.  412.84(i)(3) of our regulations), we still use statewide 
average CCRs to determine whether a hospital qualifies for outlier 
payments.\15\ Table 8A in this Addendum contains the proposed statewide 
average operating CCRs for urban hospitals and for rural hospitals for 
which the fiscal intermediary or MAC is unable to compute a hospital-
specific CCR within the above range. Effective for discharges occurring 
on or after October 1, 2010, these statewide average ratios would 
replace the ratios published in the IPPS final rule for FY 2010 (74 FR 
44159). Table 8B in this Addendum contains the proposed comparable 
statewide average capital CCRs. Again, the proposed CCRs in Tables 8A 
and 8B would be used during FY 2011 when hospital-specific CCRs based 
on the latest settled cost report are either not available or are 
outside the range noted above. Table 8C contains the proposed statewide 
average total

[[Page 24070]]

CCRs used under the LTCH PPS as discussed in section V. of this 
Addendum.
---------------------------------------------------------------------------

    \15\ These figures represent 3.0 standard deviations from the 
mean of the log distribution of CCRs for all hospitals.
---------------------------------------------------------------------------

    We finally note that we published a manual update (Change Request 
3966) to our outlier policy on October 12, 2005, which updated Chapter 
3, Section 20.1.2 of the Medicare Claims Processing Manual. The manual 
update covered an array of topics, including CCRs, reconciliation, and 
the time value of money. We encourage hospitals that are assigned the 
statewide average operating and/or capital CCRs to work with their 
fiscal intermediary or MAC on a possible alternative operating and/or 
capital CCR as explained in Change Request 3966. Use of an alternative 
CCR developed by the hospital in conjunction with the fiscal 
intermediary or MAC can avoid possible overpayments or underpayments at 
cost report settlement, thus ensuring better accuracy when making 
outlier payments and negating the need for outlier reconciliation. We 
also note that a hospital may request an alternative operating or 
capital CCR ratio at any time as long as the guidelines of Change 
Request 3966 are followed. To download and view the manual instructions 
on outlier and CCRs, we refer readers to CMS Web site: http://www.cms.hhs.gov/manuals/downloads/clm104c03.pdf.
(3) FY 2009 and FY 2010 Outlier Payments
    In the FY 2010 IPPS final rule (74 FR 44012), we stated that, based 
on available data, we estimated that actual FY 2009 outlier payments 
would be approximately 5.4 percent of actual total DRG payments. This 
estimate was computed based on simulations using the FY 2008 MedPAR 
file (discharge data for FY 2008 claims). That is, the estimate of 
actual outlier payments did not reflect actual FY 2009 claims, but 
instead reflected the application of FY 2009 rates and policies to 
available FY 2008 claims.
    Our current estimate, using available FY 2009 claims data, is that 
actual outlier payments for FY 2009 were approximately 5.3 percent of 
actual total DRG payments. Thus, the data indicate that, for FY 2009, 
the percentage of actual outlier payments relative to actual total 
payments is higher than we projected before FY 2009. Consistent with 
the policy and statutory interpretation we have maintained since the 
inception of the IPPS, we do not plan to make retroactive adjustments 
to outlier payments to ensure that total outlier payments for FY 2009 
are equal to 5.1 percent of total DRG payments.
    We currently estimate that actual outlier payments for FY 2010 will 
be approximately 4.7 percent of actual total DRG payments, 
approximately 0.4 percentage points lower than the 5.1 percent we 
projected in setting the outlier policies for FY 2010. This estimate is 
based on simulations using the FY 2009 MedPAR file (discharge data for 
FY 2009 claims). We used these data to calculate an estimate of the 
actual outlier percentage for FY 2010 by applying FY 2010 rates and 
policies, including an outlier threshold of $23,140 to available FY 
2009 claims.
5. Proposed FY 2011 Standardized Amount
    The proposed adjusted standardized amount is divided into labor-
related and nonlabor-related portions. Tables 1A and 1B of this 
Addendum contain the national standardized amounts that we are 
proposing to apply to all hospitals, except hospitals located in Puerto 
Rico, for FY 2011. The proposed Puerto Rico-specific amounts are shown 
in Table 1C of this Addendum. The proposed amounts shown in Tables 1A 
and 1B differ only in that the labor-related share applied to the 
standardized amounts in Table 1A is the labor-related share of 68.8 
percent, and Table 1B is 62 percent. In accordance with sections 
1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act, we are applying a 
labor-related share of 62 percent, unless application of that 
percentage would result in lower payments to a hospital than would 
otherwise be made. In effect, the statutory provision means that we 
will apply a labor-related share of 62 percent for all hospitals (other 
than those in Puerto Rico) whose wage indices are less than or equal to 
1.0000.
    In addition, Tables 1A and 1B include proposed standardized amounts 
reflecting the proposed full 2.4 percent update for FY 2011, and the 
proposed standardized amounts reflecting the 2.0 percentage point 
reduction to the update (a 0.4 percent update) applicable for hospitals 
that fail to submit quality data consistent with section 
1886(b)(3)(B)(viii) of the Act.
    Under section 1886(d)(9)(A)(ii) of the Act, the Federal portion of 
the Puerto Rico payment rate is based on the discharge-weighted average 
of the national large urban standardized amount (this proposed amount 
is set forth in Table 1A). The proposed labor-related and nonlabor-
related portions of the national average standardized amounts for 
Puerto Rico hospitals for FY 2011 are set forth in Table 1C of this 
Addendum. This table also includes the proposed Puerto Rico 
standardized amounts. The labor-related share applied to the Puerto 
Rico specific standardized amount is the proposed labor-related share 
of 62.1 percent, or 62 percent, depending on which provides higher 
payments to the hospital. (Section 1886(d)(9)(C)(iv) of the Act, as 
amended by section 403(b) of Public Law 108-173, provides that the 
labor-related share for hospitals located in Puerto Rico be 62 percent, 
unless the application of that percentage would result in lower 
payments to the hospital.)
    The following table illustrates the proposed changes from the FY 
2010 national standardized amount. The second column shows the proposed 
changes from the FY 2010 standardized amounts for hospitals that 
satisfy the quality data submission requirement for receiving the full 
update (2.4 percent). The third column shows the proposed changes for 
hospitals receiving the reduced update (0.4 percent). The first row of 
the table shows the proposed updated (through FY 2010) average 
standardized amount after restoring the FY 2010 offsets for outlier 
payments, demonstration budget neutrality and the geographic 
reclassification budget neutrality. The DRG reclassification and 
recalibration wage index budget neutrality factors are cumulative. 
Therefore, the FY 2010 factor is not removed from this table. 
Additionally, the documentation and coding adjustments for FY 2008 and 
FY 2009 are cumulative. Therefore, the FY 2008 and FY 2009 adjustment 
factors are not removed from this table. We also have added separate 
rows to this table to reflect the different labor-related shares that 
apply to hospitals.

[[Page 24071]]

[GRAPHIC] [TIFF OMITTED] TP04MY10.061

    Under section 1886(d)(9)(A)(ii) of the Act, the Federal portion of 
the Puerto Rico payment rate is based on the discharge-weighted average 
of the national standardized amount (as set forth in Table 1A of this 
Addendum). The labor-related and nonlabor-related portions of the 
proposed national average standardized amounts for Puerto Rico 
hospitals are set forth in Table 1C of this Addendum. This table also 
includes the proposed Puerto Rico standardized amounts. The labor-
related share applied to the proposed Puerto Rico standardized amount 
is 62.1 percent, or 62 percent, depending on which results in higher 
payments to the hospital. (Section 1886(d)(9)(C)(iv) of the Act, as 
amended by section 403(b) of Public Law 108-173, provides that the 
labor-related share for hospitals in Puerto Rico will be 62 percent, 
unless the application of that percentage would result in lower 
payments to the hospital.)

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

    Tables 1A through 1C, as set forth in this Addendum, contain the 
labor-related and nonlabor-related shares that we are proposing to use 
to calculate the prospective payment rates for hospitals located in the 
50 States, the District of Columbia, and Puerto Rico for FY 2011. This 
section addresses two types of adjustments to the standardized amounts 
that are made in determining the proposed prospective payment rates as 
described in this Addendum.
1. Proposed Adjustment for Area Wage Levels
    Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require 
that we make an adjustment to the labor-related portion of the national 
and Puerto Rico prospective payment rates, respectively, to account for 
area differences in hospital wage levels. This adjustment is made by 
multiplying the labor-related portion of the adjusted standardized 
amounts by the appropriate wage index for the area in which the 
hospital is located. In section III. of the preamble of this proposed 
rule, we discuss the data and methodology for the proposed FY 2011 wage 
index.
2. Proposed Adjustment for Cost-of-Living in Alaska and Hawaii
    Section 1886(d)(5)(H) of the Act authorizes the Secretary to make 
an adjustment to take into account the unique circumstances of 
hospitals in Alaska and Hawaii. Higher labor-related costs for these 
two States are taken into account in the adjustment for area

[[Page 24072]]

wages described above. For FY 2011, we are proposing to adjust the 
payments for hospitals in Alaska and Hawaii by multiplying the 
nonlabor-related portion of the standardized amount by the applicable 
adjustment factor contained in the table below. These proposed factors 
were obtained from the U.S. Office of Personnel Management (OPM) and 
are the same as the factors currently in use under the IPPS for FY 
2010. In addition, we are proposing that if OPM releases revised COLA 
factors after publication of this proposed rule, we would use the 
revised factors for the development of IPPS payments for FY 2011 and 
publish those revised COLA factors in the final rule.

 Table of Cost-of-Living Adjustment Factors: Alaska and Hawaii Hospitals
------------------------------------------------------------------------
                                                          Cost of living
                          Area                              adjustment
                                                              factor
------------------------------------------------------------------------
Alaska:
    City of Anchorage and 80-kilometer (50-mile) radius             1.23
     by road............................................
    City of Fairbanks and 80-kilometer (50-mile) radius             1.23
     by road............................................
    City of Juneau and 80-kilometer (50-mile) radius by             1.23
     road...............................................
    Rest of Alaska......................................            1.25
Hawaii:
    City and County of Honolulu.........................            1.25
    County of Hawaii....................................            1.18
    County of Kauai.....................................            1.25
    County of Maui and County of Kalawao................            1.25
------------------------------------------------------------------------
The above factors are based on data obtained from the U.S. Office of
  Personnel Management Web site at: http://www.opm.gov/oca/cola/  rates.asp.

C. Proposed MS-DRG Relative Weights

    As discussed in section II.H. of the preamble of this proposed 
rule, we have developed proposed relative weights for each MS-DRG that 
reflect the resource utilization of cases in each MS-DRG relative to 
Medicare cases in other MS-DRGs. Table 5 of this Addendum contains the 
proposed relative weights that we would apply to discharges occurring 
in FY 2011. These factors have been recalibrated as explained in 
section II. of the preamble of this proposed rule.

D. Calculation of the Proposed Prospective Payment Rates

General Formula for Calculation of the Proposed Prospective Payment 
Rates for FY 2011
    In general, the operating prospective payment rate for all 
hospitals paid under the IPPS located outside of Puerto Rico, except 
SCHs and MDHs, for FY 2011 equals the Federal rate.
    Currently, SCHs are paid based on whichever of the following rates 
yields the greatest aggregate payment: the Federal national rate; the 
updated hospital-specific rate based on FY 1982 costs per discharge; 
the updated hospital-specific rate based on FY 1987 costs per 
discharge; the updated hospital-specific rate based on FY 1996 costs 
per discharge; or the updated hospital-specific rate based on the FY 
2006 costs per discharge to determine the rate that yields the greatest 
aggregate payment.
    The prospective payment rate for SCHs for FY 2011 equals the higher 
of the applicable Federal rate, or the hospital-specific rate as 
described below. The prospective payment rate for MDHs for FY 2011 
equals the higher of the Federal rate, or the Federal rate plus 75 
percent of the difference between the Federal rate and the hospital-
specific rate as described below. For MDHs, the updated hospital-
specific rate is based on FY 1982, FY 1987 or FY 2002 costs per 
discharge, whichever yields the greatest aggregate payment.
    The prospective payment rate for hospitals located in Puerto Rico 
for FY 2011 equals 25 percent of the Puerto Rico rate plus 75 percent 
of the applicable national rate.
1. Federal Rate
    The Federal rate is determined as follows:
    Step 1--Select the applicable average standardized amount depending 
on whether the hospital submitted qualifying quality data (full update 
for qualifying hospitals, update minus 2.0 percentage points for 
nonqualifying hospitals).
    Step 2--Multiply the labor-related portion of the standardized 
amount by the applicable wage index for the geographic area in which 
the hospital is located or the area to which the hospital is 
reclassified.
    Step 3--For hospitals in Alaska and Hawaii, multiply the nonlabor-
related portion of the standardized amount by the applicable cost-of-
living adjustment factor.
    Step 4--Add the amount from Step 2 and the nonlabor-related portion 
of the standardized amount (adjusted, if applicable, under Step 3).
    Step 5--Multiply the final amount from Step 4 by the relative 
weight corresponding to the applicable MS-DRG (see Table 5 of this 
Addendum).
    The Federal rate as determined in Step 5 may then be further 
adjusted if the hospital qualifies for either the IME or DSH 
adjustment. In addition, for hospitals that qualify for a low-volume 
payment adjustment under section 1886(d)(12) of the Act and 42 CFR 
412.101(b), the payment in Step 5 would be increased by 25 percent.
2. Hospital-Specific Rate (Applicable Only to SCHs and MDHs)
a. Calculation of Hospital-Specific Rate
    Section 1886(b)(3)(C) of the Act provides that currently SCHs are 
paid based on whichever of the following rates yields the greatest 
aggregate payment: the Federal rate; the updated hospital-specific rate 
based on FY 1982 costs per discharge; the updated hospital-specific 
rate based on FY 1987 costs per discharge; the updated hospital-
specific rate based on FY 1996 costs per discharge; or the updated 
hospital-specific rate based on the FY 2006 costs per discharge to 
determine the rate that yields the greatest aggregate payment.
    As discussed previously, currently MDHs are paid based on the 
Federal national rate or, if higher, the Federal national rate plus 75 
percent of the difference between the Federal national rate and the 
greater of the updated hospital-specific rates based on either FY 1982, 
FY 1987 or FY 2002 costs per discharge.
    Hospital-specific rates have been determined for each of these 
hospitals based on the FY 1982 costs per discharge, the FY 1987 costs 
per discharge, or, for SCHs, the FY 1996 costs per discharge or the FY 
2006 costs per discharge, and for MDHs, the FY 2002 cost per discharge. 
For a more detailed discussion of the calculation of the hospital-
specific rates, we refer the reader to the FY 1984 IPPS interim final 
rule (48 FR 39772); the April 20, 1990 final rule with comment period 
(55 FR 15150); the FY 1991 IPPS final rule (55 FR 35994); and the FY 
2001 IPPS final rule (65 FR 47082). In addition, for both SCHs and 
MDHs, the hospital-specific rate is adjusted by the budget neutrality 
adjustment factor as discussed in section III. of this Addendum. The 
resulting rate will be used in determining the payment rate an SCH or 
MDH will receive for its discharges beginning on or after October 1, 
2010.

[[Page 24073]]

b. Updating the FY 1982, FY 1987, FY 1996, FY 2002, and FY 2006 
Hospital-Specific Rates for FY 2011
    We are proposing to increase the hospital-specific rates by 2.4 
percent (the hospital market basket percentage increase) for FY 2011 
for those SCHs and MDHs that submit qualifying quality data and by 0.4 
percent for SCHs and MDHs that fail to submit qualifying quality data. 
Section 1886(b)(3)(C)(iv) of the Act provides that the update factor 
applicable to the hospital-specific rates for SCHs is equal to the 
update factor provided under section 1886(b)(3)(B)(iv) of the Act, 
which, for SCHs in FY 2011, is the market basket percentage increase 
for hospitals that submit qualifying quality data and the market basket 
percentage increase minus 2 percentage points for hospitals that fail 
to submit qualifying quality data. Section 1886(b)(3)(D) of the Act 
provides that the update factor applicable to the hospital-specific 
rates for MDHs also equals the update factor provided for under section 
1886(b)(3)(B)(iv) of the Act, which, for FY 2011, is the market basket 
percentage increase for hospitals that submit qualifying quality data 
and the market basket percentage increase minus 2 percentage points for 
hospitals that fail to submit qualifying quality data.
3. General Formula for Calculation of Prospective Payment Rates for 
Hospitals Located in Puerto Rico Beginning on or After October 1, 2010, 
and Before October 1, 2011
    Section 1886(d)(9)(E)(iv) of the Act provides that, effective for 
discharges occurring on or after October 1, 2004, hospitals located in 
Puerto Rico are paid based on a blend of 75 percent of the national 
prospective payment rate and 25 percent of the Puerto Rico-specific 
rate.
a. Puerto Rico Rate
    The Puerto Rico prospective payment rate is determined as follows:
    Step 1--Select the applicable average standardized amount 
considering the applicable wage index (Table 1C of this Addendum).
    Step 2--Multiply the labor-related portion of the standardized 
amount by the applicable Puerto Rico-specific wage index.
    Step 3--Add the amount from Step 2 and the nonlabor-related portion 
of the standardized amount.
    Step 4--Multiply the amount from Step 3 by the applicable MS-DRG 
relative weight (Table 5 of this Addendum).
    Step 5--Multiply the result in Step 4 by 25 percent.
b. National Rate
    The national prospective payment rate is determined as follows:
    Step 1--Select the applicable average standardized amount.
    Step 2--Multiply the labor-related portion of the standardized 
amount by the applicable wage index for the geographic area in which 
the hospital is located or the area to which the hospital is 
reclassified.
    Step 3--Add the amount from Step 2 and the nonlabor-related portion 
of the national average standardized amount.
    Step 4--Multiply the amount from Step 3 by the applicable MS-DRG 
relative weight (Table 5 of this Addendum).
    Step 5--Multiply the result in Step 4 by 75 percent.
    The sum of the Puerto Rico rate and the national rate computed 
above equals the prospective payment for a given discharge for a 
hospital located in Puerto Rico. This rate would then be further 
adjusted if the hospital qualifies for either the IME or DSH 
adjustment.

III. Proposed Changes to Payment Rates for Acute Care Hospital 
Inpatient Capital-Related Costs for FY 2011

    The PPS for acute care hospital inpatient capital-related costs was 
implemented for cost reporting periods beginning on or after October 1, 
1991. Effective with that cost reporting period, hospitals were paid 
during a 10-year transition period (which extended through FY 2001) to 
change the payment methodology for Medicare acute care hospital 
inpatient capital-related costs from a reasonable cost-based 
methodology to a prospective methodology (based fully on the Federal 
rate).
    The basic methodology for determining Federal capital prospective 
rates is set forth in the regulations at 42 CFR 412.308 through 
412.352. Below we discuss the factors that we are proposing to use to 
determine the capital Federal rate for FY 2011, which would be 
effective for discharges occurring on or after October 1, 2010.
    The 10-year transition period ended with hospital cost reporting 
periods beginning on or after October 1, 2001 (FY 2002). Therefore, for 
cost reporting periods beginning in FY 2002, all hospitals (except 
``new'' hospitals under Sec.  412.304(c)(2)) are paid based on the 
capital Federal rate. For FY 1992, we computed the standard Federal 
payment rate for capital-related costs under the IPPS by updating the 
FY 1989 Medicare inpatient capital cost per case by an actuarial 
estimate of the increase in Medicare inpatient capital costs per case. 
Each year after FY 1992, we update the capital standard Federal rate, 
as provided at Sec.  412.308(c)(1), to account for capital input price 
increases and other factors. The regulations at Sec.  412.308(c)(2) 
provide that the capital Federal rate be adjusted annually by a factor 
equal to the estimated proportion of outlier payments under the capital 
Federal rate to total capital payments under the capital Federal rate. 
In addition, Sec.  412.308(c)(3) requires that the capital Federal rate 
be reduced by an adjustment factor equal to the estimated proportion of 
payments for (regular and special) exceptions under Sec.  412.348. 
Section 412.308(c)(4)(ii) requires that the capital standard Federal 
rate be adjusted so that the effects of the annual DRG reclassification 
and the recalibration of DRG weights and changes in the geographic 
adjustment factor (GAF) are budget neutral.
    For FYs 1992 through 1995, Sec.  412.352 required that the capital 
Federal rate also be adjusted by a budget neutrality factor so that 
aggregate payments for inpatient hospital capital costs were projected 
to equal 90 percent of the payments that would have been made for 
capital-related costs on a reasonable cost basis during the respective 
fiscal year. That provision expired in FY 1996. Section 412.308(b)(2) 
describes the 7.4 percent reduction to the capital Federal rate that 
was made in FY 1994, and Sec.  412.308(b)(3) describes the 0.28 percent 
reduction to the capital Federal rate made in FY 1996 as a result of 
the revised policy for paying for transfers. In FY 1998, we implemented 
section 4402 of Public Law 105-33, which required that, for discharges 
occurring on or after October 1, 1997, the budget neutrality adjustment 
factor in effect as of September 30, 1995, be applied to the unadjusted 
capital standard Federal rate and the unadjusted hospital-specific 
rate. That factor was 0.8432, which was equivalent to a 15.68 percent 
reduction to the unadjusted capital payment rates. An additional 2.1 
percent reduction to the rates was effective from October 1, 1997 
through September 30, 2002, making the total reduction 17.78 percent. 
As we discussed in the FY 2003 IPPS final rule (67 FR 50102) and 
implemented in Sec.  412.308(b)(6), the 2.1 percent reduction was 
restored to the unadjusted capital payment rates effective October 1, 
2002.
    To determine the appropriate budget neutrality adjustment factor 
and the regular exceptions payment adjustment during the 10-year 
transition period, we developed a dynamic model of Medicare inpatient 
capital-related costs; that is, a model that projected changes in 
Medicare inpatient capital-related

[[Page 24074]]

costs over time. With the expiration of the budget neutrality 
provision, the capital cost model was only used to estimate the regular 
exceptions payment adjustment and other factors during the transition 
period. As we explained in the FY 2002 IPPS final rule (66 FR 39911), 
beginning in FY 2002, an adjustment for regular exception payments is 
no longer necessary because regular exception payments were only made 
for cost reporting periods beginning on or after October 1, 1991, and 
before October 1, 2001 (see Sec.  412.348(b)). Because payments are no 
longer made under the regular exception policy effective with cost 
reporting periods beginning in FY 2002, we discontinued use of the 
capital cost model. The capital cost model and its application during 
the transition period are described in Appendix B of the FY 2002 IPPS 
final rule (66 FR 40099).
    Section 412.374 provides for blended payments to hospitals located 
in Puerto Rico under the IPPS for acute care hospital inpatient 
capital-related costs. Accordingly, under the capital PPS, we compute a 
separate payment rate specific to hospitals located in Puerto Rico 
using the same methodology used to compute the national Federal rate 
for capital-related costs. In accordance with section 1886(d)(9)(A) of 
the Act, under the IPPS for acute care hospital operating costs, 
hospitals located in Puerto Rico are paid for operating costs under a 
special payment formula. Prior to FY 1998, hospitals located in Puerto 
Rico were paid a blended operating rate that consisted of 75 percent of 
the applicable standardized amount specific to Puerto Rico hospitals 
and 25 percent of the applicable national average standardized amount. 
Similarly, prior to FY 1998, hospitals located in Puerto Rico were paid 
a blended capital rate that consisted of 75 percent of the applicable 
capital Puerto Rico-specific rate and 25 percent of the applicable 
capital Federal rate. However, effective October 1, 1997, in accordance 
with section 4406 of Public Law 105-33, the methodology for operating 
payments made to hospitals located in Puerto Rico under the IPPS was 
revised to make payments based on a blend of 50 percent of the 
applicable standardized amount specific to Puerto Rico hospitals and 50 
percent of the applicable national average standardized amount. In 
conjunction with this change to the operating blend percentage, 
effective with discharges occurring on or after October 1, 1997, we 
also revised the methodology for computing capital payments to 
hospitals located in Puerto Rico to be based on a blend of 50 percent 
of the Puerto Rico capital rate and 50 percent of the national capital 
Federal rate.
    As we discussed in the FY 2005 IPPS final rule (69 FR 49185), 
section 504 of Public Law 108-173 increased the national portion of the 
operating IPPS payments for hospitals located in Puerto Rico from 50 
percent to 62.5 percent and decreased the Puerto Rico portion of the 
operating IPPS payments from 50 percent to 37.5 percent for discharges 
occurring on or after April 1, 2004 through September 30, 2004 (refer 
to the March 26, 2004 One-Time Notification (Change Request 3158)). In 
addition, section 504 of Public Law 108-173 provided that the national 
portion of operating IPPS payments for hospitals located in Puerto Rico 
is equal to 75 percent and the Puerto Rico-specific portion of 
operating IPPS payments is equal to 25 percent for discharges occurring 
on or after October 1, 2004. Consistent with that change in operating 
IPPS payments to hospitals located in Puerto Rico, for FY 2005 (as we 
discussed in the FY 2005 IPPS final rule), we revised the methodology 
for computing capital payments to hospitals located in Puerto Rico to 
be based on a blend of 25 percent of the Puerto Rico-specific capital 
rate and 75 percent of the national capital Federal rate for discharges 
occurring on or after October 1, 2004.

A. Determination of Proposed Federal Hospital Inpatient Capital-Related 
Prospective Payment Rate Update

    In the correction notice to the FY 2010 IPPS/RY 2010 LTCH PPS final 
rule published on October 7, 2009 (74 FR 51499), we established the 
final capital Federal rate of $429.26 for FY 2010. In the discussion 
that follows, we explain the factors that we are proposing to use to 
determine the capital Federal rate for FY 2011. In particular, we 
explain why the proposed FY 2011 capital Federal rate would decrease 
approximately 1.9 percent, compared to the FY 2010 capital Federal 
rate. As discussed in the impact analysis, we estimate capital payments 
per discharge would decrease 0.2 percent during that same period. 
Because capital payments constitute about 10 percent of hospital 
payments, a 1-percent change in the capital Federal rate yields only 
about a 0.1 percent change in actual payments to hospitals.
    We note that on March 23, 2010, the Patient Protection and 
Affordable Care Act, Public Law 111-148, was enacted. Following the 
enactment of Public Law 111-148, the Health Care and Education 
Reconciliation Act of 2010, Public Law 111-152 (enacted on March 30, 
2010), amended certain provisions of Public Law 111-148. A number of 
the provisions of Public Law 111-148, as amended by Public Law 111-152, 
affect the IPPS and the providers addressed in this proposed rule. 
However, due to the timing of the passage of the legislation, we are 
unable to implement those provisions in this proposed rule. Therefore, 
the proposed policies and payment rates in this section do not reflect 
the new legislation. We plan to issue separate rulemaking documents in 
the Federal Register addressing the provisions of Public Law 111-148, 
as amended, that affect our proposed policies and payment rates for FY 
2011 under the IPPS and LTCH PPS, as well as the provisions of Public 
Law 111-148, as amended, that affect the policies and payment rates for 
FY 2010 under the IPPS.
1. Projected Capital Standard Federal Rate Update
a. Description of the Update Framework
    Under Sec.  412.308(c)(1), the capital standard Federal rate is 
updated on the basis of an analytical framework that takes into account 
changes in a capital input price index (CIPI) and several other policy 
adjustment factors. Specifically, we adjust the projected CIPI rate-of-
increase as appropriate each year for case-mix index-related changes, 
for intensity, and for errors in previous CIPI forecasts. The proposed 
update factor for FY 2011 under that framework is 1.5 percent based on 
the best data available at this time. The proposed update factor under 
that framework is based on a projected 1.2 percent increase in the 
CIPI, a 0.0 percent adjustment for intensity, a 0.0 percent adjustment 
for case-mix, a 0.0 percent adjustment for the FY 2009 DRG 
reclassification and recalibration, and a forecast error correction of 
0.3 percent. As discussed below in section III.C. of this Addendum, we 
continue to believe that the CIPI is the most appropriate input price 
index for capital costs to measure capital price changes in a given 
year. We also explain the basis for the FY 2011 CIPI projection in that 
same section of this Addendum. We note, as discussed in section VI.E.1. 
of the preamble of this proposed rule, we are proposing to apply a -2.9 
percent adjustment to the capital rate in FY 2011 to account for the 
cumulative effect of changes in documentation and coding under the MS-
DRGs that do not correspond to changes in real increases in patients' 
severity of illness. Below we describe the policy adjustments that we 
are proposing to apply in the update framework for FY 2011.

[[Page 24075]]

    The case-mix index is the measure of the average DRG weight for 
cases paid under the IPPS. Because the DRG weight determines the 
prospective payment for each case, any percentage increase in the case-
mix index corresponds to an equal percentage increase in hospital 
payments.
    The case-mix index can change for any of several reasons:
     The average resource use of Medicare patients changes 
(``real'' case-mix change);
     Changes in hospital documentation and coding of patient 
records result in higher weight DRG assignments (``coding effects''); 
and
     The annual DRG reclassification and recalibration changes 
may not be budget neutral (``reclassification effect'').
    We define real case-mix change as actual changes in the mix (and 
resource requirements) of Medicare patients as opposed to changes in 
documentation and coding behavior that result in assignment of cases to 
higher weighted DRGs but do not reflect higher resource requirements. 
The capital update framework includes the same case-mix index 
adjustment used in the former operating IPPS update framework (as 
discussed in the May 18, 2004 IPPS proposed rule for FY 2005 (69 FR 
28816)). (We no longer use an update framework to make a recommendation 
for updating the operating IPPS standardized amounts as discussed in 
section II. of Appendix B in the FY 2006 IPPS final rule (70 FR 
47707).)
    Absent any increase in case-mix resulting from changes in 
documentation and coding due to the adoption of the MS-DRGs, for FY 
2011, we are projecting a 1.0 percent total increase in the case-mix 
index. We estimated that the real case-mix increase will also equal 1.0 
percent for FY 2011. The net adjustment for change in case-mix is the 
difference between the projected real increase in case-mix and the 
projected total increase in case-mix. Therefore, the proposed net 
adjustment for case-mix change in FY 2011 is 0.0 percentage points.
    The capital update framework also contains an adjustment for the 
effects of DRG reclassification and recalibration. This adjustment is 
intended to remove the effect on total payments of prior year's changes 
to the DRG classifications and relative weights, in order to retain 
budget neutrality for all case-mix index-related changes other than 
those due to patient severity. Due to the lag time in the availability 
of data, there is a 2-year lag in data used to determine the adjustment 
for the effects of DRG reclassification and recalibration. For example, 
we have data available to evaluate the effects of the FY 2009 DRG 
reclassification and recalibration as part of our proposed update for 
FY 2011. To adjust for reclassification and recalibration effects, 
under our historical methodology, we run the FY 2009 cases through the 
FY 2008 GROUPER and through the FY 2009 GROUPER. The resulting ratio of 
the case-mix indices should equate to 1.0. If not, under our historical 
methodology, in the update framework for FY 2011, we would make an 
adjustment to adjust for the reclassification and recalibration effects 
in FY 2009. As discussed in detail in section II.B. of the preamble of 
this proposed rule, however, when we adopted the MS-DRGs beginning in 
FY 2008 to better recognize severity of illness in Medicare payment 
rates, we also recognized that changes in documentation and coding 
could potentially lead to increases in aggregate payments without a 
corresponding increase in patients' severity of illness (that is, 
increased case-mix index other than real case-mix index increase). To 
maintain budget neutrality for the adoption of the MS-DRGs, as 
discussed in greater detail in section V.E. of the preamble of this 
proposed rule, we are proposing to make an adjustment to the proposed 
capital Federal rate in FY 2011 based on actuarial estimates of the 
cumulative effects of documentation and coding changes that occurred in 
FYs 2008 and 2009 (based on FYs 2008 and 2009 claims data). Therefore, 
we are not adjusting for reclassification and recalibration effects 
from FY 2009 in the update framework for FY 2011 because it is already 
accounted for in the proposed documentation and coding adjustment to 
the capital Federal rates for FY 2011. Consequently, we are proposing a 
0.0 percent adjustment for DRG reclassification and recalibration in 
the proposed FY 2011 update framework.
    The capital update framework also contains an adjustment for 
forecast error. The input price index forecast is based on historical 
trends and relationships ascertainable at the time the update factor is 
established for the upcoming year. In any given year, there may be 
unanticipated price fluctuations that may result in differences between 
the actual increase in prices and the forecast used in calculating the 
update factors. In setting a prospective payment rate under the 
framework, we make an adjustment for forecast error only if our 
estimate of the change in the capital input price index for any year is 
off by 0.25 percentage points or more. There is a 2-year lag between 
the forecast and the availability of data to develop a measurement of 
the forecast error. A forecast error of 0.3 percentage point was 
calculated for the FY 2011 update. That is, current historical data 
indicate that the forecasted FY 2009 CIPI (1.4 percent) used in 
calculating the FY 2009 update factor slightly understated the actual 
realized price increases (1.7 percent) by 0.3 percentage point. This is 
due to the prices associated with both the depreciation and interest 
cost categories growing faster than anticipated. Historically, when the 
estimation of the change in the CIPI is greater than 0.25 percentage 
points, it is reflected in the update recommended under this framework. 
Therefore, we are proposing to make a 0.3 percent adjustment for 
forecast error in the update for FY 2011.
    Under the capital IPPS update framework, we also make an adjustment 
for changes in intensity. Historically, we have calculated this 
adjustment using the same methodology and data that were used in the 
past under the framework for operating IPPS. The intensity factor for 
the operating update framework reflects how hospital services are 
utilized to produce the final product, that is, the discharge. This 
component accounts for changes in the use of quality-enhancing 
services, for changes within DRG severity, and for expected 
modification of practice patterns to remove noncost-effective services. 
Our intensity measure is based on a 5-year average.
    Historically, we have calculated case-mix constant intensity as the 
change in total charges per admission, adjusted for price level changes 
(the CIPI for hospital and related services) and changes in real case-
mix. Without reliable estimates of the proportions of the overall 
annual intensity increases that are due, respectively, to ineffective 
practice patterns and the combination of quality-enhancing new 
technologies and complexity within the DRG system, we assume that one-
half of the annual increase is due to each of these factors. The 
capital update framework thus provides an add-on to the input price 
index rate of increase of one-half of the estimated annual increase in 
intensity, to allow for increases within DRG severity and the adoption 
of quality-enhancing technology.
    We have developed a Medicare-specific intensity measure based on a 
5-year average. Past studies of case-mix change by the RAND Corporation 
(Has DRG Creep Crept Up? Decomposing the Case Mix Index Change Between 
1987 and 1988 by G. M. Carter, J. P. Newhouse, and D. A. Relles, R-
4098-HCFA/ProPAC (1991)) suggest that real case-mix change was not 
dependent on

[[Page 24076]]

total change, but was usually a fairly steady increase of 1.0 to 1.5 
percent per year. However, we used 1.4 percent as the upper bound 
because the RAND study did not take into account that hospitals may 
have induced doctors to document medical records more completely in 
order to improve payment.
    As we noted above, in accordance with Sec.  412.308(c)(1)(ii), we 
began updating the capital standard Federal rate in FY 1996 using an 
update framework that takes into account, among other things, allowable 
changes in the intensity of hospital services. For FYs 1996 through 
2001, we found that case-mix constant intensity was declining, and we 
established a 0.0 percent adjustment for intensity in each of those 
years. For FYs 2002 and 2003, we found that case-mix constant intensity 
was increasing, and we established a 0.3 percent adjustment and 1.0 
percent adjustment for intensity, respectively. For FYs 2004 and 2005, 
we found that the charge data appeared to be skewed as a result of 
hospitals attempting to maximize outlier payments, while lessening 
costs, and we established a 0.0 percent adjustment in each of those 
years. Furthermore, we stated that we would continue to apply a 0.0 
percent adjustment for intensity until any increase in charges can be 
tied to intensity rather than attempts to maximize outlier payments. 
For FYs 2006 through 2010, we continued to apply a 0.0 percent 
adjustment for intensity in the capital update framework.
    In an effort to further refine the intensity adjustment and more 
accurately reflect allowable changes in hospital intensity, we are 
proposing to use changes in hospital costs per discharge over a 5-year 
average rather than changes in hospital charges, which have been the 
basis of the intensity adjustment in prior years. The unique nature of 
capital--how and when it is purchased, its longevity, and how it is 
financed--creates a greater degree of variance in capital cost among 
hospitals than does operating cost. We believe that using changes in 
capital costs per discharge as the basis for the intensity adjustment 
in lieu of changes in charges will decrease some of the variability of 
this adjustment. A case in point is the charge data over much of the 
last decade-- the annual change in hospital charges has fluctuated 
erratically from as little as 3 percent to as large as 16 percent. As 
we have discussed for several years in past rulemaking, we believe the 
effects of hospitals' charge practices prior to the implementation of 
the outlier policy revisions established in the June 9, 2003 final rule 
were the main cause of the variability and large annual increases in 
hospital charges for much of the past decade. However, even after the 
outlier policy was implemented, we continued to see evidence of these 
charge practices in the data, as it may have taken hospitals some time 
to adopt changes in their behavior in response to the new outlier 
policy. Thus, we believe that the charge data for much of the past 
decade was skewed because if hospitals were treating new or different 
types of cases, which would result in an appropriate increase in 
charges per discharge, we would expect hospitals' case-mix to increase 
proportionally, and it did not.
    Therefore, in this proposed rule, for the reasons discussed above, 
we believe it would be more appropriate to use our intensity adjustment 
based on the change in capital cost per discharge. To determine the 
proposed intensity adjustment for FY 2011, we have replaced charge data 
with capital cost per discharge data. As expected, there are 
significantly smaller increases in cost per discharge over this time 
period and less fluctuation from year to year. As we did when using 
charge data, we are basing the intensity measure on a 5-year average. 
Therefore, the proposed intensity measure for FY 2011 is based on an 
average of cost per discharge data from the 5-year period beginning 
with FY 2004 and extending through FY 2008. Based on these data, we 
estimate that case-mix constant intensity declined during FYs 2004 
through 2008. In the past (FYs 1996 through 2001) when we found 
intensity to be declining, we believed a zero (rather than negative) 
intensity adjustment was appropriate. Because we estimate intensity 
declined during that 5-year period, we believe that it is appropriate 
to continue apply a zero intensity adjustment for FY 2011. Therefore, 
we are proposing to make a 0.0 percent adjustment for intensity in the 
update for FY 2011.
    Above, we described the basis of the components used to develop the 
proposed 1.5 percent capital update factor under the capital update 
framework for FY 2011 as shown in the table below.

     CMS FY 2011 Proposed Update Factor to the Capital Federal Rate
------------------------------------------------------------------------

------------------------------------------------------------------------
Capital Input Price Index Intensity:                                 1.2
                                                                     0.0
Case-Mix Adjustment Factors:
  Real Across DRG Change........................................    -1.0
  Projected Case-Mix Change.....................................     1.0
                                                                 -------
    Subtotal....................................................     1.2
                                                                 =======
Effect of FY 2009 Reclassification and Recalibration............     0.0
Forecast Error Correction.......................................     0.3
                                                                 -------
    Total Update................................................     1.5
------------------------------------------------------------------------

b. Comparison of CMS and MedPAC Update Recommendation
    In its March 2010 Report to Congress, MedPAC did not make a 
specific update recommendation for capital IPPS payments for FY 2011. 
(MedPAC's Report to the Congress: Medicare Payment Policy, March 2010, 
Section 2A.)
2. Proposed Outlier Payment Adjustment Factor
    Section 412.312(c) establishes a unified outlier payment 
methodology for inpatient operating and inpatient capital-related 
costs. A single set of thresholds is used to identify outlier cases for 
both inpatient operating and inpatient capital-related payments. 
Section 412.308(c)(2) provides that the standard Federal rate for 
inpatient capital-related costs be reduced by an adjustment factor 
equal to the estimated proportion of capital-related outlier payments 
to total inpatient capital-related PPS payments. The outlier thresholds 
are set so that operating outlier payments are projected to be 5.1 
percent of total operating IPPS DRG payments.
    For FY 2010, we estimated that outlier payments for capital would 
equal 5.35 percent of inpatient capital-related payments based on the 
capital Federal rate in FY 2010. Based on the thresholds as set forth 
in section II.A. of this Addendum, we estimate that outlier payments 
for capital-related costs would equal 5.76 percent for inpatient 
capital-related payments based on the proposed capital Federal rate in 
FY 2011. Therefore, we are proposing to apply an outlier adjustment 
factor of 0.9424 in determining the capital Federal rate. Thus, we 
estimate that the percentage of capital outlier payments to total 
capital standard payments for FY 2011 would be higher than the 
percentage for FY 2010. This increase in capital outlier payments is 
primarily due to the estimated decrease in capital IPPS payments per 
discharge. That is, because capital payments per discharge are 
projected to be slightly lower in FY 2011 compared to FY 2010, as shown 
in Table III. in section VIII. of Appendix A

[[Page 24077]]

to this proposed rule, more cases would qualify for outlier payments.
    The outlier reduction factors are not built permanently into the 
capital rates; that is, they are not applied cumulatively in 
determining the capital Federal rate. The proposed FY 2011 outlier 
adjustment of 0.9424 is a -0.54 percent change from the FY 2010 outlier 
adjustment of 0.9475. Therefore, the net change in the outlier 
adjustment to the proposed capital Federal rate for FY 2011 is 0.9946 
(0.9424/0.9475). Thus, the proposed outlier adjustment decreases the 
proposed FY 2011 capital Federal rate by 0.54 percent compared with the 
FY 2010 outlier adjustment.
3. Proposed Budget Neutrality Adjustment Factor for Changes in DRG 
Classifications and Weights and the GAF
    Section 412.308(c)(4)(ii) requires that the capital Federal rate be 
adjusted so that aggregate payments for the fiscal year based on the 
capital Federal rate after any changes resulting from the annual DRG 
reclassification and recalibration and changes in the GAF are projected 
to equal aggregate payments that would have been made on the basis of 
the capital Federal rate without such changes. Because we implemented a 
separate GAF for Puerto Rico, we apply separate budget neutrality 
adjustments for the national GAF and the Puerto Rico GAF. We apply the 
same budget neutrality factor for DRG reclassifications and 
recalibration nationally and for Puerto Rico. Separate adjustments were 
unnecessary for FY 1998 and earlier because the GAF for Puerto Rico was 
implemented in FY 1998.
    In the past, we used the actuarial capital cost model (described in 
Appendix B of the FY 2002 IPPS final rule (66 FR 40099)) to estimate 
the aggregate payments that would have been made on the basis of the 
capital Federal rate with and without changes in the DRG 
classifications and weights and in the GAF to compute the adjustment 
required to maintain budget neutrality for changes in DRG weights and 
in the GAF. During the transition period, the capital cost model was 
also used to estimate the regular exception payment adjustment factor. 
As we explain in section III.A. of this Addendum, beginning in FY 2002, 
an adjustment for regular exception payments is no longer necessary. 
Therefore, we no longer use the capital cost model. Instead, we are 
using historical data based on hospitals' actual cost experiences to 
determine the exceptions payment adjustment factor for special 
exceptions payments.
    To determine the proposed factors for FY 2011, we compared 
(separately for the national capital rate and the Puerto Rico capital 
rate) estimated aggregate capital Federal rate payments based on the FY 
2010 MS-DRG classifications and relative weights and the FY 2010 GAF to 
estimated aggregate capital Federal rate payments based on the FY 2010 
MS-DRG classifications and relative weights and the proposed FY 2011 
GAFs. In making the comparison, we set the exceptions reduction factor 
to 1.00. To achieve budget neutrality for the changes in the national 
GAFs, based on calculations using updated data, we are proposing to 
apply an incremental budget neutrality adjustment of 1.0007 for FY 2011 
to the previous cumulative FY 2010 adjustment of 0.9907, yielding an 
adjustment of 0.9915, through FY 2011 (calculated with unrounded 
numbers). For the Puerto Rico GAFs, we are proposing to apply an 
incremental budget neutrality adjustment of 1.0004 for FY 2011 to the 
previous cumulative FY 2010 adjustment of 0.9969, yielding a cumulative 
adjustment of 0.9973 through FY 2011.
    We then compared estimated aggregate capital Federal rate payments 
based on the FY 2010 DRG relative weights and the proposed FY 2011 GAFs 
to estimated aggregate capital Federal rate payments based on the 
cumulative effects of the proposed FY 2011 MS-DRG classifications and 
relative weights and the proposed FY 2011 GAFs. The proposed 
incremental adjustment for DRG classifications and proposed changes in 
relative weights is 0.9992 both nationally and for Puerto Rico. The 
proposed cumulative adjustments for MS-DRG classifications and proposed 
changes in relative weights and for proposed changes in the GAFs 
through FY 2011 are 0.9907 nationally and 0.9965 for Puerto Rico. The 
following table summarizes the adjustment factors for each fiscal year:
BILLING CODE 4120-01-P

[[Page 24078]]

[GRAPHIC] [TIFF OMITTED] TP04MY10.062

BILLING CODE 4120-01-C
The methodology used to determine the recalibration and geographic 
adjustment factor (DRG/GAF) budget neutrality adjustment is similar to 
the methodology used in establishing budget neutrality adjustments 
under the IPPS for operating costs. One difference is that, under the 
operating IPPS, the budget neutrality adjustments for the effect of 
geographic reclassifications are determined separately from the effects 
of other changes in the hospital wage index and the DRG relative 
weights. Under the capital IPPS, there is a single DRG/GAF budget 
neutrality adjustment factor (the national capital rate and the Puerto 
Rico capital rate are determined

[[Page 24079]]

separately) for changes in the GAF (including geographic 
reclassification) and the DRG relative weights. In addition, there is 
no adjustment for the effects that geographic reclassification has on 
the other payment parameters, such as the payments for DSH or IME.
    For FY 2010, we calculated a final GAF/DRG budget neutrality factor 
of 0.9990 (74 FR 44019). For FY 2011, we are proposing to establish a 
GAF/DRG budget neutrality factor of 1.0000. The GAF/DRG budget 
neutrality factors are built permanently into the capital rates; that 
is, they are applied cumulatively in determining the capital Federal 
rate. This follows the requirement that estimated aggregate payments 
each year be no more or less than they would have been in the absence 
of the annual DRG reclassification and recalibration and changes in the 
GAFs. The incremental change in the proposed adjustment from FY 2010 to 
FY 2011 is 1.0000. The cumulative change in the proposed capital 
Federal rate due to this adjustment is 0.9907 (the product of the 
incremental factors for FYs 1995 though 2010 and the proposed 
incremental factor of 1.0000 for FY 2011). (We note that averages of 
the incremental factors that were in effect during FYs 2005 and 2006, 
respectively, were used in the calculation of the cumulative adjustment 
of 0.9907 for FY 2011.)
    The proposed factor accounts for the proposed MS-DRG 
reclassifications and recalibration and for proposed changes in the 
GAFs. It also incorporates the effects on the proposed GAFs of FY 2011 
geographic reclassification decisions made by the MGCRB compared to FY 
2010 decisions. However, it does not account for changes in payments 
due to changes in the DSH and IME adjustment factors.
4. Exceptions Payment Adjustment Factor
    Section 412.308(c)(3) of our regulations requires that the capital 
standard Federal rate be reduced by an adjustment factor equal to the 
estimated proportion of additional payments for both regular exceptions 
and special exceptions under Sec.  412.348 relative to total capital 
PPS payments. In estimating the proportion of regular exception 
payments to total capital PPS payments during the transition period, we 
used the actuarial capital cost model originally developed for 
determining budget neutrality (described in Appendix B of the FY 2002 
IPPS final rule (66 FR 40099)) to determine the exceptions payment 
adjustment factor, which was applied to both the Federal and hospital-
specific capital rates.
    An adjustment for regular exception payments is no longer necessary 
in determining the proposed FY 2011 capital Federal rate because, in 
accordance with Sec.  412.348(b), regular exception payments were only 
made for cost reporting periods beginning on or after October 1, 1991 
and before October 1, 2001. Accordingly, as we explained in the FY 2002 
IPPS final rule (66 FR 39949), in FY 2002 and subsequent fiscal years, 
no payments are made under the regular exceptions provision. However, 
in accordance with Sec.  412.308(c), we still need to compute a budget 
neutrality adjustment for special exception payments under Sec.  
412.348(g). We describe our methodology for determining the proposed 
exceptions adjustment used in calculating the FY 2011 capital Federal 
rate below.
    Under the special exceptions provision specified at Sec.  
412.348(g)(1), eligible hospitals include SCHs, urban hospitals with at 
least 100 beds that have a disproportionate share percentage of at 
least 20.2 percent or qualify for DSH payments under Sec.  
412.106(c)(2), and hospitals with a combined Medicare and Medicaid 
inpatient utilization of at least 70 percent. An eligible hospital may 
receive special exceptions payments if it meets the following criteria: 
(1) a project need requirement as described at Sec.  412.348(g)(2), 
which, in the case of certain urban hospitals, includes an excess 
capacity test as described at Sec.  412.348(g)(4); (2) an age of assets 
test as described at Sec.  412.348(g)(3); and (3) a project size 
requirement as described at Sec.  412.348(g)(5).
    Based on information compiled from our fiscal intermediaries and 
MACs, six hospitals have qualified for special exceptions payments 
under Sec.  412.348(g). One of these hospitals closed in May 2005. 
Because we have cost reports ending in FY 2008 for four of these five 
hospitals, we calculated the adjustment based on actual cost 
experience. (We note that the one hospital for which we do not have FY 
2008 cost report data has had zero special exception payments for all 
available past cost reports. Consequently, we expect that this hospital 
would not have any special exceptions payments in FY 2008, and the lack 
of this hospital's FY 2008 cost report data would not distort the 
calculation of the adjustment.) Using data from cost reports ending in 
FY 2008 from the December 2009 update of the HCRIS data, we divided the 
capital special exceptions payment amounts for the four available 
hospitals that qualified for special exceptions by the total capital 
PPS payment amounts (including special exception payments) for all 
hospitals. Based on the data from cost reports ending in FY 2008, this 
ratio is rounded to 0.0003, and we are proposing to make an adjustment 
of 0.0003. Because special exceptions are budget neutral, we are 
proposing to offset the capital Federal rate by 0.03 percent for 
special exceptions payments for FY 2011. Therefore, the proposed 
exceptions adjustment factor is equal to 0.9997 (1 - 0.0003) to account 
for estimated special exceptions payments in FY 2011.
    In the FY 2010 IPPS final rule (74 FR 44019), we estimated that 
total (special) exceptions payments for FY 2010 would equal 0.02 
percent of aggregate payments based on the capital Federal rate. 
Therefore, we applied an exceptions adjustment factor of 0.9998 (1 - 
0.0002) to determine the FY 2010 capital Federal rate. As we stated 
above, we are proposing to apply an exceptions payment adjustment 
factor of 0.9997 to the proposed capital Federal rate for FY 2011 based 
on our estimate that exceptions payments in FY 2011 would equal 0.03 
percent of aggregate payments based on the proposed FY 2011 capital 
Federal rate. The proposed exceptions reduction factors are not built 
permanently into the capital rates; that is, the factors are not 
applied cumulatively in determining the capital Federal rate. 
Therefore, the net change in the proposed exceptions adjustment factor 
used in determining the proposed FY 2011 capital Federal rate is 0.9999 
(0.9997/0.9998).
5. Proposed Capital Standard Federal Rate for FY 2011
    For FY 2010, we established a final capital Federal rate of $429.26 
(74 FR 51499). We are proposing to establish an update of 1.5 percent 
in determining the proposed FY 2011 capital Federal rate for all 
hospitals. However, as discussed in greater detail in section V.E. of 
the preamble of this proposed rule, under the statutory authority at 
section 1886(g) of the Act, in conjunction with section 
1886(d)(3)(A)(vi) of the Act and section 7(b) of Public Law 110-90, we 
are proposing an additional 2.9 percent reduction to the national 
capital Federal payment rate in FY 2011. The proposed -2.9 percent 
adjustment is based on our actuary's analysis of the effect of changes 
in case-mix resulting from documentation and coding changes that do not 
reflect real changes in the case-mix in light of the adoption of MS-
DRGs. Accordingly, we are proposing to apply a cumulative documentation 
and coding adjustment factor of 0.957 in determining the proposed FY 
2011 capital Federal rate percent (that is, the

[[Page 24080]]

existing -0.6 percent adjustment in FY 2008 plus the -0.9 percent 
adjustment in FY 2009 plus the proposed additional -2.9 percent 
adjustment, computed as 1 divided by (1.006 x 1.009 x 1.029). (We note 
that we did not apply a documentation and coding adjustment to the 
capital Federal rate in FY 2010 (74 FR 43927).) As a result of the 
proposed 1.5 percent update and other proposed budget neutrality 
factors discussed above, we are proposing to establish a national 
capital Federal rate of $420.99 for FY 2011. The proposed national 
capital Federal rate for FY 2011 was calculated as follows:
     The proposed FY 2011 update factor is 1.015, that is, the 
update is 1.5 percent.
     The proposed FY 2011 budget neutrality adjustment factor 
that is applied to the proposed capital standard Federal payment rate 
for proposed changes in the MS-DRG classifications and relative weights 
and proposed changes in the GAFs is 1.0000.
     The proposed FY 2011 outlier adjustment factor is 0.9424.
     The proposed FY 2011 (special) exceptions payment 
adjustment factor is 0.9997.
     The proposed cumulative adjustment factor for FY 2011 
applied to the national capital Federal rate for changes in 
documentation and coding under the MS-DRGs is 0.957.
    Because the proposed capital Federal rate has already been adjusted 
for differences in case-mix, wages, cost-of-living, indirect medical 
education costs, and payments to hospitals serving a disproportionate 
share of low-income patients, we are not proposing to make additional 
adjustments in the proposed capital standard Federal rate for these 
factors, other than the proposed budget neutrality factor for proposed 
changes in the MS-DRG classifications and relative weights and for 
proposed changes in the GAFs.
    We are providing the following chart that shows how each of the 
proposed factors and adjustments for FY 2011 affects the computation of 
the proposed FY 2011 national capital Federal rate in comparison to the 
FY 2010 national capital Federal rate. The proposed FY 2011 update 
factor has the effect of increasing the proposed capital Federal rate 
by 1.5 percent compared to the FY 2010 capital Federal rate. The 
proposed GAF/DRG budget neutrality factor of 1.000 has no net effect on 
the proposed capital Federal rate. The proposed FY 2011 outlier 
adjustment factor has the effect of decreasing the proposed capital 
Federal rate by 0.54 percent compared to the FY 2010 capital Federal 
rate. The proposed FY 2011 exceptions payment adjustment factor has the 
effect of decreasing the proposed capital Federal rate by 0.01 percent 
compared to the FY 2010 capital Federal rate. Furthermore, as shown in 
the chart below, the resulting cumulative adjustment for changes in 
documentation and coding that do not reflect real changes in patients' 
severity of illness (that is, the proposed cumulative adjustment factor 
of 0.957 has the net effect of decreasing the proposed FY 2011 national 
capital Federal rate by 2.8 percent as compared to the FY 2010 national 
capital Federal rate. (As discussed in section VI.E.1. of the preamble 
of this proposed rule, a cumulative adjustment of -1.5 percent (that 
is, the -0.6 percent in FY 2008 and -0.9 percent in FY 2009) or a 
cumulative adjustment factor of 0.985 has already been applied to the 
FY 2010 capital Federal rate for changes in documentation and coding 
that do not reflect real changes in patients' severity of illness. We 
did not apply any additional documentation and coding adjustment to the 
capital Federal rate in FY 2010). The combined effect of all the 
proposed changes would decrease the proposed national capital Federal 
rate by approximately 1.93 percent compared to the FY 2010 national 
capital Federal rate.
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[[Page 24081]]

6. Proposed Special Capital Rate for Puerto Rico Hospitals
    Section 412.374 provides for the use of a blended payment system 
for payments to hospitals located in Puerto Rico under the PPS for 
acute care hospital inpatient capital-related costs. Accordingly, under 
the capital PPS, we compute a separate payment rate specific to 
hospitals located in Puerto Rico using the same methodology used to 
compute the national Federal rate for capital-related costs. Under the 
broad authority of section 1886(g) of the Act, as discussed in section 
V. of the preamble of this proposed rule, beginning with discharges 
occurring on or after October 1, 2004, capital payments to hospitals 
located in Puerto Rico are based on a blend of 25 percent of the Puerto 
Rico capital rate and 75 percent of the capital Federal rate. The 
Puerto Rico capital rate is derived from the costs of Puerto Rico 
hospitals only, while the capital Federal rate is derived from the 
costs of all acute care hospitals participating in the IPPS (including 
Puerto Rico).
    To adjust hospitals' capital payments for geographic variations in 
capital costs, we apply a GAF to both portions of the blended capital 
rate. The GAF is calculated using the operating IPPS wage index, and 
varies depending on the labor market area or rural area in which the 
hospital is located. We use the Puerto Rico wage index to determine the 
GAF for the Puerto Rico part of the capital-blended rate and the 
national wage index to determine the GAF for the national part of the 
blended capital rate.
    Because we implemented a separate GAF for Puerto Rico in FY 1998, 
we also apply separate budget neutrality adjustments for the national 
GAF and for the Puerto Rico GAF. However, we apply the same budget 
neutrality factor for DRG reclassifications and recalibration 
nationally and for Puerto Rico. The proposed national GAF budget 
neutrality factor is 1.0004 and the proposed DRG adjustment is 0.9992, 
for a combined cumulative adjustment of 0.9965.
    In computing the payment for a particular Puerto Rico hospital, the 
Puerto Rico portion of the capital rate (25 percent) is multiplied by 
the Puerto Rico-specific GAF for the labor market area in which the 
hospital is located, and the national portion of the capital rate (75 
percent) is multiplied by the national GAF for the labor market area in 
which the hospital is located (which is computed from national data for 
all hospitals in the United States and Puerto Rico). In FY 1998, we 
implemented a 17.78 percent reduction to the Puerto Rico capital rate 
as a result of Public Law 105-33. In FY 2003, a small part of that 
reduction was restored.
    For FY 2010, the special capital rate for hospitals located in 
Puerto Rico was $203.56 (74 FR 51499). Consistent with our development 
of the FY 2010 Puerto Rico-specific operating standardized amount, we 
have not applied the -0.6 percent adjustment in FY 2008 or the -0.9 
percent documentation and coding adjustment in FY 2009 (that is, the 
cumulative -1.5 percent adjustment) that was applied to the national 
capital Federal rate to the Puerto Rico-specific capital rate. However, 
we noted in the FY 2009 IPPS final rule (73 FR 48449 through 48550) 
that we may propose to apply such an adjustment to the Puerto Rico 
operating and capital rates in the future.
    As noted above and discussed in greater detail in section V.E.4. of 
the preamble of this proposed rule, consistent with our development of 
the Puerto Rico-specific operating standardized amount, we are 
proposing to apply a -2.4 percent adjustment to account for changes in 
documentation and coding that resulted from the adoption of the MS-DRGs 
in determining the proposed FY 2011 Puerto Rico-specific capital rate. 
With the changes we are proposing to make to the other factors used to 
determine the capital rate, the proposed FY 2011 special capital rate 
for hospitals in Puerto Rico is $199.43.

B. Calculation of the Proposed Inpatient Capital-Related Prospective 
Payments for FY 2011

    Because the 10-year capital PPS transition period ended in FY 2001, 
all hospitals (except ``new'' hospitals under Sec.  412.324(b) and 
under Sec.  412.304(c)(2)) are paid based on 100 percent of the capital 
Federal rate in FY 2011.
    For purposes of calculating payments for each discharge during FY 
2011, the capital standard Federal rate is adjusted as follows: 
(Standard Federal Rate) x (DRG weight) x (GAF) x (COLA for hospitals 
located in Alaska and Hawaii) x (1 + DSH Adjustment Factor + IME 
Adjustment Factor, if applicable). The result is the adjusted capital 
Federal rate.
    Hospitals also may receive outlier payments for those cases that 
qualify under the thresholds established for each fiscal year. Section 
412.312(c) provides for a single set of thresholds to identify outlier 
cases for both inpatient operating and inpatient capital-related 
payments. The proposed outlier thresholds for FY 2011 are in section 
II.A. of this Addendum. For FY 2011, a case would qualify as a cost 
outlier if the cost for the case plus the (operating) IME and DSH 
payments is greater than the prospective payment rate for the MS-DRG 
plus the fixed-loss amount of $23,970.
    An eligible hospital may also qualify for a special exceptions 
payment under Sec.  412.348(g) up through the 10th year beyond the end 
of the capital transition period if it meets the following criteria: 
(1) A project need requirement described at Sec.  412.348(g)(2), which 
in the case of certain urban hospitals includes an excess capacity test 
as described at Sec.  412.348(g)(4); and (2) a project size requirement 
as described at Sec.  412.348(g)(5). Eligible hospitals include SCHs, 
urban hospitals with at least 100 beds that have a DSH patient 
percentage of at least 20.2 percent or qualify for DSH payments under 
Sec.  412.106(c)(2), and hospitals that have a combined Medicare and 
Medicaid inpatient utilization of at least 70 percent. Under Sec.  
412.348(g)(8), the amount of a special exceptions payment is determined 
by comparing the cumulative payments made to the hospital under the 
capital PPS to the cumulative minimum payment level. This amount is 
offset by: (1) Any amount by which a hospital's cumulative capital 
payments exceed its cumulative minimum payment levels applicable under 
the regular exceptions process for cost reporting periods beginning 
during which the hospital has been subject to the capital PPS; and (2) 
any amount by which a hospital's current year operating and capital 
payments (excluding 75 percent of operating DSH payments) exceed its 
operating and capital costs. Under Sec.  412.348(g)(6), the minimum 
payment level is 70 percent for all eligible hospitals. We note that 
this was a 10-year provision. Therefore, FY 2012 is the final year 
hospitals will be eligible for the special exceptions payment.
    Currently, as provided in Sec.  412.304(c)(2), we pay a new 
hospital 85 percent of its reasonable costs during the first 2 years of 
operation unless it elects to receive payment based on 100 percent of 
the capital Federal rate. Effective with the third year of operation, 
we pay the hospital based on 100 percent of the capital Federal rate 
(that is, the same methodology used to pay all other hospitals subject 
to the capital PPS).

C. Capital Input Price Index

1. Background
    Like the operating input price index, the capital input price index 
(CIPI) is a

[[Page 24082]]

fixed-weight price index that measures the price changes associated 
with capital costs during a given year. The CIPI differs from the 
operating input price index in one important aspect--the CIPI reflects 
the vintage nature of capital, which is the acquisition and use of 
capital over time. Capital expenses in any given year are determined by 
the stock of capital in that year (that is, capital that remains on 
hand from all current and prior capital acquisitions). An index 
measuring capital price changes needs to reflect this vintage nature of 
capital. Therefore, the CIPI was developed to capture the vintage 
nature of capital by using a weighted-average of past capital purchase 
prices up to and including the current year.
    We periodically update the base year for the operating and capital 
input price indexes to reflect the changing composition of inputs for 
operating and capital expenses. In the FY 2010 IPPS final rule (74 
FR44021), we rebased and revised the CIPI to a FY 2006 base year to 
reflect the more current structure of capital costs in hospitals. A 
complete discussion of this rebasing is provided in section IV. of the 
preamble of that final rule.
2. Forecast of the CIPI for FY 2011
    Based on the latest forecast by IHS Global Insight, Inc. (first 
quarter of 2010), we are forecasting the FY 2006-based CIPI to increase 
1.2 percent in FY 2011. This reflects a projected 1.8 percent increase 
in vintage-weighted depreciation prices (building and fixed equipment, 
and movable equipment), and a 1.9 percent increase in other capital 
expense prices in FY 2011, partially offset by 1.9 percent decline in 
vintage-weighted interest expenses in FY 2011. The weighted average of 
these three factors produces the 1.2 percent increase for the FY 2006-
based CIPI as a whole in FY 2011.

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

    Historically, hospitals and hospital units excluded from the 
prospective payment system received payment for inpatient hospital 
services they furnished on the basis of reasonable costs, subject to a 
rate-of-increase ceiling. An annual per discharge limit (the target 
amount as defined in Sec.  413.40(a)) was set for each hospital or 
hospital unit based on the hospital's own cost experience in its base 
year, and updated annually by a rate-of-increase percentage. The 
updated target amount for that period was multiplied by the Medicare 
discharges during that period and applied as an aggregate upper limit 
(the ceiling as defined in Sec.  413.40(a)) on total inpatient 
operating costs for a hospital's cost reporting period. Prior to 
October 1, 1997, these payment provisions applied consistently to all 
categories of excluded providers (rehabilitation hospitals and units 
(now referred to as IRFs), psychiatric hospitals and units (now 
referred to as IPFs), LTCHs, children's hospitals, and cancer 
hospitals).
    Payments for services furnished in children's hospitals and cancer 
hospitals that are excluded from the IPPS continue to be subject to the 
rate-of-increase ceiling based on the hospital's own historical cost 
experience. (We note that, in accordance with Sec.  403.752(a), RNHCIs 
are also subject to the rate-of-increase limits established under Sec.  
413.40 of the regulations.)
    We are proposing that the FY 2011 rate-of-increase percentage for 
updating the target amounts for cancer and children's hospitals and 
RNHCIs be the estimated percentage increase in the FY 2011 IPPS 
operating market basket, estimated to be 2.4 percent, using the most 
recent data available based on IHS Global Insight, Inc.'s first quarter 
2010 forecast, with historical data through the 2009 fourth quarter. 
(We are proposing to use more recent data when determining the 
estimated percentage increase for the FY 2011 IPPS operating market 
basket for the final rule, to the extent these data are available.)
    IRFs, IPFs, and LTCHs were previously paid under the reasonable 
cost methodology. However, the statute was amended to provide for the 
implementation of prospective payment systems for IRFs, IPFs, and 
LTCHs. In general, the prospective payment systems for IRFs, IPFs, and 
LTCHs provide transitioning periods of varying lengths of time during 
which a portion of the prospective payment is based on cost-based 
reimbursement rules under 42 CFR Part 413 (certain providers do not 
receive a transitioning period or may elect to bypass the transition as 
applicable under 42 CFR part 412, Subparts N, O, and P.) We note that 
all of the various transitioning periods provided for under the IRF 
PPS, the IPF PPS, and the LTCH PPS have ended.
    The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually. We 
refer readers to section VII. of the preamble and section V. of the 
Addendum to this proposed rule for the proposed update changes to the 
Federal payment rates for LTCHs under the LTCH PPS for RY 2011. The 
annual updates for the IRF PPS and the IPF PPS are issued by the agency 
in separate Federal Register documents.

V. Proposed Changes to the Payment Rates for the LTCH PPS for FY 2011

A. Proposed LTCH PPS Standard Federal Rate for FY 2011

1. Background
    In section VII. of the preamble of this proposed rule, we discuss 
our proposed changes to the payment rates, factors, and specific 
policies under the LTCH PPS for FY 2011. We note that on March 23, 
2010, the Patient Protection and Affordable Care Act, Public Law 111-
148, was enacted. Following the enactment of Public Law 111-148, the 
Health Care and Education Reconciliation Act of 2010, Public Law 111-
152 (enacted on March 30, 2010), amended certain provisions of Public 
Law 111-148. A number of the provisions of Public Law 111-148, as 
amended by Public Law 111-152, affect the IPPS and the LTCH PPS and the 
providers and suppliers addressed in this proposed rule. However, due 
to the timing of the passage of the legislation, we are unable to 
address those provisions in this proposed rule. Therefore, the proposed 
policies and payment rates in this proposed rule do not reflect the new 
legislation. We plan to issue separate documents in the Federal 
Register addressing the provisions of Public Law 111-148, as amended, 
that affect our proposed policies and payment rates for FY 2011 under 
the IPPS and the LTCH PPS. In addition, we plan to issue further 
instructions implementing the provisions of Public Law 111-148, as 
amended, that affect the policies and payment rates for FY 2010 under 
the IPPS and for RY 2010 under the LTCH PPS.
    At Sec.  412.523(c)(3)(ii) of the regulations, for LTCH PPS rate 
years beginning RY 2004 through RY 2006, we updated the standard 
Federal rate by a factor to adjust for the most recent estimate of the 
increases in prices of an appropriate market basket of goods and 
services for LTCHs. We established that policy of annually updating the 
standard Federal rate because, at that time, we believed that was the 
most appropriate method for updating the LTCH PPS standard Federal rate 
annually for years after the initial implementation of the LTCH PPS in 
FY 2003. Under Sec.  412.523(c)(3)(ii), for RYs 2004 through 2006, the 
annual update to the LTCH PPS standard Federal rate was equal to the 
previous rate year's Federal rate updated by the most recent estimate 
of increases in the appropriate market basket of goods and services 
included in covered inpatient LTCH services.

[[Page 24083]]

    In determining the annual update to the standard Federal rate for 
RY 2007, based on our ongoing monitoring activity, we believed that, 
rather than solely using the most recent estimate of the LTCH PPS 
market basket as the basis of the update factor, it was appropriate to 
adjust the standard Federal rate to account for the changes in 
documentation and coding practices in a prior period that were 
unrelated to patient severity of illness (71 FR 27818). Accordingly, we 
established regulations at Sec.  412.523(c)(3)(iii) to specify that the 
update to the standard Federal rate for RY 2007 is zero percent based 
on the most recent estimate of the LTCH PPS market basket at the time, 
offset by an adjustment to account for changes in case-mix in prior 
periods due to changes in documentation and coding that were unrelated 
to patient severity of illness in FY 2004. For RYs 2008 through 2010, 
we also considered changes in documentation and coding practices that 
were unrelated to patient severity of illness in establishing the 
annual update to the standard Federal rate as set forth in the 
regulations at Sec. Sec.  412.523(c)(3)(iv) through (c)(3)(vi). (We 
note that section 114(e)(1) of Public Law 110-173 provided that the 
standard Federal rate for RY 2008 shall be the same as the standard 
Federal rate for RY 2007. In addition, section 114(e)(2) of Public Law 
110-173 specified that the revised standard Federal rate provided for 
under section 114(e)(1) ``shall not apply to discharges occurring on or 
after July 1, 2007, and before April 1, 2008,'' effectively resulting 
in a delay of the application of the updated standard Federal rate for 
RY 2007 established in the RY 2008 LTCH PPS final rule (72 FR 26890).) 
Consistent with our historical practice, in the RY 2010 LTCH PPS final 
rule, we established an annual update to the standard Federal rate for 
RY 2010 based on the most recent estimate of the increase in the LTCH 
PPS market basket at that time (2.5 percent and an adjustment of -0.5 
percent to account for the increase in case-mix in a prior period (FY 
2007) due to changes in documentation and coding practices unrelated to 
an increase in patient severity of illness (74 FR 44022)). Accordingly, 
we established regulations at Sec.  412.523(c)(3)(vi) to specify that 
the update to the standard Federal rate for RY 2010 is 2.0 percent.
2. Development of the Proposed FY 2011 LTCH PPS Standard Federal Rate
    While we continue to believe that an update to the LTCH PPS 
standard Federal rate should be based on the most recent estimate of 
the increase in the LTCH PPS market basket, we also believe it is 
appropriate that the standard Federal rate be offset by an adjustment 
to account for any changes in documentation and coding practices that 
do not reflect increased patient severity of illness. Such an 
adjustment protects the integrity of the Medicare Trust Funds by 
ensuring that the LTCH PPS payment rates better reflect the true costs 
of treating LTCH patients. Furthermore, as we discussed most recently 
in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44022), we did 
not establish a case-mix budget neutrality factor (that is, a 
documentation and coding adjustment for changes in case-mix that are 
not due to changes in patient severity of illness) for the adoption of 
the severity adjusted MS-LTC-DRG patient classification system. Rather, 
we noted that, consistent with past LTCH payment policy, we would 
continue to monitor LTCH data and we could propose to make adjustments 
when updating the LTCH PPS standard Federal rate in the future to 
account for changes in documentation and coding that do not reflect any 
real changes in case-mix during these years that we are implementing 
MS-LTC-DRGs. As noted above, in the FY 2010 IPPS/RY 2010 LTCH PPS final 
rule, we applied a -0.5 percent adjustment to account for the effect of 
changes in documentation and coding on the increase in case-mix in FY 
2007. Although we proposed a -1.3 percent adjustment to account for the 
effect of changes in documentation and coding on the increase in case-
mix in FY 2008, in the final rule after consideration of public 
comments and consistent with IPPS policy, we delayed the application of 
that adjustment (74 FR 43970 through 43972).
    For FY 2011, for this proposed rule as discussed in greater detail 
in section VII.C.3. of the preamble of this proposed rule, we performed 
a CMI analysis using the most recent available LTCH claims data (FY 
2009) under both the current MS-LTC-DRG and the former CMS LTC-DRG 
patient classification systems. Based on this evaluation, we determined 
that there was a cumulative increase in LTCH CMI of 2.5 percent due to 
changes in documentation and coding that did not reflect real changes 
in patient severity of illness for LTCH discharges occurring in FY 2008 
and FY 2009. At this time, the most recent estimate of the increase in 
the proposed LTCH PPS market basket (that is, the FY 2002-based RPL 
market basket) for FY 2011 is 2.4 percent, as discussed in section 
VII.B.2. of the preamble of this proposed rule. Consistent with our 
historical practice, in this proposed rule, we are proposing to update 
the LTCH PPS standard Federal rate for FY 2011 based on the full 
proposed LTCH PPS market basket increase estimate of 2.4 percent and an 
adjustment to account for the increase in case-mix in a prior period 
(FYs 2008 and 2009) that resulted from changes in documentation and 
coding practices of -2.5 percent. The proposed update factor to the 
standard Federal rate for FY 2011 is -0.1 percent (that is, we are 
proposing to apply a factor of 0.999 in determining the LTCH PPS 
standard Federal rate for FY 2011, calculated as 1.024 x 1 divided by 
1.025 = 0.999 or -0.1 percent). Therefore, in this proposed rule, under 
the broad authority conferred upon the Secretary under the BBRA and the 
BIPA to determine appropriate updates under the LTCH PPS, we are 
proposing to amend Sec.  412.523 to add a new paragraph (c)(3)(vii) to 
specify that the standard Federal rate for discharges occurring on or 
after October 1, 2010, through September 30, 2011, is the standard 
Federal rate for the previous rate year updated by -0.1 percent. In 
determining the proposed standard Federal rate for FY 2011, we are 
applying the proposed 0.999 update factor to the RY 2010 Federal rate 
of $39,896.65 (as established in the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule (74 FR 44022)). Consequently, the proposed standard Federal 
rate for FY 2011 is $39,856.75. We also are proposing that if more 
recent data become available, we would use those data, if appropriate, 
to determine the update to the standard Federal rate for FY 2011 in the 
final rule, and, thus, the standard Federal rate update specified in 
the proposed regulation text at Sec.  412.523(c)(3)(vii) could change 
accordingly.

B. Proposed Adjustment for Area Wage Levels Under the LTCH PPS for FY 
2011

1. Background
    Under the authority of section 123 of the BBRA as amended by 
section 307(b) of the BIPA, we established an adjustment to the LTCH 
PPS standard Federal rate to account for differences in LTCH area wage 
levels at Sec.  412.525(c). The labor-related share of the LTCH PPS 
standard Federal rate is adjusted to account for geographic differences 
in area wage levels by applying the applicable LTCH PPS wage index. The 
applicable LTCH PPS wage index is computed using wage data from 
inpatient acute care hospitals without regard to reclassification under 
section 1886(d)(8) or section 1886(d)(10) of the Act.

[[Page 24084]]

    As we discussed in the August 30, 2002 LTCH PPS final rule (67 FR 
56015), when we implemented the LTCH PPS, we established a 5-year 
transition to the full wage index adjustment. The wage index adjustment 
was completely phased in for cost reporting periods beginning in FY 
2007. Therefore, for cost reporting periods beginning on or after 
October 1, 2006, the applicable LTCH wage index values are the full 
(five-fifths) LTCH PPS wage index values calculated based on acute care 
hospital inpatient wage index data without taking into account 
geographic reclassification under section 1886(d)(8) and section 
1886(d)(10) of the Act. For additional information on the phase-in of 
the wage index adjustment under the LTCH PPS, we refer readers to the 
August 30, 2002 LTCH PPS final rule (67 FR 56017 through 56019) and the 
RY 2008 LTCH PPS final rule (72 FR 26891).
2. Proposed Updates to the Geographic Classifications/Labor Market Area 
Definitions
a. Background
    As discussed in the August 30, 2002 LTCH PPS final rule, which 
implemented the LTCH PPS (67 FR 56015 through 56019), in establishing 
an adjustment for area wage levels, the labor-related portion of a 
LTCH's Federal prospective payment is adjusted by using an appropriate 
wage index based on the labor market area in which the LTCH is located. 
Specifically, the application of the LTCH PPS wage index adjustment at 
Sec.  412.525(c) is made on the basis of the location of the LTCH in 
either an urban area or a rural area as defined in Sec.  412.503. 
Currently under the LTCH PPS at Sec.  412.503, an ``urban area'' is 
defined as a Metropolitan Statistical Area (which would include a 
metropolitan division, where applicable) as defined by the Executive 
OMB and a ``rural area'' is defined as any area outside of an urban 
area.
    In the RY 2006 LTCH PPS final rule (70 FR 24184 through 24185), in 
regulations at Sec.  412.525(c), we revised the labor market area 
definitions used under the LTCH PPS effective for discharges occurring 
on or after July 1, 2005, based on the Executive OMB's CBSA 
designations, which are based on 2000 Census data. We made this 
revision because we believe that the CBSA-based labor market area 
definitions will ensure that the LTCH PPS wage index adjustment most 
appropriately accounts for and reflects the relative hospital wage 
levels in the geographic area of the hospital as compared to the 
national average hospital wage level. We note that these are the same 
CBSA-based designations implemented for acute care hospitals under the 
IPPS at Sec.  412.64(b), effective October 1, 2004 (69 FR 49026 through 
49034). (For further discussion of the CBSA-based labor market area 
(geographic classification) definitions currently used under the LTCH 
PPS, we refer readers to the RY 2006 LTCH PPS final rule (70 FR 24182 
through 24191).) We have updated the LTCH PPS CBSA-based labor market 
area definitions annually since they were adopted for RY 2006 (73 FR 
26812 through 26814, and 74 FR 44023 through 44204).
b. Update to the CBSA-Based Labor Market Area Titles and Principal 
Cities
    On December 1, 2009, the Executive OMB announced changes to the 
principal cities and titles of a number of CBSAs and Metropolitan 
Divisions (OMB Bulletin No. 10-02). Under the broad authority conferred 
upon the Secretary by section 123 of the BBRA, as amended by section 
307(b) of BIPA, to determine appropriate adjustments under the LTCH 
PPS, we update our titles and definitions using the Executive OMB's 
bulletin. These changes are effective for discharges occurring on or 
after October 1, 2010.
    Specifically, for FY 2011, the following CBSAs have new titles and 
new principal cities:
     San Marcos, TX qualifies as a new principal city of the 
Austin-Round Rock, TX CBSA. The new title is Austin-Round Rock-San 
Marcos, TX CBSA (CBSA Code 12420).
     Delano, CA qualifies as a new principal city of the 
Bakersfield, CA CBSA. The new title: Bakersfield-Delano, CA CBSA (CBSA 
Code 12540).
     Conroe, TX qualifies as a new principal city of the 
Houston-Sugar Land-Baytown, TX CBSA (CBSA Code 26420). The CBSA title 
is unchanged.
     North Port, FL qualifies as a new principal city of the 
Bradenton-Sarasota-Venice, FL CBSA (currently CBSA Code 14600). The new 
title is North Port-Bradenton-Sarasota, FL CBSA. The new code is CBSA 
35840.
     Sanford, FL qualifies as a new principal city of the 
Orlando-Kissimmee, FL CBSA (CBSA Code 36740). The new title is Orlando-
Kissimmee-Sanford, FL CBSA.
     Glendale, AZ qualifies as a new principal city of the 
Phoenix-Mesa-Scottsdale, AZ CBSA. The new title is Phoenix-Mesa-
Glendale, AZ CBSA (CBSA Code 38060).
     Palm Desert, CA qualifies as a new principal city of the 
Riverside-San Bernardino-Ontario, CA CBSA (CBSA Code 40140). The CBSA 
title is unchanged.
     New Braunfels, TX qualifies as a new principal city of the 
San Antonio, TX CBSA. The new title is San Antonio-New Braunfels, TX 
CBSA (CBSA Code 41700).
     Auburn, WA qualifies as a new principal city of the 
Seattle-Tacoma-Bellevue, WA CBSA (CBSA Code 42644). The CBSA title is 
unchanged.
    In addition, the following CBSAs have new titles as a result of 
changes to the order of principal cities based on population:
     Rockville, MD replaces Frederick, MD as the second most 
populous principal city in the Bethesda-Frederick-Rockville, MD 
Metropolitan Division. The new title is Bethesda-Rockville-Frederick, 
MD Metropolitan Division (CBSA Code 13644).
     Rock Hill, SC replaces Concord, NC as the third most 
populous principal city in the Charlotte-Gastonia-Concord, NC-SC CBSA. 
The new title is Charlotte-Gastonia-Rock Hill, NC-SC CBSA (CBSA Code 
16740).
     Joliet, IL replaces Naperville, IL as the second most 
populous principal city in the Chicago-Naperville-Joliet, IL 
Metropolitan Division. The new title is Chicago-Joliet-Naperville, IL 
Metropolitan Division (CBSA Code 16974).
     Crestview, FL replaces Fort Walton Beach, FL as the most 
populous principal city in the Fort Walton Beach-Crestview-Destin, FL 
CBSA (currently CBSA Code 23020). The new title is Crestview-Fort 
Walton Beach-Destin, FL CBSA. The new code is 18880.
     Hillsboro, OR replaces Beaverton, OR as the third most 
populous principal city in the Portland-Vancouver-Beaverton, OR-WA 
CBSA. The new title is Portland-Vancouver-Hillsboro, OR-WA CBSA (CBSA 
Code 38900).
     Steubenville, OH replaces Weirton, WV as the most populous 
principal city in the Weirton-Steubenville, WV-OH CBSA (currently CBSA 
Code 48260). The new title is Steubenville-Weirton, OH-WV CBSA. The new 
CBSA code is 44600.
    OMB Bulletin No. 10-02 is available on the OMB Web site at http://www.whitehouse.gov/OMB_go to ``Bulletins'' or ``Statistical Programs 
and Standards.''
    The proposed FY 2011 LTCH PPS wage index values presented in Tables 
12A and 12B in the Addendum of this proposed rule reflect the revisions 
to the CBSA-based labor market area titles and codes described above.

[[Page 24085]]

3. Proposed LTCH PPS Labor-Related Share
    As noted above in this section, under the adjustment for difference 
in area wage levels at Sec.  412.525(c), the labor-related share of a 
LTCH's PPS Federal prospective payment is adjusted by the applicable 
wage index for the labor market area in which the LTCH is located. The 
LTCH PPS labor-related share represents the sum of the labor-related 
portion of operating costs (wages and salaries, employee benefits, 
professional fees, and all other labor-intensive services) and a labor-
related portion of capital costs using the applicable LTCH PPS market 
basket. Currently, as established in the RY 2007 LTCH PPS final rule 
(71 FR 27829 through 27830), the LTCH PPS labor-related share is based 
on the relative importance of the labor-related share of operating 
costs and capital costs of the rehabilitation psychiatric long-term 
care (hospital) (RPL) market basket based on FY 2002 data, as they are 
the best available data that reflect the cost structure of LTCHs. For 
the past 3 years (RYs 2008, 2009, and 2010), we updated the LTCH PPS 
labor-related share annually based on the latest available data for the 
RPL market basket. For RY 2010, the labor-related share is 75.779 
percent, as established in the RY 2010 LTCH PPS final rule (74 FR 43968 
and 44024). (Additional background information on the historical 
development of the labor-related share under the LTCH PPS and the 
development of the RPL market basket can be found in the RY 2007 LTCH 
PPS final rule (71 FR 27810 through 27817 and 27829 through 27830) and 
the RY 2010 LTCH PPS final rule (74 FR 43968).)
    As discussed in greater detail in section VII.C.2.d. of the 
preamble of this proposed rule, we are proposing to use IHS Global 
Insight, Inc.'s first quarter 2010 forecast of the FY 2002-based RPL 
market basket for FY 2011 to determine the proposed labor-related share 
for the LTCH PPS for FY 2011 that would be effective for discharges 
occurring on or after October 1, 2010, and through September 30, 2011, 
as these are the most recent available data. The proposed labor-related 
share for FY 2011 would be the sum of the proposed FY 2011 relative 
importance of each labor-related cost category, and would reflect the 
different rates of price change for these cost categories between the 
base year (FY 2002) and FY 2011. The sum of the proposed relative 
importance for FY 2011 for operating costs (wages and salaries, 
employee benefits, professional fees, and all-other labor-intensive 
services) would be 71.537 percent and the labor-related share of 
capital costs would be 3.870 percent. Thus, the labor-related share 
that we are proposing to use for LTCH PPS in FY 2011 would be 75.407 
percent (71.537 percent + 3.870 percent), as shown in the chart in 
section VII.C.2.d. of the preamble of this proposed rule.
    Accordingly, under the authority set forth in section 123 of the 
BBRA as amended by section 307(b) of the BIPA, we are proposing to 
establish a labor-related share of 75.407 percent under the LTCH PPS 
for the FY 2011. Furthermore, consistent with our historical practice 
of using the best data available, we also are proposing that if more 
recent data are available to determine the labor-related share used 
under the LTCH PPS for FY 2011, we would use these data for determining 
the FY 2011 LTCH PPS labor-related share in the final rule.
4. Proposed LTCH PPS Wage Index for FY 2011
    Historically, under the LTCH PPS, we have established LTCH PPS wage 
index values calculated from acute care IPPS hospital wage data without 
taking into account geographic reclassification under sections 
1886(d)(8) and 1886(d)(10) of the Act (67 FR 56019). The wage 
adjustment established under the LTCH PPS is based on a LTCH's actual 
location without regard to the urban or rural designation of any 
related or affiliated provider.
    In the RY 2010 LTCH PPS final rule (74 FR 44024 through 44026), we 
calculated the LTCH PPS wage indices using the same data used for the 
FY 2010 acute care hospital IPPS (that is, data from cost reporting 
periods beginning during FY 2006), without taking into account 
geographic reclassification under sections 1886(d)(8) and 1886(d)(10) 
of the Act.
    To determine the applicable wage index values under the LTCH PPS 
for FY 2011, under the broad authority conferred upon the Secretary by 
section 123 of the BBRA, as amended by section 307(b) of BIPA, to 
determine appropriate adjustments under the LTCH PPS, consistent with 
our historical methodology, we are proposing to use wage data collected 
from cost reports submitted by IPPS hospitals for cost reporting 
periods beginning during FY 2007, without taking into account 
geographic reclassification under sections 1886(d)(8) and 1886(d)(10) 
of the Act, because these data (FY 2007) are the most recent complete 
data available at this time. These are the same data used to compute 
the proposed FY 2011 acute care hospital inpatient wage index, as 
discussed in section III. of the preamble of this proposed rule. For 
our rationale for using IPPS hospital wage data as a proxy for 
determining the wage index values used under the LTCH PPS, we refer 
readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44024 
through 44025).
    The proposed FY 2011 LTCH PPS wage index values are computed 
consistent with the urban and rural geographic classifications (labor 
market areas) discussed above in section V.B.2. of the Addendum of this 
proposed rule and consistent with the pre-reclassified IPPS wage index 
policy (that is, our historical policy of not taking into account IPPS 
geographic reclassifications in determining payments under the LTCH 
PPS). We also note that, as with the IPPS wage data, wage data for 
multicampus hospitals with campuses located in different labor market 
areas (CBSAs) are apportioned to each CBSA where the campus or campuses 
are located (discussed in section III.C. of the preamble of this 
proposed rule). We also would continue to use our existing policy for 
determining wage index values in areas where there are no IPPS wage 
data.
    We established a methodology for determining a LTCH PPS wage index 
values for areas that have no IPPS wage data in the RY 2009 LTCH PPS 
final rule, and we are proposing to use this methodology for FY 2011. 
(We refer readers to 73 FR 26817 through 26818 for an explanation of 
and rationale for our policy.) Under this methodology, the LTCH PPS 
wage index value for urban CBSAs with no IPPS wage data is determined 
by using an average of all of the urban areas within the State. As was 
the case in RY 2010, there are currently no LTCHs located in labor 
areas without IPPS hospital wage data (or IPPS hospitals) for FY 2011. 
However, we calculate LTCH PPS wage index values for these areas using 
our established methodology in the event that, in the future, a LTCH 
should open in one of those areas.
    Based on the current FY 2007 IPPS wage data that we are proposing 
to use to determine the proposed FY 2011 LTCH PPS wage index values, 
there are no IPPS wage data for the urban area of Anderson, SC (CBSA 
11340) and Hinesville-Fort Stewart, GA (CBSA 25980). Consistent with 
the methodology discussed above, we calculated the proposed FY 2011 
wage index value for CBSA 11340 as the average of the proposed wage 
index values for all of the other urban areas within the State of South 
Carolina (that

[[Page 24086]]

is, CBSAs 12260, 16700, 16740, 17900, 22500, 24860, 34820, 43900 and 
44940) (reflected in Table 12A of the Addendum of this proposed rule). 
Similarly, for CBSA 25980 as the average of the proposed wage index 
values for all of the other urban areas within the State of Georgia 
(that is, CBSAs 10500, 12020, 12060, 12260, 15260, 16860, 17980, 19140, 
23580, 31420, 40660, 42340, 46660 and 47580) (reflected in Table 12A of 
the Addendum of this proposed rule). (As noted above, there are 
currently no LTCHs located in CBSA 11340 or CBSA 25980.) As discussed 
in the RY 2009 final rule (73 FR 26817), as IPPS wage data are dynamic, 
it is possible that urban areas without IPPS wage data will vary in the 
future.
    For FY 2011, using our established methodology, we calculated a 
LTCH PPS wage index value for rural areas with no IPPS wage data using 
the unweighted average of the wage indices from all of the CBSAs that 
are contiguous to the rural counties of the State (for an explanation 
of this policy, we refer readers to 73 FR 26818). For this purpose, we 
define ``contiguous'' as sharing a border.
    Based on the FY 2007 IPPS wage data, there are no IPPS wage data 
for the rural area of Massachusetts (CBSA code 22). Consistent with the 
methodology discussed above, the proposed FY 2011 wage index value for 
rural Massachusetts is computed using the unweighted average of the 
wage indices from all of the CBSAs contiguous to the rural counties in 
that State. Specifically, the entire Massachusetts rural area consists 
of Dukes and Nantucket counties. The borders of Dukes and Nantucket 
counties are ``contiguous'' with Barnstable County, MA, and Bristol 
County, MA. Therefore, the proposed FY 2011 LTCH PPS wage index value 
for rural Massachusetts is computed as the unweighted average of the 
proposed FY 2011 wage indexes for Barnstable County and Bristol County 
(reflected in Tables 12A and 12B in the Addendum of this proposed 
rule). (There are currently no LTCHs located in rural Massachusetts.) 
As discussed in the RY 2009 final rule (73 FR 26817), as IPPS wage data 
are dynamic, it is possible that rural areas without IPPS wage data 
will vary in the future.
    The proposed FY 2011 LTCH wage index values that would be 
applicable for LTCH discharges occurring on or after October 1, 2010, 
through September 30, 2011, are presented in Table 12A (for urban 
areas) and Table 12B (for rural areas) in the Addendum of this proposed 
rule.
5. Proposed LTCH PPS Cost-of-Living Adjustment for LTCHs Located in 
Alaska and Hawaii
    In the August 30, 2002 final rule (67 FR 56022), we established, 
under Sec.  412.525(b), a cost-of-living adjustment (COLA) for LTCHs 
located in Alaska and Hawaii to account for the higher costs incurred 
in those States. In the RY 2010 LTCH PPS final rule (74 FR 44026) 
(under the broad authority conferred upon the Secretary by section 123 
of the BBRA as amended by section 307(b) of BIPA to determine 
appropriate adjustments under the LTCH PPS), for RY 2010, we applied a 
COLA to payments to LTCHs located in Alaska and Hawaii by multiplying 
the standard Federal payment rate by the factors listed in Table III of 
that same rule.
    For FY 2011, under the broad authority conferred upon the Secretary 
by section 123 of the BBRA, as amended by section 307(b) of BIPA, to 
determine appropriate adjustments under the LTCH PPS, we are proposing 
to apply a COLA to payments to LTCHs located in Alaska and Hawaii by 
multiplying the proposed standard Federal payment rate by the factors 
listed in the chart below because they are the most recent available 
data at this time. These proposed factors were obtained from the U.S. 
Office of Personnel Management (OPM) and are also proposed to be used 
under the IPPS effective October 1, 2010 (section II.B.2. of the 
Addendum of this proposed rule). We note that there has been no change 
in the COLA factors since the current factors were established in the 
RY 2010 LTCH PPS final rule. In addition, we are proposing that if OPM 
releases revised COLA factors before publication of the final rule, we 
would use the revised factors for the development of LTCH PPS payments 
for FY 2011 and publish those revised COLA factors in the final rule.

    Proposed Cost-of-Living Adjustment Factors for Alaska and Hawaii
                 Hospitals for the LTCH PPS for FY 2011
------------------------------------------------------------------------

------------------------------------------------------------------------
Alaska:
  City of Anchorage and 80-kilometer (50-mile) radius by            1.23
   road....................................................
  City of Fairbanks and 80-kilometer (50-mile) radius by            1.23
   road....................................................
  City of Juneau and 80-kilometer (50-mile) radius by road.         1.23
  All other areas of Alaska................................         1.25
Hawaii:
  City and County of Honolulu..............................         1.25
  County of Hawaii.........................................         1.18
  County of Kauai..........................................         1.25
  County of Maui and County of Kalawao.....................         1.25
------------------------------------------------------------------------

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

1. Background
    Under the broad authority conferred upon the Secretary by section 
123 of the BBRA as amended by section 307(b) of BIPA, in the 
regulations at Sec.  412.525(a), we established an adjustment for 
additional payments for outlier cases that have extraordinarily high 
costs relative to the costs of most discharges. We refer to these cases 
as high cost outliers (HCOs). Providing additional payments for 
outliers strongly improves the accuracy of the LTCH PPS in determining 
resource costs at the patient and hospital level. These additional 
payments reduce the financial losses that would otherwise be incurred 
when treating patients who require more costly care and, therefore, 
reduce the incentives to underserve these patients. We set the outlier 
threshold before the beginning of the applicable rate year so that 
total estimated outlier payments are projected to equal 8 percent of 
total estimated payments under the LTCH PPS.
    Under Sec.  412.525(a) in the regulations (in conjunction with 
Sec.  412.503), we make outlier payments for any discharges if the 
estimated cost of a case exceeds the adjusted LTCH PPS payment for the 
MS-LTC-DRG plus a fixed-loss amount. Specifically, in accordance with 
Sec.  412.525(a)(3) (in conjunction with Sec.  412.503), we pay outlier 
cases 80 percent of the difference between the estimated cost of the 
patient case and the outlier threshold, which is the sum of the 
adjusted Federal prospective payment for the MS-LTC-DRG and the fixed-
loss amount. The fixed-loss amount is the amount used to limit the loss 
that a hospital will incur under the outlier policy for a case with 
unusually high costs. This results in Medicare and the LTCH sharing 
financial risk in the treatment of extraordinarily costly cases. Under 
the LTCH PPS HCO policy, the LTCH's loss is limited to the fixed-loss 
amount and a fixed percentage of costs above the outlier threshold (MS-
LTC-DRG payment plus the fixed-loss amount). The fixed percentage of 
costs is called the marginal cost factor. We calculate the estimated 
cost of a case by multiplying the Medicare allowable

[[Page 24087]]

covered charge by the hospital's overall hospital cost-to-charge ratio 
(CCR).
    Under the LTCH PPS, we determine a fixed-loss amount, that is, the 
maximum loss that a LTCH can incur under the LTCH PPS for a case with 
unusually high costs before the LTCH will receive any additional 
payments. We calculate the fixed-loss amount by estimating aggregate 
payments with and without an outlier policy. The fixed-loss amount 
results in estimated total outlier payments being projected to be equal 
to 8 percent of projected total LTCH PPS payments. Currently, MedPAR 
claims data and CCRs based on data from the most recent provider 
specific file (PSF) (or from the applicable statewide average CCR if a 
LTCH's CCR data are faulty or unavailable) are used to establish a 
fixed-loss threshold amount under the LTCH PPS.
2. Determining LTCH CCRs Under the LTCH PPS
a. Background
    The following is a discussion of CCRs that are used in determining 
payments for HCO and SSO cases under the LTCH PPS, at Sec.  412.525(a) 
and Sec.  412.529, respectively. Although this section is specific to 
HCO cases, because CCRs and the policies and methodologies pertaining 
to them are used in determining payments for both HCO and SSO cases (to 
determine the estimated cost of the case at Sec.  412.529(d)(2)), we 
are discussing the determination of CCRs under the LTCH PPS for both of 
these types of cases simultaneously.
    In determining both HCO payments (at Sec.  412.525(a)) and SSO 
payments (at Sec.  412.529), we calculate the estimated cost of the 
case by multiplying the LTCH's overall CCR by the Medicare allowable 
charges for the case. In general, we use the LTCH's overall CCR, which 
is computed based on either the most recently settled cost report or 
the most recent tentatively settled cost report, whichever is from the 
latest cost reporting period, in accordance with Sec.  
412.525(a)(4)(iv)(B) and Sec.  412.529(f)(4)(ii) for HCOs and SSOs, 
respectively. (We note that, in some instances, we use an alternative 
CCR, such as the statewide average CCR in accordance with the 
regulations at Sec.  412.525(a)(4)(iv)(C) and Sec.  412.529(f)(4)(iii), 
or a CCR that is specified by CMS or that is requested by the hospital 
under the provisions of the regulations at Sec.  412.525(a)(4)(iv)(A) 
and Sec.  412.529(f)(4)(i).) Under the LTCH PPS, a single prospective 
payment per discharge is made for both inpatient operating and capital-
related costs. Therefore, we compute a single ``overall'' or ``total'' 
LTCH-specific CCR based on the sum of LTCH operating and capital costs 
(as described in Section 150.24, Chapter 3, of the Medicare Claims 
Processing Manual (Pub. 100-4)) as compared to total charges. 
Specifically, a LTCH's CCR is calculated by dividing a LTCH's total 
Medicare costs (that is, the sum of its operating and capital inpatient 
routine and ancillary costs) by its total Medicare charges (that is, 
the sum of its operating and capital inpatient routine and ancillary 
charges).
b. LTCH Total CCR Ceiling
    Generally, a LTCH is assigned the applicable statewide average CCR 
if, among other things, a LTCH's CCR is found to be in excess of the 
applicable maximum CCR threshold (that is, the LTCH CCR ceiling). This 
is because CCRs above this threshold are most likely due to faulty data 
reporting or entry, and, therefore, CCRs based on erroneous data should 
not be used to identify and make payments for outlier cases. Thus, 
under our established policy, generally, if a LTCH's calculated CCR is 
above the applicable ceiling, the applicable LTCH PPS statewide average 
CCR is assigned to the LTCH instead of the CCR computed from its most 
recent (settled or tentatively settled) cost report data.
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44027), in 
accordance with Sec.  412.525(a)(4)(iv)(C)(2) for HCOs and Sec.  
412.529(f)(4)(iii)(B) for SSOs, using our established methodology for 
determining the LTCH total CCR ceiling, based on IPPS total CCR data 
from the March 2009 update of the Provider Specific File (PSF), we 
established a total CCR ceiling of 1.232 under the LTCH PPS, effective 
October 1, 2009, through September 30, 2010. (For further detail on our 
current methodology for annually determining the LTCH total CCR 
ceiling, we refer readers to the FY 2007 IPPS final rule (71 FR 48119 
through 48121).)
    In this proposed rule, in accordance with Sec.  
412.525(a)(4)(iv)(C)(2) for HCOs and Sec.  412.529(f)(4)(iii)(B) for 
SSOs, using our established methodology for determining the LTCH total 
CCR ceiling (described above), based on IPPS total CCR data from the 
December 2009 update of the PSF, we are proposing to establish a total 
CCR ceiling of 1.230 under the LTCH PPS that would be effective for 
discharges occurring on or after October 1, 2010, through September 30, 
2011.
c. LTCH Statewide Average CCRs
    Our general methodology established for determining the statewide 
average CCRs used under the LTCH PPS is similar to our established 
methodology for determining the LTCH total CCR ceiling (described 
above) because it is based on ``total'' IPPS CCR data. Under the LTCH 
PPS HCO policy at Sec.  412.525(a)(4)(iv)(C) and the SSO policy at 
Sec.  412.529(f)(4)(iii), the fiscal intermediary may use a statewide 
average CCR, which is established annually by CMS, if it is unable to 
determine an accurate CCR for a LTCH in one of the following 
circumstances: (1) new LTCHs that have not yet submitted their first 
Medicare cost report (for this purpose, consistent with current policy, 
a new LTCH is defined as an entity that has not accepted assignment of 
an existing hospital's provider agreement in accordance with Sec.  
489.18); (2) LTCHs whose CCR is in excess of the LTCH CCR ceiling; and 
(3) other LTCHs for whom data with which to calculate a CCR are not 
available (for example, missing or faulty data). (Other sources of data 
that the fiscal intermediary may consider in determining a LTCH's CCR 
include data from a different cost reporting period for the LTCH, data 
from the cost reporting period preceding the period in which the 
hospital began to be paid as a LTCH (that is, the period of at least 6 
months that it was paid as a short-term acute care hospital), or data 
from other comparable LTCHs, such as LTCHs in the same chain or in the 
same region.)
    In Table 8C of the Addendum to the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule (74 FR 44160 through 44161), in accordance with the 
regulations at Sec.  412.525(a)(4)(iv)(C) for HCOs and Sec.  
412.529(f)(4)(iii) for SSOs, using our established methodology for 
determining the LTCH statewide average CCRs, based on using the most 
recent complete IPPS total CCR data from the March 2009 update of the 
PSF, we established the LTCH PPS statewide average total CCRs for urban 
and rural hospitals effective for discharges occurring on or after 
October 1, 2009, through September 30, 2010. (For further detail on our 
current methodology for annually determining the LTCH statewide average 
CCRs, we refer readers to the FY 2007 IPPS final rule (71 FR 48119 
through 48121).)
    In this proposed rule, using our established methodology for 
determining the LTCH statewide average CCRs, based on the most recent 
complete IPPS total CCR data from the December 2009 update of the PSF, 
we are proposing to establish LTCH PPS statewide average total CCRs for 
urban and rural hospitals that would be effective for discharges 
occurring on or after October 1, 2010, through

[[Page 24088]]

September 30, 2011, in Table 8C of the Addendum to this proposed rule.
    We also note that all areas in the District of Columbia, New 
Jersey, Puerto Rico, and Rhode Island are classified as urban; 
therefore, there are no rural statewide average total CCRs listed for 
those jurisdictions in Table 8C of the Addendum to this proposed rule. 
This policy is consistent with the policy that we established when we 
revised our methodology for determining the applicable LTCH statewide 
average CCRs in the FY 2007 IPPS final rule (71 FR 48119 through 48121) 
and is the same as the policy applied under the IPPS. In addition, 
although Massachusetts has areas that are designated as rural, there 
are no short-term acute care IPPS hospitals or LTCHs located in those 
areas as of December 2009. Therefore, for this proposed rule, there is 
no rural statewide average total CCR listed for rural Massachusetts in 
Table 8C of the Addendum of this proposed rule.
    In addition, as we established when we revised our methodology for 
determining the applicable LTCH statewide average CCRs in the FY 2007 
IPPS final rule (71 FR 48120 through 48121), in determining the urban 
and rural statewide average total CCRs for Maryland LTCHs paid under 
the LTCH PPS, in this proposed rule, we use, as a proxy, the national 
average total CCR for urban IPPS hospitals and the national average 
total CCR for rural IPPS hospitals, respectively. We use this proxy 
because we believe that the CCR data on the PSF for Maryland hospitals 
may not be entirely accurate (as discussed in greater detail in that 
same final rule (71 FR 48120)).
d. Reconciliation of LTCH HCO and SSO Payments
    We note that under the LTCH PPS HCO policy at Sec.  
412.525(a)(4)(iv)(D) and the LTCH PPS SSO policy at Sec.  
412.529(f)(4)(iv), the payments for HCO and SSO cases, respectively, 
are subject to reconciliation. Specifically, any reconciliation of 
outlier payments is based on the CCR that is calculated based on a 
ratio of CCRs computed from the relevant cost report and charge data 
determined at the time the cost report coinciding with the discharge is 
settled. For additional information, we refer readers to the RY 2009 
LTCH PPS final rule (73 FR 26820 through 26821).
3. Establishment of the Proposed LTCH PPS Fixed-Loss Amount for FY 2011
    When we implemented the LTCH PPS, as discussed in the August 30, 
2002 LTCH PPS final rule (67 FR 56022 through 56026), under the broad 
authority of section 123 of the BBRA as amended by section 307(b) of 
BIPA, we established a fixed-loss amount so that total estimated 
outlier payments are projected to equal 8 percent of total estimated 
payments under the LTCH PPS. To determine the fixed-loss amount, we 
estimate outlier payments and total LTCH PPS payments for each case 
using claims data from the MedPAR files. Specifically, to determine the 
outlier payment for each case, we estimate the cost of the case by 
multiplying the Medicare covered charges from the claim by the 
applicable CCR. Under Sec.  412.525(a)(3) (in conjunction with Sec.  
412.503), if the estimated cost of the case exceeds the outlier 
threshold (the sum of the adjusted Federal prospective payment for the 
MS-LTC-DRG and the fixed-loss amount), we pay an outlier payment equal 
to 80 percent of the difference between the estimated cost of the case 
and the outlier threshold (the sum of the adjusted Federal prospective 
payment for the MS-LTC-DRG and the fixed-loss amount).
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44028), we 
used our existing methodology to calculate the fixed-loss amount for RY 
2010 in order to maintain estimated HCO payments at the projected 8 
percent of total estimated LTCH PPS payments. Specifically, we used 
LTCH claims data from the March 2009 update of the FY 2008 MedPAR files 
and CCRs from the March 2009 update of the PSF to determine a fixed-
loss amount that would result in estimated outlier payments projected 
to be equal to 8 percent of total estimated payments in RY 2010 because 
those data were the most recent complete LTCH data available at that 
time. In that same final rule, we established a fixed-loss amount of 
$18,425 for RY 2010.
    In this proposed rule, we are proposing to continue to use our 
existing methodology to calculate the proposed fixed-loss amount for FY 
2011 (based on updated data and the proposed rates and policies 
presented in this proposed rule) in order to maintain estimated HCO 
payments at the projected 8 percent of total estimated LTCH PPS 
payments. (For an explanation of our rationale for establishing an HCO 
payment ``target'' of 8 percent of total estimated LTCH payments, we 
refer readers to the August 30, 2002 LTCH PPS final rule (67 FR 56022 
through 56024).) Consistent with our historical practice of using the 
best data available, in determining the proposed fixed-loss amount for 
FY 2011, we use the most recent available LTCH claims data and CCR 
data. Specifically, for this proposed rule, we used LTCH claims data 
from the December 2009 update of the FY 2009 MedPAR files and CCRs from 
the December 2009 update of the PSF to determine a fixed-loss amount 
that would result in estimated outlier payments projected to be equal 
to 8 percent of total estimated payments in FY 2011 because these data 
are the most recent complete LTCH data currently available. Consistent 
with the historical practice of using the best available data, we are 
proposing that if more recent LTCH claims data become available, we 
will use them for determining the fixed-loss amount for FY 2011 in the 
final rule. Furthermore, we are proposing to determine the proposed FY 
2011 fixed-loss amount based on the MS-LTC-DRG classifications and 
relative weights from the version of the GROUPER that will be in effect 
as of the beginning of FY 2011, that is, proposed Version 28.0 of the 
GROUPER (discussed in section VII.B. of the preamble of this proposed 
rule).
    In this proposed rule, under the broad authority of section 
123(a)(1) of the BBRA and section 307(b)(1) of BIPA, we are proposing 
to establish a fixed-loss amount of $18,692 for FY 2011. Thus, we would 
pay an outlier case 80 percent of the difference between the estimated 
cost of the case and the outlier threshold (the sum of the adjusted 
Federal LTCH payment for the MS-LTC-DRG and the fixed-loss amount of 
$18,692).
    The proposed fixed-loss amount for FY 2011 of $18,692 is slightly 
higher than the RY 2010 fixed-loss amount of $18,425. Based on our 
payment simulations using the most recent available data, the proposed 
slight increase in the fixed-loss amount for FY 2011 would be necessary 
to maintain the existing requirement that estimated outlier payments 
would equal 8 percent of estimated total LTCH PPS payments. (For 
further information on the existing 8 percent HCO ``target'' 
requirement, we refer readers to the August 30, 2002 LTCH PPS final 
rule (67 FR 56022 through 56024.) Maintaining the fixed-loss amount at 
the current level would result in HCO payments that are greater than 
the current regulatory requirement 8 percent requirement because a 
higher fixed-loss amount would result in fewer cases qualifying as 
outlier cases as well as decreases the amount of the additional payment 
for a HCO case because the maximum loss that a LTCH must incur before 
receiving an HCO payment (that is, the fixed-loss amount) would be 
larger. For these reasons, we believe that proposing to raise the 
fixed-loss amount is appropriate and necessary to maintain that 
estimated outlier payments would equal 8 percent

[[Page 24089]]

of estimated total LTCH PPS payments as required under Sec.  
412.525(a).
4. Application of Outlier Policy to SSO Cases
    As we discussed in the August 30, 2002 final rule (67 FR 56026), 
under some rare circumstances, a LTCH discharge could qualify as a SSO 
case (as defined in the regulations at Sec.  412.529 in conjunction 
with Sec.  412.503) and also as a HCO case. In this scenario, a patient 
could be hospitalized for less than five-sixths of the geometric 
average length of stay for the specific MS-LTC-DRG, and yet incur 
extraordinarily high treatment costs. If the costs exceeded the HCO 
threshold (that is, the SSO payment plus the fixed-loss amount), the 
discharge is eligible for payment as a HCO. Thus, for a SSO case in FY 
2011, the HCO payment would be 80 percent of the difference between the 
estimated cost of the case and the outlier threshold (the sum of the 
proposed fixed-loss amount of $18,692 and the amount paid under the SSO 
policy as specified in Sec.  412.529).

D. Computing the Proposed Adjusted LTCH PPS Federal Prospective 
Payments for FY 2011

    In accordance with Sec.  412.525, the proposed standard Federal 
rate is adjusted to account for differences in area wages by 
multiplying the proposed labor-related share of the proposed standard 
Federal rate by the appropriate proposed LTCH PPS wage index (as shown 
in Tables 12A and 12B of the Addendum of this proposed rule). The 
proposed standard Federal rate is also adjusted to account for the 
higher costs of hospitals in Alaska and Hawaii by multiplying the 
proposed nonlabor-related share of the proposed standard Federal rate 
by the appropriate cost-of-living factor (shown in the chart in section 
V.C.5. of the Addendum of this proposed rule). In this proposed rule, 
we are proposing to establish a standard Federal rate for FY 2011 of 
$39,856.75, as discussed in section V.A.2. of the Addendum of this 
proposed rule. We illustrate the methodology to adjust the proposed 
LTCH PPS Federal rate for FY 2011 in the following example:

    Example: During FY 2011, a Medicare patient is in a LTCH located 
in Chicago, Illinois (CBSA 16974). The proposed FY 2011 LTCH PPS 
wage index value for CBSA 16974 is 1.0573 (Table 12A of the Addendum 
of this proposed rule). The Medicare patient is classified into MS-
LTC-DRG 28 (Spinal Procedures with MCC), which has a proposed 
relative weight for FY 2011 of 1.0834 (Table 11 of the Addendum of 
this proposed rule).
    To calculate the LTCH's total adjusted Federal prospective 
payment for this Medicare patient, we compute the wage-adjusted 
proposed Federal prospective payment amount by multiplying the 
unadjusted proposed standard Federal rate ($39,856.75) by the 
proposed labor-related share (75.407 percent) and the proposed wage 
index value (1.0573). This wage-adjusted amount is then added to the 
proposed nonlabor-related portion of the unadjusted proposed 
standard Federal rate (24.593 percent; adjusted for cost of living, 
if applicable) to determine the adjusted proposed Federal rate, 
which is then multiplied by the proposed MS-LTC-DRG relative weight 
(1.0834) to calculate the total adjusted proposed Federal LTCH PPS 
prospective payment for FY 2011 ($45,046.57). The table below 
illustrates the components of the calculations in this example.
[GRAPHIC] [TIFF OMITTED] TP04MY10.064

VI. Tables

    This section contains the tables referred to throughout the 
preamble to this proposed rule and in this Addendum. Tables 1A, 1B, 1C, 
1D, 1E, 2, 3A, 3B, 4A, 4B, 4C, 4D-1, 4D-2, 4E, 4F, 4J, 5, 7A, 7B, 8A, 
8B, 8C, 9A, 9C, 10, 11, 12A, and 12B are presented below. Table 6G.--
Additions to the CC Exclusions List, Table 6H.--Deletions from the CC 
Exclusions List, Table 6I.--Complete List of Complication and 
Comorbidity (CC) Exclusions, Table 6J.--Major Complication and 
Comorbidity (MCC) List, and Table 6K.--Complications and Comorbidity 
(CC) List are available only through the Internet on the CMS Web site 
at: http://www.cms.hhs.gov/AcuteInpatientPPS/.
    We note that, because of the provisions of Public Law 111-148, as 
amended, that affect our proposed policies and payment rates for FY 
2011 under the IPPS and the LTCH PPS, as well as the provisions of 
Public Law 111-148, as amended, that affect the policies and payment 
rates for FY 2010 under the IPPS and for RY 2010 under the LTCH PPS, 
tables 1A, 1B, 1C, 1D, 1E, 2, 4A, 4B, 4C, 4D-1, 4D-2, 4J, 9A, 10, and 
11 will need to be updated to reflect these provisions. We plan to 
issue separate documents in the Federal Register and instructions to 
address these changes and to issue new tables that reflect these 
provisions.
    The tables presented below are as follows:

Table 1A.--Proposed National Adjusted Operating Standardized Amounts, 
Labor/Nonlabor (68.8 Percent Labor Share/31.2 Percent Nonlabor Share If 
Wage Index Is Greater Than 1)
Table 1B.--Proposed National Adjusted Operating Standardized Amounts,

[[Page 24090]]

Labor/Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share If 
Wage Index Is Less Than or Equal To 1)
Table 1C.--Proposed Adjusted Operating Standardized Amounts for Puerto 
Rico, Labor/Nonlabor
Table 1D.--Proposed Capital Standard Federal Payment Rate
Table 1E.--Proposed LTCH Standard Federal Prospective Payment Rate
Table 2.--Acute Care Hospitals Case-Mix Indexes for Discharges 
Occurring in Federal Fiscal Year 2009; Proposed Hospital Wage Indexes 
for Federal Fiscal Year 2011; Hospital Average Hourly Wages for Federal 
Fiscal Years 2009 (2005 Wage Data), 2010 (2006 Wage Data), and 2011 
(2007 Wage Data); and 3[dash]Year Average of Hospital Average Hourly 
Wages
Table 3A.--FY 2011 and 3[dash]Year Average Hourly Wage for Acute Care 
Hospitals in Urban Areas by CBSA
Table 3B.--FY 2011 and 3[dash]Year Average Hourly Wage for Acute Care 
Hospitals in Rural Areas by CBSA
Table 4A.--Proposed Wage Index and Capital Geographic Adjustment Factor 
(GAF) for Acute Care Hospitals in Urban Areas by CBSA and by State--FY 
2011
Table 4B.--Proposed Wage Index and Capital Geographic Adjustment Factor 
(GAF) for Acute Care Hospitals in Rural Areas by CBSA and by State--FY 
2011
Table 4C.--Proposed Wage Index and Capital Geographic Adjustment Factor 
(GAF) for Acute Care Hospitals That Are Reclassified by CBSA and by 
State--FY 2011
Table 4D-1.--Proposed Rural Floor Budget Neutrality Factors for Acute 
Care Hospitals--FY 2011
Table 4D-2.--Urban Areas with Acute Care Hospitals Receiving the 
Statewide Rural Floor or Imputed Floor Wage Index--FY 2011
Table 4E.--Urban CBSAs and Constituent Counties for Acute Care 
Hospitals--FY 2011
Table 4F.--Proposed Puerto Rico Wage Index and Capital Geographic 
Adjustment Factor (GAF) for Acute Care Hospitals by CBSA--FY 2011
Table 4J.--Proposed Out-Migration Adjustment for Acute Care Hospitals--
FY 2011
Table 5.--List of Medicare Severity Diagnosis-Related Groups (MS-DRGs), 
Relative Weighting Factors, and Geometric and Arithmetic Mean Length of 
Stay
Table 6A.--New Diagnosis Codes
Table 6B.--New Procedure Codes
Table 6C.--Invalid Diagnosis Codes
Table 6D.--Invalid Procedure Codes
Table 6E.--Revised Diagnosis Code Titles
Table 6F.--Revised Procedure Code Titles
Table 7A.--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay: FY 2009 MedPAR Update--December 2009 GROUPER V27.0 MS-
DRGs
Table 7B.--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay: FY 2009 MedPAR Update--December 2009 GROUPER V28.0 MS-
DRGs
Table 8A.--Proposed Statewide Average Operating Cost-to-Charge Ratios 
(CCRs) for Acute Care Hospitals--March 2009
Table 8B.--Proposed Statewide Average Capital Cost-to-Charge Ratios 
(CCRs) for Acute Care Hospitals--March 2009
Table 8C.--Proposed Statewide Average Total Cost-to-Charge Ratios 
(CCRs) for LTCHs--March 2009
Table 9A.--Hospital Reclassifications and Redesignations--FY 2011
Table 9C.--Hospitals Redesignated as Rural under Section 1886(d)(8)(E) 
of the Act--FY 2011
Table 10.--Geometric Mean Plus the Lesser of .75 of the National 
Adjusted Operating Standardized Payment Amount (Increased to Reflect 
the Difference Between Costs and Charges) or .75 of One Standard 
Deviation of Mean Charges by Medicare Severity Diagnosis-Related Group 
(MS-DRG) --March 2009
Table 11.--Proposed MS-LTC-DRGs, Relative Weights, Geometric Average 
Length of Stay, and Short-Stay Outlier (SSO) Threshold for Discharges 
Occurring from October 1, 2010 through September 30, 2011 under the 
LTCH PPS
Table 12A.--Proposed LTCH PPS Wage Index for Urban Areas for Discharges 
Occurring from October 1, 2010 through September 30, 2011
Table 12B.--Proposed LTCH PPS Wage Index for Rural Areas for Discharges 
Occurring From October 1, 2010 through September 20, 2011
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Appendix A: Regulatory Impact Analysis

    Note:  The impacts of the proposed FY 2011 policy changes and 
payment rates addressed in this Appendix do not reflect the 
provisions of the Patient Protection and Affordable Care Act (Pub. 
L. 111-148), as amended by the Health Care and Education 
Reconciliation Act of 2010 (Pub. L. 111-152). A number of the 
provisions of Public Law 111-148, as amended by Public Law 111-152, 
affect the IPPS and the LTCH PPS and the providers and suppliers 
addressed in this proposed rule. However, due to the timing of the 
passage of the legislation, we are unable to address those 
provisions in this proposed rule. Therefore, the proposed policies 
and payment rates in this proposed rule do not reflect the new 
legislation. We plan to issue separate documents in the Federal 
Register addressing the provisions of Public Law 111-148, as 
amended, that affect our proposed policies and payment rates for FY 
2011 under the IPPS and the LTCH PPS. In addition, we plan to issue 
further instructions implementing the provisions of Public Law 111-
148, as amended, that affect the policies and payment rates for FY 
2010 under the IPPS and for RY 2010 under the LTCH PPS.

I. Overall Impact

    We have examined the impacts of this proposed rule as required by 
Executive Order 12866 (September 1993, Regulatory Planning and Review) 
and the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 
96-354), section 1102(b) of the Social Security Act, the Unfunded 
Mandates Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on 
Federalism, and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any 1 year).
    We have determined that this proposed rule is a major rule as 
defined in 5 U.S.C. 804(2). We estimate that the proposed changes for 
FY 2011 acute care hospital operating and capital payments will 
redistribute in excess of $100 million among different types of 
inpatient cases. The proposed market basket update to the IPPS rates 
required by the statute, in conjunction with other proposed payment 
changes in this proposed rule, would result in an estimated $142 
million decrease in FY 2011 operating payments (or -0.1 percent 
increase), and an estimated $20 million decrease in FY 2011 capital 
payments (or -0.2 percent change). The impact analysis of the capital 
payments can be found in section VIII. of this Appendix. In addition, 
as described in section IX. of this Appendix, LTCHs are expected to 
experience an increase in payments by $41 million (or 0.8 percent).
    Our operating impact estimate includes the proposed -2.9 percent 
documentation and coding adjustment applied to the hospital-specific 
rates, the proposed -2.4 percent documentation and coding adjustment 
applied to the Puerto Rico-specific rates and the proposed -2.9 percent 
adjustment for documentation and coding changes to the IPPS 
standardized amounts. In addition, our operating impact estimate 
includes the proposed 2.4 percent market basket update to the 
standardized amount. The estimates of IPPS operating payments to acute 
care hospitals do not reflect any changes in hospital admissions or 
real case-mix intensity, which would also affect overall payment 
changes.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small government 
jurisdictions. Most hospitals and most other providers and suppliers 
are considered to be small entities, either by being nonprofit 
organizations or by meeting the Small Business Administration 
definition of a small business (having revenues of $34.5 million or 
less in any 1 year). (For details on the latest standards for health 
care providers, we refer readers to the Table of Small Business Size 
Standards for NAIC 622 found on the Small Business Administration 
Office of Size Standards Web site at: http://www.sba.gov/contractingopportunities/officials/size/GC-SMALL-BUS-SIZE-STANDARDS.html.) For purposes of the RFA, all hospitals and other 
providers and suppliers are considered to be small entities. 
Individuals and States are not included in the definition of a small 
entity. We believe that the provisions of this proposed rule relating 
to acute care hospitals would have a significant impact on small 
entities as explained in this Appendix. Because we lack data on 
individual hospital receipts, we cannot determine the number of small 
proprietary LTCHs. Therefore, we are assuming that all LTCHs are 
considered small entities for the purpose of the analysis in section 
IX. of this Appendix. Medicare fiscal intermediaries and MACs are not 
considered to be small entities. Because we acknowledge that many of 
the affected entities are small entities, the analysis discussed 
throughout the preamble of this proposed rule constitutes our proposed 
regulatory flexibility analysis. Therefore, we are soliciting public 
comments on our estimates and analysis of the impact of this proposed 
rule on those small entities.
    The Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA), Public Law 104-121, as amended by section 8302 of Public Law 
110-28, requires an agency to provide compliance guides for each rule 
or group of related rules for which an agency is required to prepare a 
final regulatory flexibility analysis. The compliance guides associated 
with this proposed rule are available on the CMS IPPS Web page at 
http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp. We also note 
that the Hospital Center Web page at http://www.cms.hhs.gov/center/hospital.asp was developed to assist hospitals in understanding and 
adapting to changes in Medicare regulations and in billing and payment 
procedures. This Web page provides hospitals with substantial 
downloadable explanatory materials.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis for any proposed or final rule that may have 
a significant impact on the operations of a substantial number of small 
rural hospitals. This analysis must conform to the provisions of 
section 603 of the RFA. With the exception of hospitals located in 
certain New England counties, for purposes of section 1102(b) of the 
Act, we now define a small rural hospital as a hospital that is located 
outside of an urban area and has fewer than 100 beds. Section 601(g) of 
the Social Security Amendments of 1983 (Pub. L. 98-21) designated 
hospitals in certain New England counties as belonging to the adjacent 
urban area. Thus, for purposes of the IPPS and the LTCH PPS, we 
continue to classify these hospitals as urban hospitals. (We refer 
readers to Table 1 and section VI. of this Appendix for the 
quantitative effects of the proposed policy changes under the IPPS for 
operating costs.)
    Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4) also requires that agencies assess anticipated costs and 
benefits before issuing any rule whose mandates require spending in any 
1 year of $100 million in 1995 dollars, updated annually for inflation. 
That threshold level is currently approximately $133 million. This 
proposed rule would not mandate any requirements for State,

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local, or tribal governments, nor would it affect private sector costs.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. As stated above, this proposed rule would not have a 
substantial effect on State and local governments.
    The following analysis, in conjunction with the remainder of this 
document, demonstrates that this proposed rule is consistent with the 
regulatory philosophy and principles identified in Executive Order 
12866, the RFA, and section 1102(b) of the Act. The proposed rule would 
affect payments to a substantial number of small rural hospitals, as 
well as other classes of hospitals, and the effects on some hospitals 
may be significant.

II. Objectives of the IPPS

    The primary objective of the IPPS is to create incentives for 
hospitals to operate efficiently and minimize unnecessary costs while 
at the same time ensuring that payments are sufficient to adequately 
compensate hospitals for their legitimate costs. In addition, we share 
national goals of preserving the Medicare Hospital Insurance Trust 
Fund.
    We believe the proposed changes in this proposed rule would further 
each of these goals while maintaining the financial viability of the 
hospital industry and ensuring access to high quality health care for 
Medicare beneficiaries. We expect that these proposed changes would 
ensure that the outcomes of the prospective payment systems are 
reasonable and equitable while avoiding or minimizing unintended 
adverse consequences.

III. Limitations of Our Analysis

    The following quantitative analysis presents the projected effects 
of our proposed policy changes, as well as statutory changes effective 
for FY 2011, on various hospital groups. We estimate the effects of 
individual policy changes by estimating payments per case while holding 
all other payment policies constant. We use the best data available, 
but, generally, we do not attempt to make adjustments for future 
changes in such variables as admissions, lengths of stay, or case-mix. 
However, in the FY 2008 IPPS final rule with comment period, we 
indicated that we believe that implementation of the MS-DRGs would lead 
to increases in case-mix that do not reflect actual increases in 
patients' severity of illness as a result of more comprehensive 
documentation and coding. As explained in section II.D. of the preamble 
of this proposed rule, the FY 2008 IPPS final rule with comment period 
established a documentation and coding adjustment of -1.2 percent for 
FY 2008, -1.8 percent for FY 2009, and -1.8 percent for FY 2010 to 
maintain budget neutrality for the transition to the MS-DRGs. 
Subsequently, Congress enacted Public Law 110-90. Section 7 of Public 
Law 110-90 reduced the IPPS documentation and coding adjustment from -
1.2 percent to -0.6 percent for FY 2008 and from -1.8 percent to -0.9 
percent for FY 2009. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule 
(74 FR 43773), we postponed the documentation and coding adjustment to 
the average standardized amount until FY 2011 and did not apply the 
adjustment to the average standardized amount for FY 2010. An analysis 
of the FY 2008 IPPS claims data and the FY 2009 IPPS claims data found 
that an estimated recoupment adjustment of -5.8 percent applied to the 
national standardized amount is required to remove the full effects of 
documentation and coding due to the transition to MS-DRGs. Therefore, 
we are proposing to reduce the national standardized amount for IPPS 
hospitals by 2.9 percent in FY 2011 with additional reductions in 
subsequent years.
    Furthermore, we believe that hospitals that are paid under the 
hospital-specific payment rate, specifically SCHs and MDHs, experience 
similar increases in case-mix due to documentation and coding changes 
that do not reflect real changes in case-mix. Our actuarial office 
estimates that hospitals paid under the hospital-specific rate 
experienced a 4.8 percent increase in payments due to documentation and 
coding changes in FY 2008 and FY 2009. We did not apply a documentation 
and coding adjustment to the hospital-specific rates when we first 
implemented the MS-DRG system. In the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule (74 FR 43776), we postponed the documentation and coding 
adjustment to the hospital-specific payment rate until FY 2011 and did 
not apply the adjustment to hospital-specific payment rate for FY 2010. 
We believe that SCHs and MDHs paid under the hospital-specific rate 
also should receive an adjustment to the hospital-specific rate due to 
changes in documentation and coding that do not reflect real changes in 
case-mix. Our best estimate, based on the most recently available data, 
is that a cumulative adjustment of -5.4 percent to the hospital-
specific payment rate would address the effect of the documentation and 
coding changes on future payments. Therefore, for FY 2011, we are 
proposing to apply a -2.9 percent documentation and coding adjustment 
to the hospital-specific payment rate.
    Our analysis, as described in section II.D. of the preamble of this 
proposed rule, shows that Puerto Rico hospitals experienced an increase 
in case-mix by 1.1 percent in FY 2008 due to changes in documentation 
and coding. We did not apply a documentation and coding adjustment to 
the Puerto Rico-specific rate when we first implemented the MS-DRG 
system. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43777), 
consistent with our decision to postpone documentation and coding 
adjustments for the hospital-specific rate and the Federal standardized 
amount, we also postponed the documentation and coding adjustment to 
the Puerto Rico-specific payment rate. Analysis of claims data from 
Puerto Rico hospitals found that a cumulative adjustment of -2.4 
percent is required to eliminate the full effect of the documentation 
and coding changes on future payments from the Puerto Rico-specific 
rate. Therefore, for FY 2011, we are proposing to apply a -2.4 percent 
adjustment to the Puerto Rico-specific rate to account for changes due 
to documentation and coding.
    The impacts shown below illustrate the impact of the proposed FY 
2011 IPPS changes on acute care hospital operating payments, including 
the proposed -2.9 percent FY 2011 documentation and coding adjustment 
to the IPPS national standardized amount, the proposed -2.9 percent FY 
2011 documentation and coding adjustment to the hospital-specific 
payment rates, and the proposed -2.4 percent FY 2011 documentation and 
coding adjustment to the Puerto Rico-specific standardized amount. The 
proposed documentation and coding adjustment that would be applicable 
to the Federal rate under the LTCH PPS for FY 2011 is discussed in 
section IX. of this Appendix. As we have done in the previous rules, we 
are soliciting public comments and information about the anticipated 
effects of the proposed changes on acute care hospitals and our 
methodology for estimating them.

IV. Hospitals Included in and Excluded From the IPPS

    The prospective payment systems for hospital inpatient operating 
and capital-related costs of acute care hospitals encompass most 
general short-term,

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acute care hospitals that participate in the Medicare program. There 
were 33 Indian Health Service hospitals in our database, which we 
excluded from the analysis due to the special characteristics of the 
prospective payment methodology for these hospitals. Among other short-
term, acute care hospitals, only the 46 such hospitals in Maryland 
remain excluded from the IPPS pursuant to the waiver under section 
1814(b)(3) of the Act.
    As of March 2010, there are 3,472 IPPS acute care hospitals to be 
included in our analysis. This represents about 64 percent of all 
Medicare-participating hospitals. The majority of this impact analysis 
focuses on this set of hospitals. There are also approximately 1,338 
CAHs. These small, limited service hospitals are paid on the basis of 
reasonable costs rather than under the IPPS. (We refer readers to 
section VII. of this Appendix for a further description of the impact 
of CAH-related proposed policy changes.) There are also 1,270 IPPS-
excluded hospitals and 2,169 IPPS-excluded hospital units. These IPPS-
excluded hospitals and units include IPFs, IRFs, LTCHs, RNHCIs, 
children's hospitals, and cancer hospitals, which are paid under 
separate payment systems. Changes in the prospective payment systems 
for IPFs and IRFs are made through separate rulemaking. Payment impacts 
for these IPPS-excluded hospitals and units are not included in this 
proposed rule. The impact of the proposed update and policy changes to 
the LTCH PPS for FY 2011 are discussed in section IX. of this Appendix.

V. Effects on Hospitals and Hospital Units Excluded From the IPPS

    As of March 2010, there were 3,439 hospitals and hospital units 
excluded from the IPPS. Of these, 78 children's hospitals, 11 cancer 
hospitals, and 17 RNHCIs are being paid on a reasonable cost basis 
subject to the rate-of-increase ceiling under Sec.  413.40. The 
remaining providers, 228 rehabilitation hospitals and 961 
rehabilitation units, and 429 LTCHs, are paid the Federal prospective 
per discharge rate under the IRF PPS and the LTCH PPS, respectively, 
and 507 psychiatric hospitals and 1,208 psychiatric units are paid the 
Federal per diem amount under the IPF PPS. As stated above, IRFs and 
IPFs are not affected by rate updates in this proposed rule. The 
impacts of the changes to LTCHs are discussed in section IX. of this 
Appendix.
    In the past, certain hospitals and units excluded from the IPPS 
have been paid based on their reasonable costs subject to limits as 
established by the Tax Equity and Fiscal Responsibility Act of 1982 
(TEFRA). Cancer and children's hospitals continue to be paid on a 
reasonable cost basis subject to TEFRA limits for FY 2011. For these 
hospitals (cancer and children's hospitals), consistent with the 
authority provided in section 1886(b)(3)(B)(ii) of the Act, the update 
is the percentage increase in the FY 2011 IPPS operating market basket. 
In compliance with section 404 of the MMA, in the FY 2010 IPPS/RY 2010 
LTCH PPS final rule (74 FR 43930), we replaced the FY 2002-based IPPS 
operating and capital market baskets with the revised and rebased FY 
2006-based IPPS operating and capital market baskets. Therefore, 
consistent with current law, based on IHS Global Insight, Inc.'s 2010 
first quarter forecast, with historical data through the 2009 fourth 
quarter, we are estimating that the proposed FY 2011 update to the IPPS 
operating market basket would be 2.4 percent (that is, the current 
estimate of the market basket rate-of-increase). In addition, in 
accordance with Sec.  403.752(a) of the regulations, RNHCIs are paid 
under Sec.  413.40. Therefore, for RNHCIs, the proposed update is the 
same as for children's and cancer hospitals, which is the percentage 
increase in the FY 2011 IPPS operating market basket increase, 
estimated to be 2.4 percent.
    The impact of the proposed update in the rate-of-increase limit on 
those excluded hospitals depends on the cumulative cost increases 
experienced by each excluded hospital since its applicable base period. 
For excluded hospitals that have maintained their cost increases at a 
level below the rate-of-increase limits since their base period, the 
major effect is on the level of incentive payments these excluded 
hospitals receive. Conversely, for excluded hospitals with per-case 
cost increases above the cumulative update in their rate-of-increase 
limits, the major effect is the amount of excess costs that will not be 
reimbursed.
    We note that, under Sec.  413.40(d)(3), an excluded hospital that 
continues to be paid under the TEFRA system, whose costs exceed 110 
percent of its rate-of-increase limit receives its rate-of-increase 
limit plus 50 percent of the difference between its reasonable costs 
and 110 percent of the limit, not to exceed 110 percent of its limit. 
In addition, under the various provisions set forth in Sec.  413.40, 
cancer and children's hospitals can obtain payment adjustments for 
justifiable increases in operating costs that exceed the limit.

VI. Quantitative Effects of the Policy Changes Under the IPPS for 
Operating Costs

A. Basis and Methodology of Estimates

    In this proposed rule, we are announcing proposed policy changes 
and payment rate updates for the IPPS for operating costs of acute care 
hospitals. Updates to the capital payments to acute care hospitals are 
discussed in section VIII. of this Appendix. Based on the overall 
percentage change in payments per case estimated using our payment 
simulation model, we estimate that total FY 2011 operating payments 
would decrease by 0.1 percent compared to FY 2010, largely due to the 
documentation and coding adjustments and market basket update to the 
IPPS rates. This amount reflects the proposed FY 2011 documentation and 
coding adjustments described above and in section II.D. of the preamble 
of this proposed rule: -2.9 percent for the IPPS national standardized 
amounts, -2.9 percent for the IPPS hospital-specific rates, and -2.4 
percent for the IPPS Puerto Rico-specific standardized amount. The 
impacts do not illustrate changes in hospital admissions or real case-
mix intensity, which will also affect overall payment changes.
    We have prepared separate impact analyses of the proposed changes 
to each system. This section deals with changes to the operating 
prospective payment system for acute care hospitals. Our payment 
simulation model relies on the most recent available data to enable us 
to estimate the impacts on payments per case of certain proposed 
changes in this proposed rule. However, there are other proposed 
changes for which we do not have data available that would allow us to 
estimate the payment impacts using this model. For those proposed 
changes, we have attempted to predict the payment impacts based upon 
our experience and other more limited data.
    The data used in developing the quantitative analyses of changes in 
payments per case presented below are taken from the FY 2009 MedPAR 
file and the most current Provider-Specific File that is used for 
payment purposes. Although the analyses of the proposed changes to the 
operating PPS do not incorporate cost data, data from the most recently 
available hospital cost report were used to categorize hospitals. Our 
analysis has several qualifications. First, in this analysis, we do not 
make adjustments for future changes in such variables as admissions, 
lengths of stay, or underlying growth in real case-mix. Second, due to 
the interdependent nature of the IPPS payment

[[Page 24290]]

components, it is very difficult to precisely quantify the impact 
associated with each change. Third, we use various sources for the data 
used to categorize hospitals in the tables. In some cases, particularly 
the number of beds, there is a fair degree of variation in the data 
from different sources. We have attempted to construct these variables 
with the best available source overall. However, for individual 
hospitals, some miscategorizations are possible.
    Using cases from the FY 2009 MedPAR file, we simulated payments 
under the operating IPPS given various combinations of payment 
parameters. Any short-term, acute care hospitals not paid under the 
IPPS (Indian Health Service hospitals and hospitals in Maryland) were 
excluded from the simulations. The impact of payments under the capital 
IPPS, or the impact of payments for costs other than inpatient 
operating costs, are not analyzed in this section. Estimated payment 
impacts of the capital IPPS for FY 2011 are discussed in section VIII. 
of this Appendix.
    The changes discussed separately below are the following:
     The effects of the proposed annual reclassification of 
diagnoses and procedures, full implementation of the MS-DRG system and 
100 percent cost-based MS-DRG relative weights.
     The effects of the proposed changes in hospitals' wage 
index values reflecting wage data from hospitals' cost reporting 
periods beginning during FY 2007, compared to the FY 2006 wage data.
     The effects of the recalibration of the MS-DRG relative 
weights as required by section 1886(d)(4)(C) of the Act, including the 
proposed wage and recalibration budget neutrality factors.
     The effects of geographic reclassifications by the MGCRB 
that will be effective in FY 2011.
     The effects of the third year of the 3-year transition to 
apply rural floor budget neutrality adjustment at the State level. For 
purposes of this impact analysis, we assume that in FY 2011, hospitals 
will receive a wage index with the State level rural and imputed floor 
budget neutrality adjustment. However, we recognize that this policy 
was recently changed by the provisions of section 3141 of Public Law 
111-148 and will address the new impact in a separate document in the 
Federal Register.
     The effects of section 505 of Public Law 108-173, which 
provides for an increase in a hospital's wage index if the hospital 
qualifies by meeting a threshold percentage of residents of the county 
where the hospital is located who commute to work at hospitals in 
counties with higher wage indexes.
     The total estimated change in payments based on the 
proposed FY 2011 policies relative to payments based on FY 2010 
policies that include the proposed market basket update of 2.4 percent.
    To illustrate the impacts of the proposed FY 2011 changes, our 
analysis begins with a FY 2010 baseline simulation model using: The 
proposed FY 2011 market basket update of 2.4 percent; the FY 2010 MS-
DRG GROUPER (Version 27.0); the most current CBSA designations for 
hospitals based on OMB's MSA definitions; the FY 2010 wage index; and 
no MGCRB reclassifications. Outlier payments are set at 5.1 percent of 
total operating MS-DRG and outlier payments.
    Section 1886(b)(3)(B)(viii) of the Act, as added by section 5001(a) 
of Public Law 109-171, provides that, for FY 2007 and subsequent years, 
the update factor will be reduced by 2.0 percentage points for any 
hospital that does not submit quality data in a form and manner and at 
a time specified by the Secretary. At the time that this impact was 
prepared, 104 hospitals did not receive the full market basket rate-of-
increase for FY 2010 because they failed the quality data submission 
process or did not choose to participate. For purposes of the 
simulations shown below, we modeled the proposed payment changes for FY 
2011 using a reduced update for these 104 hospitals. However, we do not 
have enough information at this time to determine which hospitals will 
not receive the full market basket rate-of-increase for FY 2011.
    Each policy change, statutory or otherwise, is then added 
incrementally to this baseline, finally arriving at an FY 2011 model 
incorporating all of the changes. This simulation allows us to isolate 
the effects of each proposed change.
    Our final comparison illustrates the proposed percent change in 
payments per case from FY 2010 to FY 2011. Three factors not discussed 
separately have significant impacts here. The first factor is the 
update to the standardized amount. In accordance with section 
1886(b)(3)(B)(i) of the Act, we are proposing to update the 
standardized amounts for FY 2011 using the most recently forecasted 
hospital market basket increase for FY 2011 of 2.4 percent. (Hospitals 
that fail to comply with the quality data submission requirements to 
receive the full update will receive an update reduced by 2.0 
percentage points from 2.4 percent to 0.4 percent.) Under section 
1886(b)(3)(B)(iv) of the Act, the updates to the hospital-specific 
amounts for SCHs and for MDHs are also equal to the market basket 
percentage increase, or 2.4 percent.
    A second significant factor that affects the changes in hospitals' 
payments per case from FY 2010 to FY 2011 is the change in a hospital's 
geographic reclassification status from one year to the next. That is, 
payments may be reduced for hospitals reclassified in FY 2010 that are 
no longer reclassified in FY 2011. Conversely, payments may increase 
for hospitals not reclassified in FY 2010 that are reclassified in FY 
2011.
    A third significant factor is that we currently estimate that 
actual outlier payments during FY 2011 will be 5.1 percent of total MS-
DRG payments. When the FY 2010 final rule was published, we projected 
FY 2010 outlier payments would be 5.1 percent of total MS-DRG plus 
outlier payments; the average standardized amounts were offset 
correspondingly. The effects of the higher than expected outlier 
payments during FY 2010 (as discussed in the Addendum to this proposed 
rule) are reflected in the analyses below comparing our current 
estimates of FY 2010 payments per case to estimated FY 2011 payments 
per case (with outlier payments projected to equal 5.1 percent of total 
MS-DRG payments).

B. Analysis of Table I

    Table I displays the results of our analysis of the proposed 
changes for FY 2011. The table categorizes hospitals by various 
geographic and special payment consideration groups to illustrate the 
varying impacts on different types of hospitals. The top row of the 
table shows the overall impact on the 3,472 acute care hospitals 
included in the analysis.
    The next four rows of Table I contain hospitals categorized 
according to their geographic location: All urban, which is further 
divided into large urban and other urban; and rural. There are 2,502 
hospitals located in urban areas included in our analysis. Among these, 
there are 1,365 hospitals located in large urban areas (populations 
over 1 million), and 1,137 hospitals in other urban areas (populations 
of 1 million or fewer). In addition, there are 970 hospitals in rural 
areas. The next two groupings are by bed-size categories, shown 
separately for urban and rural hospitals. The final groupings by 
geographic location are by census divisions, also shown separately for 
urban and rural hospitals.
    The second part of Table I shows hospital groups based on 
hospitals' FY 2011 payment classifications, including any 
reclassifications under section

[[Page 24291]]

1886(d)(10) of the Act. For example, the rows labeled urban, large 
urban, other urban, and rural show that the numbers of hospitals paid 
based on these categorizations after consideration of geographic 
reclassifications (including reclassifications under section 
1886(d)(8)(B) and section 1886(d)(8)(E) of the Act that have 
implications for capital payments) are 2,555, 1,403, 1,152 and 917, 
respectively.
    The next three groupings examine the impacts of the changes on 
hospitals grouped by whether or not they have GME residency programs 
(teaching hospitals that receive an IME adjustment) or receive DSH 
payments, or some combination of these two adjustments. There are 2,434 
nonteaching hospitals in our analysis, 798 teaching hospitals with 
fewer than 100 residents, and 240 teaching hospitals with 100 or more 
residents.
    In the DSH categories, hospitals are grouped according to their DSH 
payment status, and whether they are considered urban or rural for DSH 
purposes. The next category groups together hospitals considered urban 
or rural, in terms of whether they receive the IME adjustment, the DSH 
adjustment, both, or neither.
    The next five rows examine the impacts of the changes on rural 
hospitals by special payment groups (SCHs, RRCs, and MDHs). There were 
183 RRCs, 340 SCHs, 187 MDHs, and 108 hospitals that are both SCHs and 
RRCs, and 13 hospitals that are both an MDH and an RRC.
    The next series of groupings are based on the type of ownership and 
the hospital's Medicare utilization expressed as a percent of total 
patient days. These data were taken from the FY 2008 or FY 2007 
Medicare cost reports.
    The next two groupings concern the geographic reclassification 
status of hospitals. The first grouping displays all urban hospitals 
that were reclassified by the MGCRB for FY 2011. The second grouping 
shows the MGCRB rural reclassifications.
    The final category shows the impact of the proposed policy changes 
on the 19 cardiac hospitals in our analysis.
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C. Effects of the Proposed Changes to the MS-DRG Reclassifications and 
Relative Cost-Based Weights (Column 1)

    In Column 1 of Table I, we present the effects of the proposed MS-
DRG reclassifications, as discussed in section II. of the preamble to 
this proposed rule. Section 1886(d)(4)(C)(i) of the Act requires us 
annually to make appropriate classification changes in order to reflect 
changes in treatment patterns, technology, and any other factors that 
may change the relative use of hospital resources.
    As discussed in the preamble of this proposed rule, the proposed FY 
2011 MS-DRG relative weights will be 100 percent cost-based and 100 
percent MS-DRGs. For FY 2011, the MS-DRGs are calculated using the FY 
2009 MedPAR data grouped to the Version 28.0 (FY 2011) MS-DRGs. The 
methods of calculating the proposed relative weights and the 
reclassification changes to the GROUPER are described in more detail in 
section II.H. of the preamble to this proposed rule. The proposed 
changes to the relative weights and MS-DRGs shown in Column 2 are prior 
to any offset for budget neutrality. Overall, hospitals will experience 
a 0.3 percent increase in payments due to the changes in the MS-DRGs 
and relative weights prior to budget neutrality. Urban hospitals and 
rural hospitals will experience a 0.3 percent increase in payments 
under the updates to the relative weights and MS-DRGs.

D. Effects of the Application of Recalibration Budget Neutrality 
(Column 2)

    Column 2 shows the effects of the changes to the MS-DRGs and 
relative weights with the application of the recalibration budget 
neutrality factor to the standardized amounts. Consistent with section 
1886(d)(4)(C)(iii) of the Act, we are calculating a recalibration 
budget neutrality factor to account for the changes in MS-DRGs and 
relative weights to ensure that the overall payment impact is budget 
neutral. In FY 2010, we began calculating a budget neutrality factor to 
account for changes in MS-DRGs and relative weights separately from the 
budget neutrality factor to account for changes in wage data. In 
addition, as described in section II.A.4. of the Addendum to this 
proposed rule, we are including IME payments made on Medicare Advantage 
claims to IPPS hospitals in order to calculate budget neutrality.
    The ``All Hospitals'' line in Column 1 indicates that proposed 
changes due to MS-DRGs and relative weights will increase payments by 
0.3 percent before application of the budget neutrality factor. The 
proposed recalibration budget neutrality factor is 0.996856, which is 
applied to the standardized amount. Thus, the impact after accounting 
only for budget neutrality for changes to the MS-DRG relative weights 
and classification is somewhat lower than the figures shown in Column 1 
(approximately 0.3 percent). Consequentially, urban and rural hospitals 
will not experience a change in payments when recalibration budget 
neutrality is applied.

E. Effects of Proposed Wage Index Changes (Column 3)

    Section 1886(d)(3)(E) of the Act requires that, beginning October 
1, 1993, we annually update the wage data used to calculate the wage 
index. In accordance with this requirement, the proposed wage index for 
acute care hospitals for FY 2011 is based on data submitted for 
hospital cost reporting periods beginning on or after October 1, 2006 
and before October 1, 2007. The estimated impact of the updated wage 
data and labor share on hospital payments is isolated in Column 3 by 
holding the other payment parameters constant in this simulation. That 
is, Column 3 shows the percentage change in payments when going from a 
model using the FY 2010 wage index, based on FY 2006 wage data, the 
current labor-related share and having a 100-percent occupational mix 
adjustment applied, to a model using the FY 2011 pre-reclassification 
wage index with the labor-related share, also having a 100-percent 
occupational mix adjustment applied, based on FY 2007 wage data (while 
holding other payment parameters such as use of the Version 28.0 MS-DRG 
GROUPER constant). The occupational mix adjustment is based on the FY 
2008/2009 occupational mix survey.
    Column 3 shows the impacts of updating the wage data using FY 2007 
cost reports. Overall, the new wage data will lead to a 0.0 percent 
change for all hospitals before being combined with the wage budget 
neutrality adjustment shown in Column 5. Among the regions, the largest 
increase is in the rural Middle Atlantic region, which experiences a 
0.4 percent increase before applying an adjustment for budget 
neutrality. The largest decline from updating the wage data is seen in 
Urban East South Central (0.5 percent decrease).
    In looking at the wage data itself, the national average hourly 
wage increased 1.2 percent compared to FY 2010. Therefore, the only 
manner in which to maintain or exceed the previous year's wage index 
was to match or exceed the national 1.2 percent increase in average 
hourly wage. Of the 3,442 hospitals with wage data for both FYs 2010 
and 2011, 2,696, or 78.3 percent, experienced an average hourly wage 
increase of 1.2 percent or more.
    The following chart compares the shifts in proposed wage index 
values for hospitals for FY 2011 relative to FY 2010. Among urban 
hospitals, 39 will experience an increase of more than 5 percent and 
less than 10 percent and 7 will experience an increase of more than 10 
percent. Among rural hospitals, 2 will experience an increase of more 
than 5 percent and less than 10 percent, and none will experience an 
increase of more than 10 percent. However, 938 rural hospitals will 
experience increases or decreases of less than 5 percent, while 2,415 
urban hospitals will experience increases or decreases of less than 5 
percent. Twenty-four urban hospitals will experience decreases in their 
wage index values of more than 5 percent and less than 10 percent. 
Sixteen urban hospitals will experience decreases in their wage index 
values of greater than 10 percent. One rural hospital will experience a 
decrease of more than 10 percent. These figures reflect changes in the 
wage index which is an adjustment to either 68.8 percent or 62 percent 
of a hospital's standardized amount, depending upon whether its wage 
index is greater than 1.0 or less than or equal to 1.0. Therefore, 
these figures are illustrating a somewhat larger change in the wage 
index than will occur to the hospital's total payment.
    The following chart shows the projected impact for urban and rural 
hospitals.

------------------------------------------------------------------------
                                                Number of hospitals
  Percentage change in area wage index   -------------------------------
                 values                        Urban           Rural
------------------------------------------------------------------------
Increase more than 10 percent...........               7               0
Increase more than 5 percent and less                 39               2
 than 10 percent........................
Increase or decrease less than 5 percent           2,415             938

[[Page 24299]]

Decrease more than 5 percent and less                 24               0
 than 10 percent........................
Decrease more than 10 percent...........              16               1
------------------------------------------------------------------------

F. Application of the Wage Budget Neutrality Factor (Column 4)

    Column 4 shows the impact of the new wage data with the application 
of the wage budget neutrality factor. In FY 2010, we began calculating 
separate wage budget neutrality and recalibration budget neutrality 
factors, in accordance with section 1886(d)(3)(E) of the Act, which 
specifies that budget neutrality to account for wage changes or updates 
made under that subparagraph must be made without regard to the 62 
percent labor-related share guaranteed under section 1886(d)(3)(E)(ii) 
of the Act. Therefore, for FY 2011, we are calculating the wage budget 
neutrality factor to ensure that payments under updated wage data and 
the proposed labor-related share are budget neutral without regard to 
the lower labor-related share of 62 percent applied to hospitals with a 
wage index less than or equal to 1. In other words, the wage budget 
neutrality is calculated under the assumption that all hospitals 
receive the higher labor-related share of the standardized amount. 
Because the wage data changes did not change overall payments 
(displayed in Column 3), the wage budget neutrality factor is minimal 
at 1.000107, and the overall payment change is 0.0 percent.

G. Combined Effects of Proposed MS-DRG and Wage Index Changes (Column 
5)

    Section 1886(d)(4)(C)(iii) of the Act requires that changes to MS-
DRG reclassifications and the relative weights cannot increase or 
decrease aggregate payments. In addition, section 1886(d)(3)(E) of the 
Act specifies that any updates or adjustments to the wage index are to 
be budget neutral. We computed a proposed wage budget neutrality factor 
of 1.000107, and a proposed recalibration budget neutrality factor of 
0.996856 (which is applied to the Puerto Rico specific standardized 
amount and the hospital-specific rates). The product of the two budget 
neutrality factors is the cumulative wage and recalibration budget 
neutrality factor. The proposed cumulative wage and recalibration 
budget neutrality adjustment is 0.996963, or approximately -0.3 
percent, which is applied to the national standardized amounts. Because 
the wage budget neutrality and the recalibration budget neutrality are 
calculated under different methodologies according to the statute, when 
the two budget neutralities are combined and applied to the 
standardized amount, the overall payment impact is not necessarily 
budget neutral. However, in this proposed rule, we are estimating that 
the proposed changes in the MS-DRG, relative weights and updated wage 
data with wage and budget neutrality applied will result in a 0.0 
change in payments. The estimated changes shown in this column reflect 
the combined effects of the changes in Columns 2, 3, and 4 and the 
budget neutrality factors discussed previously.
    We estimate that the combined impact of the proposed changes to the 
relative weights and MS-DRGs and the proposed updated wage data with 
budget neutrality applied will result in no change in payments for 
urban or rural hospitals. Urban New England would experience a 0.6 
decrease in payments due to reductions in their case-mix and wages 
compared to the national average, while the urban Pacific area would 
experience a 0.5 percent increase in payments because of above average 
increases in wages and case-mix. Among the rural hospital categories, 
rural South Atlantic hospitals would experience the greatest decline in 
payment (-0.9 percent) primarily due to the changes to MS-DRGs and the 
relative cost weights.

H. Effects of MGCRB Reclassifications (Column 6)

    Our impact analysis to this point has assumed acute care hospitals 
are paid on the basis of their actual geographic location (with the 
exception of ongoing policies that provide that certain hospitals 
receive payments on other bases than where they are geographically 
located). The changes in Column 6 reflect the per case payment impact 
of moving from this baseline to a simulation incorporating the MGCRB 
decisions for FY 2011 which affect hospitals' wage index area 
assignments.
    By spring of each year, the MGCRB makes reclassification 
determinations that will be effective for the next fiscal year, which 
begins on October 1. The MGCRB may approve a hospital's 
reclassification request for the purpose of using another area's wage 
index value. Hospitals may appeal denials of MGCRB decisions to the CMS 
Administrator. Further, hospitals have 45 days from publication of the 
IPPS rule in the Federal Register to decide whether to withdraw or 
terminate an approved geographic reclassification for the following 
year. This column reflects all MGCRB decisions, Administrator appeals 
and decisions of hospitals for FY 2011 geographic reclassifications.
    The overall effect of geographic reclassification is required by 
section 1886(d)(8)(D) of the Act to be budget neutral. Therefore, for 
the purposes of this impact analysis, we are applying an adjustment of 
0.991756 to ensure that the effects of the section 1886(d)(10) 
reclassifications are budget neutral (section II.A. of the Addendum to 
this proposed rule). Geographic reclassification generally benefits 
hospitals in rural areas. We estimate that geographic reclassification 
will increase payments to rural hospitals by an average of 1.6 percent. 
By region, all the rural hospital categories will experience increases 
in payments due to MGCRB reclassification where rural hospitals in the 
Mountain region will experience a 0.1 percent increase in payments and 
rural hospitals in the East South Central region will experience a 2.4 
percent increase in payments.
    Table 9A of the Addendum to this proposed rule reflects the 
approved reclassifications for FY 2011.

I. Effects of the Rural Floor and Imputed Floor, Including Application 
of Budget Neutrality at the State Level (Column 7)

    As discussed in section III.B. of the preamble of the FY 2009 IPPS 
final rule, the FY 2010 IPPS/RY 2010 LTCH final rule and this proposed 
rule, section 4410 of Public Law 105-33 established the rural floor by 
requiring that the wage index for a hospital in any urban area cannot 
be less than the wage index received by rural hospitals in the same 
State. In FY 2008, we changed how we applied budget neutrality to the 
rural floor. Rather than applying a budget neutrality adjustment to the 
standardized amount, a uniform budget neutrality adjustment is applied 
to the wage index. In the FY 2009 final rule, we finalized the policy 
to apply the rural floor budget neutrality at the State level with a 3-
year transition. In FY 2009, hospitals received a blended wage

[[Page 24300]]

index that is 20 percent of a wage index with the State level rural and 
imputed floor budget neutrality adjustment and 80 percent of a wage 
index with the national budget neutrality adjustment. In FY 2010, 
hospitals received a blended wage index that is 50 percent of a wage 
index with the State level rural and imputed floor budget neutrality 
and 50 percent of a wage index with the national budget neutrality 
adjustment. For FY 2011, for purposes of this impact analysis, we 
assume application of the third year of the transitional period so that 
wage indices adjusted for the rural floor will have 100 percent of the 
wage index adjusted with a within-State rural budget neutrality factor. 
However, we recognize that this policy was recently changed by the 
provisions of section 3141 of Public Law 111-148.
    Furthermore, the FY 2005 IPPS final rule (69 FR 49109) established 
a temporary imputed floor for all urban States from FY 2005 to FY 2007. 
The rural floor requires that an urban wage index cannot be lower than 
the wage index for any rural hospital in that State. Therefore, an 
imputed floor was established for States that do not have rural areas 
or rural IPPS hospitals. In the FY 2008 IPPS final rule with comment 
period (72 FR 47321), we finalized our proposal to extend the imputed 
floor for 1 additional year. In the FY 2009 IPPS final rule (73 FR 
48573), we extended the imputed floor for an additional 3 years through 
FY 2011. Furthermore, as noted above, in that final rule we provided 
for a 3-year transition to the rural floor budget neutrality adjustment 
at the State level. Therefore, we also apply the imputed floor budget 
neutrality adjustment at the State level through a 3-year transition, 
so that, for FY 2011, wage indices adjusted for the imputed floor will 
have 100 percent of the wage index computed using the within-State 
rural and imputed budget neutrality adjustment.
    Column 7 shows the projected impact of the rural floor and the 
imputed floor and the within-State rural and imputed floor budget 
neutrality. The column compares the proposed post-reclassification FY 
2011 wage index of providers before the rural floor adjustment and the 
post-reclassification FY 2011 wage index of providers with the rural 
floor and imputed floor adjustment. Only urban hospitals can benefit 
from the rural floor provision. Because the provision is budget 
neutral, in prior years, all other hospitals (that is, all rural 
hospitals and those urban hospitals to which the adjustment is not 
made) had experienced a decrease in payments due to the budget 
neutrality adjustment applied nationally. However, because, for FY 
2011, this calculation assumes that the rural floor adjusted wage index 
is made budget neutral through a within-State budget neutrality factor, 
rural hospitals and urban hospitals located in States that do not 
benefit from the rural floor will not experience a change in payments 
attributable to the rural floor. Conversely, all hospitals in States 
with hospitals receiving a rural floor will have their wage indices 
downwardly adjusted to achieve budget neutrality within the State.
    We project that, in aggregate, rural hospitals will experience a 
0.1 percent decrease in payments as a result of the application of 
rural floor budget neutrality because the rural hospitals located in 
States with a rural floor do not benefit from the rural floor, but have 
their wage indexes downwardly adjusted to ensure that the application 
of the rural floor is budget neutral overall within the State. We 
project hospitals located in other urban areas (populations of 1 
million or fewer) will experience a 0.1 percent increase in payments 
because those providers benefit from the rural floor. Urban hospitals 
in the regions can expect 0 percent change in payments because within 
each state, the rural floor is budget neutral and increases in payments 
for providers receiving the rural floor re offset by the within-State 
budget neutrality factors applied to the wage index of the providers in 
States with a rural floor. Rural hospitals located in the Pacific area 
will experience a 0.3 percent decrease in payments because of the rural 
floor budget neutrality factor in California downwardly adjusts the 
wage index by 2.4 percent. Rural hospitals located in the Middle 
Atlantic area will experience a 0.1 percent decrease in payments 
because of the imputed rural floor budget neutrality factor (0.97946) 
in New Jersey downwardly adjusts the wage index for rural hospitals by 
approximately 2 percent.

J. Effects of the Proposed Wage Index Adjustment for Out-Migration 
(Column 8)

    Section 1886(d)(13) of the Act, as added by section 505 of Public 
Law 108-173, provides for an increase in the wage index for hospitals 
located in certain counties that have a relatively high percentage of 
hospital employees who reside in the county, but work in a different 
area with a higher wage index. Hospitals located in counties that 
qualify for the payment adjustment are to receive an increase in the 
wage index that is equal to a weighted average of the difference 
between the wage index of the resident county, post-reclassification 
and the higher wage index work area(s), weighted by the overall 
percentage of workers who are employed in an area with a higher wage 
index. With the out-migration adjustment, small rural DSH providers 
with less than 100 beds will experience a 0.5 percent increase in 
payments in FY 2011 relative to no adjustment at all. We included these 
additional payments to providers in the impact table shown above, and 
we estimate the impact of these providers receiving the out-migration 
increase to be approximately $20 million.

K. Effects of All Proposed Changes Prior to Documentation and Coding 
(or CMI) Adjustment (Column 9)

    Column 9 shows our estimate of the changes in payments per 
discharge from FY 2010 and FY 2011, resulting from all proposed changes 
reflected in this proposed rule for FY 2011 (including statutory 
changes), other than the proposed documentation and coding adjustment. 
Column 9 reflects the impact of all other FY 2011 changes relative to 
FY 2010, including those shown in Columns 1 through 8. The average 
increase in payments under the IPPS for all hospitals is approximately 
2.8 percent. In addition, it reflects the estimated 0.5 percentage 
point difference between the projected outlier payments in FY 2010 (5.1 
percent of total MS-DRG payments), the current estimate of the 
percentage of actual outlier payments in FY 2010 (4.7 percent) as 
described in the introduction to this Appendix and the Addendum to this 
proposed rule.
    There might also be interactive effects among the various factors 
comprising the payment system that we are not able to isolate. For 
these reasons, the values in Column 9 may not equal the sum of the 
percentage changes described above.

L. Effects of All Proposed Changes With CMI Adjustment (Column 10)

    Column 10 shows our estimate of the changes in payments per 
discharge from FY 2010 and FY 2011, resulting from all proposed changes 
reflected in this proposed rule for FY 2011 (including statutory 
changes). This column includes the proposed FY 2011 documentation and 
coding adjustment of -2.9 percent on the national standardized amount, 
-2.9 percent on the hospital-specific rates, and -2.4 percent on the 
Puerto Rico-specific standardized amount, which overall accounts for a 
2.9 percent decrease in payments.
    Column 10 reflects the impact of all proposed FY 2011 changes 
relative to

[[Page 24301]]

FY 2010, including those shown in Columns 1 through 9. The average 
decrease in payments under the IPPS for all hospitals is approximately 
-0.1 percent. As described in Column 9, this average decrease includes 
the effects of the 2.4 percent market basket update, the 0.5 percentage 
point difference between the projected outlier payments in FY 2010 (5.1 
percent of total MS-DRG payments), and the current estimate of the 
percentage of actual outlier payments in FY 2010 (4.7 percent). There 
might also be interactive effects among the various factors comprising 
the payment system that we are not able to isolate. For these reasons, 
the values in Column 10 may not equal the sum of the percentage changes 
described above.
    The overall proposed change in payments per discharge for hospitals 
paid under the IPPS in FY 2011 is estimated to decrease by 0.1 percent. 
The payment decreases among the hospital categories are largely 
attributed to the proposed documentation and coding adjustments. 
Hospitals in urban areas would experience an estimated 0.1 percent 
decrease in payments per discharge in FY 2011 compared to FY 2010. 
Hospital payments per discharge in rural areas are estimated to 
decrease by 0.5 percent in FY 2011 as compared to FY 2010. The 
decreases larger than the national average for rural areas are largely 
attributed to the differential impact of the MS-DRGs and wage data and 
due to the -2.9 percent documentation and coding adjustment applied to 
the national standardized amount and the -2.9 percent documentation and 
coding adjustment to the hospital-specific rate applied to SCHs and 
MDHs, which generally are classified as rural hospitals.
    Among urban census divisions, the largest estimated payment 
decreases will be 0.9 percent in the New England region and 0.6 percent 
in the Middle Atlantic region, while urban hospitals in the Pacific 
will see the largest payment increases (0.5 percent). Among the rural 
regions, the providers in the New England region will experience the 
largest decrease in payments (1.6 percent) because of reductions due to 
case-mix and the documentation and coding adjustments while rural 
hospitals in the West South Central region will experience an increase 
in payments by 0.4 percent due to increases in case-mix, wage data and 
MGCRB reclassification.
    Among special categories of rural hospitals, MDHs will receive an 
estimated payment decrease of 0.6 percent. MDHs are paid the higher of 
the IPPS rate based on the national standardized amount, that is, the 
Federal rate, or, if the hospital-specific rate exceeds the Federal 
rate, the Federal rate plus 75 percent of the difference between the 
Federal rate and the hospital-specific rate. MDHs will experience a 
decrease in payments because of the proposed documentation and coding 
adjustments applied to both the hospital-specific rate and the Federal 
rate. SCHs are also paid the higher of their hospital-specific rate or 
the federal rate. Overall, SCHs will experience an estimated decrease 
in payments by 0.5 percent due to the proposed documentation and coding 
adjustments to the national standardized amount and the hospital-
specific rates.
    Rural hospitals reclassified for FY 2011 are anticipated to receive 
a 0.3 percent payment decrease, and rural hospitals that are not 
reclassifying are estimated to receive a payment decrease of 0.7 
percent.
    Cardiac hospitals are expected to experience a payment increase of 
0.8 percent in FY 2011 relative to FY 2010 due to increases in payments 
attributable to changes in the MS-DRGs and relative weights.

M. Effects of Proposed Policy on Payment Adjustments for Low-Volume 
Hospitals

    For FY 2011, we are proposing to continue to apply the volume 
adjustment criteria we specified in the FY 2005 IPPS final rule (69 FR 
49099). We expect that three providers will receive the low-volume 
adjustment for FY 2011. We estimate that low-volume hospitals will 
experience an increase of $114,000 in payments due to the low volume 
payment adjustment.

N. Impact Analysis of Table II

    Table II presents the projected impact of the proposed changes for 
FY 2011 for urban and rural hospitals and for the different categories 
of hospitals shown in Table I. It compares the estimated average 
payments per discharge for FY 2010 with the proposed payments per 
discharge for FY 2011, as calculated under our models. Thus, this table 
presents, in terms of the average dollar amounts paid per discharge, 
the combined effects of the proposed changes presented in Table I. The 
estimated percentage changes shown in the last column of Table II equal 
the estimated percentage changes in average payments per discharge from 
Column 10 of Table I.
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VII. Effects of Other Proposed Policy Changes

    In addition to those proposed policy changes discussed above that 
we are able to model using our IPPS payment simulation model, we are 
proposing to make various other changes in this proposed rule. 
Generally, we have limited or no specific data available with which to 
estimate the impacts of these changes. Our estimates of the likely 
impacts associated with these other proposed changes are discussed 
below.

A. Effects of Proposed Policy on HACs, Including Infections

    In section II.F. of the preamble of this proposed rule, we discuss 
our implementation of section 1886(d)(4)(D) of the Act, which requires 
the Secretary to identify conditions that are: (1) High cost, high 
volume, or both; (2) result in the assignment of a case to an MS-DRG 
that has a higher payment when present as a secondary diagnosis; and 
(3) could reasonably have been prevented through application of 
evidence-based guidelines. For discharges occurring on or after October 
1, 2008, hospitals will not receive additional payment for cases in 
which one of the selected conditions was not present on admission, 
unless based on data and clinical judgment, it cannot be determined at 
the time of admission whether a condition is present. That is, the case 
will be paid as though the secondary diagnosis were not present. 
However, the statute also requires the Secretary to continue counting 
the condition as a secondary diagnosis that results in a higher IPPS 
payment when doing the budget neutrality calculations for MS-DRG 
reclassifications and recalibration. Therefore, we will perform our 
budget neutrality calculations as though the payment provision did not 
apply, but Medicare will make a lower payment to the hospital for the 
specific case that includes the secondary diagnosis. Thus, the 
provision results in cost savings to the Medicare program.
    We note that the provision will only apply when one or more of the 
selected conditions are the only secondary diagnosis or diagnoses 
present on the claim that will lead to higher payment. Medicare 
beneficiaries will generally have multiple secondary diagnoses during a 
hospital stay, such that beneficiaries having one MCC or CC will 
frequently have additional conditions that also will generate higher 
payment. Only a small percentage of the cases will have only one 
secondary diagnosis that would lead to a higher payment. Therefore, if 
at least one nonselected secondary diagnosis that leads to higher 
payment is on the claim, the case will continue to be assigned to the 
higher paying MS-DRG and there will be no Medicare savings from that 
case. In addition, as discussed in section II.F.3.e. of the preamble of 
this proposed rule, it is possible to have two severity levels where 
the HAC does not affect the MS-DRG assignment or for an MS-DRG not to 
have severity levels. In either of these circumstances, the case will 
continue to be assigned to the higher paying MS-DRG and there will be 
no Medicare savings from that case.
    The HAC payment provision went into effect on October 1, 2008. Our 
savings estimates for the next 5 fiscal years are shown below:

------------------------------------------------------------------------
                                                           Savings  (in
                          Year                               millions)
------------------------------------------------------------------------
FY 2011.................................................              23
FY 2012.................................................              24
FY 2013.................................................              25
FY 2014.................................................              26
FY 2015.................................................              26
------------------------------------------------------------------------

[[Page 24305]]

B. Effects of Proposed Policy Relating to New Medical Service and 
Technology Add-On Payments

    In section II.I. of the preamble to this proposed rule, we discuss 
the three applications for add-on payments for new medical services and 
technologies for FY 2011, as well as the status of the new technologies 
that were approved to receive new technology add-on payments in FY 
2010. As explained in that section, add-on payments for new technology 
under section 1886(d)(5)(K) of the Act are not required to be budget 
neutral. As discussed in section II.I.4. of the preamble of this 
proposed rule, we have yet to determine whether any of the three 
applications we received for consideration for new technology add-on 
payments for FY 2011 will meet the specified criteria. Consequently, it 
is premature to estimate the potential payment impact of any potential 
new technology add-on payments for FY 2011. We note that if any of the 
three applications are found to be eligible for new technology add-on 
payments for FY 2011, in the FY 2011 IPPS/LTCH PPS final rule, we would 
discuss the estimated payment impact for FY 2011 in that final rule.
    However, we are proposing to continue to make new technology add-on 
payments in FY 2011 for the CardiowestTM Temporary Total 
Artificial Heart System (TAH-t) and the Spiration[supreg] IBV[supreg] 
Valve System. Therefore, we are providing an estimate of total payments 
for these technologies in FY 2011. We note that new technology add-on 
payments per case are limited to the lesser of: (1) 50 percent of the 
costs of the new technology; or (2) 50 percent of the amount by which 
the costs of the case exceed the standard MS-DRG payment for the case. 
Because it is difficult to predict the actual new technology add-on 
payment for each case, our estimate below is based on the increase in 
add-on payments for FY 2011 as if every claim that would qualify for a 
new technology add-on payments would receive the maximum add-on 
payment. Therefore, we currently estimate that payments for the TAH-t 
will increase overall FY 2011 payments by $9.54 million. For FY 2010, 
the applicant estimated that approximately 2,286 Medicare beneficiaries 
would be eligible for the Spiration[supreg] IBV[supreg] Valve System. 
Therefore, based on the applicant's estimate from FY 2010, we currently 
estimate that payments for the Spiration[supreg] IBV[supreg] Valve 
System will increase overall FY 2011 payments by $7.80 million.

C. Effects of Proposed Requirements for Hospital Reporting of Quality 
Data for Annual Hospital Payment Update

    In Appendix A, section VII.C. of the FY 2010 IPPS/RY 2010 LTCH PPS 
final rule (74 FR 44224), we discussed the impact of the FY 2011 
RHQDAPU program requirements. In this proposed rule, we are proposing 
to retire one of the FY 2011 quality measures. We believe that this 
proposal would not have a significant effect on our previous analysis. 
We note that, in that final rule, we estimated that 96 hospitals would 
not receive the full payment update in FY 2010 and that 96 hospitals 
would not receive the full payment update in FY 2011. As noted above, 
at the time this analysis was prepared, 104 hospitals did not receive 
the full payment update in FY 2010.
    In section IV.A. of the preamble of this proposed rule, we discuss 
our proposed requirements for hospitals to report quality data under 
the RHQDAPU program in order to receive the full payment update for FY 
2012, FY 2013, and FY 2014. We estimate that approximately 104 
hospitals may not receive the full payment update in any fiscal year. 
We believe that most of these hospitals would be either small rural or 
small urban hospitals. However, at this time, information is not 
available to determine the hospitals that will not meet the 
requirements for the full hospital market basket increase for FY 2012, 
FY 2013, and FY 2014.
    For the FY 2012 payment determination, hospitals would be required 
to submit all-patient volume data for selected MS-DRGs that relate to 
RHQDAPU program measures. The submission of all-patient volume data 
will occur free of charge to hospitals. Therefore, the additional 
resource burden to hospitals for this requirement is expected to be 
minimal. For the FY 2013 payment determination, we have proposed that 
hospitals will choose one of four proposed registry-based topics for 
which there are currently a number of nationwide registries each 
individually collecting data from a significant proportion of IPPS 
hospitals. We have proposed that hospitals will submit data on proposed 
measures included within the proposed registry-based topic to a 
registry that we qualify for this purpose.
    For the proposed ICD Complications registry-based topic, currently, 
100 percent of hospitals performing ICD implantation participate in the 
American College of Cardiology-National Cardiovascular Data Registry's 
(ACC-NCDR) ICD registry and 78 percent of those hospitals are already 
submitting the additional data elements and secondary population needed 
to calculate the ICD complication measure. For the proposed Cardiac 
Surgery registry-based topic, we have estimated that 80 to 90 percent 
of hospitals performing cardiac surgery currently participate in a 
cardiac surgery registry. Therefore, the number of additional hospitals 
not currently participating in a cardiac surgery registry that would 
choose this topic is expected to be minimal. For the proposed Stroke 
and Nursing Sensitive Care registry-based topics, there are a number of 
registries to which at least 25 percent of IPPS hospitals currently 
submit data. We currently do not know if hospitals would choose one of 
these two proposed topics if they are not already submitting data to 
one of these registries. The AMI-statin at discharge measure, proposed 
for FY 2013 payment determination, would create minimal additional 
burden as hospitals can collect the data elements from the same charts 
already being pulled for existing RHQDAPU program AMI measures.
    For the FY 2014 payment determination, the proposed addition of 
four chart-abstracted measures that require hospitals to submit data on 
all inpatients is expected to create an additional burden for 
hospitals. The information needed for the proposed ED-Throughput 
measures is captured as routine documentation, and therefore is not 
expected to impose much additional burden. The proposed Global 
Immunization measures would require hospitals to collect information on 
all inpatients regarding flu and pneumonia vaccinations that they are 
currently only collecting for patients admitted for pneumonia. 
Therefore, the number of patients for which these data would need to be 
collected will increase.
    We also note that, beginning with the FY 2012 payment update, 
hospitals must pass our validation requirement of a minimum of 75 
percent reliability, based upon our chart-audit validation process, for 
three quarters of data from the first quarter of CY 2010 through the 
third quarter of CY 2010. These data are due to the QIO Clinical 
Warehouse by August 15, 2010 (first quarter CY 2010 discharges), 
November 15, 2010 (second quarter CY 2010 discharges), and February 15, 
2011 (third quarter CY 2010 discharges). We have continued our efforts 
to ensure that QIOs provide assistance to all hospitals that wish to 
participate in the RHQDAPU program. The requirement of 12 charts per 
hospital submitted for validation would result in approximately 9,600 
charts per quarter being submitted to CMS. We reimburse hospitals for 
the cost of

[[Page 24306]]

sending charts to the Clinical Data Abstraction Center (CDAC) 
contractor at the rate of 12 cents per page for copying and 
approximately $4.00 per chart for postage. Our experience shows that 
the average chart received by the CDAC contractor is approximately 150 
pages. Thus, as a result of the validation requirements we are 
proposing for the FY 2012 annual payment update, we estimate that CMS 
would have expenditures of approximately $212,000 per quarter, which is 
a reduction from the $597,600 per quarter to collect the charts for the 
FY 2010 and FY 2011 annual payment updates. Given that we reimburse for 
the data collection effort, we believe that a requirement for 12 charts 
per hospital per quarter represents a minimal burden to participating 
hospitals.
    We have finalized a new validation methodology for FY 2012. We 
believe that these modifications will not change the number of 
hospitals that fail the validation requirement for FY 2012 from 
previous years. We are changing the way we calculate the validation 
matches (that is, all relevant data elements submitted by the hospital 
must match the independently re-abstracted data elements to count as a 
match), which will make it more difficult for hospitals to satisfy the 
validation requirement. However, we also will validate data for a 
smaller number of hospitals each year and we changed the validation 
threshold from 80 percent to 75 percent. In addition, we conducted 
analysis in FY 2010 of past validation data and found that at least 95 
percent of sampled hospitals are expected to pass the 75 percent 
validation threshold starting in FY 2012. In combination, we believe 
that these proposed revisions will counterbalance each other and result 
in no additional impact to the number of hospitals failing our 
validation requirement for FY 2012.
    If we determine that a hospital is not entitled to receive the full 
FY 2012 payment update because it failed to satisfy the validation 
requirement, and the hospital asks for a reconsideration of that 
decision, we are proposing that the hospital submit complete copies of 
the medical records that it submitted to the CDAC contractor for 
purposes of the validation for which the hospital incurs the cost. We 
estimate that no greater than 40 hospitals would fail this requirement 
for FY 2012. We estimate that this proposal would cost hospitals 
approximately 12 cents per page for copying and approximately $4.00 per 
chart for postage. We have found, based on experience, that an average 
sized medical chart is approximately 150 pages. Hospitals would be 
required to return all 36 sampled medical records for the three 
quarters of data from FY 2010. We estimate that the total cost to the 
40 impacted hospitals would be approximately $17,600, or $440 per 
hospital. We believe that this cost is minimal, compared with the 2.0 
percent RHQDAPU program component of the annual payment update at risk. 
This proposed requirement is necessary so that CMS has all the 
information it needs to fairly and timely make a decision on the 
hospital's reconsideration request. We also anticipate that this 
proposed requirement would benefit hospitals seeking a reconsideration 
because it will enable us to resolve potential issues earlier in the 
appeals process, obviating the need for a hearing before the Provider 
Reimbursement Review Board (PRRB). We believe that this benefit would 
greatly outweigh the burden of copying and mailing the requested 
records.
    We note that, beginning with FY 2014 and future years, we are 
considering adding two stratum to the current RHQDAPU validation sample 
of SCIP, AMI, HF, and PN cases. We will consider selecting two 
additional samples of three cases per selected hospital per quarter to 
validate proposed surgical site infection, blood stream infection, 
ED[dash]Throughput and Global Immunization measures. If we later 
propose this requirement and adopt it as final through rulemaking, we 
would randomly select a total of 18 records per quarter per validated 
hospital in 6 strata (SCIP, AMI, HF, PN, CLABSI/SSI, and 
ED[dash]Throughput/Immunization measures). The requirement of an 
additional 6 charts per hospital submitted for validation would result 
in approximately 4,800 additional charts per quarter being submitted to 
CMS. We reimburse hospitals for the cost of sending charts to the CDAC 
contractor at the rate of 12 cents per page for copying and 
approximately $4.00 per chart for postage. Our experience shows that 
the average chart received by the CDAC contractor is approximately 150 
pages. Thus, we would expend approximately $105,600 per quarter to 
collect the charts for the annual payment update for FY 2014 and future 
years. Given that we reimburse for the data collection effort, we 
believe that a proposed requirement of the additional records in FY 
2014 per hospital per quarter represents a minimal burden to the 
participating hospital.

D. Effects of Proposed Policy on Payment for Transfer Cases From 
Medicare Participating Hospitals to Nonparticipating Hospitals and CAHs

    In section IV.B. of the preamble of this proposed rule, we are 
proposing to expand the acute care transfer policy to transfers to 
nonparticipating acute care hospitals and to CAHs. This proposed 
expansion of the acute care transfer policy aims to further align the 
policy with its original intent, that is, to pay a hospital 
commensurate with the resources it expends in treating a Medicare 
beneficiary who is transferred. However, the impacts of this change are 
not possible to measure, although we believe the any change in Medicare 
payments to hospitals associated with this proposed change would be 
negligible. Specifically, because there are relatively few 
nonparticipating acute care hospitals, we expect that there would be 
few, if any, transfers to nonparticipating hospitals in a given period. 
In addition, based on the capped inpatient bed size of CAHs (that is, 
not more than 25 inpatient beds) and the CAH distance requirements 
(that is, a CAH must generally be located at least 35 miles from 
another hospital), we believe that transfers from an IPPS acute care 
hospital to a CAH occur very infrequently. Therefore, we estimate that 
this proposed expansion of the acute care transfer policy would not 
have a material impact on Medicare payments to acute care hospitals.

E. Effects of Proposed Change in Criteria for MDHs

    In section IV.D. of the preamble of this proposed rule, we discuss 
our proposal to revise the existing Medicare-dependency criterion for 
MDHs at Sec.  412.108(a)(1)(iii) of the regulations (that is, ``At 
least 60 percent of the hospital's inpatient days or discharges were 
attributable to individuals receiving Medicare Part A benefits during 
the hospital's cost reporting period. * * *'') by replacing the word 
``receiving'' with the phrase ``entitled to''. As a result, we would 
include in the count of Medicare inpatient days or discharges, all days 
or discharges attributable to individuals entitled to the Medicare Part 
A insurance benefit, including individuals who have exhausted their 
Medicare Part A hospital inpatient coverage benefit.
    Based on our analysis of data for cost reporting periods beginning 
in FYs 2007 and 2008, we estimate that the proposed change to the MDH 
definition of Medicare-dependency may allow 48 more IPPS hospitals to 
qualify as an MDH. We estimate that this proposed

[[Page 24307]]

change would result in increased expenditure of $3.6 million in FY 
2011. (We note that the PPACA (Pub. L. 111-148) extended the sunset 
date for MDHs from the end of FY 2011 to the end of FY 2012. We plan to 
issue a separate rulemaking document in the Federal Register to address 
this statutory provision.

F. Effects of Proposed Change Relating to Payment Adjustment for 
Disproportionate Share Hospitals

    In section IV.E. of the preamble of this proposed rule, we are 
proposing to change, effective for FY 2011 and subsequent years, the 
data matching process used to calculate the SSI fraction for the 
Medicare DSH payment adjustment. The SSI fraction is part of the 
formula used to determine whether a subsection (d) hospital qualifies 
for a DSH payment adjustment and the amount of any DSH payment.
    The numerator of a hospital's DSH SSI fraction is the number of 
inpatient days for the provider's patients who were entitled to both 
Medicare Part A and SSI benefits. The denominator of the hospital's SSI 
fraction is the total number of inpatient days for the provider's 
patients who were entitled to Part A benefits. In order to calculate 
the numerator of a hospital's DSH SSI fraction, CMS matches certain 
Medicare data files with SSI eligibility data files that are furnished 
by SSA. In Baystate Medical Center v. Leavitt (545 F. Supp. 2d 20, as 
amended, 587 F. Supp. 2d 37, 44 (D.D.C. 2008)), the district court 
concluded that, in certain respects, CMS' current matching process did 
not use the ``best available data'' to match Medicare patient day 
information with SSI eligibility data. In implementing the Baystate 
decision, CMS recalculated the plaintiff's SSI fractions and DSH 
payments for its FYs 1993 through 1996 by using a revised data matching 
process that comports with the district court's decision.
    We are now proposing to adopt the same revised data matching 
process for calculating hospitals' DSH SSI fractions for FY 2011 and 
subsequent fiscal years. In addition, we are proposing to use, in the 
revised matching process, a later update of the MedPAR claims data file 
and the SSI eligibility data file. Specifically, we are proposing to 
use MedPAR claims files and SSI eligibility data that are updated 15 
months after the end of the Federal fiscal year, rather than continue 
with our current practice of using data updated 6 months after the end 
of the Federal fiscal year. We believe that our proposed revision to 
the timing of the data match would achieve an appropriate balance 
between accounting for additional retroactive SSI eligibility 
determinations and the lifting of SSI payment suspensions and 
facilitating administrative finality through the timely final 
settlement of Medicare cost reports.
    We are not able to provide a detailed analysis of the potential 
impact of the proposed revised data matching process. That is, it is 
not possible to determine whether Medicare DSH adjustment payments to 
hospitals will generally increase or decrease, because hospitals' SSI 
fractions will vary depending on various factors, including the use of 
a more updated MedPAR claims data file, use of a more updated SSI 
eligibility data file, and the other features of our proposed revised 
data matching process.
    With respect to the use of a more updated MedPAR claims data file, 
we expect that using a later version of the MedPAR claims file would 
increase the number of inpatient claims for a given Federal fiscal year 
and, therefore, would increase the number of Medicare inpatient days 
included in the denominator of the SSI fraction. Depending on whether 
or not the additional claims in the MedPAR file were for Medicare 
patients who were also eligible for SSI during the inpatient stay, the 
numerator of the SSI fraction might increase or decrease.
    As for the use of an updated SSI eligibility file, we note that 
retroactive SSI eligibility determinations include both the granting 
and the denial of SSI benefits. Therefore, assuming that some of the 
retroactive SSI eligibility determinations were for Medicare patients, 
the use of an updated SSI eligibility file also could increase or 
decrease the numerator of the SSI fraction. We expect that, as a result 
of using an updated SSI eligibility file, the SSI fraction for some 
hospitals would increase while it would decrease for other hospitals.
    We also note that, in the Baystate decision, the district court 
found that certain records (for example, ``stale records'' and ``forced 
pay records'') were not included in the SSI eligibility data that SSA 
gave to CMS for use in the data matching process. However, the SSI 
eligibility data files began to include certain of these records in the 
mid-1990's, and stale records and forced pay records were included in 
the SSI eligibility data files that CMS used in recalculating the 
specific SSI fractions and DSH adjustment payments at issue in the 
Baystate case. As certain of these records are already included in the 
data matching process and we are making no proposals that would change 
this policy, we are unable to determine if this issue has any cost or 
savings for FY 2011 and subsequent years.
    Finally, our proposed revised data matching process includes the 
use of SSNs and a greater number of Title II numbers and HICANs. As a 
result, we might be able to identify some individuals who were entitled 
to both Part A and SSI benefits that our current data matching process 
might not have identified. Therefore, we would expect an increase in 
the SSI fraction for certain providers, but we are unable to determine 
the extent to which DSH adjustment payments would increase.

G. Effects of Proposed Changes Relating to Payments for IME and Direct 
GME

1. Identifying ``Approved Medical Residency Programs''
    In section IV.H.2. of the preamble of this proposed rule, we 
discuss our proposal to clarify our policy regarding whether an 
individual is considered to be training in an approved medical 
residency program such that the individual's time should be included in 
the FTE count for IME and direct GME purposes, or whether that 
individual should be treated and bill as a physician. Specifically, our 
proposed clarification states that individuals should be treated as and 
bill as physicians if they have already successfully completed at least 
one residency program (regardless of whether they have passed the board 
examination for that specialty program), and are engaged in subsequent 
training that will not provide them with knowledge or skills that could 
be applied for additional board certification in another subspecialty, 
nor do they need that training to satisfy requirements for board 
certification in the specialty program they already successfully 
completed. We also are proposing to revise the definition of 
``resident'' at Sec.  413.75(b) to mean ``an intern, resident, or 
fellow who is formally accepted, enrolled, and participating in an 
approved medical residency program, including programs in osteopathy, 
dentistry, and podiatry, as required in order to become certified by 
the appropriate specialty board.''
    With respect to the policy regarding the treatment of trainees that 
have already successfully completed at least one residency program, 
there is no financial impact on the Medicare program because this is a 
proposed clarification of existing policy and is not a policy revision 
or addition of a new policy. The proposed policy change to the 
regulations might have some limited financial impact to the extent that 
a hospital previously included trainees

[[Page 24308]]

who were not formally enrolled in an approved program in its FTE 
counts, and as a result of the proposed change to the regulations, 
would no longer be able to include such trainees in its FTE count for 
IME and direct GME purposes. However, we believe it would be rare for a 
hospital to have included in its FTE count trainees who are not 
formally enrolled in a residency program in the typical fashion. 
Further, we believe that it would be rare for such a hospital to have 
sufficient room under its IME and direct GME FTE resident caps to 
include any such ``informally enrolled'' residents in addition to the 
typically enrolled residents. Thus, the financial impact of the 
proposed change in the regulatory definition of ``resident'' would be 
insignificant.
2. Submission of Electronic Affiliation Agreements
    In section IV.H.3. of the preamble of this proposed rule, we 
discuss our proposal to allow hospitals to submit Medicare GME 
affiliation agreements to the CMS Central Office by electronic 
submission. Over the last several years, we have received numerous 
inquiries regarding the possibility of submitting the Medicare GME 
affiliation agreement electronically. To date, CMS has only accepted 
signed hard copies of Medicare GME affiliation agreements that are 
received through the mail. Facsimile (FAX) and other electronic 
submissions of affiliation agreements have not been an acceptable means 
of transmission of affiliation agreements to CMS Central Office in 
order for a hospital to meet the requirements of Sec. Sec.  413.79(f) 
and 412.105(f)(1)(vi).
    The increasing frequency of these inquiries and our concerns 
regarding environmental and paperwork reduction have prompted us to 
reconsider our procedure for hospitals to submit Medicare GME 
affiliation agreements to the CMS Central Office. Accordingly, we are 
proposing to change our policy to provide for electronic submission of 
the affiliation agreement that is required to be sent to the CMS 
Central Office. This proposal would not affect the authority of the 
fiscal intermediary or MAC to continue to specify its requirements for 
submission for hospitals in its servicing area.
    We are proposing an electronic submission process that would 
consist of either an e-mail mailbox or a Web site where hospitals would 
submit their Medicare GME affiliation agreements to the CMS Central 
Office. As part of this process, a copy of the Medicare GME affiliation 
agreement would need to be received through the electronic system no 
later than 11:59 p.m. on July 1 of each academic year. We are proposing 
that the electronic affiliation agreement would need to be submitted 
either as a scanned copy or a PDF version of that hard copy agreement. 
We are proposing not to accept an agreement in any electronic format 
that could be subject to manipulation. The scanned and/or PDF format 
will enable CMS to ensure that the agreements are signed and dated as 
required in the regulations at Sec.  413.75.
    We believe that allowing an electronic submission of the 
affiliation agreement to the CMS Central Office would assist us in more 
effectively tracking the groups of hospitals that become an affiliation 
as well as the numbers of FTE cap slots that are being transferred 
within those groups. In addition, we believe an electronic submission 
process would minimize the paperwork burden for hospitals.

H. Effects of Proposed Changes Relating to CRNA Services Furnished in 
Rural Hospitals and CAHs

    In section IV.I. of the preamble of this proposed rule, we discuss 
our proposal to amend the regulations at Sec.  412.113(c)(2)(i)(A) to 
state that, effective for cost reporting periods beginning on or after 
October 1, 2010, hospitals and CAHs that have reclassified under 
section 1886(d)(8)(E) of the Act and Sec.  412.103 are eligible to be 
paid based on reasonable cost for anesthesia and related care furnished 
by qualified nonphysician anesthetists. Under existing regulations, a 
hospital or CAH is not eligible to be paid based on reasonable cost for 
anesthesia and related care furnished by qualified nonphysician 
anesthetists if the hospital or CAH has been granted rural status under 
Sec.  412.103. However, because the Act, as revised by section 608 of 
Public Law 100-485, allows for reasonable cost payments for CRNA 
services if the facility is a hospital located in a rural area as 
defined for purposes of section 1886(d) of the Act, we are proposing to 
revise the regulations to permit urban hospitals that have been 
reclassified as rural, in accordance with section 1886(d)(8)(E) of the 
Act, to qualify for these payments. We are proposing to revise the 
regulations to state that, effective for cost reporting periods 
beginning on or after October 1, 2010, hospitals and CAHs that have 
reclassified pursuant to section 1886(d)(8)(E) of the Act and Sec.  
412.103 of the regulations would be eligible to be paid based on 
reasonable cost for anesthesia services and related care provided by 
qualified nonphysician anesthetists.
    We believe it is difficult to quantify the payment impact of this 
proposed change because, in order to qualify for reasonable cost-based 
payment for anesthesia and related services provided by qualified 
nonphysician anesthetists, a rural hospital or CAH cannot exceed an 
annual limit of 800 surgical procedures requiring anesthesia. We cannot 
establish the number of facilities that would meet this threshold. In 
addition, although a hospital or CAH may contract with more than one 
qualified nonphysician anesthetist and be paid based on reasonable cost 
for anesthesia and related services performed by these nonphysician 
anesthetists, the total number of hours of service furnished by the 
nonphysician anesthetists may not exceed 2,080 hours annually. We also 
cannot determine the number of facilities that would exceed this 
threshold. Therefore, while we believe the impact would be relatively 
minor, we are unable to quantify the impact of the proposed change.

I. Effects of Implementation of Rural Community Hospital Demonstration 
Program

    In section IV.J. of the preamble of this proposed rule, we discuss 
our implementation of section 410A of Public Law 108-173, which 
requires the Secretary to establish a demonstration that will modify 
reimbursement for inpatient services for up to 15 small rural 
hospitals. Section 410A(c)(2) requires that ``[i]n conducting the 
demonstration program under this section, the Secretary shall ensure 
that the aggregate payments made by the Secretary do not exceed the 
amount which the Secretary would have paid if the demonstration program 
under this section was not implemented.'' As discussed in section IV.J. 
of the preamble of this proposed rule, in the IPPS final rule for each 
of the previous 6 fiscal years, we have estimated the additional 
payments as a result of the demonstration for each of the participating 
hospitals. In order to achieve budget neutrality, we are proposing to 
adjust the national IPPS rates by an amount sufficient to account for 
the added costs of this demonstration. In other words, we are proposing 
to apply budget neutrality across the payment system as a whole rather 
than merely across the participants of this demonstration. We believe 
that the language of the statutory budget neutrality requirement 
permits the agency to implement the budget neutrality provision in this 
manner. The statutory language requires that ``aggregate payments made 
by the

[[Page 24309]]

Secretary do not exceed the amount which the Secretary would have paid 
if the demonstration * * * was not implemented'' but does not identify 
the range across which aggregate payments must be held equal.
    An extension of this demonstration has been mandated by the Patient 
Protection and Affordable Care Act (Pub. L. 111-148). The provisions of 
Public Law 111-148 will be addressed in a separate notice in the 
Federal Register. For this proposed rule, because the mandated period 
for the demonstration was scheduled to end by the end of FY 2010, we 
are proposing no additional payment offset for upcoming years of the 
demonstration. However, we are proposing to make an adjustment in the 
FY 2011 IPPS final rule to the national IPPS rates to account for any 
differences between the cost of the demonstration program for hospitals 
participating in the demonstration during FY 2007, represented by their 
cost reports beginning in FY 2007, and the amount that was offset by 
the budget neutrality adjustment for FY 2007. The specific numeric 
value associated with the proposed adjustment to the national IPPS 
rates cannot be known until cost reports beginning in FY 2007 of the 
hospitals participating during FY 2007 in the demonstration are 
settled. We expect those cost reports to be settled prior to the 
publication of the FY 2011 IPPS final rule, and that we will be able to 
provide an estimated amount in the FY 2011 IPPS final rule.

J. Effects of Proposed Changes Relating to CAHs

1. CAH Optional Method of Payment for Outpatient Services
    In section VI.B.2. of the preamble of this proposed rule, we 
discuss our proposal to amend the regulations to permit a CAH to elect 
to be paid for outpatient services under the optional method on a 
continuous basis. Under existing regulations, if a CAH wishes to be 
paid under the optional method for outpatient services on a continuous 
basis, it must submit an annual election to the fiscal intermediary or 
MAC servicing the CAH at least 30 days prior to the cost reporting 
period for which the election is made. Due to the significant 
consequences that result if a CAH fails to make a timely election, we 
are proposing to amend the regulations at Sec.  413.70(b)(3)(i) to 
state that, effective for CAH cost reporting periods beginning on or 
after October 1, 2010, if a CAH has elected the optional method for its 
most recent cost reporting period beginning prior to October 1, 2010, 
or chooses to elect the optional method for its upcoming cost reporting 
period, that election will remain in place until it is terminated. If a 
CAH chooses to terminate its election, it must submit a termination 
request to the fiscal intermediary or MAC servicing the CAH at least 30 
days prior to the start of the next cost reporting period. In order to 
provide CAHs that have cost reporting periods beginning in October or 
November 2010 time to choose to terminate an existing election of the 
optional method, we are proposing that these CAHs would have until 
December 1, 2010, to terminate their election. We anticipate that there 
would be no additional Medicare expenditure associated with this 
proposed change because we are not proposing any changes that govern 
payment rules for CAHs. Rather, we believe the regulatory changes we 
are proposing would reduce any perceived burden associated with the 
election process and make it easier for CAHs to maintain their election 
of the optional method on a continuous basis.
2. Consideration of Costs of Provider Taxes as Allowable Costs for CAHs
    In section VI.B.3. of the preamble of this proposed rule, we 
discuss our proposal to clarify our policy on the determination of 
whether the costs of property taxes are allowable costs under Medicare, 
as described in sections 2212.1 and 2212.2 of the PRM. This is a 
clarification of our longstanding policy. Therefore, we have determined 
that there is no financial impact of the proposed change.

K. Effects of Proposed Policy Relating to Effective Date of Provider 
Agreements and Supplier Approvals

    In section VIII. of the preamble of this proposed rule, we discuss 
our proposal to clarify the requirements supporting the existing 
process for assignment of an effective date for a provider agreement or 
supplier approval. Approximately 54,500 Medicare providers and 
suppliers are subject to survey and certification requirements under 
this proposal. However, the proposed clarification would not change the 
process for providers and suppliers. Therefore, the impact of our 
proposed clarification is negligible.

L. Effects of Proposed Changes Relating to Hospital Rehabilitation 
Services and Respiratory Care Services Conditions of Participation

    In section IX. of the preamble of this proposed rule, we discuss 
our proposed changes to the conditions of participation for hospital 
rehabilitation services and respiratory care services to clarify the 
categories of practitioners allowed to order rehabilitation services 
and respiratory care services. We believe that this proposal would 
impose minimal additional costs on hospitals. In fact, hospitals may 
realize some minimal cost savings due to the regulatory flexibility of 
these proposed changes, which may allow for greater consistency with 
existing State laws and with hospital policies and procedures. The cost 
of implementing these proposed changes would largely be limited to the 
one-time cost related to the revision of a hospital's medical staff 
bylaws and its policies and procedures as they relate to the proposed 
requirements for the categories of practitioners allowed to order 
rehabilitation and respiratory care services. There also may be some 
minimal cost associated with communicating these changes to affected 
hospital staff.
    However, we believe that these costs would be offset by the 
benefits derived from the overall intent of this proposed clarification 
to allow qualified, licensed practitioners, who are authorized by the 
medical staff, to order these services as long as they are responsible 
for the care of the patient for whom they are ordering the services and 
as long as such privileges are in accordance with hospital policies and 
applicable State laws and regulations. Furthermore, the proposed 
changes would clarify existing hospital conditions of participation to 
make them more consistent not only with each other, but also with many 
State laws and with current practice. Therefore, while this proposal 
would impose a minimal burden on hospitals, we believe that, in sum, 
the changes proposed would greatly benefit hospitals overall.

VIII. Effects of Proposed Changes in the Capital IPPS

A. General Considerations

    Fiscal year (FY) 2001 was the last year of the 10-year transition 
period established to phase in the PPS for hospital capital-related 
costs. During the transition period, hospitals were paid under one of 
two payment methodologies: fully prospective or hold harmless. Under 
the fully prospective methodology, hospitals were paid a blend of the 
capital Federal rate and their hospital-specific rate (Sec.  412.340). 
Under the hold-harmless methodology, unless a hospital elected payment 
based on 100 percent of the capital Federal rate, hospitals were paid 
85 percent of reasonable costs for old capital costs (100 percent for 
SCHs) plus an amount for new capital costs based on a

[[Page 24310]]

proportion of the capital Federal rate (Sec.  412.344). As we state in 
section V. of the preamble of this proposed rule, with the 10-year 
transition period ending with hospital cost reporting periods beginning 
on or after October 1, 2001 (FY 2002), beginning in FY 2002 capital 
prospective payment system payments for most hospitals are based solely 
on the capital Federal rate. Therefore, we no longer include 
information on obligated capital costs or projections of old capital 
costs and new capital costs, which were factors needed to calculate 
payments during the transition period, for our impact analysis.
    The basic methodology for determining a capital IPPS payment is set 
forth at Sec.  412.312. The basic methodology for calculating capital 
IPPS payments in FY 2011 is as follows:
    (Standard Federal Rate) x (DRG weight) x (GAF) x (COLA for 
hospitals located in Alaska and Hawaii) x (1 + DSH Adjustment Factor + 
IME adjustment factor, if applicable).
    In addition to the other adjustments, hospitals may also receive 
outlier payments for those cases that qualify under the threshold 
established for each fiscal year.
    The data used in developing the impact analysis presented below are 
taken from the December 2009 update of the FY 2009 MedPAR file and the 
December 2009 update of the Provider-Specific File (PSF) that is used 
for payment purposes. Although the analyses of the changes to the 
capital prospective payment system do not incorporate cost data, we 
used the December 2009 update of the most recently available hospital 
cost report data (FYs 2006 and 2007) to categorize hospitals. Our 
analysis has several qualifications. We use the best data available and 
make assumptions about case-mix and beneficiary enrollment as described 
below. In addition, as discussed in section V.E. of the preamble of 
this proposed rule, we are proposing a -2.9 percent documentation and 
coding adjustment to the capital Federal rate for FY 2011, in addition 
to the -0.6 percent adjustment established for FY 2008 and the -0.9 
percent adjustment for FY 2009. This proposal results in a cumulative 
adjustment factor of 0.957 that we are proposing to apply to the 
capital Federal rate to account for improvements in documentation and 
coding under the MS-DRGs in FY 2011. We also are proposing to adjust 
the Puerto Rico-specific capital rate in FY 2011 by -2.4 percent to 
account for changes in documentation and coding resulting from the 
adoption of the MS-DRGs.
    Due to the interdependent nature of the IPPS, it is very difficult 
to precisely quantify the impact associated with each change. In 
addition, we draw upon various sources for the data used to categorize 
hospitals in the tables. In some cases (for instance, the number of 
beds), there is a fair degree of variation in the data from different 
sources. We have attempted to construct these variables with the best 
available sources overall. However, for individual hospitals, some 
miscategorizations are possible.
    Using cases from the December 2009 update of the FY 2009 MedPAR 
file, we simulated payments under the capital PPS for FY 2010 and FY 
2011 for a comparison of total payments per case. Any short-term, acute 
care hospitals not paid under the general IPPS (Indian Health Service 
hospitals and hospitals in Maryland) are excluded from the simulations.
    As we explain in section III.A.4. of the Addendum to this proposed 
rule, payments are no longer made under the regular exceptions 
provision under Sec. Sec.  412.348(b) through (e). Therefore, we no 
longer use the actuarial capital cost model (described in Appendix B of 
the August 1, 2001 proposed rule (66 FR 40099)). We modeled payments 
for each hospital by multiplying the capital Federal rate by the GAF 
and the hospital's case-mix. We then added estimated payments for 
indirect medical education, disproportionate share, and outliers, if 
applicable. For purposes of this impact analysis, the model includes 
the following assumptions:
     We estimate that the Medicare case-mix index will increase 
by 1.0 percent in both FYs 2010 and 2011.
     We estimate that the Medicare discharges will be 
approximately 11.8 million in FY 2010 and 12.1 million FY 2011.
     The capital Federal rate was updated beginning in FY 1996 
by an analytical framework that considers changes in the prices 
associated with capital-related costs and adjustments to account for 
forecast error, changes in the case-mix index, allowable changes in 
intensity, and other factors. As discussed in section III.1.a. of the 
Addendum to this proposed rule, the proposed FY 2011 update is 1.5 
percent.
     In addition to the FY 2011 update factor, the proposed FY 
2011 capital Federal rate was calculated based on a proposed GAF/DRG 
budget neutrality factor of 1.0000, a proposed outlier adjustment 
factor of 0.9424, and a proposed (special) exceptions adjustment factor 
of 0.9997.
     For FY 2011, as discussed above and in section V.E. of the 
preamble to this proposed rule, we also are proposing to apply a 0.957 
adjustment to the proposed FY 2011 capital Federal rate for changes in 
documentation and coding that are expected to increase case-mix under 
the MS-DRGs.

B. Results

    We used the actuarial model described above to estimate the 
potential impact of our proposed changes for FY 2011 on total capital 
payments per case, using a universe of 3,472 hospitals. As described 
above, the individual hospital payment parameters are taken from the 
best available data, including the December 2009 update of the FY 2009 
MedPAR file, the December 2009 update to the PSF, and the most recent 
cost report data from the December 2009 update of HCRIS. In Table III, 
we present a comparison of estimated total payments per case for FY 
2010 compared to FY 2011 based on the proposed FY 2011 payment 
policies. Column 2 shows estimates of payments per case under our model 
for FY 2010. Column 3 shows estimates of payments per case under our 
model for FY 2011. Column 4 shows the total percentage change in 
payments from FY 2010 to FY 2011. The change represented in Column 4 
includes the proposed 1.5 percent update to the capital Federal rate 
and other proposed changes in the adjustments to the capital Federal 
rate. The comparisons are provided by: (1) Geographic location; (2) 
region; and (3) payment classification.
    The simulation results show that, on average, capital payments per 
case in FY 2011 are expected to decrease as compared to capital 
payments per case in FY 2010. The proposed capital Federal rate for FY 
2011 would increase 1.5 percent as compared to the FY 2010 capital 
rate. The proposed changes to the GAFs are expected to result, on 
average, in a slight decrease in capital payments, although, for rural 
areas, it is more of a contributing factor to the overall estimated 
decrease in capital payments than to urban areas mostly due to the 
application of the rural floor to the wage index. Our impact analysis 
includes actuarial assumptions of growth from FY 2010 to FY 2011 
resulting in a slight increase in capital payments. The net result of 
these proposed changes is an estimated -0.2 percent change in capital 
payments per discharge from FY 2010 to FY 2011 for all hospitals (as 
shown below in Table III).
    The geographic comparison shows that, on average, all urban 
hospitals are expected to experience a 0.2 percent decrease in capital 
IPPS payments per case in FY 2011 as compared to FY

[[Page 24311]]

2010, while hospitals in large urban areas are expected to experience a 
0.1 percent decrease in capital IPPS payments per case in FY 2011 as 
compared to FY 2010. Capital IPPS payments per case for rural hospitals 
are expected to decrease 0.7 percent.
    The change comparisons by regions show some regions experiencing 
slight increases in total capital payments, while other regions are 
estimated to experience decreases in capital payments from FY 2010 to 
FY 2011. For the urban regions, changes in capital payments range from 
a -1.3 percent for the New England urban region to a 0.5 percent for 
the Pacific urban region. Estimates for two urban regions, East North 
Central and West North Central, show no change in total capital 
payments from FY 2010 to FY 2011. Estimates of changes for the rural 
regions from FY 2010 to FY 2011 range from a 2.3 percent decrease in 
capital payments in the New England rural region to a 0.6 percent 
increase for the West South Central rural region. These regional 
differences are primarily due to the proposed changes to the GAFs and 
differences in the estimated increase in outlier payments from FY 2010 
to FY 2011.
    By type of ownership, proprietary hospitals are estimated to 
experience an increase of 0.1 percent in capital payments per case, and 
voluntary hospitals are estimated to experience a 0.3 percent decrease 
in capital payments per case from FY 2010 to FY 2011. We estimate no 
change in capital payments per case for government hospitals from FY 
2010 to FY 2011.
    Section 1886(d)(10) of the Act established the MGCRB. Before FY 
2005, hospitals could apply to the MGCRB for reclassification for 
purposes of the standardized amount, wage index, or both. Section 
401(c) of Public Law 108-173 equalized the standardized amounts under 
the operating IPPS. Therefore, beginning in FY 2005, there is no longer 
reclassification for the purposes of the standardized amounts; however, 
hospitals still may apply for reclassification for purposes of the wage 
index for FY 2011. Reclassification for wage index purposes also 
affects the GAFs because that factor is constructed from the hospital 
wage index.
    To present the effects of the hospitals being reclassified for FY 
2011, we show the average capital payments per case for reclassified 
hospitals for FY 2010. All classifications of reclassified hospitals 
are expected to experience a decrease in capital payments per case in 
FY 2011 as compared to FY 2010. Urban reclassified and rural 
reclassified hospitals are expected to have a decrease in capital 
payments of 0.2 percent and 0.3 percent, respectively. Capital payments 
for urban nonreclassified are estimated to decrease 0.1 percent while 
rural nonreclassified hospitals are estimated to decrease 1.1 percent. 
Other reclassified hospitals (that is, hospitals reclassified under 
section 1886(d)(8)(B) of the Act) are expected to experience a decrease 
of 1.6 percent in capital payment from FY 2010 to FY 2011.
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IX. Effects of Proposed Payment Rate Changes and Policy Changes Under 
the LTCH PPS

A. Introduction and General Considerations

    In section VII. of the preamble and section V. of the Addendum of 
this proposed rule, we are setting forth the proposed annual update to 
the payment rates for the LTCH PPS for FY 2011. In the preamble, we 
specify the statutory authority for the proposed provisions that are 
presented, identify those proposed policies where discretion has been 
exercised, and present rationale for our decisions as well as 
alternatives that were considered. In this section of Appendix A to 
this proposed rule, we discuss the impact of the proposed changes to 
the payment rates, factors, and other payment rate policies related to 
the LTCH PPS that are presented in the preamble of this proposed rule 
in terms of their estimated fiscal impact on the Medicare budget and on 
LTCHs.
    On March 23, 2010, the Patient Protection and Affordable Care Act, 
Public Law 111-148, was enacted. Following the enactment of Public Law 
111-148, the Health Care and Education Reconciliation Act of 2010, 
Public Law 111-152 (enacted on March 30, 2010), amended certain 
provisions of Public Law 111-148. A number of the provisions of Public 
Law 111-148, as amended by Public Law 111-152, affect the IPPS and the 
LTCH PPS and the providers and suppliers addressed in this proposed 
rule. However, due to the timing of the passage of the legislation, we 
are unable to address those provisions in this proposed rule. 
Therefore, the proposed policies and payment rates in this proposed 
rule do not reflect the new legislation. We plan to issue separate 
documents in the Federal Register addressing the provisions of Public 
Law 111-148, as amended, that affect our proposed policies and payment 
rates for FY 2011 under the IPPS and the LTCH PPS. In addition, we plan 
to issue further instructions implementing the provisions of Public Law 
111-148, as amended, that affect the policies and payment rates for FY 
2010 under the IPPS and for RY 2010 under the LTCH PPS.
    Currently, our database of 421 LTCHs includes the data for 77 
nonprofit (voluntary ownership control) LTCHs and 301 proprietary 
LTCHs. Of the remaining 43 LTCHs, 12 LTCHs are government-owned and 
operated and the ownership type of the other 31 LTCHs is unknown. In 
the impact analysis, we are using the proposed rates, factors, and 
policies presented in this proposed rule, including proposed updated 
wage index values and the labor-related share, and the best available 
claims and CCR data to estimate the change in payments for FY 2011. The 
standard Federal rate for RY 2010 is $39,896.65. As discussed in 
section V.A.2. of the Addendum to this proposed rule, consistent with 
our historical practice, we are proposing to update the standard 
Federal rate for FY 2011 by -0.1 percent in order to establish the 
proposed FY 2011 standard Federal rate at $39,856.75. This includes a 
proposed market basket update of 2.4 percent and a proposed 
documentation and coding adjustment of -2.5 percent to account for 
increases in case-mix that do not reflect real changes in patients' 
severity of illness associated with the adoption of the MS-LTC-DRGs. 
Based on the best available data for the 421 LTCHs in our database, we 
estimate that the proposed update to the standard Federal rate for FY 
2011 (discussed in section VII.C. of the

[[Page 24314]]

preamble of this proposed rule) and the proposed changes to the area 
wage adjustment (discussed in section V.B. of the Addendum to this 
proposed rule) for FY 2011, in addition to an estimated increase in HCO 
payments and an estimated increase in SSO payments, will result in an 
increase in estimated payments from RY 2010 of approximately $41 
million (or about 0.8 percent). Based on the 421 LTCHs in our database, 
we estimate FY 2011 LTCH PPS payments to be approximately $4.946 
billion, an increase from RY 2010 LTCH PPS payments of approximately 
$4.905 billion. Because the combined distributional effects and 
estimated changes to the Medicare program payments would be greater 
than $100 million, this proposed rule is considered a major economic 
rule, as defined in this section. We note the approximately $41 million 
for the projected increase in estimated aggregate LTCH PPS payments 
from RY 2010 to FY 2011 does not reflect changes in LTCH admissions or 
case-mix intensity in estimated LTCH PPS payments, which also would 
affect overall payment changes.
    The projected 0.8 percent increase in estimated payments per 
discharge from RY 2010 to FY 2011 is attributable to several factors, 
including the proposed -0.1 percent decrease to the standard Federal 
rate, proposed changes in the wage index values (including the proposed 
change to the labor-related share) and projected increases in estimated 
HCO and SSO payments. As Table IV shows, the proposed change 
attributable solely to the standard Federal rate is projected to result 
in a decrease of 0.1 percent in estimated payments per discharge from 
RY 2010 to FY 2011, on average, for all LTCHs, while the proposed 
changes to the area wage adjustment are projected to result in an 
increase in estimated payments of 0.1 percent, on average, for all 
LTCHs.
    As discussed in section V.B. of the Addendum to this proposed rule, 
we are proposing to update the wage index values for FY 2011 based on 
the most recent available data. In addition, we are proposing to 
decrease the labor-related share slightly from 75.779 percent to 75.407 
percent under the LTCH PPS for FY 2011 based on the most recent 
available data on the relative importance of the labor-related share of 
operating and capital costs of the RPL market basket (discussed in 
section VII.C.2. of the preamble of this proposed rule). This proposed 
update to the wage data and the labor-related share is expected to 
increase LTCH PPS payments by 0.1 percent.
    Table IV below shows the impact of the proposed payment rate and 
proposed policy changes on LTCH PPS payments for FY 2011 by comparing 
RY 2010 estimated payments to FY 2011 estimated payments. The projected 
increase in payments per discharge from RY 2010 to FY 2011 is 0.8 
percent (shown in Column 8). This projected increase in payments is 
attributable to the impacts of the proposed change to the standard 
Federal rate (-0.1 percent in Column 6) and the proposed change due to 
the area wage adjustment (0.1 percent in Column 7), as well as the 
effect of the estimated increase in payments for HCO cases and SSO 
cases in FY 2011 as compared to RY 2010 (0.5 percent and 0.3 percent, 
respectively). That is, estimated total HCO payments are projected to 
increase from RY 2010 to FY 2011 in order to ensure that estimated HCO 
payments will be 8 percent of total estimated LTCH PPS payments in FY 
2011. An analysis of the most recent available LTCH PPS claims data (FY 
2009 claims from the December 2009 update of the MedPAR files) 
indicates that the RY 2010 HCO threshold of $18,425 may result in HCO 
payments in RY 2010 that fall below the estimated 8 percent. 
Specifically, we currently estimate that HCO payments will be 
approximately 7.5 percent of estimated total LTCH PPS payments in RY 
2010. We estimate that the impact of the increase in HCO payments would 
result in approximately a 0.5 percent increase in estimated payments 
from RY 2010 to FY 2011 on average for all LTCHs. Furthermore, in 
calculating the estimated increase in payments from RY 2010 to FY 2011 
for HCO and SSO cases, we increased estimated costs by the applicable 
market basket percentage increase as projected by our actuaries, which 
increases payments by 0.3 percent relative to last year. We note that 
estimated payments for all SSO cases comprise approximately 14 percent 
of estimated total LTCH PPS payments, and estimated payments for HCO 
cases comprise approximately 8 percent of estimated total LTCH PPS 
payments. Payments for HCO cases are based on 80 percent of the 
estimated cost above the HCO threshold, while the majority of the 
payments for SSO cases (over 65 percent) are based on the estimated 
cost of the SSO case.
    As we discuss in detail throughout this proposed rule, based on the 
most recent available data, we believe that the provisions of this 
proposed rule relating to the LTCH PPS will result in an increase in 
estimated aggregate LTCH PPS payments and that the resulting LTCH PPS 
payment amounts result in appropriate Medicare payments.

B. Impact on Rural Hospitals

    For purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. As shown in Table IV, we 
are projecting a 1.4 percent increase in estimated payments per 
discharge for FY 2011 as compared to RY 2010 for rural LTCHs that would 
result from the proposed changes presented in this proposed rule (that 
is, the proposed update to the standard Federal rate discussed in 
section V.A. of the Addendum to this proposed rule and the proposed 
changes to the area wage adjustment as discussed in section V.B. of the 
Addendum to this proposed rule) as well as the effect of estimated 
changes to HCO and SSO payments. This estimated impact is based on the 
data for the 26 rural LTCHs in our database of 421 LTCHs, for which 
complete data were available.
    The estimated increase in LTCH PPS payments from RY 2010 to FY 2011 
for rural LTCHs is primarily due to the higher than average impacts 
from the proposed changes to the area wage adjustment and the proposed 
reduction in the labor-related share from 75.779 to 75.407 percent, 
which results in an estimated 0.6 percent increase in payments. We 
believe that the proposed changes to the area wage adjustment presented 
in this proposed rule (that is, the proposed use of updated wage data 
and the proposed change in the labor-related share) would result in 
accurate and appropriate LTCH PPS payments in FY 2011 because they are 
based on the most recent available data. Such updated data 
appropriately reflect national differences in area wage levels and 
appropriately identifies the portion of the standard Federal rate that 
should be adjusted to account for such differences in area wages, 
thereby resulting in accurate and appropriate LTCH PPS payments.

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

    We discuss the impact of the proposed changes to the payment rates, 
factors, and other payment rate policies under the LTCH PPS for FY 2011 
(in terms of their estimated fiscal impact on the Medicare budget and 
on LTCHs) in section VII. of the preamble of this proposed rule.
1. Budgetary Impact
    Section 123(a)(1) of the BBRA requires that the PPS developed for

[[Page 24315]]

LTCHs ``maintain budget neutrality.'' We believe that the statute's 
mandate for budget neutrality applies only to the first year of the 
implementation of the LTCH PPS (that is, FY 2003). Therefore, in 
calculating the FY 2003 standard Federal rate under Sec.  
412.523(d)(2), we set total estimated payments for FY 2003 under the 
LTCH PPS so that estimated aggregate payments under the LTCH PPS were 
estimated to equal the amount that would have been paid if the LTCH PPS 
had not been implemented.
    As discussed in section IX.A. of this Appendix A, we project an 
increase in aggregate LTCH PPS payments in FY 2011 of approximately $41 
million (or 0.8 percent) based on the 421 LTCHs in our database.
2. Impact on Providers
    The basic methodology for determining a per discharge LTCH PPS 
payment is set forth in Sec.  412.515 through Sec.  412.536. In 
addition to the basic MS-LTC-DRG payment (standard Federal rate 
multiplied by the MS-LTC-DRG relative weight), we make adjustments for 
differences in area wage levels, COLA for Alaska and Hawaii, and SSOs. 
Furthermore, LTCHs may also receive HCO payments for those cases that 
qualify based on the threshold established each year.
    To understand the impact of the proposed changes to the LTCH PPS 
payments presented in this proposed rule on different categories of 
LTCHs for FY 2011, it is necessary to estimate payments per discharge 
for RY 2010 using the rates and factors, including the FY 2010 GROUPER 
(Version 27.0) and relative weights, and policies established in the FY 
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43945 through 43994 and 
44021 through 44030). It is also necessary to estimate the payments per 
discharge that would be made under the proposed LTCH PPS rates, 
factors, policies, and GROUPER (Version 28.0) for FY 2011 (as discussed 
in VII. of the preamble and section V. of the Addendum to this proposed 
rule). These estimates of RY 2010 and FY 2011 LTCH PPS payments are 
based on the best available LTCH claims data and other factors, such as 
the application of inflation factors to estimate costs for SSO and HCO 
cases in each year. We also evaluated the change in estimated RY 2010 
payments to estimated FY 2011 payments (on a per discharge basis) for 
each category of LTCHs.
    Hospital groups were based on characteristics provided in the OSCAR 
data, FY 2006 through FY 2007 cost report data in HCRIS, and PSF data. 
Hospitals with incomplete characteristics were grouped into the 
``unknown'' category. Hospital groups include the following:
     Location: large urban/other urban/rural.
     Participation date.
     Ownership control.
     Census region.
     Bed size.
    To estimate the impacts of the payment rates and policy changes 
among the various categories of existing providers, we used LTCH cases 
from the FY 2009 MedPAR file to estimate payments for RY 2010 and to 
estimate payments for FY 2011 for 421 LTCHs. We believe that the 
discharges based on the FY 2009 MedPAR data for the 421 LTCHs in our 
database, which includes 301 proprietary LTCHs, provide sufficient 
representation in the MS-LTC-DRGs containing discharges for patients 
who received LTCH care for the most commonly treated LTCH patients' 
diagnoses.
3. Calculation of Prospective Payments
    For purposes of this impact analysis, to estimate per discharge 
payments under the LTCH PPS, we simulated payments on a case-by-case 
basis using LTCH claims from the FY 2009 MedPAR files. For modeling 
estimated LTCH PPS payments for RY 2010, we applied the RY 2010 
standard Federal rate (that is, $39,896.65, which is effective for LTCH 
discharges occurring on or after October 1, 2009, and through September 
30, 2010). For modeling estimated LTCH PPS payments for FY 2011, we 
applied the proposed FY 2011 standard Federal rate of $39,856.75, which 
would be effective for LTCH discharges occurring on or after October 1, 
2010, and through September 30, 2011.
    Furthermore, in modeling estimated LTCH PPS payments for both RY 
2010 and FY 2011 in this impact analysis, we applied the RY 2010 and 
proposed FY 2011 adjustments for area wage differences and the COLA for 
Alaska and Hawaii. Specifically, we adjusted for area wage differences 
for estimated RY 2010 payments using the RY 2010 LTCH PPS labor-related 
share of 75.779 percent (74 FR 43968), the wage index values 
established in the Tables 12A and 12B of the Addendum to the FY 2010 
IPPS/RY 2010 LTCH PPS final rule (74 FR 44192 through 44213) and the RY 
2010 COLA factors shown in the table in section V. of the Addendum to 
that final rule (74 FR 44026). Similarly, we adjusted for area wage 
differences for estimated FY 2011 payments using the proposed LTCH PPS 
FY 2011 labor-related share of 75.407 percent (section VII.C.2.d. of 
the preamble of this proposed rule), the FY 2011 proposed wage index 
values presented in Tables 12A and 12B of the Addendum to this proposed 
rule, and the FY 2011 COLA factors shown in the table in section V.B.5. 
of the Addendum to this proposed rule.
    As discussed above, our impact analysis reflects an estimated 
change in payments for SSO cases as well as an estimated increase in 
payments for HCO cases (as described in section V.C. of the Addendum to 
this proposed rule). In modeling proposed payments for SSO and HCO 
cases in RY 2010, we applied an inflation factor of 1.024 percent 
(determined by OACT) to the estimated costs of each case determined 
from the charges reported on the claims in the FY 2009 MedPAR files and 
the best available CCRs from the December 2009 update of the PSF. In 
modeling proposed payments for SSO and HCO cases in FY 2011, we applied 
an inflation factor of 1.049 (determined by OACT) to the estimated 
costs of each case determined from the charges reported on the claims 
in the FY 2009 MedPAR files and the best available CCRs from the 
December 2009 update of the PSF. Furthermore, in modeling estimated 
LTCH PPS payments for both RY 2010 and FY 2011 in this impact analysis, 
we applied the RY 2010 HCO fixed-loss amount of $18,425 (74 FR 44029) 
and the proposed FY 2011 fixed loss amount of $18,692 (as discussed in 
section V.C.3. of the Addendum of this proposed rule).
    These impacts reflect the estimated ``losses'' or ``gains'' among 
the various classifications of LTCHs from the RY 2010 to FY 2011 based 
on the proposed payment rates and policy changes presented in this 
proposed rule. Table IV illustrates the estimated aggregate impact of 
the LTCH PPS among various classifications of LTCHs.
     The first column, LTCH Classification, identifies the type 
of LTCH.
     The second column lists the number of LTCHs of each 
classification type.
     The third column identifies the number of LTCH cases.
     The fourth column shows the estimated payment per 
discharge for RY 2010 (as described above).
     The fifth column shows the estimated payment per discharge 
for FY 2011 (as described above).
     The sixth column shows the percentage change in estimated 
payments per discharge from RY 2010 to FY 2011 for proposed changes to 
the standard Federal rate (as discussed in section V.A. of the Addendum 
to this proposed rule).
     The seventh column shows the percentage change in 
estimated

[[Page 24316]]

payments per discharge from RY 2010 to FY 2011 for proposed changes to 
the area wage adjustment at Sec.  412.525(c) (as discussed in section 
V.B. of the Addendum to this proposed rule).
     The eighth column shows the percentage change in estimated 
payments per discharge from RY 2010 (Column 4) to FY 2011 (Column 5) 
for all proposed changes (and includes the effect of estimated changes 
to HCO and SSO payments).
BILLING CODE 4120-01-P

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BILLING CODE 4120-01-C
4. Results
    Based on the most recent available data (as described previously 
for 421 LTCHs, we have prepared the following summary of the impact (as 
shown in Table IV) of the proposed LTCH PPS payment rate and policy 
changes presented in this proposed rule. The impact analysis in Table 
IV shows that estimated payments per discharge are expected to increase 
approximately 0.8 percent, on average, for all LTCHs from RY 2010 to FY 
2011 as a result of the proposed payment rate and policy changes 
presented in this proposed rule, as well as estimated increases in HCO 
and SSO payments. We note that we are proposing a -0.1 percent decrease 
to the standard Federal rate for FY 2011, based on the latest market 
basket estimate (2.4 percent) and the adjustment for the cumulative 
effect of changes in documentation and coding in FYs 2008 and 2009 (-
2.5 percent). We noted earlier in this section that for most categories 
of LTCHs, as shown in Table IV (Column 6), the impact of the proposed 
decrease of -0.1 percent to the standard Federal rate is projected to 
result in approximately a -0.1 percent decrease in estimated payments 
per discharge for all LTCHs from RY 2010 to FY 2011. Furthermore, as 
discussed previously in this regulatory impact analysis, the average 
increase in estimated payments per discharge from the RY 2010 to FY 
2011 for all LTCHs of approximately 0.8 percent (as shown in Table IV) 
was determined by comparing estimated FY 2011 LTCH PPS payments (using 
the proposed rates and policies discussed in this proposed rule) to 
estimated RY 2010 LTCH PPS payments (as described above in section 
IX.C. of this Appendix A).
a. Location
    Based on the most recent available data, the vast majority of LTCHs 
are located in urban areas. Only approximately 6 percent of the LTCHs 
are identified as being located in a rural area, and approximately 4 
percent of all LTCH cases are treated in these rural hospitals. The 
impact analysis presented in Table IV shows that the average percent 
increase in estimated payments per discharge from RY 2010 to FY 2011 
for all hospitals is 0.8 percent for all proposed changes. For rural 
LTCHs, the percent change for all proposed changes is estimated to be 
1.4 percent, while for urban LTCHs, we estimate the increase to be 0.8 
percent. Large urban LTCHs are projected to experience an increase of 
0.9 percent in estimated payments per discharge from RY 2010 to FY 
2011, while other urban LTCHs are projected to experience an increase 
of 0.7 percent in estimated payments per discharge from RY 2010 to FY 
2011, as shown in Table IV.
b. Participation Date
    LTCHs are grouped by participation date into four categories: (1) 
Before October 1983; (2) between October 1983 and September 1993; (3) 
between October 1993 and September 2002; and (4) after October 2002. 
Based on the most recent available data, the majority (approximately 49 
percent) of the LTCH cases are in hospitals that began participating 
between October 1993 and September 2002, and are projected to 
experience nearly the average increase (0.7 percent) in estimated 
payments per discharge from RY 2010 to FY 2011, as shown in Table IV.
    In the participation category where LTCHs began participating in 
Medicare before October 1983, LTCHs are projected to experience a 
higher than average percent increase (1.1 percent) in

[[Page 24319]]

estimated payments per discharge from RY 2010 to FY 2011, as shown in 
Table IV. Approximately 4 percent of LTCHs began participating in 
Medicare before October 1983. The LTCHs in this category are projected 
to experience a higher than average increase in estimated payments 
because of estimated increases in payments due to the proposed change 
to the area wage adjustment, the proposed changes in the MS-LTC-DRG 
classifications and relative weights, and also because of estimated 
increases in their SSO payments relative to last year. Approximately 10 
percent of LTCHs began participating in Medicare between October 1983 
and September 1993. These LTCHs are projected to experience a slightly 
above average increase (0.9 percent) in estimated payments from RY 2010 
to FY 2011. LTCHs that began participating in Medicare after October 
2002 currently represent approximately 38 percent of all LTCHs, and are 
projected to experience a slightly above average increase (0.9 percent) 
in estimated payments from RY 2010 to FY 2011.
c. Ownership Control
    Other than LTCHs whose ownership control type is unknown, LTCHs are 
grouped into three categories based on ownership control type: 
voluntary, proprietary, and government. Based on the most recent 
available data, approximately 18 percent of LTCHs are identified as 
voluntary (Table IV). We expect that, for these LTCHs in the voluntary 
category, estimated FY 2011 LTCH payments per discharge will increase 
higher than the average (1.1 percent) in comparison to estimated 
payments in RY 2010 primarily because we project an increase in 
estimated HCO payments and SSO payments to be higher than the average 
for these LTCHs. The majority (71 percent) of LTCHs are identified as 
proprietary and these LTCHs are projected to experience an average 
increase (0.8 percent) in estimated payments per discharge from RY 2010 
to FY 2011. Finally, government-owned and operated LTCHs (3 percent) 
are expected to experience a higher than the average increase (1.3 
percent) in estimated payments primarily due to a larger than the 
average increase in estimated HCO payments and increases under the 
proposed MS-LTC-DRG GROUPER (Version 28) and relative weights.
d. Census Region
    Estimated payments per discharge for FY 2011 are projected to 
increase for LTCHs located in all regions in comparison to RY 2010. Of 
the 9 census regions, we project that the increase in estimated 
payments per discharge will have the largest positive impact on LTCHs 
in the New England and West South Central regions (1.1 percent, 1.0, 
respectively, as shown in Table IV). The estimated percent increase in 
payments per discharge from RY 2010 to FY 2011 for New England is 
largely attributable to the projected increase in estimated HCO and SSO 
payments (explained in greater detail above in section XV.B.4. of this 
Appendix A). The projected increase in estimated payments per discharge 
from RY 2010 to FY 2011 for LTCHs in the West South Central region is 
mostly due to the 43 percent of providers in this region that would 
receive a higher wage index in FY 2011 compared to RY 2010 and because 
all the providers have a proposed FY 2011 wage index less than 1, which 
results in an estimated payment increase because the proposed labor-
related share (the portion of the rate adjusted by the wage index) is 
being reduced so their lower wage index adjusts a smaller portion of 
the rate.
    In contrast, LTCHs located in the East South Central region are 
projected to experience a lower than average increase in estimated 
payments per discharge from RY 2010 to FY 2011. The less than average 
estimated increase in payments of 0.5 percent for LTCHs in the East 
South Central region is primarily due to estimated decreases in 
payments associated with the proposed wage index because 50 percent of 
LTCHs located in this region will have a proposed FY 2011 wage index 
value that is less than their RY 2010 wage index value. Similarly, 
LTCHs in the Middle Atlantic and South Atlantic are expected to 
experience a below average increase in payments of 0.6 percent 
primarily due to an estimated decrease in payment because of the 
proposed FY 2011 wage index changes.
e. Bed Size
    LTCHs were grouped into six categories based on bed size: 0-24 
beds; 25-49 beds; 50-74 beds; 75-124 beds; 125-199 beds; and greater 
than 200 beds.
    We project that payments for small LTCHs (0-24 beds) will 
experience a 1.4 percent increase in payments due to increases in their 
wage index while large LTCHs (200+ beds) will experience smaller than 
average increase in payments of 0.6 percent. LTCHs with between 75 and 
124 beds and between 125 and 199 beds are expected to experience an 
above average increase in payments per discharge from RY 2010 to FY 
2011 (1.1 percent and 1.0 percent, respectively) primarily due to a 
larger than average estimated increase in payments from the proposed FY 
2011 changes to the area wage adjustment.

D. Effect on the Medicare Program

    As noted previously, we project that the provisions of this 
proposed rule will result in an increase in estimated aggregate LTCH 
PPS payments in FY 2011 of approximately $41 million (or about 0.8 
percent) for the 421 LTCHs in our database.

E. Effect on Medicare Beneficiaries

    Under the LTCH PPS, hospitals receive payment based on the average 
resources consumed by patients for each diagnosis. We do not expect any 
changes in the quality of care or access to services for Medicare 
beneficiaries under the LTCH PPS, but we expect that paying 
prospectively for LTCH services would enhance the efficiency of the 
Medicare program.

X. Effects of Proposed Policy Changes Regarding Accreditation 
Requirements for Medicaid Providers of Inpatient Psychiatric Services 
for Individuals Under Age 21

    In section X. of the preamble of this proposed rule, we discuss our 
proposal to remove the Medicaid requirement for Joint Commission 
accreditation of psychiatric hospitals, hospitals with inpatient 
psychiatric programs, and PRTFs. Psychiatric hospitals would have the 
choice of meeting the requirements to participate in Medicare as a 
psychiatric hospital under 42 CFR 482.60, or obtaining accreditation 
from a national accrediting organization whose psychiatric hospital 
accrediting program has been approved by CMS. Hospitals with inpatient 
psychiatric programs would have the choice of meeting the requirements 
for participation in Medicare as a hospital as specified in 42 CFR part 
482 or obtaining accreditation from a national accrediting organization 
whose hospital accreditation program has been approved by CMS. In 
addition, PRTFs would be afforded the flexibility in obtaining 
accreditation by a national accrediting organization whose program has 
been approved by CMS, or by any other accrediting organization with 
comparable standards that is recognized by the State. This proposal 
would remove specific references to national accrediting bodies to 
provide appropriate administrative flexibility to account for any 
changes in qualifying accrediting organizations.
    Ensuring access to services is a priority for CMS, and we believe 
that this proposal would result in psychiatric hospitals, hospitals 
with

[[Page 24320]]

inpatient psychiatric programs, and PRTFs meeting comparable standards 
required in order to provide services. In addition, the proposed 
revision to the accreditation requirement aligns Medicaid standards 
with existing standards in the Medicare program. We believe that this 
flexibility in obtaining accreditation will facilitate the provision of 
medically necessary, Medicaid-reimbursable psychiatric services to 
vulnerable children, while maintaining the high quality of care 
demanded by the Medicaid program.
    We are not preparing an analysis for this proposal under the RFA 
because we have determined that the proposal would not have a 
significant economic impact on a substantial number of small entities.
    We are not preparing an analysis for section 1102(b) of the Act 
because this proposal would 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 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in expenditure in any one year of $100 
million in 1995 dollars, updated annually for inflation. That threshold 
level is currently approximately $135 million. This proposal would not 
result in an impact of $135 million or more 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. Because this proposal does not impose any costs on State 
or local governments, the requirements of Executive Order 13132 are not 
applicable.

XI. Alternatives Considered

    This proposed rule contains a range of policies. The preamble of 
this proposed rule provides descriptions of the statutory provisions 
that are addressed, identifies implementing policies where discretion 
has been exercised, and presents rationales for our decisions and, 
where relevant, alternatives that were considered.

XII. Overall Conclusion

A. Acute Care Hospitals

    Table I of section VI. of this Appendix demonstrates the estimated 
distributional impact of the IPPS budget neutrality requirements for 
the proposed MS-DRG and wage index changes, and for the wage index 
reclassifications under the MGCRB. Table I also shows an overall 
decrease of 0.1 percent in operating payments. We estimate that 
operating payments will decrease by approximately $142 million in FY 
2011. In addition, this estimate includes the reporting of hospital 
quality data program costs of $2.4 million, and a savings of $21 
million associated with the proposed HACs policies and all other 
proposed operating payment policies described in section VII. of this 
Appendix. We estimate that capital payments will experience -0.2 
percent change in payments per case, as shown in Table III of section 
VIII. of this Appendix. We estimate that capital payments will decrease 
by approximately $20 million in FY 2011 compared to FY 2010. The 
proposed cumulative operating and capital payments should result in a 
net decrease of $181 million to IPPS providers. The discussions 
presented in the previous pages, in combination with the rest of this 
proposed rule, constitute a regulatory impact analysis.

B. LTCHs

    Overall, LTCHs are projected to experience an increase in estimated 
payments per discharge in FY 2011. In the impact analysis, we are using 
the proposed rates, factors, and policies presented in this proposed 
rule, including proposed updated wage index values and relative 
weights, and the best available claims and CCR data to estimate the 
change in payments under the LTCH PPS for FY 2011. Accordingly, based 
on the best available data for the 421 LTCHs in our database, we 
estimate that FY 2011 LTCH PPS payments will increase approximately $41 
million (or about 0.8 percent).

XIII. Accounting Statements

A. Acute Care Hospitals

    As required by OMB Circular A-4 (available at http://www.whitehousegov/omb/circulars/a004/a-4.pdf), in Table V below, we 
have prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of this proposed rule as 
they relate to acute care hospitals. This table provides our best 
estimate of the change in Medicare payments to providers as a result of 
the proposed changes to the IPPS presented in this proposed rule. All 
expenditures are classified as transfers to Medicare providers.

 Table V--Accounting Statement: Classification of Estimated Expenditures
                 Under the IPPS From FY 2010 to FY 2011
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............  -$181 million.
From Whom to Whom.........................  Federal Government to IPPS
                                             Medicare Providers.
                                           -----------------------------
    Total.................................  -$181 million.
------------------------------------------------------------------------

B. LTCHs

    As discussed in section IX. of this Appendix, the impact analysis 
for the proposed changes under the LTCH PPS for this proposed rule 
projects an increase in estimated aggregate payments of approximately 
$41 million (or about 0.8 percent) for the 421 LTCHs in our database 
that are subject to payment under the LTCH PPS. Therefore, as required 
by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table VI below, we have prepared an 
accounting statement showing the classification of the expenditures 
associated with the provisions of this proposed rule as they relate to 
changes to the LTCH PPS. Table VI provides our best estimate of the 
proposed increase in Medicare payments under the LTCH PPS as a result 
of the proposed provisions presented in this proposed rule based on the 
data for the 421 LTCHs in our database. All expenditures are classified 
as transfers to Medicare providers (that is, LTCHs).

Table VI--Accounting Statement: Classification of Estimated Expenditures
        From the 2010 LTCH PPS Rate Year to the FY 2011 LTCH PPS
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............  Positive transfer--Estimated
                                             increase in expenditures:
                                             $41 million.
From Whom to Whom.........................  Federal Government to LTCH
                                             PPS Medicare Providers.
                                           -----------------------------
    Total.................................  $41 million.
------------------------------------------------------------------------

XIV. Executive Order 12866

    In accordance with the provisions of Executive Order 12866, the 
Executive Office of Management and Budget reviewed this proposed rule.

[[Page 24321]]

Appendix B: Recommendation of Update Factors for Operating Cost Rates 
of Payment for Inpatient Hospital Services

I. Background

    Section 1886(e)(4)(A) of the Act requires that the Secretary, 
taking into consideration the recommendations of the MedPAC, recommend 
update factors for inpatient hospital services for each fiscal year 
that take into account the amounts necessary for the efficient and 
effective delivery of medically appropriate and necessary care of high 
quality. Under section 1886(e)(5) of the Act, we are required to 
publish update factors recommended by the Secretary in the proposed and 
final IPPS rules, respectively. Accordingly, this Appendix provides the 
recommendations for the update factors for the IPPS national 
standardized amount, the Puerto Rico-specific standardized amount, the 
hospital-specific rates for SCHs and MDHs, and the rate-of-increase 
limits for certain hospitals excluded from the IPPS, as well as LTCHs, 
IPFs, and IRFs. We also discuss our response to MedPAC's recommended 
update factors for inpatient hospital services.

II. Inpatient Hospital Update for FY 2011

    On March 23, 2010, the Patient Protection and Affordable Care Act 
(PPACA), Public Law 111-148 was enacted. Following the enactment of 
Public Law 111-148, the Health Care and Education Reconciliation Act of 
2010, Public L. 111-152 (enacted on March 30, 2010), amended certain 
provisions of Public Law 111-148. A number of the provisions of Public 
Law 111-148, as amended by Public Law 111-152, affect the IPPS and the 
LTCH PPS and the providers and suppliers addressed in this proposed 
rule. However, due to the timing of the passage of the legislation, we 
are unable to address those provisions in this proposed rule. 
Therefore, the proposed policies and payment rates in this proposed 
rule do not reflect the new legislation. We plan to issue separate 
documents in the Federal Register addressing the provisions of Public 
Law 111-148, as amended, that affect our proposed policies and payment 
rates for FY 2011 under the IPPS and LTCH PPS, as well as the 
provisions of Public Law 111-148, as amended, that affect the policies 
and payment rates for FY 2010 under the IPPS and LTCH PPS.
    Section 1886(b)(3)(B)(i)(XX) of the Act, as amended by section 
5001(a) of Public Law 109-171, sets the FY 2011 percentage increase in 
the operating cost standardized amount equal to the rate-of-increase in 
the hospital market basket for IPPS hospitals in all areas, subject to 
the hospital submitting quality information under rules established by 
the Secretary in accordance with section 1886(b)(3)(B)(viii) of the 
Act. For hospitals that do not provide these data, the update is equal 
to the market basket percentage increase less 2.0 percentage points.
    Consistent with current law, based on IHS Global Insight, Inc.'s 
first quarter 2010 forecast, with historical data through the 2009 
fourth quarter, of the FY 2011 IPPS market basket increase, we are 
estimating that the FY 2011 update to the standardized amount will be 
2.4 percent (that is, the current estimate of the market basket rate-
of-increase) for hospitals in all areas, provided the hospital submits 
quality data in accordance with our rules. For hospitals that do not 
submit quality data, we are estimating that the update to the 
standardized amount will be 0.4 percent (that is, the current estimate 
of the market basket rate-of-increase minus 2.0 percentage points).
    Section 1886(d)(9)(C)(1) of the Act is the basis for determining 
the percentage increase to the Puerto Rico-specific standardized 
amount. For FY 2011, we are proposing to apply the full rate-of-
increase in the hospital market basket for IPPS hospitals to the Puerto 
Rico-specific standardized amount. Therefore, the update to the Puerto 
Rico-specific standardized amount is estimated to be 2.4 percent.
    Section 1886(b)(3)(B)(iv) of the Act sets the FY 2011 percentage 
increase in the hospital-specific rates applicable to SCHs and MDHs 
equal to the rate set forth in section 1886(b)(3)(B)(i) of the Act 
(that is, the same update factor as for all other hospitals subject to 
the IPPS, or the rate-of-increase in the market basket). Therefore, the 
update to the hospital-specific rates applicable to SCHs and MDHs is 
estimated to be 2.4 or 0.4 percent, depending upon whether the hospital 
submits quality data.
    Section 1886(b)(3)(B)(ii) of the Act is used for purposes of 
determining the percentage increase in the rate-of-increase limits for 
children's and cancer hospitals. Section 1886(b)(3)(B)(ii) of the Act 
sets the percentage increase in the rate-of-increase limits equal to 
the market basket percentage increase. In accordance with Sec.  
403.752(a) of the regulations, RNHCIs are paid under Sec.  413.40, 
which also uses section 1886(b)(3)(B)(ii) of the Act to update the 
percentage increase in the rate-of-increase limits. Section 
1886(j)(3)(C) of the Act addresses the increase factor for the Federal 
prospective payment rate of IRFs. Section 123 of Public Law 106-113, as 
amended by section 307(b) of Public Law 106-554, provides the statutory 
authority for updating payment rates under the LTCH PPS. In addition, 
section 124 of Public Law 106-113 provides the statutory authority for 
updating all aspects of the payment rates for IPFs.
    Currently, children's hospitals, cancer hospitals, and RNHCIs are 
the remaining three types of hospitals still reimbursed under the 
reasonable cost methodology. We are proposing to provide our current 
estimate of the FY 2011 IPPS operating market basket percentage 
increase (2.4 percent) to update the target limits for children's 
hospitals, cancer hospitals, and RNHCIs.
    For FY 2011, as discussed in section VII. of the preamble to this 
proposed rule, we are proposing an update of -0.1 percent to the LTCH 
PPS standard Federal rate, which is based on a proposed market basket 
increase of 2.4 percent (based on IHS Global Insight, Inc.'s first 
quarter 2010 forecast of the FY 2002-based RPL market basket increase 
for FY 2011) and an adjustment of -2.5 percent to account for the 
increase in case-mix in a prior year that resulted from changes in 
coding practices rather than an increase in patient severity.
    Effective for cost reporting periods beginning on or after January 
1, 2005, IPFs are paid under the IPF PPS. IPF PPS payments are based on 
a Federal per diem rate that is derived from the sum of the average 
routine operating, ancillary, and capital costs for each patient day of 
psychiatric care in an IPF, adjusted for budget neutrality.
    IRFs are paid under the IRF PPS for cost reporting periods 
beginning on or after January 1, 2002. For cost reporting periods 
beginning on or after October 1, 2002 (FY 2003), and thereafter, the 
Federal prospective payments to IRFs are based on 100 percent of the 
adjusted Federal IRF prospective payment amount, updated annually (69 
FR 45721).

III. Secretary's Recommendations

    MedPAC is recommending an inpatient hospital update equal to the 
market basket rate of increase for FY 2011. MedPAC's rationale for this 
update recommendation is described in more detail below. As mentioned 
above, section 1886(e)(4)(A) of the Act requires that the Secretary, 
taking into consideration the recommendations of the MedPAC, recommend 
update factors for inpatient hospital services for each fiscal year 
that take into account the amounts necessary for the efficient and 
effective delivery of medically

[[Page 24322]]

appropriate and necessary care of high quality. Consistent with the 
update factor in the President's budget, we are recommending an update 
to the standardized amount of 2.9 percent. We are recommending that 
this same update factor apply to SCHs and MDHs.
    Section 1886(d)(9)(C)(i) of the Act is the basis for determining 
the percentage increase to the Puerto Rico-specific standardized 
amount. For FY 2011, we are proposing to apply the full rate-of-
increase in the hospital market basket for IPPS hospitals to the Puerto 
Rico-specific standardized amount. Therefore, the update to the Puerto 
Rico-specific standardized amount is estimated to be 2.4 percent.
    In addition to making a recommendation for IPPS hospitals, in 
accordance with section 1886(e)(4)(A) of the Act, we also are 
recommending update factors for all other types of hospitals. 
Consistent with the update factor in the President's budget, we are 
recommending an update for children's hospitals, cancer hospitals, and 
RNHCIs of 2.9 percent.
    For FY 2011, consistent with the proposal set forth in section VII. 
of the preamble of this proposed rule, we are recommending an update of 
-0.1 percent to the LTCH PPS standard Federal rate. In addition, based 
on IHS Global Insight, Inc.'s first quarter 2010 forecast of the RPL 
market basket increase, we are recommending an update of 2.4 percent to 
the IRF PPS Federal rate for FY 2011 and an update of 2.4 percent to 
the IPF PPS Federal rate for RY 2011 for the Federal per diem payment 
amount.

IV. MedPAC Recommendation for Assessing Payment Adequacy and Updating 
Payments in Traditional Medicare

    In its March 2010 Report to Congress, MedPAC assessed the adequacy 
of current payments and costs, and the relationship between payments 
and an appropriate cost base. MedPAC recommended an update to the 
hospital inpatient rates equal to the increase in the hospital market 
basket in FY 2011, concurrent with implementation of a quality 
incentive program. MedPAC's reasoning is that under a quality program, 
an individual hospital's quality performance should determine whether 
its net increase in payments is above or below the market basket 
increase. MedPAC noted the importance of hospitals to control their 
costs rather than accommodate the current rate of cost growth.
    MedPAC also noted that indicators of payment adequacy are positive. 
MedPAC expects Medicare margins to remain low in 2011. At the same time 
though, MedPAC's analysis finds that high-performing hospitals have 
been able to maintain relatively low costs while maintaining a 
relatively high quality of care. In addition, roughly half of these 
providers are generating a profit on their Medicare business.
    Response: Similar to our response last year, we agree with MedPAC 
that hospitals should control costs rather than have Medicare 
accommodate the current rate of growth. As MedPAC noted, the lack of 
financial pressure at certain hospitals can lead to higher costs and in 
turn bring down the overall Medicare margin for the industry.
    In addition to the quality data that hospitals are required to 
submit to CMS, as discussed in section II. of the preamble of this 
proposed rule, CMS implemented the MS-DRGs in FY 2008 to better account 
for severity of illness under the IPPS and is basing the DRG weights on 
costs rather than charges. We continue to believe that these 
refinements will better match Medicare payment of the cost of care and 
provide incentives for hospitals to be more efficient in controlling 
costs.
    We note that, because the operating and capital prospective payment 
systems remain separate, we are continuing to use separate updates for 
operating and capital payments. The proposed update to the capital rate 
is discussed in section III. of the Addendum to this proposed rule.

[FR Doc. 2010-9163 Filed 4-19-10; 4:15 pm]
BILLING CODE 4120-01-P
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