[Federal Register Volume 77, Number 92 (Friday, May 11, 2012)]
[Proposed Rules]
[Pages 27870-28192]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-9985]



[[Page 27869]]

Vol. 77

Friday,

No. 92

May 11, 2012

Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Parts 412, 413, 424, et. al





Medicare Program; Hospital Inpatient Prospective Payment Systems for 
Acute Care Hospitals and the Long-Term Care Hospital Prospective 
Payment System and Fiscal Year 2013 Rates; Hospitals' Resident Caps for 
Graduate Medical Education Payment Purposes; Quality Reporting 
Requirements for Specific Providers and for Ambulatory Surgical 
Centers; Proposed Rule

Federal Register / Vol. 77, No. 92 / Friday, May 11, 2012 / Proposed 
Rules

[[Page 27870]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412, 413, 424, 476, and 489

[CMS-1588-P]
RIN 0938-AR12


Medicare Program; Hospital Inpatient Prospective Payment Systems 
for Acute Care Hospitals and the Long-Term Care Hospital Prospective 
Payment System and Fiscal Year 2013 Rates; Hospitals' Resident Caps for 
Graduate Medical Education Payment Purposes; Quality Reporting 
Requirements for Specific Providers and for Ambulatory Surgical Centers

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 and to implement certain 
statutory provisions contained in the Patient Protection and Affordable 
Care Act and the Health Care and Education Reconciliation Act of 2010 
(collectively known as the Affordable Care Act) and other legislation. 
These changes would be applicable to discharges occurring on or after 
October 1, 2012. We also are proposing to update the rate-of-increase 
limits for certain hospitals excluded from the IPPS that are paid on a 
reasonable cost basis subject to these limits. The updated rate-of-
increase limits would be effective for cost reporting periods beginning 
on or after October 1, 2012.
    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) and implementing certain statutory changes made by the 
Affordable Care Act. These proposed changes would be applicable to 
discharges occurring on or after October 1, 2012.
    In addition, we are proposing changes relating to determining a 
hospital's full-time equivalent (FTE) resident cap for the purpose of 
graduate medical education (GME) and indirect medical education (IME) 
payments. We are proposing new requirements or revised requirements for 
quality reporting by specific providers (acute care hospitals, PPS-
exempt cancer hospitals, LTCHs, and inpatient psychiatric facilities 
(IPFs)) that are participating in Medicare. We also are proposing new 
administrative, data completeness, and extraordinary circumstance 
waivers or extension requests requirements, as well as a 
reconsideration process, for quality reporting by ambulatory surgical 
centers (ASCs) that are participating in Medicare.
    We are proposing requirements for the Hospital Value-Based 
Purchasing (VBP) Program and the Hospital Readmissions Reduction 
Program.

DATES: Comment Period: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
EDT on June 25, 2012.

ADDRESSES: When commenting, please refer to file code CMS-1588-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-1588-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-1588-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-1588-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, 
Graduate Medical Education, Capital Prospective Payment, Excluded 
Hospitals, Medicare Disproportionate Share Hospital (DSH), and 
Postacute Care Transfer 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.
    Mollie Knight, (410) 786-7948, Market Basket for LTCHs Issues.
    Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital 
Demonstration Program Issues.
    James Poyer, (410) 786-2261, Inpatient Quality Reporting and 
Hospital Value-Based Purchasing--Program Administration, Validation, 
and Reconsideration Issues.
    Shaheen Halim, (410) 786-0641, Inpatient Quality Reporting--
Measures Issues Except Hospital Consumer Assessment of Healthcare 
Providers and Systems Issues; and Readmission Measures for Hospitals 
Issues.
    Elizabeth Goldstein, (410) 786-6665, Inpatient Quality Reporting--
Hospital Consumer Assessment of Healthcare Providers and Systems 
Measures Issues.
    Mary Pratt, (410) 786-6867, LTCH Quality Data Reporting Issues.
    Kim Spaulding Bush, (410) 786-3232, Hospital Value-Based Purchasing 
Efficiency Measures Issues.
    James Poyer, (410) 786-2261, and Barbara Choo, (410) 786-4449, 
Inpatient Psychiatric Facility Quality Reporting Issues and PPS-Exempt 
Cancer Hospital Quality Reporting Issues.

[[Page 27871]]

    Anita Bhatia, (410) 786-7236, Ambulatory Surgical Center Quality 
Reporting 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 the 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 4:00 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 the U.S. Government Printing Office 
Web page at: http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=FR. 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), 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).

Tables Available Only Through the Internet on the CMS Web Site

    In the past, a majority of the tables referred to throughout this 
preamble and in the Addendum to this proposed rule were published in 
the Federal Register as part of the annual proposed and final rules. 
However, beginning in FY 2012, some of the IPPS tables and LTCH PPS 
tables are no longer published as part of the annual IPPS and LTCH PPS 
proposed and final rules. Instead, these tables will be available only 
through the Internet. The IPPS tables for this proposed rule are 
available only through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp. Click on the link 
on the left side of the screen titled, ``FY 2013 IPPS Final Rule Home 
Page'' or ``Acute Inpatient--Files for Download''. The LTCH PPS tables 
for this FY 2013 proposed rule are available only through the Internet 
on the CMS Web site at: http://www.cms.gov/LongTermCareHospitalPPS/LTCHPPSRN/list.asp under the list item for Regulation Number CMS-1588-
F. For complete details on the availability of the tables referenced in 
this proposed rule, we refer readers to section VI. of the Addendum to 
this proposed rule.
    Readers who experience any problems accessing any of the tables 
that are posted on the CMS Web sites identified above should contact 
Nisha Bhat at (410) 786-4487.

Acronyms

3M 3M Health Information System
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
ASCQR Ambulatory Surgical Center Quality Reporting
ASITN American Society of Interventional and Therapeutic 
Neuroradiology
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999, Public 
Law 106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Benefits Improvement and Protection Act of 2000, 
Public Law 106-554
BLS Bureau of Labor Statistics
CAH Critical access hospital
CARE [Medicare] Continuity Assessment Record & Evaluation 
[Instrument]
CART CMS Abstraction & Reporting Tool
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCR Cost-to-charge ratio
CDAC [Medicare] Clinical Data Abstraction Center
CDAD Clostridium difficile-associated disease
CDC Center for Disease Control and Prevention
CIPI Capital input price index
CMI Case-mix index
CMS Centers for Medicare & Medicaid Services
CMSA Consolidated Metropolitan Statistical Area
COBRA Consolidated Omnibus Reconciliation Act of 1985, Public Law 
99-272
COLA Cost-of-living adjustment
CoP [Hospital] condition of participation
CPI Consumer price index
CRNA Certified Registered Nurse Anesthetist
CY Calendar year
DPP Disproportionate patient percentage
DRA Deficit Reduction Act of 2005, Public Law 109-171
DRG Diagnosis-related group
DSH Disproportionate share hospital
ECI Employment cost index
EDB [Medicare] Enrollment Database
EHR Electronic health record
EMR Electronic medical record
FAH Federation of Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
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 Insurance Portability and Accountability Act of 1996, Public 
Law 104-191
HIPC Health Information Policy Council
HIS Health information system
HIT Health information technology
HMO Health maintenance organization
HPMP Hospital Payment Monitoring Program
HSA Health savings account
HSCRC [Maryland] Health Services Cost Review Commission
HSRV Hospital-specific relative value
HSRVcc Hospital-specific relative value cost center
HQA Hospital Quality Alliance
HQI Hospital Quality Initiative
ICD-9-CM International Classification of Diseases, Ninth Revision, 
Clinical Modification
ICD-10-CM International Classification of Diseases, Tenth Revision, 
Clinical Modification

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ICD-10-PCS International Classification of Diseases, Tenth Revision, 
Procedure Coding System
ICR Information collection requirement
IGI IHS Global Insight, Inc.
IHS Indian Health Service
IME Indirect medical education
I-O Input-Output
IOM Institute of Medicine
IPF Inpatient psychiatric facility
IPPS [Acute care hospital] inpatient prospective payment system
IRF Inpatient rehabilitation facility
IQR Inpatient Quality Reporting
LAMCs Large area metropolitan counties
LOS Length of stay
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
LTCHQR Long-Term Care Hospital Quality Reporting
MA Medicare Advantage
MAC Medicare Administrative Contractor
MCC Major complication or comorbidity
MCE Medicare Code Editor
MCO Managed care organization
MCV Major cardiovascular condition
MDC Major diagnostic category
MDH Medicare-dependent, small rural hospital
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare Provider Analysis and Review File
MEI Medicare Economic Index
MGCRB Medicare Geographic Classification Review Board
MIEA-TRHCA Medicare Improvements and Extension Act, Division B of 
the Tax Relief and Health Care Act of 2006, Public Law 109-432
MIPPA Medicare Improvements for Patients and Providers Act of 2008, 
Public Law 110-275
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003, Public Law 108-173
MMEA Medicare and Medicaid Extenders Act of 2010, Public Law 111-309
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public 
Law 110-173
MRHFP Medicare Rural Hospital Flexibility Program
MRSA Methicillin-resistant Staphylococcus aureus
MSA Metropolitan Statistical Area
MS-DRG Medicare severity diagnosis-related group
MS-LTC-DRG Medicare severity long-term care diagnosis-related group
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
NHSN National Healthcare Safety Network
NQF National Quality Forum
NTIS National Technical Information Service
NTTAA National Technology Transfer and Advancement Act of 1991 (Pub. 
L. 104-113)
NVHRI National Voluntary Hospital Reporting Initiative
OACT [CMS'] Office of the Actuary
OBRA 86 Omnibus Budget Reconciliation Act of 1996, Public Law 99-509
OES Occupational employment statistics
OIG Office of the Inspector General
OMB Executive Office of Management and Budget
OPM U.S. Office of Personnel Management
O.R. Operating room
OSCAR Online Survey Certification and Reporting [System]
PCH PPS-exempt cancer hospital
PCHQR PPS-exempt cancer hospital quality reporting
PMSAs Primary metropolitan statistical areas
POA Present on admission
PPACA Patient Protection and Affordable Care Act, Public Law 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
SSO Short-stay outlier
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law 
97-248
TEP Technical expert panel
TMA TMA [Transitional Medical Assistance], Abstinence Education, and 
QI [Qualifying Individuals] Programs Extension Act of 2007, Public 
Law 110-90
TPS Total Performance Score
UHDDS Uniform hospital discharge data set

Table of Contents

I. Executive Summary and Background
    A. Executive Summary
    1. Purpose and Legal Authority
    2. Summary of the Major Provisions of Rule
    3. Summary of Costs and Benefits
    B. Background
    1. Acute Care Hospital Inpatient Prospective Payment System 
(IPPS)
    2. Hospitals and Hospital Units Excluded From the IPPS
    3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
    4. Critical Access Hospitals (CAHs)
    5. Payments for Graduate Medical Education (GME)
    C. Provisions of the Patient Protection and Affordable Care Act 
(Pub. L. 111-148) and the Health Care and Education Reconciliation 
Act of 2010 (Pub. L. 111-152) Applicable to FY 2013
    D. Major Contents of This Proposed Rule
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 2013 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 Pub. L. 110-90
    4. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data
    5. Prospective Adjustment for FY 2008 and FY 2009 Authorized by 
Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) 
of the Act
    6. Recoupment or Repayment Adjustment Authorized by Section 
7(b)(1)(B) of Public Law 110-90
    7. Background on the Application of the Documentation and Coding 
Adjustment to the Hospital-Specific Rates
    8. Documentation and Coding Adjustment to the Hospital-Specific 
Rates for FY 2011 and Subsequent Fiscal Years
    9. Application of the Documentation and Coding Adjustment to the 
Puerto Rico-Specific Standardized Amount
    a. Background
    b. Documentation and Coding Adjustment to the Puerto Rico-
Specific Standard Amount
    10. Proposed Prospective Adjustments for FY 2010 Documentation 
and Coding Effect
    E. Refinement of the MS-DRG Relative Weight Calculation
    1. Background
    2. Summary of Policy Discussions in FY 2012
    3. Discussion for FY 2013
    F. Preventable Hospital-Acquired Conditions (HACs), Including 
Infections
    1. Background
    2. HAC Selection

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    a. Diagnosis Codes Proposed To Be Added to Existing HACs
    b. Proposals To Add New HAC Candidate: Surgical Site Infection 
(SSI) Following Cardiac Implantable Electronic Device (CIED) 
Procedures
    c. Proposal Regarding Previously Considered HAC Candidate: 
Iatrogenic Pneumothorax With Venous Catheterization
    3. Present on Admission (POA) Indicator Reporting
    4. HACs and POA Reporting in ICD-10-CM and ICD-10-PCS
    5. Proposed Changes to the HAC Policy for FY 2013
    6. RTI Program Evaluation Summary
    G. Proposed Changes to Specific MS-DRG Classifications
    1. Pre-Major Diagnostic Categories (Pre-MDCs)
    a. Ventricular Assist Device
    b. Allogeneic Bone Marrow Transplant
    2. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and 
Throat): Influenza With Pneumonia
    3. MDC 5 (Diseases and Disorders of the Circulatory System)
    a. Mitral Valve Repair
    b. Endovascular Implantation of Branching or Fenestrated Grafts 
in Aorta
    4. MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and 
Disorders): Disorders of Porphyrin Metabolism
    5. Proposed Medicare Code Editor (MCE) Changes
    6. Surgical Hierarchies
    7. Complications or Comorbidity (CC) Exclusions List
    a. Background
    b. CC Exclusions List for FY 2013
    (1) No Revisions Based on Changes to the ICD-9-CM Diagnosis 
Codes for FY 2013
    (2) Suggested Changes to MS-DRG Severity Levels for Diagnosis 
Codes for FY 2013
    (A) Protein-Calorie Malnutrition
    (B) Antineoplastic Chemotherapy Induced Anemia
    (C) Cardiomyopathy and Congestive Heart Failure, Unspecified
    (D) Chronic Total Occlusion of Artery of the Extremities
    (E) Acute Kidney Failure With Other Specified Pathological 
Lesion in Kidney
    (F) Pressure Ulcer, Unstageable
    8. Review of Procedure Codes in MS-DRGs 981 Through 983, 984 
Through 986, and 987 Through 989
    a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-
DRGs 987 Through 989 Into MDCs
    b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984 
Through 986, and 987 Through 989
    c. Adding Diagnosis or Procedure Codes to MDCs
    9. Proposed 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
    d. ICD-10 MS-DRGs
    H. Recalibration of MS-DRG Weights
    1. Data Sources for Developing the Proposed Weights
    2. Methodology for Calculation of the Proposed Relative Weights
    3. Development of National Average CCRs
    4. Bundled Payments for Care Improvement (BPCI) Initiative
    I. Proposed Add-On Payments for New Services and Technologies
    1. Background
    2. Public Input Before Publication of a Notice of Proposed 
Rulemaking on Add-On Payments
    3. FY 2013 Status of Technology Approved for FY 2012 Add-On 
Payments: AutoLaser Interstitial Thermal Therapy (AutoLITT\TM\)
    4. FY 2013 Applications for New Technology Add-On Payments
    a. Glucarpidase (Trade Brand Voraxaze[supreg])
    b. DIFICID\TM\ (Fidaxomicin) Tablets
    c. Zilver[supreg] PTX[supreg] Drug-Eluting Stent
    d. Zenith[supreg] Fenestrated Abdominal Aortic Aneurysm (AAA) 
Endovascular Graft
III. Proposed Changes to the Hospital Wage Index for Acute Care 
Hospitals
    A. Background
    B. Core-Based Statistical Areas for the Hospital Wage Index
    C. Worksheet S-3 Wage Data for the Proposed FY 2013 Wage Index
    1. Included Categories of Costs
    2. Excluded Categories of Costs
    3. Use of Wage Index Data by Providers Other Than Acute Care 
Hospitals Under the IPPS
    D. Verification of Worksheet S-3 Wage Data
    E. Method for Computing the Proposed FY 2013 Unadjusted Wage 
Index
    F. Proposed Occupational Mix Adjustment to the FY 2013 Wage 
Index
    G. Analysis and Implementation of the Proposed Occupational Mix 
Adjustment and the Proposed FY 2013 Occupational Mix Adjusted Wage 
Index
    1. Analysis of the Occupational Mix Adjustment and the 
Occupational Mix Adjusted Wage Index
    2. Application of the Rural, Imputed, and Frontier Floors
    a. Rural Floor
    b. Imputed Floor and Proposal for an Alternative, Temporary 
Methodology for Computing the Imputed Floor
    c. Frontier Floor
    3. Proposed FY 2013 Wage Index Tables
    H. Revisions to the Wage Index Based on Hospital Redesignations 
and Reclassifications
    1. General
    2. Effects of Reclassification/Redesignation
    3. FY 2013 MGCRB Reclassifications
    a. FY 2013 Reclassification Requirements and Approvals
    b. Applications for Reclassifications for FY 2014
    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
    7. Waiving Lugar Redesignation for the Out-Migration Adjustment
    8. Other Geographic Reclassification Issues
    a. Requested Reclassification for Single Hospital MSAs
    b. Requests for Exceptions to Geographic Reclassification Rules
    I. Proposed FY 2013 Wage Index Adjustment Based on Commuting 
Patterns of Hospital Employees
    J. Process for Requests for Wage Index Data Corrections
    K. Labor-Related Share for the FY 2013 Wage Index
IV. Other Proposed Decisions and Changes to the IPPS for Operating 
Costs and GME Costs
    A. Hospital Readmission Reduction Program
    1. Statutory Basis for the Hospital Readmissions Reduction 
Program
    2. Overview
    3. FY 2013 Proposed Policies for the Hospital Readmissions 
Reduction Program
    a. Overview
    b. Proposals Regarding Base Operating DRG Payment Amount, 
Including Special Rules for SCHs and MDHs and Hospitals Paid Under 
Section 1814 of the Act
    (1) Proposed Definition of Base Operating DRG Payment Amount 
(Proposed Sec.  412.152)
    (2) Proposal on Special Rules for Certain Hospitals: Hospitals 
Paid Under Section 1814(b)(3) of the Act (Proposed Sec.  412.154(d))
    c. Proposals Regarding Adjustment Factor (Both the Ratio and 
Floor Adjustment Factor (Proposed Sec.  412.154(c))
    d. Proposals Regarding Aggregate Payments for Excess 
Readmissions and Aggregate Payment for All Discharges (Proposed 
Sec.  412.152)
    e. Proposals Regarding Applicable Hospital (Proposed Sec.  
412.152)
    4. Limitations on Review (Proposed Sec.  412.154(e))
    5. Reporting Hospital-Specific Information, Including 
Opportunity To Review and Submit Corrections ((Proposed Sec.  
412.154(f))
    B. Sole Community Hospitals (SCHs) (Sec.  412.92)
    1. Background
    2. Clarification of Regulations Regarding Duration of 
Classification (Proposed Sec.  412.92(b)(3)(iv))
    3. Proposed Change to Effective Date of Classification for MDHs 
Applying for SCH Status Upon the Expiration of the MDH Program 
(Proposed Sec.  412.92(b)(3)(v))
    C. Rural Referral Centers (RRCs): Annual Update to Case-Mix 
Index (CMI) and Discharge Criteria (Sec.  412.96)
    1. Case-Mix Index (CMI)
    2. Discharges
    D. Proposed Payment Adjustment for Low-Volume Hospitals (Sec.  
412.101)
    1. Expiration of the Affordable Care Act Provision for FYs 2011 
and 2012
    2. Background
    3. Affordable Care Act Provisions for FYs 2011 and 2012
    4. Proposed Payment Adjustment for FY 2013 and Subsequent Years

[[Page 27874]]

    E. Indirect Medical Education (IME) Adjustment (Sec.  412.105)
    1. IME Adjustment Factor for FY 2013
    2. Clarification and Proposal Regarding Timely Filing 
Requirements Under Fee-for-Service Medicare
    F. Payment Adjustment for Medicare Disproportionate Share 
Hospitals (DSHs) and Indirect Medical Education (IME) (Sec. Sec.  
412.105 and 412.106)
    1. Background
    2. Proposed Policy Change Relating to Treatment of Labor and 
Delivery Beds in the Calculation of the Medicare DSH Payment 
Adjustment and the IME Payment Adjustment
    G. Medicare-Dependent, Small Rural Hospital (MDH) Program (Sec.  
412.108)
    H. Proposed Changes in the Inpatient Hospital Update
    1. FY 2013 Inpatient Hospital Update
    2. FY 2013 Puerto Rico Hospital Update
    I. Payment for Graduate Medical Education Costs
    1. Background
    2. New Teaching Hospitals: Proposed Change in New Growth Period 
From 3 Years to 5 Years
    3. Clarification Related to 5-Year Period Following 
Implementation of Reductions and Increases to Hospitals' FTE 
Resident Caps for GME Payment Purposes Under Section 5503 of the 
Affordable Care Act
    4. Preservation of Resident Cap Positions From Closed Hospitals 
(Section 5506 of the Affordable Care Act)
    a. Background
    b. Proposed Change in Amount of Time Provided for Submitting 
Applications Under Section 5506 of the Affordable Care Act
    c. Proposed Change to the Ranking Criteria Under Section 5506
    d. Effective Dates of Slots Awarded Under Section 5506
    e. Clarification of Relationship Between Ranking Criteria One, 
Two, and Three
    f. Proposed Modifications to the Section 5506 CMS Evaluation 
Form
    J. Proposed Changes to the Reporting Requirements for Pension 
Costs for Medicare Cost-Finding Purposes
    K. Rural Community Hospital Demonstration Program
    1. Background
    2. Proposed FY 2013 Budget Neutrality Offset Amount
    L. Hospital Routine Services Furnished Under Arrangements
    M. Proposed Technical Change
V. Proposed Changes to the IPPS for Capital-Related Costs
    A. Overview
    B. Additional Provisions
    1. Exception Payments
    2. New Hospitals
    3. Hospitals Located in Puerto Rico
    C. Proposed Changes in the Documentation and Coding Adjustment 
for FY 2013
    1. Background
    2. Prospective Documentation and Coding Adjustment to the 
National Capital Federal Rate for FY 2013 and Subsequent Years
    3. Documentation and Coding Adjustment to the Puerto Rico-
Specific Capital Rate
    D. Proposed Changes for Annual Update for FY 2013
VI. Proposed Changes for Hospitals Excluded From the IPPS
VII. Proposed Changes to the Long-Term Care Hospital Prospective 
Payment System (LTCH PPS) for FY 2013
    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 for FY 2013
    1. Background
    2. Patient Classifications Into MS-LTC-DRGs
    a. Background
    b. Proposed Changes to the MS-LTC-DRGs for FY 2013
    3. Development of the Proposed FY 2013 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 2013
    c. Data
    d. Hospital-Specific Relative Value (HSRV) Methodology
    e. Proposed Treatment of Severity Levels in Developing the MS-
LTC-DRG Relative Weights
    f. Proposed Low-Volume MS-LTC-DRGs--Steps for Determining the 
Proposed FY 2013 MS-LTC-DRG Relative Weights
    g. Steps for Determining the Proposed FY 2013 MS-LTC-DRG 
Relative Weights
    C. Proposed Use of a LTCH-Specific Market Basket Under the LTCH 
PPS
    1. Background
    2. Overview of the Proposed FY 2009-Based LTCH-Specific Market 
Basket
    3. Proposed Development of a LTCH-Specific Market Basket
    a. Development of Cost Categories
    b. Cost Category Computation
    c. Selection of Price Proxies
    d. Proposed Methodology for the Capital Portion of the Proposed 
FY 2009-Based LTCH-Specific Market Basket
    e. Proposed FY 2013 Market Basket for LTCHs
    f. Proposed FY 2013 Labor-Related Share
    D. Proposed Changes to the LTCH Payment Rates and Other Changes 
to the FY 2013 LTCH PPS
    1. Overview of Development of the LTCH Payment Rates
    2. Proposed FY 2013 LTCH PPS Annual Market Basket Update
    a. Overview
    b. Revision of Certain Market Basket Updates as Required by the 
Affordable Care Act
    c. Proposed Market Basket Under the LTCH PPS for FY 2013
    d. Proposed Annual Market Basket Update for LTCHs for FY 2013
    3. Proposed LTCH PPS Cost-of-Living Adjustment (COLA) for LTCHs 
Located in Alaska and Hawaii
    E. Expiration of Certain Payment Rules for LTCH Services and the 
Moratorium on the Establishment of Certain Hospitals and Satellite 
Facilities and on the Increase in Number of Beds at in LTCHs and 
LTCH Satellite Facilities
    1. Background
    2. The 25-Percent Payment Adjustment Threshold
    3. The ``IPPS Comparable Per Diem Amount'' Payment Option for 
Very Short Stays Under the SSO Policy
    4. Proposed One-Time Prospective Adjustment to the Standard 
Federal Rate Under Sec.  412.523(d)(3)
VIII. Proposed Quality Data Reporting Requirements for Specific 
Providers and Suppliers
    A. Hospital Inpatient Quality Reporting (IQR) Program
    1. Background
    a. History of Measures Adopted for the Hospital IQR Program
    b. Maintenance of Technical Specifications for Quality Measures
    c. Public Display of Quality Measures
    2. Removal and Suspension of Hospital IQR Program Measures
    a. Considerations in Removing Quality Measures From the Hospital 
IQR Program
    b. Hospital IQR Program Measures Removed in Previous Rulemakings
    c. Proposed Removal of Hospital IQR Program Measures for the FY 
2015 Payment Determination and Subsequent Years
    (1) Proposed Removal of One Chart-Abstracted Measure
    (2) Proposed Removal of 16 Claims-Based Measures
    (A) Proposed Removal of Eight Hospital-Acquired Condition (HAC) 
Measures
    (B) Proposed Removal of Three AHRQ IQI Measures
    (C) Proposed Removal of Five AHRQ PSI Measures
    d. Suspension of Data Collection for the FY 2014 Payment 
Determination and Subsequent Years
    3. Proposed Measures for the FY 2015 and FY 2016 Hospital IQR 
Program Payment Determinations
    a. Additional Considerations in Expanding and Updating Quality 
Measures Under the Hospital IQR Program
    b. Proposed Hospital IQR Program Measures for the FY 2015 
Payment Determination and Subsequent Years
    (1) Process for Retention of Hospital IQR Program Measures 
Adopted in Previous Payment Determinations
    (2) Proposed Additional Hospital IQR Program Measures for FY 
2015 Payment Determination and Subsequent Years
    (A) Proposed New Survey-Based Measure Items for Inclusion in the 
HCAHPS Survey Measure for the FY 2015 Payment Determination and 
Subsequent Years
    (B) Proposed New Claims-Based Measures for the FY 2015 Payment 
Determination and Subsequent Years

[[Page 27875]]

    (C) Proposed New Chart-Abstracted Measure: Elective Delivery 
Prior to 39 Completed Weeks Gestation: Percentage of Babies 
Electively Delivered Prior to 39 Completed Weeks Gestation (NQF 
<greek-i>469)
    (D) Clarification Regarding Existing Hospital IQR Program 
Measures That Have Undergone Changes During NQF Measure Maintenance 
Processes
    c. Proposed Hospital IQR Program Quality Measures for the FY 
2016 Payment Determination and Subsequent Years
    4. Possible New Quality Measures and Measure Topics for Future 
Years
    5. Form, Manner, and Timing of Quality Data Submission
    a. Background
    b. Proposed Procedural Requirements for the FY 2015 Payment 
Determination and Subsequent Years
    c. Proposed Data Submission Requirements for Chart-Abstracted 
Measures
    d. Proposed Sampling and Case Thresholds Beginning With the FY 
2015 Payment Determination
    e. Proposed HCAHPS Requirements for the FY 2014, FY 2015, and FY 
2016 Payment Determinations
    f. Proposed Data Submission Requirements for Structural Measures
    g. Proposed Data Submission and Reporting Requirements for 
Healthcare-Associated Infection (HAI) Measures Reported via NHSN
    6. Proposed Supplements to the Chart Validation Process for the 
Hospital IQR Program for the FY 2015 Payment Determination and 
Subsequent Years
    a. Separate Validation Approaches for Chart-Abstracted Clinical 
Process of Care and HAI Measures
    (1) Background and Rationale
    (2) Selection and Sampling of Clinical Process of Care Measures 
for Validation
    (3) Selection and Sampling of HAI Measures for Validation
    (4) Validation Scoring for Chart-Abstract Clinical Process of 
Care and HAI Measures
    (5) Criteria To Evaluate Whether a Score Passes or Fails
    b. Number and Manner of Selection for Hospitals Included in the 
Base Annual Validation Random Sample
    c. Targeting Criteria for Selection of Supplemental Hospitals 
for Validation
    7. Proposed Data Accuracy and Completeness Acknowledgement 
Requirements for the FY 2015 Payment Determination and Subsequent 
Years
    8. Public Display Requirements for the FY 2015 Payment 
Determination and Subsequent Years
    9. Reconsideration and Appeal Procedures for the FY 2015 Payment 
Determination
    10. Hospital IQR Program Disaster Extensions or Waivers
    11. Electronic Health Records (EHRs)
    a. Background
    b. HITECH Act EHR Provisions
    B. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program
    1. Statutory Authority
    2. Covered Entities
    3. Proposed Quality Measures for PCHs for FY 2014 Program and 
Subsequent Program Years
    a. Considerations in the Selection of the Quality Measures
    b. Proposed PCHQR Program Quality Measures for FY 2014 Program 
and Subsequent Program Years
    (1) Proposed CDC/NHSN-Based Healthcare-Associated Infection 
(HAI) Measures
    (A) Proposed Central Line Associated Blood Stream Infections 
((CLABSI), NQF <greek-i>0139)
    (B) Proposed Catheter Associated Urinary Tract Infection 
((CAUTI), NQF <greek-i>0138)
    (2) Proposed Cancer-Specific Measures
    (A) Proposed Adjuvant Chemotherapy Is Considered or Administered 
Within 4 Months (120 Days) of Surgery to Patient Under the Age of 80 
With AJCC III (Lymph Node Positive Colon Cancer) (NQF <greek-i>0223)
    (B) Proposed Combination Chemotherapy Is Considered or 
Administered Within 4 Months (120 Days) of Diagnosis for Women Under 
70 With AJCC T1c or Stage II or III Hormone Receptor Negative Breast 
Cancer (NQF <greek-i>0559)
    (C) Proposed Adjuvant Hormonal Therapy (NQF <greek-i>0220)
    4. Possible New Quality Measure Topics for Future Years
    5. Maintenance of Technical Specifications for Quality Measures
    6. Proposed Public Display Requirements for the FY 2014 Program 
and Subsequent Program Years
    7. Proposed Form, Manner, and Timing of Data Submission for FY 
2014 Program and Subsequent Program Years
    a. Background
    b. Proposed Procedural Requirements for FY 2014 Program and 
Subsequent Program Years
    c. Proposed Reporting Mechanisms for FY 2014 Program and 
Subsequent Program Years
    (1) Proposed Reporting Mechanism for the Proposed HAI Measures
    (2) Proposed Reporting Mechanism for the Proposed Cancer-
Specific Measures
    d. Proposed Data Submission Timelines for FY 2014 Program and 
Subsequent Program Years
    e. Proposed Data Accuracy and Completeness Acknowledgement 
(DACA) Requirements for FY 2014 Program and Subsequent Program Years
    C. Hospital Value-Based Purchasing (VBP) Program
    1. Statutory Background
    2. Overview of the FY 2013 Hospital VBP Program
    3. FY 2014 Hospital VBP Program Measures
    4. Other Previously Finalized Requirements for the Hospital VBP 
Program
    5. Proposed Hospital VBP Payment Adjustment Calculation 
Methodology
    a. Proposed Definitions of the Term ``Base Operating DRG Payment 
Amount'' for Purposes of the Hospital VBP Program
    b. Proposals for Calculating the Funding Amount for Value-Based 
Incentive Payments Each Year
    c. Proposed Methodology To Calculate the Value-Based Incentive 
Payment Adjustment
    d. Proposed Timing of the Base Operating DRG Payment Amount 
Reduction and Value-Based Incentive Payment Adjustment for FY 2013 
and Future Hospital VBP Program Years
    e. Proposed Process for Reducing the Base Operating DRG Payment 
Amount and Applying the Value-Based Incentive Payment Amount 
Adjustment for FY 2013
    6. Proposed Review and Corrections Processes
    a. Background
    b. Proposed Review and Corrections Process for Claims-Based 
Measure Rates
    c. Proposed Review and Corrections Process for Condition-
Specific Scores, Domain-Specific Scores and TSPs
    7. Proposed Appeal Process Under the Hospital VBP Program
    a. Background
    b. Proposed Appeal Process
    8. Proposed Measures for the FY 2015 Hospital VBP Program
    a. Relationship Between the National Strategy and the Hospital 
VBP Program
    b. Proposed FY 2015 Measures
    c. Proposed General Process for Hospital VBP Program Measure 
Adoption for Future Program Years
    9. Proposed Measures and Domains for the FY 2016 Hospital VBP 
Program
    a. Proposed FY 2016 Measures
    b. Proposed Quality Measure Domains for the FY 2016 Hospital VBP 
Program
    c. Proposed Performance Standards for FY 2016 Hospital VBP 
Program Measures
    10. Proposed Performance Periods and Baseline Periods for the FY 
2015 Hospital VBP Program
    a. Proposed Clinical Process of Care Domain Performance Period 
and Baseline Periods for FY 2015
    b. Proposed Patient Experience of Care Domain Performance Period 
and Baseline Period for FY 2015
    c. Proposed Efficiency Domain Measure Performance Period and 
Baseline Period for FY 2015
    d. Proposed Outcome Domain Performance Periods for FY 2015
    (1) Mortality Measures
    (2) Proposed AHRQ PSI Composite Measure
    (3) CLABSI Measure
    e. Proposed Performance Periods for Proposed FY 2016 Measures
    11. Proposed Performance Periods for the Hospital VBP Program 
for FY 2015 and FY 2016
    a. Background
    b. Proposed Performance Standards for the FY 2015 Hospital VBP 
Program Measures
    c. Proposed Performance Standards for FY 2016 Hospital VBP 
Program Measures
    d. Adopting Performance Periods and Standards for Future Program 
Years
    12. Proposed FY 2015 Hospital VBP Program Scoring Methodology
    a. General Hospital VBP Program Scoring Methodology
    b. Proposed Domain Weighting for the FY 2015 Hospital VBP 
Program for Hospitals That Receive a Score on All Four Proposed 
Domains

[[Page 27876]]

    c. Proposed Domain Weighting for Hospitals Receiving Scores on 
Fewer Than Four Domains
    13. Applicability of the Hospital VBP Program to Hospitals
    a. Background
    b. Proposed Exemption Request Process for Maryland Hospitals
    14. Proposed Minimum Numbers of Cases and Measures for the FY 
2015 Program
    a. Background
    b. Proposed Minimum Numbers of Cases and Measures for the FY 
2015 Outcome Domain
    c. Proposed Medicare Spending per Beneficiary Measure Case 
Minimum
    15. Immediate Jeopardy Citations
    D. Long-Term Care Hospital Quality Reporting (LTCHQR) Program
    1. Statutory History
    2. LTCH Program Measures for the FY 2014 Payment Determination 
and Subsequent Fiscal Years Payment Determinations
    a. Proposed Process for Retention of LTCHQR Program Measures 
Adopted in Previous Payment Determinations
    b. Proposed Process for Adoption of Changes to LTCHQR Program 
Measures
    3. Proposal To Retain Previously Adopted Finalized Measures for 
the LTCHQR Program FY 2014 Payment Determination
    4. Proposed LTCHQR Program Quality Measures for the FY 2016 
Payment Determinations and Subsequent Fiscal Years Payment 
Determinations
    a. Considerations in Updating and Expanding Quality Measures 
Under the LTCHQR Program for FY 2016 and Subsequent Payment Update 
Determinations
    b. Proposed New LTCHQR Program Quality Measures Beginning With 
the FY 2016 Payment Determination
    (1) Proposed New Quality Measure <greek-i>1 for the FY 2016 
Payment Determination and Subsequent Fiscal Years Payment 
Determinations: Percent of Nursing Home Residents Who Were Assessed 
and Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) 
(NQF <greek-i>0680)
    (2) Proposed New LTCH Quality Measure <greek-i>2 for the FY 2016 
Payment Determination and Subsequent Fiscal Years Payment 
Determinations: Percentage of Residents or Patients Who Were 
Assessed and Appropriately Given the Pneumococcal Vaccine (Short-
Stay) (NQF <greek-i>0682)
    (3) Proposed New LTCH Quality Measure <greek-i>3 for the FY 2016 
Payment Determination and Subsequent Fiscal Years Payment 
Determinations: Influenza Vaccination Coverage Among Healthcare 
Personnel (NQF <greek-i>0431)
    (4) Proposed New LTCH Quality Measure <greek-i>4 for the FY 2016 
Payment Determination and Subsequent Fiscal Years Payment 
Determinations: Ventilator Bundle (NQF <greek-i>0302)
    (5) Proposed New LTCH Quality Measure <greek-i>5 for the FY 2016 
Payment Determination and Subsequent Fiscal Years Payment 
Determinations: Restraint Rate per 1,000 Patient Days
    5. Proposed Timeline for Data Submission Under the LTCHQR 
Program for the FY 2015 Payment Determination
    6. Proposed Timeline for Data Submission Under the LTCHQR 
Program for the FY 2016 Payment Determination
    7. Proposed Public Display of Data Quality Measures
    E. Proposed Quality Reporting Requirements for Ambulatory 
Surgical Centers (ASCs)
    1. Background
    2. Proposed Requirements for Reporting of ASC Quality Data
    a. Proposed Administrative Requirements
    (1) Proposals Regarding QualityNet Account and Administrator for 
the CYs 2014 and 2015 Payment Determinations
    (2) Proposals Regarding Participation Status for the CY 2014 
Payment Determination and Subsequent Payment Determination Years
    b. Proposals Regarding Form, Manner, and Timing for Claims-Based 
Measures for CYs 2014 and 2015 Payment Determinations
    (1) Background
    (2) Proposed Minimum Threshold for Claims-Based Measures Using 
QDCs
    c. ASC Quality Reporting Program Validation of Claims-Based and 
Structural Measures
    3. Proposed Extraordinary Circumstances Extension or Waiver for 
the CY 2014 Payment Determination and Subsequent Payment 
Determination Years
    4. Proposed ASC Quality Reporting Program Reconsideration 
Procedures for the CY 2014 Payment Determination and Subsequent 
Payment Determination Years
    F. Inpatient Psychiatric Facilities Quality Reporting (IPFQR) 
Program
    1. Statutory Authority
    2. Application of the Payment Update Reduction for Failure To 
Report for FY 2014 Payment Determination and Subsequent Years
    3. Covered Entities
    4. Proposed Quality Measures
    a. Considerations in Selecting Quality Measures
    b. Proposed Quality Measures Beginning With FY 2014 Payment 
Determination and Subsequent Years
    (1) HBIPS-2 (Hours of Physical Restraint Use)
    (2) HBIPS-3 (Hours of Seclusion Use)
    (3) HBIPS-4 (Patients Discharged on Multiple Antipsychotic 
Medications)
    (4) HBIPS-5 (Patients Discharged on Multiple Antipsychotic 
Medications With Appropriate Justification)
    (5) HBIPS-6 (Post Discharge Continuing Care Plan Created)
    (6) HBIPS-7 (Post Discharge Continuing Care Plan Transmitted to 
the Next Level of Care Provider Upon Discharge)
    c. Maintenance of Technical Specifications for Quality Measures
    5. Possible New Quality Measures for Future Years
    6. Public Display Requirements for the FY 2014 Payment 
Determination and Subsequent Years
    7. Form, Manner, and Timing of Quality Data Submission for the 
FY 2014 Payment Determination and Subsequent Years
    a. Background
    b. Proposed Procedural Requirements for the FY 2014 Payment 
Determination and Subsequent Years
    c. Proposed Reporting and Submission Requirements for the FY 
2014 Payment Determination
    d. Proposed Reporting and Submission Requirements for the FY 
2015 and FY 2016 Payment Determinations
    e. Proposed Population, Sampling, and Minimum Case Threshold for 
FY 2014 and Subsequent Years
    f. Proposed Data Accuracy and Completeness Acknowledgement 
Requirements for the FY 2014 Payment Determination and Subsequent 
Years
    8. Reconsideration and Appeals Procedure for the FY 2014 Payment 
Determination and Subsequent Years
    9. Proposed Waivers From Quality Reporting Requirements for the 
FY 2014 Payment Determination and Subsequent Years
    10. Electronic Health Records (EHRs)
IX. MedPAC Recommendations and Other Related Reports and Studies for 
the IPPS and LTCH PPS
    A. MedPAC Recommendations for the IPPS for FY 2013
    B. Studies and Reports on Reforming the Hospital Wage Index
    1. Secretary's Report to Congress on Wage Index Reform
    2. Institute of Medicine (IOM) Study on Medicare's Approach to 
Measuring Geographic Variations in Hospitals' Wage Costs
X. Proposed Quality Improvement Organization (QIO) Regulation 
Changes Relating to Provider and Practitioner Medical Record 
Deadlines and Claim Denials
XI. Other Required Information
    A. Requests for Data From the Public
    B. Collection of Information Requirements
    1. Statutory Requirement for Solicitation of Comments
    2. ICRs for Add-On Payments for New Services and Technologies
    3. ICRs for the Occupational Mix Adjustment to the FY 2013 Index 
(Hospital Wage Index Occupational Mix Survey)
    4. Hospital Applications for Geographic Reclassifications by the 
MGCRB
    5. ICRs for Application for GME/IME Resident Slots
    6. ICRs for the Hospital Inpatient Quality Reporting (IQR) 
Program
    7. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) 
Program
    8. ICRs for Hospital Value-Based Purchasing (VBP) Program
    9. ICRs for the Quality Reporting Program for LTCHs
    10. ICRs for the Ambulatory Surgical Center (ASC) Quality 
Reporting Program
    11. ICRs for the Inpatient Psychiatric Facilities Quality 
Reporting (IPFQR) Program
    C. Response to Public Comments

[[Page 27877]]

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, 2012 and Proposed 
Payment Rates for LTCHs Effective With Discharges Occurring on or After 
October 1, 2012

I. Summary and Background
II. Proposed Changes to the Prospective Payment Rates for Hospital 
Inpatient Operating Costs for Acute Care Hospitals for FY 2013
    A. Calculation of the Proposed 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 2013
    A. Determination of Federal Hospital Inpatient Capital-Related 
Prospective Payment Rate Update
    B. Calculation of the Proposed Inpatient Capital-Related 
Prospective Payments for FY 2013
    C. Capital Input Price Index
IV. Proposed Changes to Payment Rates for Certain Excluded 
Hospitals: Rate-of-Increase Percentages for FY 2013
    V. Proposed Changes to the Payment Rates for the LTCH PPS for FY 
2013
    A. Proposed LTCH PPS Standard Federal Rate for FY 2013
    B. Proposed Adjustment for Area Wage Levels Under the LTCH PPS 
for FY 2013
    1. Background
    2. Geographic Classifications/Labor Market Area Definitions
    3. Proposed LTCH PPS Labor-Related Share
    4. Proposed LTCH PPS Wage Index for FY 2013
    5. Proposed Budget Neutrality Adjustment for Changes to the Area 
Wage Level Adjustment
    C. Proposed LTCH PPS Cost-of-Living Adjustment for LTCHs Located 
in Alaska and Hawaii
    D. Proposed Adjustment for LTCH PPS High-Cost Outlier (HCO) 
Cases
    E. Computing the Proposed Adjusted LTCH PPS Federal Prospective 
Payments for FY 2013
VI. Tables Referenced in This Proposed Rulemaking and Available 
Through the Internet on the CMS Web Site

Appendix A--Economic Analyses

I. Regulatory Impact Analysis
    A. Introduction
    B. Need
    C. Objectives of the IPPS
    D. Limitations of Our Analysis for the IPPS
    E. Hospitals Included in and Excluded From the IPPS
    F. Effects on Hospitals and Hospital Units Excluded From the 
IPPS
    G. Quantitative Effects of the Proposed Policy Changes Under the 
IPPS for Operating Costs
    1. Basis and Methodology of Estimates
    2. Analysis of Table I
    3. Impact Analysis of Table II
    H. Effects of Proposed Other Policy Changes
    1. Effects of Proposed Policy on HACs, Including Infections
    2. Effects of Proposed Policy Changes Relating to New Medical 
Service and Technology Add-On Payments
    3. Effects of Proposed Policy Changes Relating to SCHs
    4. Effects of Proposed Payment Adjustment for Low-Volume 
Hospitals for FY 2013
    5. Effects of Proposed Policy Changes Relating to Payment 
Adjustments for Medicare Disproportionate Share Hospitals (DSHs) and 
Indirect Medical Education (IME)
    6. Effects of the Proposed Policy Changes Relating to Direct GME 
and IME
    a. Effects of Clarification and Proposal Regarding Timely Filing 
Requirements for Claims for Medicare Advantage Enrollees Under Fee-
for-Service Medicare
    b. Effects of Proposed Policy Changes Relating to New Teaching 
Hospitals: New Program Growth From 3 Years to 5 Years
    c. Effects of Proposed Changes Relating to 5-Year Period 
Following Implementation of Reductions and Increases to Hospitals' 
FTE Resident Caps for GME Payment Purposes Under Section 5503 of the 
Affordable Care Act
    d. Preservation of Resident Cap Positions From Closed Hospitals 
(Section 5506 of the Affordable Care Act)
    7. Effects of Proposed Changes Relating to the Reporting 
Requirements for Pension Costs for Medicare Cost-Finding Purposes
    8. Effects of Proposed Budget Neutrality Offset Amount for the 
Rural Community Hospital Demonstration Program
    9. Effects of Proposed Change in Effective Date for Policies 
Relating to Hospital Services Furnished Under Arrangements
    I. Effects of Proposed Changes in the Capital IPPS
    1. General Considerations
    2. Results
    J. Effects of Proposed Payment Rate Changes and Policy Changes 
Under the LTCH PPS
    1. Introduction and General Considerations
    2. Impact on Rural Hospitals
    3. Anticipated Effects of Proposed LTCH PPS Payment Rate Change 
and Policy Changes
    4. Effect on the Medicare Program
    5. Effect on Medicare Beneficiaries
    K. Effects of Proposed Requirements for Hospital Inpatient 
Quality Reporting (IQR) Program
    L. Effects of Proposed PPS-Exempt Cancer Hospital Quality 
Reporting (PCHQR) Program
    M. Effects of Proposed Hospital Value-Based Purchasing (VBP) 
Program Requirements
    N. Anticipated Effects of Proposed New Measures To Be Added to 
the LTCH Quality Reporting (LTCHQR) Program
    O. Effects of Proposed Quality Reporting Requirements for 
Ambulatory Surgical Centers
    P. Effects of Proposed Requirements for the Inpatient 
Psychiatric Facilities Quality Reporting Program
    Q. Alternatives Considered
    R. Overall Conclusion
    1. Acute Care Hospitals
    2. LTCHs
II. Accounting Statements and Tables
    A. Acute Care Hospitals
    B. LTCHs
III. Regulatory Flexibility Act (RFA) Analysis
IV. Impact on Small Rural Hospitals
V. Unfunded Mandate Reform Act (UMRA) Analysis
VI. 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 2013
    A. Proposed FY 2013 Inpatient Hospital Update
    B. Proposed Update for SCHs for FY 2013
    C. Proposed FY 2013 Puerto Rico Hospital Update
    D. Proposed Update for Hospitals Excluded From the IPPS
    E. Proposed Update for LTCHs
III. Secretary's Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and 
Updating Payments in Traditional Medicare

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority
    This proposed rule would make payment and policy changes under the 
Medicare inpatient prospective payment systems (IPPS) for operating and 
capital-related costs of acute care hospitals as well as for certain 
hospitals and hospital units excluded from the IPPS. In addition, it 
would make payment and policy changes for the Medicare hospitals under 
the long-term care hospital prospective payment system (LTCH PPS). It 
also makes policy changes to programs associated with Medicare IPPS 
hospitals and LTCHs.
    Under various statutory authorities, we are proposing to make 
changes to the Medicare IPPS, to the LTCH PPS, and to other related 
payment methodologies and programs for FY 2013. These statutory 
authorities include, but are not limited to, the following:
    <bullet> Section 1886(d) of the Social Security Act (the Act), 
which sets forth a system of payment for the operating costs of acute 
care hospital inpatient stays under Medicare Part A (Hospital 
Insurance) based on prospectively set rates. Section 1886(g) of the Act 
requires that, instead of paying for capital-related costs of inpatient 
hospital services on a

[[Page 27878]]

reasonable cost basis, the Secretary use a prospective payment system 
(PPS).
    <bullet> Section 1886(d)(1)(B) of the Act, which specifies that 
certain hospitals and hospital units are excluded from the IPPS. These 
hospitals and units are: rehabilitation hospitals and units; LTCHs; 
psychiatric hospitals and units; children's hospitals; and cancer 
hospitals. Religious nonmedical health care institutions (RNHCIs) are 
also excluded from the IPPS.
    <bullet> 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), which provide for the development and implementation of a 
prospective payment system for payment for inpatient hospital services 
of long-term care hospitals (LTCHs) described in section 
1886(d)(1)(B)(iv) of the Act.
    <bullet> Sections 1814(l), 1820, and 1834(g) of the Act, which 
specifies that payments are made to critical access hospitals (CAHs) 
(that is, rural hospitals or facilities that meet certain statutory 
requirements) for inpatient and outpatient services and that these 
payments are generally based on 101 percent of reasonable cost.
    <bullet> 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.
    <bullet> Section 1886(d)(4)(D) of the Act, which addresses certain 
hospital-acquired conditions (HACs), including infections. Section 
1886(d)(4)(D) of the Act specifies that, by October 1, 2007, the 
Secretary was required to select, in consultation with the Centers for 
Disease Control and Prevention (CDC), at least two conditions that: (a) 
Are high cost, high volume, or both; (b) are assigned to a higher 
paying MS-DRG when present as a secondary diagnosis (that is, 
conditions under the MS-DRG system that are CCs or MCCs); and (c) could 
reasonably have been prevented through the application of evidence-
based guidelines. Section 1886(d)(4)(D) of the Act also specifies that 
the list of conditions may be revised, again in consultation with CDC, 
from time to time as long as the list contains at least two conditions. 
Section 1886(d)(4)(D)(iii) of the Act requires that hospitals, 
effective with discharges occurring on or after October 1, 2007, submit 
information on Medicare claims specifying whether diagnoses were 
present on admission (POA). Section 1886(d)(4)(D)(i) of the Act 
specifies that effective for discharges occurring on or after October 
1, 2008, Medicare no longer assigns an inpatient hospital discharge to 
a higher paying MS-DRG if a selected condition is not POA.
    <bullet> Section 1886(a)(4) of the Act, which specifies that costs 
of approved educational activities are excluded from the operating 
costs of inpatient hospital services. Hospitals with approved graduate 
medical education (GME) programs are paid for the direct costs of GME 
in accordance with section 1886(h) of the Act.
    <bullet> Section 1886(b)(3)(B)(viii) of the Act, which requires the 
Secretary to reduce the applicable percentage increase in payments to a 
subsection (d) hospital for a fiscal year if the hospital does not 
submit data on measures in a form and manner, and at a time, specified 
by the Secretary.
    <bullet> Section 1886(o) of the Act, which requires the Secretary 
to establish a Hospital Value-Based Purchasing (VBP) Program under 
which value-based incentive payments are made in a fiscal year to 
hospitals meeting performance standards established for a performance 
period for such fiscal year. Both the performance standards and the 
performance period for a fiscal year are to be established by the 
Secretary. Section 1886(o)(1)(B) of the Act directs the Secretary to 
begin making value-based incentive payments under the Hospital 
Inpatient VBP Program to hospitals for discharges occurring on or after 
October 1, 2012.
    <bullet> Section 1886(q) of the Act, as added by section 3025 of 
the Affordable Care Act and amended by section 10309 of the Affordable 
Care Act, which establishes the ``Hospital Readmission Reduction 
Program'' effective for discharges from an ``applicable hospital'' 
beginning on or after October 1, 2012, under which payments to those 
hospitals under section 1886(d) of the Act will be reduced to account 
for certain excess readmissions.
2. Summary of the Major Provisions
a. MS-DRG Documentation and Coding Adjustment, Including the 
Applicability to the Hospital-Specific Rates and the Puerto Rico-
Specific Standardized Amount
    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 prospective adjustment under 
section 1886(d)(3)(A)(vi) of the Act.
    Section 7(b)(1)(B) of Public Law 110-90 requires the Secretary to 
make an additional one-time adjustment to the standardized amounts to 
offset the estimated increase or decrease in aggregate payments for FYs 
2008 and 2009 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.
    After accounting for adjustments made in FYs 2008 and 2009, we have 
found a remaining documentation and coding effect of 3.9 percent. As we 
have discussed, an additional cumulative adjustment of -3.9 percent 
would be necessary to meet the requirements of section 7(b)(1)(A) of 
Public Law 110-90. Without making this adjustment, our actuaries 
estimated that annual aggregate payments would be increased by 
approximately $4 billion. Furthermore, an additional one-time 
adjustment of -5.8 percent would be required to fully recapture 
overpayments (estimated at approximately $6.9 billion) due to 
documentation and coding that occurred in FY 2008 and FY 2009, as 
required by section 7(b)(1)(B) of Public Law 110-90.
    CMS has thus far implemented a -2.0 percent (of a required -3.9 
percent) prospective adjustment, and completed the full one-time -5.8 
percent recoupment adjustment (-2.9 percent in both FYs 2011 and 2012). 
In FY 2013, we are proposing to complete the remaining -1.9 percent 
prospective adjustment, while also making a +2.9 percent adjustment to 
remove the effect of the FY 2012 one-time recoupment adjustment. We 
have also determined that a cumulative adjustment of -5.4 percent is 
required to eliminate the full effect of documentation and coding 
changes on future payments to SCHs and MDHs. After accounting for 
adjustments made to the hospital-specific rate in FY 2011 and FY 2012, 
an additional prospective adjustment of -0.5 percent is necessary to 
complete the full -5.4 adjustment. We are proposing a full -0.5 percent 
adjustment to the hospital-specific rate, in keeping with our policy of 
applying equivalent adjustments, when applicable, to other subsection 
(d) hospital payment systems.
    We also are proposing an additional adjustment to account for 
documentation and coding effects that occurred in FY 2010. After review 
of comments and recommendations from MedPAC, CMS analyzed FY 2010 
claims

[[Page 27879]]

using the same methodology as previously applied to FYs 2008 and 2009 
claims. CMS estimates that there was a 0.8 percentage point effect due 
to documentation and coding that did not reflect an actual increase in 
patient severity. Our actuaries estimate that this 0.8 percentage point 
increase resulted in additional aggregate payments of approximately 
$1.19 billion. Therefore, we are proposing an adjustment of -0.8 to the 
standardized amount and a -0.8 percent adjustment to the hospital-
specific rate. This would result in a total documentation and coding 
adjustment of +0.2 percent (-1.9 plus +2.9 plus -0.8) to the 
standardized amount and a -1.3 percent (-0.5 plus -0.8) adjustment to 
the hospital-specific rate.
b. Hospital-Acquired Conditions (HACs)
    Section 1886(d)(4)(D) 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.
    In this proposed rule, we are proposing two new conditions, 
Surgical Site Infection (SSI) Following Cardiac Implantable Electronic 
Device (CIED) Procedures and Pneumothorax with Venous Catheterization, 
for the HAC payment provisions for FY 2013 under section 1886(d)(4)(D) 
of the Act. We also are proposing to add diagnosis codes 999.32 
(Bloodstream infection due to central venous catheter) and 999.33 
(Local infection due to central venous catheter) to the existing 
Vascular Catheter-Associated Infection HAC category for FY 2013.
c. Reduction of Hospital Payments for Excess Readmissions
    We are proposing a number of policies to implement section 1886(q) 
of the Act, as added by section 3025 of the Affordable Care Act, which 
establishes the Hospital Readmissions Reduction Program. The Hospital 
Readmissions Reduction Program requires a reduction to a hospital's 
base operating DRG payments to account for excess readmissions of 
selected applicable conditions, which are acute myocardial infarction, 
heart failure, and pneumonia. We are proposing the applicable hospitals 
that included in the Hospital Readmissions Reduction Program, the 
methodology to calculate the adjustment factor, the portion of the 
hospital's payment that is reduced by the adjustment factor, and the 
process under which the hospitals have the opportunity to review and 
submit corrections for their readmissions information prior to the 
information being posted on the Hospital Compare Web site.
d. Long-Term Care Hospital-Specific Market Basket
    We are proposing to update LTCH payment rates with a separate 
market basket comprised of data from only LTCHs, which we refer to as a 
``LTCH-specific market basket.'' We are proposing to implement a stand-
alone LTCH market basket based on FY 2009 Medicare cost report data. 
The method used to calculate the cost weights and the price proxies 
used are generally similar to those used in the FY 2008-based RPL 
market basket that was finalized for the FY 2012 IPPS/LTCH PPS final 
rule. The primary difference is that we are using data from LTCH 
providers only.
e. Expiration of Certain Payment Rules for LTCH Services and the 
Moratorium on the Establishment of Certain Hospitals and Satellite 
Facilities and the Increase in the Number of Beds in LTCHs and LTCH 
Satellite Facilities
    Moratoria on the implementation of certain LTCH payment policies 
and on the development of new LTCHs and LTCH satellite facilities and 
on bed increases in existing LTCHs and LTCH satellite facilities 
established under sections 114(c) and (d) of the MMSEA (Pub. L. 110-
173) as amended by section 4302 of the ARRA (Pub. L. 111-5) and further 
amended by sections 3106 and 10312 of the Affordable Care Act are set 
to expire during CY 2012, under current law.
    The moratoria established by these provisions delayed the full 
implementation of the following policies for 5 years beginning at 
various times in CY 2007:
    <bullet> The full application of the ``25-percent payment 
adjustment threshold'' to certain LTCHs, including hospitals-within-
hospitals (HwHs) and LTCH satellite facilities for cost reporting 
periods beginning on or after July 1, 2007, and before July 1, 2012, or 
cost reporting periods beginning on or after October 1, 2007, and 
before October 1, 2012, as applicable under the regulations at 
Sec. Sec.  412.534 and 412.536.
    <bullet> The inclusion of an ``IPPS comparable per diem amount'' 
option for payment determinations under the short stay outlier (SSO) 
adjustment at Sec.  412.529 of the regulations for LTCH discharges 
occurring on or after December 29, 2007, but prior to December 29, 
2012.
    <bullet> The application of any one-time budget neutrality 
adjustment to the LTCH PPS standard Federal rate provided for in Sec.  
412.523(d)(3) of the regulations from December 29, 2007, through 
December 28, 2012.
    <bullet> In general, the development of new LTCHs and LTCH 
satellite facilities, or increases in the number of beds in existing 
LTCHs and LTCH satellite facilities from December 29, 2007, through 
December 28, 2012, unless one of the specified exceptions to the 
particular moratorium was met.
    In this proposed rule, we are proposing to extend the existing 
delay of the full implementation of the 25-percent payment adjustment 
threshold for an additional year; that is, for cost reporting periods 
beginning on or after October 1, 2012, and before October 1, 2013, as 
applicable. Although we are proposing to extend the moratoria relating 
to the application of the ``25-percent threshold'' payment adjustment 
for cost reporting periods beginning on or after October 1, 2012, and 
before October 1, 2013, the moratoria will expire for several 
regulatory provisions for cost reporting periods beginning before July 
1, 2012, prior to the effective date of the proposed extension, 
affecting freestanding LTCHs, grandfathered hospitals-within-hospitals 
(HwHs), and grandfathered satellites. This gap in the continued 
application of the moratorium is a result of the July 1, 2007 effective 
date of section 114(c)(1) of the MMSEA as amended by section 4302(a)(1) 
of the ARRA which was based on the former July 1 through June 30 
regulatory cycle for the LTCH PPS.
    We are proposing an additional 1-year extension in the delay of the 
full application of the 25-percent payment adjustment threshold policy 
because we believe, based on a recent research initiative, that we 
could soon be in a position to propose revisions to our payment 
policies that could render the 25-percent payment adjustment threshold 
policy unnecessary. In light of this potential result, we believe it is 
prudent to avoid requiring LTCHs (or CMS systems) to implement the full 
reinstatement of the policy for what could be a relatively short period 
of time.
    We are not proposing to make any changes to the SSO policy as it 
currently exists in the regulations at Sec.  412.529.

[[Page 27880]]

Accordingly, consistent with the existing regulations at Sec.  
412.529(c)(3), for SSO discharges occurring on or after December 29, 
2012, the ``IPPS comparable per diem amount'' option at Sec.  
412.529(c)(3)(i)(D) would apply to payment determinations for cases 
with a covered length of stay that was equal to or less than one 
standard deviation from the geometric average length of stay for the 
same MS-DRG under the IPPS (that is, the ``IPPS comparable 
threshold'').
    The moratoria on the development of new LTCHs or LTCH satellite 
facilities and on an increase in the number of beds in existing LTCHs 
or LTCH satellite facilities are set to expire on December 29, 2012, 
under current law.
    We are proposing to make a one-time prospective adjustment under 
Sec.  412.523(d)(3) of the regulations (which would not apply to 
payments for discharges occurring on or before December 28, 2012, 
consistent with the statute) and to transition the application of this 
adjustment over a 3-year period. Regulations at Sec.  412.523(d)(3) 
provide for the possibility of making a one-time prospective adjustment 
to the LTCH PPS rates so that the effect of any significant difference 
between the data used in the original computations of budget neutrality 
for FY 2003 and more recent data to determine budget neutrality for FY 
2003 is not perpetuated in the prospective payment rates for future 
years.
f. Hospital Inpatient Quality Reporting (IQR) Program
    Under section 1886(b)(3)(B)(vii) of the Act, hospitals are required 
to report data on measures selected by the Secretary for the Hospital 
IQR Program in order to receive the full annual percentage increase. In 
past rules, we have established measures for reporting and the process 
for submittal and validation of the data.
    In this proposed rule, we are proposing programmatic changes to the 
Hospital IQR Program for the FY 2015 payment determination and 
subsequent years. These proposed changes would streamline and simplify 
the process for hospitals and reduce burden. We are proposing to reduce 
the number of measures in the Hospital IQR Program from 72 to 59 for 
the FY 2015 payment determination. We are proposing to remove 1 chart-
abstracted measure and 16 claims based measures from the program for 
the FY 2015 payment determination and subsequent years. We are 
proposing to remove these measures for a number of reasons, including 
that these measures are losing NQF endorsement, are included in an 
existing composite measure, are duplicative of other measures in the 
Hospital IQR Program, or could otherwise be reported on Hospital 
Compare in the future under the authority of section 3008 of the 
Affordable Care Act. In addition, we are proposing to adopt three 
claims-based measures, one chart-abstracted measure and a survey-based 
measure regarding care transitions, which we will collect using the 
existing HCAHPS survey, to the measure set for the FY 2015 payment 
determination and subsequent years. We also are proposing to adopt a 
structural measure for the FY 2016 payment determination and subsequent 
years.
    In an effort to streamline the rulemaking process, we are proposing 
to retain measures for all subsequent payment determinations, unless 
specifically stated otherwise, through rulemaking. We also are 
proposing to adopt certain changes to the Hospital IQR Program measures 
that arise out of the NQF endorsement maintenance process without going 
through further rulemaking to adopt such changes. To ensure that 
hospitals that participate in the Hospital IQR Program are submitting 
data for a full year, we are proposing that hospitals that would like 
to participate in the Hospital IQR Program for the first time must 
submit a completed Notice of Participation by December 31 of the 
calendar year preceding the first quarter of the calendar year in which 
chart-abstracted data submission is required for any given fiscal year. 
In addition, if a hospital wishes to withdraw from the program, it 
would have until May 15 prior to the start of the payment year affected 
to do so. In order reduce the burden associated with validation, we are 
proposing to reduce the base annual validation sample from 800 to 400, 
with an additional sample of up to 200 targeted hospitals. All 
hospitals failing validation would be included in the 200 hospital 
supplement, with a random sample drawn from hospitals meeting one or 
more additional targeting criteria. We also are proposing to require 
passing scores on both the chart-abstracted clinical process of care 
and hospital-acquired infection measure set groupings to pass 
validation, rather than only requiring one passing score for all 
validated measures.
g. Hospital Value-Based Purchasing Program
    Section 1886(o)(1)(B) of the Act directs the Secretary to begin 
making value-based incentive payments under the Hospital Inpatient VBP 
Program to hospitals for discharges occurring on or after October 1, 
2012. These incentive payments will be funded for FY 2013 through a 
reduction to the FY 2013 base operating MS-DRG payment for each 
discharge of 1 percent, as required by section 1886(o)(7)(B)(i) of the 
Act. The applicable percentage for FY 2014 is 1.25 percent, for FY 2015 
is 1.5 percent, for FY 2016 is 1.75 percent, and for FY 2017 and 
subsequent years is 2 percent.
    We previously published the requirements and related measures to 
implement the Hospital Inpatient VBP Program in a final rule issued in 
the Federal Register on April 29, 2011 (76 FR 26490, May 6, 2011, and 
76 FR 26495 through 26511) and in the FY 2012 IPPS/LTCH PPS final rule 
(76 FR 51653 through 51660). In this proposed rule, we are proposing to 
add requirements for the FY 2015 Hospital Inpatient VBP Program. 
Specifically, we are proposing to add one additional clinical process 
of care measure, AMI-10: Statin Prescribed at Discharge, and two 
additional outcomes measures--an AHRQ Patient Safety Indicators 
composite measure and CLABSI: Central Line-Associated Blood Stream 
Infection. We also are proposing to add a measure of Medicare Spending 
per Beneficiary in the Efficiency domain.
3. Summary of Costs and Benefits
    <bullet> Proposed FY 2013 Documentation and Coding Adjustment: 
Section 7(b)(1)(A) of Pub. L. 110-90 requires that, if the Secretary 
determines that implementation of the MS-DRG system resulted in changes 
in documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 or FY 2009 that are 
different than the prospective documentation and coding adjustments 
applied under section 7(a) of Public Law 110-90, the Secretary shall 
make an appropriate prospective adjustment under section 
1886(d)(3)(A)(vi) of the Act. Section 7(b)(1)(B) of Public Law 110-90 
requires the Secretary to make an additional one-time adjustment to the 
standardized amounts to offset the estimated increase or decrease in 
aggregate payments for FYs 2008 and 2009 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.
    After accounting for adjustments made in FYs 2008 and 2009, we have 
found a remaining documentation and coding effect of 3.9 percent. As we 
have discussed, an additional cumulative adjustment of -3.9 percent 
would be necessary to meet the requirements of section 7(b)(1)(A) of 
Public Law 110-90.

[[Page 27881]]

Without making this adjustment, our actuaries estimated that annual 
aggregate payments would be increased by approximately $4 billion. 
Furthermore, an additional one-time adjustment of -5.8 percent would be 
required to fully recapture overpayments (estimated at approximately 
$6.9 billion) due to documentation and coding that occurred in FY 2008 
and FY 2009, as required by section 7(b)(1)(B) of Public Law 110-90.
    CMS has thus far implemented a -2.0 percent (of a required -3.9 
percent) prospective adjustment, and completed the full one-time -5.8 
percent recoupment adjustment (-2.9 percent in both FYs 2011 and 2012). 
In FY 2013, we are proposing to complete the remaining -1.9 percent 
prospective adjustment, while also making a +2.9 percent adjustment to 
remove the effect of the FY 2012 one-time recoupment adjustment. We 
have also determined that a cumulative adjustment of -5.4 percent is 
required to eliminate the full effect of documentation and coding 
changes on future payments to SCHs and MDHs. After accounting for 
adjustments made to the hospital-specific rate in FY 2011 and FY 2012, 
an additional prospective adjustment of -0.5 percent is necessary to 
complete the full -5.4 percent adjustment. We are proposing a full -0.5 
percent adjustment to the hospital-specific rate, in keeping with our 
policy of applying equivalent adjustments, when applicable, to other 
subsection (d) hospital payment systems.
    In addition, we are proposing an additional adjustment to account 
for documentation and coding effects that occurred in FY 2010. After 
review of comments and recommendations from MedPAC, CMS analyzed FY 
2010 claims using the same methodology as previously applied to FYs 
2008 and 2009 claims. CMS estimates that there was a 0.8 percentage 
point effect due to documentation and coding that did not reflect an 
actual increase in patient severity. Our actuaries estimate that this 
0.8 percentage point increase resulted in additional aggregate payments 
of approximately $1.19 billion. Therefore we are proposing an 
adjustment of -0.8 to the standardized amount, and a -0.8 percent 
adjustment to the hospital-specific rate.
    The total IPPS documentation and coding adjustment of +0.2 percent 
(-1.9 plus +2.9 plus -0.8) would increase total payments by 
approximately $200 million. The total adjustment to the hospital-
specific rate would be -1.3 percent (-0.5 plus -0.8), and would 
decrease total payment by $312 million. The combined impact of the 
proposed FY 2013 documentation and coding adjustments would reduce 
total payments by approximately $112 million.
    <bullet> Hospital-Acquired Conditions (HACs). For FY 2013, we are 
proposing to continue to implement section 1886 (d)(4)(D) of the Act 
that addresses certain hospital-acquired conditions (HACs), including 
infections. We are proposing to add two additional conditions for FY 
2013, Surgical Site Infection (SSI) Following Cardiac Implantable 
Electronic Device (CIED) Procedures and Iatrogenic Pneumothorax with 
Venous Catheterization. The projected savings estimate for these two 
conditions is less than $1 million, with the total estimated savings 
from HACs for FY 2013 projected at $24 million dollars.
    <bullet> Reduction to Hospital Payments for Excess Readmissions. We 
are proposing a number of policies to implement section 1886(q) of the 
Act, as added by section 3025 of the Affordable Care Act, which 
establishes the Hospital Readmissions Reduction Program. The Hospital 
Readmissions Reduction Program requires a reduction to a hospital's 
base operating DRG payments to account for excess readmissions of 
selected applicable conditions, which are acute myocardial infarction, 
heart failure, and pneumonia. This provision is not budget neutral. A 
hospital's readmission payment adjustment is the higher of a ratio of a 
hospital's aggregate dollars for excess readmissions to their aggregate 
dollars for all discharges, or 0.99 (that is, or a 1-percent reduction) 
for FY 2013. In this proposed rule, we estimate that the Hospital 
Readmissions Reduction Program will result in a 0.3 percent decrease, 
or approximately $300 million, in payments to hospitals.
    <bullet> Long-Term Care Hospital-Specific Market Basket. The 
proposed FY 2009-based LTCH-specific market basket update (as measured 
by percentage increase) for FY 2013 is currently forecasted to be the 
same as the market basket update based on the FY 2008-based RPL market 
basket at 3.0 percent (currently used under the LTCH PPS). Therefore, 
we are projecting that there would be no fiscal impact on the LTCH PPS 
payment rates in FY 2013 as a result of this proposal. In addition, we 
are proposing to update the labor-related share under the LTCH PPS for 
FY 2013 based on the proposed relative importance of each labor-related 
cost category in the proposed FY 2009-based LTCH-specific market 
basket. Although this proposal would result in a decrease in the LTCH 
PPS labor-related share for FY 2013, we are projecting that there would 
be no effect on aggregate LTCH PPS payments due to the regulatory 
requirement that any changes to the LTCH area wage adjustment 
(including the labor-related share) are adopted in a budget neutral 
manner.
    <bullet> Update to the LTCH PPS Standard Federal Rate, including 
the Expiration of Certain Payment Rules for LTCH Services and the 
Moratorium on the Establishment of Certain Hospitals and Satellite 
Facilities and the Increase in the Number of Beds in LTCHs and LTCH 
Satellite Facilities. Based on the best available data for the 427 
LTCHs in our database, we estimate that the changes we are presenting 
in the preamble and Addendum of this proposed rule, including the 
proposed update to the standard Federal rate for FY 2013, the proposed 
changes to the area wage adjustment for FY 2013, and changes to short-
stay outliers and high cost outlier would result in an increase in 
estimated payments from FY 2012 of approximately $100 million (or about 
1.9 percent). Although we are generally projecting an increase in 
payments for all LTCHs in FY 2013 as compared to FY 2012, we expect 
rural LTCHs to experience a larger than average increase in payments 
(3.6 percent) primarily due to the proposed changes to the area wage 
level adjustment. Rural hospitals generally have a wage index of less 
than 1; therefore, the proposed decrease to the labor-related share 
results in their proposed wage index reducing a smaller portion of the 
standard Federal rate, resulting in an estimated increase in payments 
in FY 2013 as compared to FY 2012. In addition, the effect of the 
proposed extension of the moratorium on the application of the ``25 
percent threshold'' payment adjustment policy, as provided by section 
114(c) of the MMSEA, as amended by section 4302(a) of the ARRA and 
sections 3106(a) and 10312(a) of the Affordable Care Act, for cost 
reporting periods beginning on or after October 1, 2012, and before 
October 1, 2012, is estimated to result in a payment impact of 
approximately $170 million to LTCHs. Overall, we estimate that the 
increase in aggregate LTCH PPS payments in FY 2013 will be $270 
million.
    <bullet> Hospital Inpatient Quality Reporting Program. In this 
proposed rule, we discuss our requirements for hospitals to report 
quality data under the Hospital IQR Program in order to receive the 
full annual percentage increase for FY 2015. We estimate that 
approximately 95 hospitals may not receive the full annual percentage 
increase in any fiscal year. However, at this time, information is not 
available to

[[Page 27882]]

determine the precise number of hospitals that will not meet the 
requirements to receive the full annual percentage increase for FY 
2015.
    We are proposing supplements to the chart validation process for 
the Hospital IQR Program. Starting with the FY 2015 payment 
determination, we are proposing a modest increase to the current 
Hospital IQR Program validation sample of 18 cases per quarter to 27 
cases per quarter in order to capture data on CLABSI, CAUTI, and SSI 
measures. However, in order not to increase the Hospital IQR validation 
program's overall burden to hospitals, we are proposing to reduce the 
total sample size of hospitals included in the annual validation sample 
from 800 eligible hospitals to 600 eligible hospitals.
    We provide payment to 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 275 
pages. The requirement of an additional 9 charts per hospital submitted 
for validation, combined with the decreased sample size, will result in 
approximately 1,800 additional charts per quarter being submitted to 
CMS by all selected hospitals. Thus, we estimate that we would expend 
approximately $66,600 per quarter to collect the additional charts we 
need to validate all measures.
    <bullet> Hospital Value-Based Purchasing Program. The Hospital 
Value-Based Purchasing Program for FY 2013 is statutorily mandated to 
be budget neutral. We believe that the program's benefits will be seen 
in improved patient outcomes, safety, and experience of care. We cannot 
estimate these benefits in actual dollar and patient terms because the 
program does not commence until FY 2013 payments.

B. Summary

1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)
    Section 1886(d) of the Social Security Act (the Act) sets forth a 
system of payment for the operating costs of acute care hospital 
inpatient stays under Medicare Part A (Hospital Insurance) based on 
prospectively set rates. Section 1886(g) of the Act requires the 
Secretary to use a prospective payment system (PPS) to pay for the 
capital-related costs of inpatient hospital services for these 
``subsection (d) hospitals.'' Under these PPSs, Medicare payment for 
hospital inpatient operating and capital-related costs is made at 
predetermined, specific rates for each hospital discharge. Discharges 
are classified according to a list of diagnosis-related groups (DRGs).
    The base payment rate is comprised of a standardized amount that is 
divided into a labor-related share and a nonlabor-related share. The 
labor-related share is adjusted by the wage index applicable to the 
area where the hospital is located. If the hospital is located in 
Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-
living adjustment factor. This base payment rate is multiplied by the 
DRG relative weight.
    If the hospital treats a high percentage of certain low-income 
patients, it receives a percentage add-on payment applied to the DRG-
adjusted base payment rate. This add-on payment, known as the 
disproportionate share hospital (DSH) adjustment, provides for a 
percentage increase in Medicare payments to hospitals that qualify 
under either of two statutory formulas designed to identify hospitals 
that serve a disproportionate share of low-income patients. For 
qualifying hospitals, the amount of this adjustment varies based on the 
outcome of the statutory calculations.
    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, which 
is determined from their costs in a base year. For example, sole 
community hospitals (SCHs) receive the higher of a hospital-specific 
rate based on their costs in a base year (the highest of FY 1982, FY 
1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the 
standardized amount. Through and including FY 2006, a Medicare-
dependent, small rural hospital (MDH) received the higher of the 
Federal rate or the Federal rate plus 50 percent of the amount by which 
the Federal rate is exceeded by the higher of its FY 1982 or FY 1987 
hospital-specific rate. As discussed below, for discharges occurring on 
or after October 1, 2007, but before October 1, 2012, an MDH will 
receive the higher of the Federal rate or the Federal rate plus 75 
percent of the amount by which the Federal rate is exceeded by the 
highest of its FY 1982, FY 1987, or FY 2002 hospital-specific rate. (We 
note that the statutory provision for payments to MDHs expires at the 
end of FY 2012, that is, after September 30, 2012.) 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

[[Page 27883]]

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.
    The existing regulations governing payments to excluded hospitals 
and hospital units are located in 42 CFR parts 412 and 413.
3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
    The Medicare prospective payment system (PPS) for LTCHs applies to 
hospitals described in section 1886(d)(1)(B)(iv) of the Act effective 
for cost reporting periods beginning on or after October 1, 2002. The 
LTCH PPS was established under the authority of 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.

C. Provisions of the Patient Protection and Affordable Care Act (Pub. 
L. 111-148) and the Health Care and Education Reconciliation Act of 
2010 (Pub. L. 111-152) Applicable to FY 2013

    The Patient Protection and Affordable Care Act (Pub. L. 111-148), 
enacted on March 23, 2010, and the Health Care and Education 
Reconciliation Act of 2010 (Pub. L. 111-152), enacted on March 30, 
2010, made a number of changes that affect the IPPS and the LTCH PPS. 
(Pub. L. 111-148 and Pub. L. 111-152 are collectively referred to as 
the ``Affordable Care Act.'') A number of the provisions of the 
Affordable Care Act affect the updates to the IPPS and the LTCH PPS and 
providers and suppliers. The provisions of the Affordable Care Act that 
were applicable to the IPPS and the LTCH PPS for FYs 2010, 2011, and 
2012 were implemented in the June 2, 2010 Federal Register notice (75 
FR 31118), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50042) and the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51476).
    In this proposed rule, we are proposing to implement, or continuing 
in FY 2013 to implement, the following provisions (or portions of the 
following provisions) of the Affordable Care Act that are applicable to 
the IPPS, the LTCH PPS, and PPS-exempt cancer hospitals:
    <bullet> Section 3001 of Public Law 111-148, which provides for 
establishment of a hospital inpatient value-based purchasing program 
under which value-based incentive payments will be made in a fiscal 
year to hospitals that meet performance standards established for a 
performance period with respect to discharges occurring during FY 2014.
    <bullet> Section 3004 of Public Law 111-148, which provides for the 
submission of quality data for LTCHs beginning in FY 2014 in order to 
receive the full annual update to the payment rates beginning with FY 
2015 and the establishment of quality data measures by FY 2013 for the 
FY 2015 payment determination.
    <bullet> Section 3005 of Public Law 111-148, which provides for the 
establishment of a quality reporting program for PPS-exempt cancer 
hospitals beginning with the FY 2014 program year, and for subsequent 
program years.
    <bullet> Section 3025 of Public Law 111-148, which establishes a 
hospital readmissions reduction program and requires the Secretary to 
reduce payments to applicable hospitals with excess readmissions 
effective for discharges beginning on or after October 1, 2012.
    <bullet> Section 3125 and 10314 of Public Law 111-148, which 
modified the definition of a low-volume hospital and the methodology 
for calculating the payment adjustment for low-volume hospitals, 
effective only for discharges occurring during FYs 2011 and 2012. 
Beginning with FY 2013, the preexisting low-volume hospital qualifying 
criteria and payment adjustment, as implemented in FY 2005, will 
resume.
    <bullet> Section 3401 of Public Law 111-148, which provides for the 
incorporation of productivity adjustments into the market basket 
updates for IPPS hospitals and LTCHs.
    <bullet> Section 10324 of Public Law 111-148, which provides for a 
wage adjustment for hospitals located in frontier States.
    <bullet> Sections 3401 and 10319 of Public Law 111-148 and section 
1105 of Public Law 111-152, which revise certain market basket update 
percentages for

[[Page 27884]]

IPPS and LTCH PPS payment rates for FY 2013.
    <bullet> Section 3137 of Public Law 111-148, which requires the 
Secretary to submit to Congress a report that includes a plan to 
comprehensively reform the Medicare wage index under the IPPS. In 
developing the plan, the Secretary was directed to take into 
consideration the goals for reforming the wage index that were set 
forth by MedPAC in its June 2007 Report to Congress and to consult with 
relevant affected parties.
    <bullet> Section 5503 of Public Law 111-148, as amended by Public 
Law 111-152 and section 203 of Public Law 111-309, which provides for 
the reduction in FTE resident caps for direct GME under Medicare for 
certain hospitals, and the ``redistribution'' of the estimated number 
of FTE resident slots to other qualified hospitals. In addition, 
section 5503 requires the application of these provisions to IME in the 
same manner as the FTE resident caps for direct GME.
    <bullet> Section 5506 of Public Law 111-148, which added a 
provision to the Act that instructs the Secretary to establish a 
process by regulation under which, in the event a teaching hospital 
closes, the Secretary will permanently increase the FTE resident caps 
for hospitals that meet certain criteria up to the number of the closed 
hospital's FTE resident caps. The Secretary is directed to ensure that 
the aggregate number of FTE resident cap slots distributed is equal to 
the amount of slots in the closed hospital's direct GME and IME FTE 
resident caps, respectively.

D. Major Contents 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 2013. We also are setting forth proposed 
changes relating to payments for IME costs and payments to certain 
hospitals that continue to be excluded from the IPPS and paid on a 
reasonable cost basis. In addition, in this proposed rule, we are 
setting forth proposed changes to the payment rates, factors, and other 
payment rate policies under the LTCH PPS for FY 2013.
    Below is a summary of the major changes that we are proposing to 
make:
1. Proposed Changes to MS-DRG Classifications and Recalibrations of 
Relative Weights
    In section II. of the preamble of this proposed rule, we include 
the following:
    <bullet> Proposed changes to MS-DRG classifications based on our 
yearly review.
    <bullet> Proposed application of the documentation and coding 
adjustment for FY 2013 resulting from implementation of the MS-DRG 
system.
    <bullet> A discussion of the Research Triangle Institute, 
International (RTI) reports and recommendations relating to charge 
compression.
    <bullet> Proposed recalibrations of the MS-DRG relative weights.
    <bullet> Proposed changes to hospital-acquired conditions (HACs) 
and a listing and discussion of HACs, including infections, that would 
be subject to the statutorily required adjustment in MS-DRG payments 
for FY 2013.
    <bullet> A discussion of the FY 2013 status of new technologies 
approved for add-on payments for FY 2012 and a presentation of our 
evaluation and analysis of the FY 2013 applicants for add-on payments 
for high-cost new medical services and technologies (including public 
input, as directed by Public Law 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:
    <bullet> The proposed FY 2013 wage index update using wage data 
from cost reporting periods beginning in FY 2009.
    <bullet> Analysis and implementation of the proposed FY 2013 
occupational mix adjustment to the wage index for acute care hospitals.
    <bullet> Proposed revisions to the wage index for acute care 
hospitals based on hospital redesignations and reclassifications.
    <bullet> The proposed adjustment to the wage index for acute care 
hospitals for FY 2013 based on commuting patterns of hospital employees 
who reside in a county and work in a different area with a higher wage 
index.
    <bullet> The timetable for reviewing and verifying the wage data 
used to compute the proposed FY 2013 hospital wage index.
    <bullet> Determination of the labor-related share for the proposed 
FY 2013 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 
proposed changes or clarifications of a number of the provisions of the 
regulations in 42 CFR parts 412, 413, and 476, including the following:
    <bullet> The proposed rules for payment adjustments under the 
Hospital Readmissions Reduction Program based on hospital readmission 
measures and the process for hospital review and correction of those 
rates.
    <bullet> Proposed clarification regarding the duration of the 
classification status of SCHs.
    <bullet> The proposed updated national and regional case-mix values 
and discharges for purposes of determining RRC status.
    <bullet> Proposed payment adjustment for low-volume hospitals for 
FY 2013.
    <bullet> The statutorily required IME adjustment factor for FY 
2013, a clarification of the requirements of timely filing of claims 
for Medicare Advantage enrollees for IME, direct GME, and nursing and 
allied health education payment purposes, and a proposal to apply the 
timely filing requirements to the submission of no-pay bills for 
purposes of calculating the DSH payment adjustment.
    <bullet> Proposal for counting labor and delivery beds in the 
formula for determining the payment adjustment for disproportionate 
share hospitals and IME payments.
    <bullet> Discussion of the expiration of the MDH program in FY 
2012.
    <bullet> Proposed changes to the inpatient hospital update for FY 
2013, including incorporation of a productivity adjustment.
    <bullet> Proposed changes relating to GME and IME payments, 
including proposed changes in new growth period for new residency 
programs from 3 years to 5 years for new teaching hospitals; 
clarification related to the 5-year period following implementation of 
reductions and increases to hospitals' FTE resident caps; and proposals 
and clarifications related to the preservation of resident cap 
positions from closed hospitals.
    <bullet> Proposed conforming changes to regulations relating to 
reporting requirements for pension costs for Medicare cost-finding 
purposes.
    <bullet> Discussion of the Rural Community Hospital Demonstration 
Program and a proposal for making a budget neutrality adjustment for 
the demonstration program.
    <bullet> Proposed delay in the effective date of regulations 
relating to hospital routine services furnished under arrangements.
4. Proposed FY 2013 Policy Governing the IPPS for Capital-Related Costs
    In section V. of the preamble to this proposed rule, we discuss the 
proposed payment policy requirements for capital-related costs and 
capital payments to hospitals for FY 2013 and

[[Page 27885]]

the proposed MS-DRG documentation and coding adjustment for FY 2013.
5. Proposed Changes to the Payment Rates for Certain Excluded 
Hospitals: Rate-of-Increase Percentages
    In section VI. of the preamble of this proposed rule, we discuss 
proposed changes to payments to certain excluded hospitals.
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 2013. Specifically, we are proposing 
the following major changes: a 1-year extension of the moratorium on 
the full implementation of the ``25-percent threshold'' payment 
adjustment at 42 CFR 412.534 and 412.536; a ``one-time prospective 
adjustment'' to the standard Federal rate phased in over a 3-year 
period (which would not be applicable to payments for discharges 
occurring on or before December 28, 2012, consistent with the statute); 
an LTCH-specific market basket; and annual updates to the LTCH PPS 
standard Federal rate and to other payment factors.
7. Proposed Changes Relating to Quality Data Reporting for Specific 
Providers and Suppliers
    In section VIII. of the preamble of this proposed rule, we 
address--
    <bullet> Proposed requirements for the Hospital Inpatient Quality 
Reporting (IQR) Program as a condition for receiving the full 
applicable percentage increase.
    <bullet> The proposed establishment of a quality reporting program 
for PPS-exempt cancer hospitals.
    <bullet> Proposed requirements for the Hospital Value-Based 
Purchasing Program.
    <bullet> Proposed revisions to the quality reporting measures under 
the LTCH quality reporting program.
    <bullet> Proposed quality data reporting requirements for 
ambulatory surgical centers (ASCs).
    <bullet> The establishment of the Inpatient Psychiatric Facilities 
Quality Reporting Program
8. 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 2013 
prospective payment rates for operating costs and capital-related costs 
for acute care hospitals. We also are proposing to establish the 
threshold amounts for outlier cases. In addition, we address the 
proposed update factors for determining the rate-of-increase limits for 
cost reporting periods beginning in FY 2013 for certain hospitals 
excluded from the IPPS.
9. 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 2013 
prospective standard Federal rate. We also are proposing to establish 
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.
10. Impact Analysis
    In Appendix A of this proposed rule, we set forth an analysis of 
the impact that the proposed changes would have on affected acute care 
hospitals, LTCHs, ASCs, and IPFs.
11. 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 2013 for the following:
    <bullet> 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).
    <bullet> Target rate-of-increase limits to the allowable operating 
costs of hospital inpatient services furnished by certain hospitals 
excluded from the IPPS.
    <bullet> The standard Federal rate for hospital inpatient services 
furnished by LTCHs.
12. Discussion of Medicare Payment Advisory Commission Recommendations
    Under section 1805(b) of the Act, MedPAC is required to submit a 
report to Congress, no later than March 1 of each year, in which MedPAC 
reviews and makes recommendations on Medicare payment policies. 
MedPAC's March 2012 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 addressed 
these recommendations in Appendix B of this proposed rule. For further 
information relating specifically to the MedPAC March 2012 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.

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, 
Medicare pays for inpatient hospital services on a rate per discharge 
basis that varies according to the DRG to which a beneficiary's stay is 
assigned. The formula used to calculate payment for a specific case 
multiplies an individual hospital's payment rate per case by the weight 
of the DRG to which the case is assigned. Each DRG weight represents 
the average resources required to care for cases in that particular 
DRG, relative to the average resources used to treat cases in all DRGs.
    Congress recognized that it would be necessary to recalculate the 
DRG relative weights periodically to account for changes in resource 
consumption. Accordingly, section 1886(d)(4)(C) of the Act requires 
that the Secretary adjust the DRG classifications and relative weights 
at least annually. These adjustments are made to reflect changes in 
treatment patterns, technology, and any other factors that may change 
the relative use of hospital resources.

B. MS-DRG Reclassifications

    For general information about the MS-DRG system, including yearly 
reviews and changes to the MS-DRGs, we refer readers to the previous 
discussions in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43764 through 43766), the FY 2011 IPPS/LTCH PPS final rule (75 FR 50053 
through 50055), and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51485 
through 51487).

C. Adoption of the MS-DRGs in FY 2008

    For information on the adoption of the MS-DRGs in FY 2008, we refer 
readers to the FY 2008 IPPS final rule with comment period (72 FR 47140 
through 47189).

[[Page 27886]]

D. Proposed FY 2013 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
    In the FY 2008 IPPS final rule with comment period (72 FR 47140 
through 47189), we adopted the MS-DRG patient classification system for 
the IPPS, effective October 1, 2007, to better recognize severity of 
illness in Medicare payment rates for acute care hospitals. The 
adoption of the MS-DRG system resulted in the expansion of the number 
of DRGs from 538 in FY 2007 to 745 in FY 2008. (Currently, there are 
751 MS-DRGs, which include 4 additional MS-DRGs that we adopted for FY 
2012.) By increasing the number of MS-DRGs and more fully taking into 
account patient severity of illness in Medicare payment rates for acute 
care hospitals, MS-DRGs encourage hospitals to improve their 
documentation and coding of patient diagnoses.
    In the FY 2008 IPPS final rule with comment period (72 FR 47175 
through 47186), we indicated that the adoption of the MS-DRGs had the 
potential to lead to increases in aggregate payments without a 
corresponding increase in actual patient 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 Law110-90 reduced the documentation and coding 
adjustment made as a result of the MS-DRG system that we adopted in the 
FY 2008 IPPS final rule with comment period to -0.6 percent for FY 2008 
and -0.9 percent for FY 2009, and we finalized the FY 2008 adjustment 
through rulemaking, effective on October 1, 2007 (72 FR 66886).
    For FY 2009, section 7(a) of Public Law 110-90 required a 
documentation and coding adjustment of -0.9 percent, and we finalized 
that adjustment through rulemaking (73 FR 48447). The documentation and 
coding adjustments established in the FY 2008 IPPS final rule with 
comment period, which reflected the amendments made by Public Law 110-
90, are cumulative. As a result, the -0.9 percent documentation and 
coding adjustment for FY 2009 was in addition to the -0.6 percent 
adjustment for FY 2008, yielding a combined effect of -1.5 percent.
2. Prospective Adjustment to the Average Standardized Amounts Required 
by Section 7(b)(1)(A) of Public Law 110-90
    Section 7(b)(1)(A) of Public Law 110-90 requires that, if the 
Secretary determines that implementation of the MS-DRG system resulted 
in changes in documentation and coding that did not reflect real 
changes in case-mix for discharges occurring during FY 2008 or FY 2009 
that are different than the prospective documentation and coding 
adjustments applied under section 7(a) of Public Law 110-90, the 
Secretary shall make an appropriate adjustment under section 
1886(d)(3)(A)(vi) of the Act. Section 1886(d)(3)(A)(vi) of the Act 
authorizes adjustments to the average standardized amounts for 
subsequent fiscal years in order to eliminate the effect of such coding 
or classification changes. These adjustments are intended to ensure 
that future annual aggregate IPPS payments are the same as the payments 
that otherwise would have been made had the prospective adjustments for 
documentation and coding applied in FY 2008 and FY 2009 reflected the 
change that occurred in those years.
3. Recoupment or Repayment Adjustments in FYs 2010 Through 2012 
Required by Public Law 110-90
    If, based on a retroactive evaluation of claims data, the Secretary 
determines that implementation of the MS-DRG system resulted in changes 
in documentation and coding that did not reflect real changes in case-
mix for discharges occurring during FY 2008 or FY 2009 that are 
different from the prospective documentation and coding adjustments 
applied under section 7(a) of Public Law 110-90, section 7(b)(1)(B) of 
Public Law 110-90 requires the Secretary to make an additional 
adjustment to the standardized amounts under section 1886(d) of the 
Act. This adjustment must offset the estimated increase or decrease in 
aggregate payments for FYs 2008 and 2009 (including interest) resulting 
from the difference between the estimated actual documentation and 
coding effect and the documentation and coding adjustment applied under 
section 7(a) of Public Law 110-90. This adjustment is in addition to 
making an appropriate adjustment to the standardized amounts under 
section 1886(d)(3)(A)(vi) of the Act as required by section 7(b)(1)(A) 
of Public Law 110-90. That is, these adjustments are intended to recoup 
(or repay, in the case of underpayments) spending in excess of (or less 
than) spending that would have occurred had the prospective adjustments 
for changes in documentation and coding applied in FY 2008 and FY 2009 
precisely matched the changes that occurred in those years. Public Law 
110-90 requires that the Secretary only make these recoupment or 
repayment adjustments for discharges occurring during FYs 2010, 2011, 
and 2012.
4. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data
    In order to implement the requirements of section 7 of Public Law 
110-90, we performed a retrospective evaluation of the FY 2008 data for 
claims paid through December 2008 using the methodology first described 
in the FY 2009 IPPS/LTCH PPS final rule (73 FR 43768 and 43775) and 
later discussed in the FY 2010 final rule (74 FR 43768 through 43772). 
We performed the same analysis for FY 2009 claims data using the same 
methodology as we did for FY 2008 claims (75 FR 50057 through 50068). 
The results of the analysis for the FY 2011 proposed and final rules, 
and subsequent evaluations in FY 2012, supported that the 5.4 percent 
estimate accurately reflected the FY 2009 increases in documentation 
and coding under the MS-DRG system. We were persuaded by both MedPAC's 
analysis (as discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 
50064 through 50065) and our own review of the methodologies 
recommended by various commenters that the methodology we employed to 
determine the required documentation and coding adjustments were sound.
5. Prospective Adjustments for FY 2008 and FY 2009 Authorized by 
Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi) of 
the Act
    In the FY 2010 IPPS/LTCH PPS final rule (74 FR 43767 through 
43777), we

[[Page 27887]]

opted to delay the implementation of any documentation and coding 
adjustment until a full analysis case-mix changes based on FY 2009 
claim data could be completed. We refer readers to the FY 2010 IPPS/
LTCH PPS final rule for a detailed description of our proposal, 
responses to comments, and finalized policy. After analysis of the FY 
2009 claims data for the FY 2011 IPPS/LTCH PPS final rule (75 FR 50057 
through 50073), we found a total prospective documentation and coding 
effect of 1.054 percent. After accounting for the -0.6 percent and the 
-0.9 percent documentation and coding adjustments in FYs 2008 and 2009, 
we found a remaining documentation and coding effect of 3.9 percent. As 
we have discussed, an additional cumulative adjustment of -3.9 percent 
would be necessary to meet the requirements of section 7(b)(1)(A) of 
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 that do not reflect real changes in case-mix 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, as we stated in the FY 2011 IPPS/LTCH PPS final 
rule (75 FR 50061), we believe we have some discretion as to the manner 
in which we apply the prospective adjustment of -3.9 percent. We 
indicated that applying the full prospective adjustment of -3.9 percent 
for FY 2011, in combination with the proposed recoupment adjustment of 
-2.9 percent in FY 2011 (discussed below) would require an aggregate 
adjustment of -6.8 percent. As we discuss extensively in the FY 2011 
IPPS/LTCH PPS final rule, it has been our practice to moderate payment 
adjustments when necessary to mitigate the effects of significant 
downward adjustments on hospitals, to avoid what could be widespread, 
disruptive effects of such adjustments on hospitals. Therefore, we 
stated that we believed it was appropriate to not implement any or all 
of the -3.9 percent prospective adjustment in FY 2011 because we 
finalized a -2.9 percent recoupment adjustment for that year. 
Accordingly, we did not propose a prospective adjustment under section 
7(b)(1)(A) of Public Law 110-90 for FY 2011 (75 FR 23868 through 
23870). We note that, as a result, payments in FY 2011 (and in each 
future year until we implement the requisite adjustment) would 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. Our actuaries 
estimate that this 3.9 percentage point increase will result in an 
aggregate payment of approximately $4 billion. We also noted that 
payments in FY 2010 were also expected to 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, which our actuaries estimated 
increased aggregate payments by approximately $4 billion in FY 2010.
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51489 and 51497), we 
indicated that because further delay of this prospective adjustment 
will result in a continued accrual of unrecoverable overpayments, it 
was imperative that we implement a prospective adjustment for FY 2012, 
while recognizing CMS' continued desire to mitigate the effects of any 
significant downward adjustments to hospitals. Therefore, we 
implemented a -2.0 percent prospective adjustment (a reduction of a 
proposed -3.15 percent adjustment) to the standardized amount to 
partially eliminate the full effect of the documentation and coding 
changes that do not reflect real changes in case-mix on future 
payments. Due to the offsetting nature of the remaining recoupment 
adjustment under section 7(b)(1)(B) of Public Law 110-90 (described in 
section II.D.6. of this preamble), and after considering other payment 
adjustments to FY 2012 rates proposed elsewhere in the FY 2012 proposed 
rule, we indicated that we believe a -2.0 percent adjustment would 
allow for a significant reduction in potential unrecoverable 
overpayments, yet would maintain a comparable adjustment level between 
FY 2011 and FY 2012, reflecting the applicable percentage increase with 
a documentation and coding adjustment. We stated that we recognize that 
an additional adjustment of -1.9 percent (3.9 percent minus 2.0 
percent) would be required in future rulemaking to complete the 
necessary -3.9 adjustment to meet CMS' statutory requirement under 
section 7(b)(1)(A) of Public Law 110-90.
    For FY 2013, we are proposing to complete the prospective portion 
of the adjustment required under section 7(b)(1)(B) of Public Law 110-
90. We are proposing a -1.9 percent adjustment to the standardized 
amount for FY 2013. This adjustment would remove the remaining effect 
of the documentation and coding changes that do not reflect real 
changes in case-mix that occurred in FY 2008 and FY 2009. We believe it 
is imperative to implement the full remaining adjustment, as any 
further delay would result in an overstated standardized amount in FY 
2013 and any future years until a full adjustment is made. We believe 
that the offsetting nature of the FY 2012 recoupment adjustment 
(described in section II.D.6. of this preamble) will mitigate any 
negative financial impacts of this prospective adjustment.
6. Recoupment or Repayment Adjustment Authorized by Section 7(b)(1)(B) 
of Public Law 110-90
    As discussed in section II.D.3. of this preamble, 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 2008 and FY 2009 (including interest) resulting from the difference 
between the estimated actual documentation and coding effect and the 
documentation and coding adjustments applied under section 7(a) of 
Public Law 110-90. This determination must be based on a retrospective 
evaluation of claims data. Our actuaries estimated that this 5.8 
percentage point increase resulted in an increase in aggregate payments 
of approximately $6.9 billion. Therefore, as discussed in the FY 2011 
IPPS/LTCH PPS final rule (75 FR 50062 through 50067), we determined 
that an aggregate adjustment of -5.8 percent in FYs 2011 and 2012 would 
be necessary in order to meet the requirements of section 7(b)(1)(B) of 
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.
    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 that we have adopted in many 
similar cases, in the FY 2011 IPPS/LTCH PPS final rule, we made an 
adjustment to the standardized amount of -2.9 percent, representing 
approximately half of the aggregate adjustment required under section 
7(b)(1)(B) of Public Law 110-90, for FY 2011. An adjustment of this 
magnitude allowed us to moderate the effects on hospitals in one year 
while simultaneously making it possible to implement the entire 
adjustment within the timeframe required under section 7(b)(1)(B) of 
Public Law 110-90 (that is, no later than FY 2012).
    As we stated in prior rulemaking, a major advantage of making the -
2.9 percent adjustment to the standardized

[[Page 27888]]

amount in FY 2011 was that, because the required recoupment adjustment 
is not cumulative, we anticipated removing the FY 2011 -2.9 percent 
adjustment from the rates (in other words, making a positive 2.9 
percent adjustment to the rates) in FY 2012, at the same time that the 
law required us to apply the remaining approximately -2.9 percent 
adjustment required by section 7(b)(1)(B) of Public Law 110-90.
    Therefore, for FY 2012, in accordance with the timeframes set forth 
by section 7(b)(1)(B) of Public Law 110-90, and consistent with the 
discussion in the FY 2011 IPPS/LTCH PPS final rule, we completed the 
recoupment adjustment by implementing the remaining -2.9 percent 
adjustment, in addition to removing the effect of the -2.9 percent 
adjustment to the standardized amount finalized for FY 2011 (76 FR 
51489 and 51498). Because these adjustments, in effect, balanced out, 
there was no year-to-year change in the standardized amount due to this 
recoupment adjustment for FY 2012.
    The -2.9 percent adjustment in each of the 2 previous fiscal years 
completed the required recoupment for overpayments due to documentation 
and coding effects on discharges occurring in FYs 2008 and 2009. In 
this FY 2013 proposed rule, we are proposing to make a final +2.9 
percent adjustment to the standardized amount. This adjustment would 
remove the effect of the onetime -2.9 percent adjustment implemented in 
FY 2012. We continue to believe that this is a reasonable and fair 
approach that satisfies the requirements of the statute while 
substantially moderating the financial impact on hospitals.
7. Background on the Application of the Documentation and Coding 
Adjustment to the Hospital-Specific Rates
    Under section 1886(d)(5)(D)(i) of the Act, SCHs are paid based on 
whichever of the following rates yields the greatest aggregate payment: 
The Federal rate; the updated hospital-specific rate based on FY 1982 
costs per discharge; the updated hospital-specific rate based on FY 
1987 costs per discharge; the updated hospital-specific rate based on 
FY 1996 costs per discharge; or the updated hospital-specific rate 
based on FY 2006 costs per discharge. Under section 1886(d)(5)(G) of 
the Act, MDHs are paid based on the Federal national rate or, if 
higher, the Federal national rate plus 75 percent of the difference 
between the Federal national rate and the updated hospital-specific 
rate based on the greatest of the FY 1982, FY 1987, or FY 2002 costs 
per discharge. (We note that the MDH program expires in FY 2012, as 
discussed in section IV.H. of this proposed rule.) 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 documentation and coding 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 patient 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 patient 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 was 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 was warranted, we indicated that we would propose to make 
such an adjustment in the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule.
8. Documentation and Coding Adjustment to the Hospital-Specific Rates 
for FY 2011 and Subsequent Fiscal Years
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule and final rule 
(74 FR 24098 through 24100 and 74 FR 43775 through 43776, 
respectively), we discussed our 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 for other

[[Page 27889]]

IPPS hospitals, but did not significantly differ from that result. We 
refer readers to those FY 2010 proposed and final rules for a more 
complete discussion.
    As we have noted previously, because hospitals paid on the basis of 
their hospital-specific rate, including SCHs (and MDHs until the end of 
FY 2012), use the same MS-DRG system as all other IPPS hospitals, we 
believe they have the potential to realize increased payments from 
documentation and coding changes that do not reflect real increases in 
patient 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 were 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. 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 to 
hospitals paid on the basis of their hospital-specific rate. We note 
that, for FY 2013, this adjustment would only apply the SCHs because 
the MDH program expires in FY 2012 (as discussed in section IV.G. of 
this preamble). Unlike the case of standardized amounts paid to IPPS 
hospitals, prior to FY 2011, we had 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 needed to be made, as opposed to a -3.9 percent remaining 
adjustment for IPPS hospitals.
    After finalizing a -2.9 percent prospective adjustment in FY 2011 
(75 FR 50067 through 50071), we finalized a prospective adjustment to 
the hospital-specific rate of -2.0 percent for FY 2012 (76 FR 51499) 
instead of our proposed adjustment of -2.5 percent. Making this level 
of adjustment allows CMS to maintain, for FY 2012, consistency in 
payment rates for different IPPS hospitals paid using the MS-DRG. We 
indicated in the final rule that because this -2.0 percent adjustment 
no longer reflects the entire remaining requirement adjustment amount 
of -2.5 percent, an additional -0.5 percent adjustment to the hospital-
specific payment rates would be required in future rulemaking.
    For this FY 2013 proposed rule, we are proposing to complete the 
remaining prospective adjustment to account for the documentation and 
coding effect that occurred in FY 2008 and FY 2009 by applying a -0.5 
percent adjustment to the hospital-specific rate. We continue to 
believe that SCHs had the same opportunity to benefit from improvements 
in documentation and coding that did not reflect an increase in patient 
severity, and we continue to believe that any resulting adjustments 
should be applied similarly to all subsection (d) hospitals, when 
possible. In FY 2013, we are proposing a prospective adjustment of -1.9 
percent to the standardized amount. Therefore, we believe it is also 
appropriate to propose a -0.5 percent adjustment to the hospital-
specific rate for FY 2013.
9. Application of the Documentation and Coding Adjustment to the Puerto 
Rico-Specific Standardized Amount
a. Background
    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 documentation and coding 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.
    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 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 patient severity of illness. 
Consistent with the approach described for SCHs and MDHs in the FY 2009 
IPPS final rule (73 FR 48449), we indicated that we planned to examine 
our FY 2008 claims data for hospitals in Puerto Rico. We indicated in 
the FY 2009 IPPS proposed rule (73 FR 23541) that if we found evidence 
of significant increases in case-mix for patients treated in these 
hospitals, we would consider proposing to apply 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.
b. Documentation and Coding Adjustment to the Puerto Rico-Specific 
Standardized Amount
    As discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50071 
through 50073), using the same methodology we applied to estimate 
documentation and coding changes under IPPS for non-Puerto Rico 
hospitals, our best estimate was that, for documentation and coding 
that occurred over FY 2008 and FY 2009, a cumulative adjustment of -2.6 
percent was required to eliminate the full effect of the documentation 
and coding changes that do not reflect real changes in case-mix on 
future payments from the Puerto Rico-specific rate. 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 MS-DRG 
system was smaller for Puerto Rico hospitals as compared to IPPS 
hospitals and SCHs. In the FY 2011 IPPS/LTCH PPS final rule (75 FR 
50072 through 50073), we stated that we believed that a full 
prospective adjustment was the most appropriate means to take into full 
account the effect of documentation and coding changes on payments, 
while maintaining equity as much as possible between hospitals paid on 
the basis of different prospective rates.
    Because the Puerto Rico-specific rate received a full prospective 
adjustment of -2.6 percent in FY 2011, we proposed no further 
adjustment in the proposed rule for FY 2012. For FY 2013, we also are 
not proposing any adjustment to the Puerto Rico-specific rate.

[[Page 27890]]

10. Proposed Prospective Adjustments for FY 2010 Documentation and 
Coding Effect
    Section 7(b)(1)(A) of Public Law 110-90 required CMS to make 
prospective documentation and coding adjustments under section 
1886(d)(3)(A)(iv) of the Act if, based upon a review of FY 2008 and FY 
2009 discharges, we determined that implementation of the MS-DRG system 
resulted in changes in documentation and coding that did not reflect 
real changes in case-mix during FY 2008 or FY 2009 and that were 
different than the prospective documentation and coding adjustments 
applied under section 7(a) of Public Law 110-90. However, section 
1886(d)(3)(A)(vi) of the Act authorizes adjustments to the average 
standardized amounts if the Secretary determines such adjustments to be 
necessary for any subsequent fiscal years in order to eliminate the 
effect of coding or classification changes that do not reflect real 
changes in case-mix. After review of comments and recommendations 
received in a FY 2012 comment letter from MedPAC (available on the 
Internet at: http://www.medpac.gov/documents/06172011_FY12IPPS_MedPAC_COMMENT.pdf), we analyzed claims data in FY 2010 to determine 
whether any additional adjustment would be required to ensure that the 
introduction of MS-DRGs was implemented in a budget neutral manner. 
While we expect that the impacts of documentation and coding behavior 
in response to the introduction of MS-DRGs in FY 2008 will eventually 
decline to insignificant levels, we analyzed FY 2010 data on claims 
paid through December 2011 using the same claims-based methodology as 
described in previous rulemaking (73 FR 43768 and 43775). We determined 
a total prospective documentation and coding effect of 1.008 percent 
for FY 2010. Our actuaries have estimated that this 0.8 percentage 
point increase resulted in an increase in aggregate payments of 
approximately $1.19 billion in FY 2010. Therefore, we also are 
proposing an additional -0.8 percent adjustment to account for the 
effects of documentation and coding changes that did not reflect real 
changes in case-mix in FY 2010.
    The combined total prospective adjustment to the standardized 
amount proposed for FY 2013 under Public Law 110-90 to account for 
documentation and coding effects in FY 2008 and FY 2009 and under 
section 1886(d)(3)(A)(vi) of the Act to account for documentation and 
coding effect in FY 2010 is -2.7 percent (-1.9 percent plus -0.8 
percent). The proposed adjustment would eliminate the effect of 
documentation and coding that did not reflect real changes in case-mix 
for discharges occurring during FYs 2008, 2009, 2010. While we are 
making no proposals regarding future fiscal years at this time, we plan 
to continue to monitor and analyze additional claims data and make 
adjustments, when necessary, as authorized under 1886(d)(3)(A)(vi) of 
the Act. We note that the proposed total adjustment to the proposed FY 
2013 standardized amount would be +0.2 percent because these 
prospective adjustments will be offset by the completion of the 
recoupment adjustment under section 7(b)(1)(B) of Public Law 110-90, as 
discussed below.
    We note that while we have decided to review FY 2010 claims data to 
determine whether additional prospective adjustments are necessary (as 
discussed earlier), section 7(b)(1)(B) of Public Law 110-90 does not 
authorize CMS to calculate any retrospective adjustment for 
overpayments made in FY 2010, nor to recover any related overpayments 
beyond FY 2012. The Secretary's authority under section 
1886(d)(3)(A)(vi) of the Act is limited to prospective adjustments.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                        Removal of
                                                               Remaining         Prospective          Proposed           onetime       Combined proposed
                                                              prospective     adjustment for FY     prospective         recoupment      documentation &
                                                             adjustment for          2010        adjustment for FY   adjustment in FY  coding adjustment
                                                             FYs 2008-2009                              2013               2013           for FY 2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
Level of Adjustments.....................................             -1.9%              -0.8%              -2.7%              +2.9%              +0.2%
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Consistent with our proposal for IPPS hospitals paid on the basis 
of the standardized amount, our special exceptions and adjustment 
authority under section 1886(d)(5)(I)(i) of the Act, and based upon our 
review of FY 2010 claims data, we also are proposing an additional -0.8 
percent adjustment to the hospital-specific rate to account for 
documentation and coding changes in FY 2010 that did not reflect real 
changes in case-mix. We believe that a full prospective adjustment for 
hospitals paid based on the hospital-specific rate is the most 
appropriate means to take into account the effect of documentation and 
coding changes on payments, while maintaining equity as much as 
possible between hospitals paid on the basis of different prospective 
rates. Therefore, we are proposing a combined adjustment of -1.3 
percent (-0.5 percent + -0.8 percent) to the hospital-specific rate, 
accounting for all documentation and coding effects observed between FY 
2008 though FY 2010.
    Based upon our analysis of FY 2010 claims data, we found no 
significant additional effect of documentation and coding in FY 2010 
that would warrant any additional adjustment to the Puerto Rico-
specific rate.
    As in prior years, the FY 2008, FY 2009, and FY 2010 MedPAR files 
are available to the public to allow independent analysis of the FY 
2008 and FY 2009 documentation and coding effects. Interested 
individuals may still order these files through the 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.

E. Refinement of the MS-DRG Relative Weight Calculation

1. Background
    Beginning in FY 2007, we implemented relative weights for DRGs 
based on cost report data instead of charge information. We refer 
readers to the FY 2007 IPPS final rule (71 FR

[[Page 27891]]

47882) for a detailed discussion of our final policy for calculating 
the cost-based DRG relative weights and to the FY 2008 IPPS final rule 
with comment period (72 FR 47199) for information on how we blended 
relative weights based on the CMS DRGs and MS-DRGs.
    As we implemented cost-based relative weights, some public 
commenters raised concerns about potential bias in the weights due to 
``charge compression,'' which is the practice of applying a higher 
percentage charge markup over costs to lower cost items and services, 
and a lower percentage charge markup over costs to higher cost items 
and services. As a result, the cost-based weights would undervalue 
high-cost items and overvalue low-cost items if a single CCR is applied 
to items of widely varying costs in the same cost center. To address 
this concern, in August 2006, we awarded a contract to the Research 
Triangle Institute, International (RTI) to study the effects of charge 
compression in calculating the relative weights and to consider methods 
to reduce the variation in the cost-to-charge ratios (CCRs) across 
services within cost centers. For a detailed summary of RTI's findings, 
recommendations, and public comments that we received on the report, we 
refer readers to the FY 2009 IPPS/LTCH PPS final rule (73 FR 48452 
through 48453).
    In the FY 2009 IPPS/LTCH PPS final rule (73 FR 48458 through 
48467), in response to the RTI's recommendations concerning cost report 
refinements, we discussed our decision to pursue changes to the cost 
report to split the cost center for Medical Supplies Charged to 
Patients into one line for ``Medical Supplies Charged to Patients'' and 
another line for ``Implantable Devices Charged to Patients.'' We 
acknowledged, as RTI had found, that charge compression occurs in 
several cost centers that exist on the Medicare cost report. However, 
as we stated in the FY 2009 IPPS/LTCH PPS final rule, we focused on the 
CCR for Medical Supplies and Equipment because RTI found that the 
largest impact on the MS-DRG relative weights could result from 
correcting charge compression for devices and implants. In determining 
the items that should be reported in these respective cost centers, we 
adopted the commenters' recommendations that hospitals should use 
revenue codes established by the AHA's National Uniform Billing 
Committee to determine the items that should be reported in the 
``Medical Supplies Charged to Patients'' and the ``Implantable Devices 
Charged to Patients'' cost centers. Accordingly, a new subscripted line 
55.30 for ``Implantable Devices Charged to Patients'' was created in 
July 2009 as part of CMS' Transmittal 20 update to the cost report Form 
CMS-2552-96. This new subscripted cost center has been available for 
use for cost reporting periods beginning on or after May 1, 2009.
    As we discussed in the FY 2009 IPPS final rule (73 FR 48458, 
respectively) and in the CY 2009 OPPS/ASC final rule with comment 
period (73 FR 68519 through 68527), in addition to the findings 
regarding implantable devices, RTI also found that the costs and 
charges of computed tomography (CT) scans, magnetic resonance imaging 
(MRI), and cardiac catheterization differ significantly from the costs 
and charges of other services included in the standard associated cost 
center. RTI also concluded that both the IPPS and the OPPS relative 
weights would better estimate the costs of those services if CMS were 
to add standard costs centers for CT scans, MRI, and cardiac 
catheterization in order for hospitals to report separately the costs 
and charges for those services and in order for CMS to calculate unique 
CCRs to estimate the costs from charges on claims data. In the FY 2011 
IPPS/LTCH PPS final rule (75 FR 50075 through 50080), we finalized our 
proposal to create standard cost centers for CT scans, MRI, and cardiac 
catheterization, and to require that hospitals report the costs and 
charges for these services under new cost centers on the revised 
Medicare cost report Form CMS 2552-10. (We refer readers to the FY 2011 
IPPS/LTCH PPS final rule (75 FR 50075 through 50080) for a detailed 
discussion of the reasons for the creation of standard cost centers for 
CT scans, MRI, and cardiac catheterization.) The new standard cost 
centers for CT scans, MRI, and cardiac catheterization are effective 
for cost report periods beginning on or after May 1, 2010, on the 
revised cost report Form CMS-2552-10.
2. Summary of Policy Discussion in FY 2012
    In the FY 2009 IPPS final rule (73 FR 48468), we stated that, due 
to what is typically a 3-year lag between the reporting of cost report 
data and the availability for use in ratesetting, we anticipated that 
we might be able to use data from the new ``Implantable Devices Charged 
to Patients'' cost center to develop a CCR for Implantable Devices 
Charged to Patients in the FY 2012 or FY 2013 IPPS rulemaking cycle. 
However, as noted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 
FR 43782), due to delays in the issuance of the revised cost report CMS 
2552-10, we determined that a new CCR for Implantable Devices Charged 
to Patients might not be available before FY 2013. Similarly, when we 
finalized the decision in the FY 2011 IPPS/LTCH PPS final rule to add 
new cost centers for CT scans, MRI, and cardiac catheterization, we 
explained that data from any new cost centers that may be created will 
not be available until at least 3 years after they are first used (75 
FR 50077).
    Accordingly, during the FY 2012 IPPS rulemaking (76 FR 51502), we 
assessed the availability of data in the ``Implantable Devices Charged 
to Patients'' cost center. In order to develop a robust analysis 
regarding the use of cost data from the ``Implantable Devices Charged 
to Patients'' cost center, it was necessary to have a critical mass of 
cost reports filed with data in this cost center. We checked the 
availability of data in the ``Implantable Devices Charged to Patients'' 
cost center on the FY 2009 cost reports, but we did not believe that 
there was a sufficient amount of data from which to generate a 
meaningful analysis in this particular situation. Therefore, we did not 
propose to use data from the ``Implantable Devices Charged to 
Patients'' cost center to create a distinct CCR for ``Implantable 
Devises Charged to Patients'' for use in calculating the MS-DRG 
relative weights for FY 2012. We indicated that we would reassess the 
availability of data for the ``Implantable Devices Charged to 
Patients'' cost center for the FY 2013 IPPS/LTCH PPS rulemaking cycle 
and, if appropriate, we would propose to create a distinct CCR at that 
time.
3. Discussion for FY 2013
    To calculate the MS-DRG relative weights, we use two data sources: 
the MedPAR file as the claims data source and the HCRIS as the cost 
data source. We adjust the charges from the claims to costs by applying 
the 15 national average CCRs developed from the cost reports. In the 
past several years, we have made progress in changing the cost report 
to add the ``Implantable Devices Charged to Patients'' cost center. At 
this time, there is a sizeable number of hospitals in the FY 2010 HCRIS 
that have reported data for ``Implantable Devices Charged to Patients'' 
on their cost reports beginning during FY 2010. However, we note that, 
during the development of this proposed rule, we have been able to 
access only those cost reports in the FY 2010 HCRIS with fiscal year 
begin dates on or after October 1, 2009, and before May 1, 2010. This 
is because cost reports with fiscal year begin dates of May 1, 2010,

[[Page 27892]]

through September 30, 2010, were filed on the new cost report Form 
2552-10, and cost reports filed on the Form 2552-10 are not currently 
accessible in the HCRIS. Normally, we pull the HCRIS dataset that is 3 
years prior to the IPPS fiscal year (that is, for the FY 2013 relative 
weights, we would use the FY 2010 HCRIS, which includes data from cost 
reports that begin on or after October 1, 2009, and before October 1, 
2010). However, because data from the Form 2552-10 cost reports are not 
currently available, to ensure that the relative weights are calculated 
with a data set that is as comprehensive and accurate as possible, we 
are proposing to calculate the FY 2013 relative weights with data from 
FY 2010 cost reports for providers with fiscal year begin dates of on 
or after October 1, 2009, and before May 1, 2010, and to back fill with 
data from FY 2009 cost reports for those providers that have fiscal 
year begin dates on or after May 1, 2010 through September 30, 2010. 
Further complicating matters is that, due to additional unforeseen 
technical difficulties, the corresponding information regarding charges 
for implantable devices on hospital claims is not yet available to us 
in the MedPAR file. Without the breakout in the MedPAR file of charges 
associated with implantable devices to correspond to the costs of 
implantable devices on the cost report, we believe that we have no 
choice but to propose to continue computing the relative weights with 
the current CCR that combines the costs and charges for supplies and 
implantable devices. When we do have the necessary supplies and 
implantable device data on the claims in the MedPAR file to create 
distinct CCRs for supplies and implantable devices, perhaps for FY 
2014, we also hope that we will have data for an analysis of creating 
distinct CCRs for MRI, CT scans, and cardiac catheterization. Prior to 
proposing to create these CCRs, we will first thoroughly analyze and 
determine the impacts of the data. Distinct CCRs for implantable 
devices, MRIs, and CT scans would be used in the calculation of the 
relative weights only if they were first finalized through rulemaking.

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

1. Background
    Section 1886(d)(4)(D) of the Act addresses certain hospital-
acquired conditions (HACs), including infections. This provision is 
part of an array of Medicare tools that we are using to promote 
increased quality and efficiency of care. Under the IPPS, hospitals are 
encouraged to treat patients efficiently because they receive the same 
DRG payment for stays that vary in length and in the services provided, 
which gives hospitals an incentive to avoid unnecessary costs in the 
delivery of care. In some cases, conditions acquired in the hospital do 
not generate higher payments than the hospital would otherwise receive 
for cases without these conditions. To this extent, the IPPS encourages 
hospitals to avoid complications.
    However, the treatment of certain conditions can generate higher 
Medicare payments in two ways. First, if a hospital incurs 
exceptionally high costs treating a patient, the hospital stay may 
generate an outlier payment. Because the outlier payment methodology 
requires that hospitals experience large losses on outlier cases before 
outlier payments are made, hospitals have an incentive to prevent 
outliers. Second, under the MS-DRG system that took effect in FY 2008 
and that has been refined through rulemaking in subsequent years, 
certain conditions can generate higher payments even if the outlier 
payment requirements are not met. Under the MS-DRG system, there are 
currently 261 sets of MS-DRGs that are split into 2 or 3 subgroups 
based on the presence or absence of a CC or an MCC. The presence of a 
CC or an MCC generally results in a higher payment.
    Section 1886(d)(4)(D) 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.
    Effective for discharges occurring on or after October 1, 2008, 
pursuant to the authority of section 1886(d)(4)(D) of the Act, Medicare 
no longer assigns an inpatient hospital discharge to a higher paying 
MS-DRG if a selected condition is not present on admission (POA). Thus, 
if a selected condition that was not POA manifests during the hospital 
stay, it is considered a HAC and the case is paid as though the 
secondary diagnosis was not present. However, even if a HAC manifests 
during the hospital stay, if any nonselected CC/MCC appears on the 
claim, the claim will be paid at the higher MS-DRG rate. In addition, 
Medicare continues to assign a discharge to a higher paying MS-DRG if a 
selected condition is POA. When a HAC is not POA, payment can be 
effected in a manner shown in the diagram below.

[[Page 27893]]

[GRAPHIC] [TIFF OMITTED] TP11MY12.000

2. HAC Selection
    Beginning in FY 2007, we have set forth proposals, and solicited 
and responded to public comments, to implement section 1886(d)(4)(D) of 
the Act through the IPPS annual rulemaking process. For specific 
policies addressed in each rulemaking cycle, including a detailed 
discussion of the collaborative interdepartmental process and public 
input regarding selected and potential candidate HACs, we refer readers 
to the following rules: The FY 2007 IPPS proposed rule (71 FR 24100) 
and final rule (71 FR 48051 through 48053); the FY 2008 IPPS proposed 
rule (72 FR 24716 through 24726) and final rule with comment period (72 
FR 47200 through 47218); the FY 2009 IPPS proposed rule (73 FR 23547) 
and final rule (73 FR 48471); the FY 2010 IPPS/RY 2010 LTCH PPS 
proposed rule (74 FR 24106) and final rule (74 FR 43782); the FY 2011 
IPPS/LTCH PPS proposed rule (75 FR 23880) and final rule (75 FR 50080); 
and the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25810 through 25816) 
and final rule (76 FR 51504 through 51522). A complete list of the 10 
current categories of HACs is included on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/Hospital-Acquired_Conditions.html.
    In the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25813 through 
25814) and FY 2012 IPPS/LTCH PPS final rule (76 FR 51507 through 
50509), we proposed but did not finalize the candidate condition 
Contrast-Induced Acute Kidney Injury. Instead, we deferred the decision 
making on this condition as a selected HAC until future rulemaking and 
such a time when improved coding for the condition is available.
3. Present on Admission (POA) Indicator Reporting
    Collection of POA indicator data is necessary to identify which 
conditions were acquired during hospitalization for the HAC payment 
provision as well as for broader public health uses of Medicare data. 
In previous rulemaking, we provided both CMS and CDC Web site resources 
that are available to hospitals for assistance in this reporting 
effort. For detailed information regarding these sites and materials, 
including the application and use of POA indicators, we refer the 
reader to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51506 through 
51507).
    As discussed in previous IPPS proposed and final rules, there are 
five POA indicator reporting options, as defined by the ICD-9-CM 
Official Guidelines for Coding and Reporting: Under the HAC policy, we 
treat HACs coded with ``Y'' and ``W'' indicators as POA and allow the 
condition on its own to cause an increased payment at the CC/MCC level. 
We treat HACs coded with ``N'' and ``U'' indicators as Not Present on 
Admission (NPOA) and do not allow the condition on its own to cause an 
increased payment at the CC/MCC level. We refer readers to the 
following rules for a detailed discussion: The FY 2009 IPPS proposed 
rule (73 FR 23559) and final rule (73 FR 48486 through 48487); the FY 
2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 24106) and final rule 
(74 FR 43784 through 43785); the FY 2011 IPPS/LTCH PPS proposed rule 
(75 FR 23881 through 23882) and final rule (75 FR 50081 through 50082); 
and the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 25812 through 25813) 
and final rule (76 FR 51506 through 51507).

------------------------------------------------------------------------
        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.
------------------------------------------------------------------------


[[Page 27894]]

    Beginning on or after January 1, 2011, hospitals were required to 
begin reporting POA indicators using the 5010 electronic transmittal 
standards format. The 5010 format removes the need to report a POA 
indicator of ``1'' for codes that are exempt from POA reporting. We 
have issued CMS instructions on this reporting change as a One-Time 
Notification, Pub. No. 100-20, Transmittal No. 756, Change Request 
7024, effective on August 13, 2010, which can be located at the 
following link on the CMS Web site: http://www.cms.gov/manuals/downloads/Pub100_20.pdf. However, for claims that continue to be 
submitted using the 4010 electronic transmittal standards format, the 
POA indicator of ``1'' is still necessary because of reporting 
restrictions from the use of the 4010 electronic transmittal standards 
format.
    In addition, as discussed elsewhere in section III.G.9. of the 
preamble of this proposed rule, the 5010 format allows the reporting 
and effective January 1, 2011, the processing of up to 25 diagnoses and 
25 procedure codes. As such, it is necessary to report a valid POA 
indicator for each diagnosis code, including the principal and all 
secondary diagnoses up to 25.
4. HACs and POA Reporting in ICD-10-CM and ICD-10-PCS
    As we stated in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51506 
and 51507), in preparation for the transition to the ICD-10-CM and ICD-
10-PCS code sets, further information regarding the use of the POA 
indicator with the ICD-10-CM/ICD-10-PCS classifications as they pertain 
to the HAC policy will be discussed in future rulemaking.
    At the March 5, 2012 meeting of the ICD-9-CM Coordination and 
Maintenance Committee, an announcement was made with regard to the 
availability of the ICD-9-CM HAC list translation to ICD-10-CM and ICD-
10-PCS code sets. Participants were informed that the list of the 
current ICD-9-CM selected HACs has been translated into codes using the 
ICD-10-CM and ICD-10-PCS classification system. It was recommended that 
the public review this list of ICD-10-CM/ICD-10-PCS code translations 
of the current selected HACs available on the CMS Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp. The 
translations can be found under the link titled ICD-10-CM/PCS MS-DRG 
v29 Definitions Manual Table of Contents--Full Titles--HTML Version in 
Appendix I--Hospital Acquired Conditions (HACs). The translation list 
also is available on the CMS Web page at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/icd10_hacs.html. We 
encourage the public to submit comments on these translations through 
the HACs Web page using the CMS ICD-10-CM/PCS HAC Translation Feedback 
Mailbox that has been set up for this purpose under the Related Links 
section titled ``CMS HAC Feedback.'' The final HAC list translation 
from ICD-9-CM to ICD-10-CM/ICD-10-PCS will be subject to formal 
rulemaking.
    In the meantime, we continue to encourage readers to review the 
educational materials and draft code sets currently available for ICD-
10-CM/ICD-10-PCS on the CMS Web site at: http://www.cms.gov/ICD10/. In 
addition, the draft ICD-10-CM/ICD-10-PCS coding guidelines can be 
viewed on the CDC Web site at: http://www.cdc.gov/nchs/icd/icd10cm.htm.
5. Proposed Changes to the HAC Policy for FY 2013
a. Proposed Additional Diagnosis Codes to Existing HACs
    As changes to diagnosis codes and new diagnosis codes have been 
proposed and finalized for the list of CCs and MCCs, we have modified 
the list of selected HACs to reflect these changes. While there are not 
any new diagnosis codes being proposed for FY 2013, there were new and 
revised diagnosis codes effective October 1, 2011 (FY 2012) that were 
not finalized in time for inclusion in the FY 2012 IPPS rulemaking. 
Therefore, we are now proposing to add two of these codes to an 
existing HAC category. We are proposing to add diagnosis codes 999.32 
(Bloodstream infection due to central venous catheter) and 999.33 
(Local infection due to central venous catheter) to the Vascular 
Catheter-Associated Infection HAC category for FY 2013. These codes 
were created in response to a request discussed at the March 9-10, 2011 
ICD-9-CM Coordination and Maintenance Committee meeting to better 
identify specific types of infections (systemic vs. local) that occur 
as a result of central venous catheter placement.
    Previously, there was only one existing HAC code (999.31 (Infection 
due to central venous catheter)) in the Vascular Catheter-Associated 
Infection HAC category. With the creation of codes 999.32 and 999.33, 
effective October 1, 2011, the title for code 999.31 was revised to 
``Other and unspecified infection due to central venous catheter.'' 
Therefore, codes 999.32 and 999.33 provide further specificity as to 
the type of infection due to a central venous catheter. We refer 
readers to page 45 of the topic packet found at the following link on 
the CDC ICD-9-CM Web page at http://www.cdc.gov/nchs/data/icd9/TopicpacketforMarch2011_HA1.pdf for further information.
    Shown in the table below are these proposed two diagnosis codes 
with their corresponding descriptions and their CC/MCC designations.

------------------------------------------------------------------------
                                                             CC/MCC
         ICD-9-CM code             Code descriptor        designation
------------------------------------------------------------------------
999.32........................  Bloodstream infection  CC
                                 due to central
                                 venous catheter.
999.33........................  Local infection due    CC
                                 to central venous
                                 catheter.
------------------------------------------------------------------------

    We are inviting public comments on the proposed adoption of these 
two ICD-9-CM diagnosis codes designated as CC/MCCs that are listed 
above, to be added to the Vascular Catheter-Associated Infection HAC 
category as indicated for FY 2013.
b. Proposal To Add New HAC Condition: Surgical Site Infection (SSI) 
Following Cardiac Implantable Electronic Device (CIED) Procedures
    We discuss below our rationale for proposing a new condition, 
Surgical Site Infection (SSI) Following Cardiac Implantable Electronic 
Device (CIED) Procedures, for selection for FY 2013 as a HAC under 
section 1886(d)(4)(D) of the Act. As described in more detail in 
section II.F.1. of this preamble, each HAC must be: (1) High cost, high 
volume, or both; (2) 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 (3) could reasonably have been prevented through 
the application of evidence-based guidelines. We also discuss other 
considerations relating to the selection of a HAC, including any

[[Page 27895]]

administrative or operational issues associated with a proposed 
condition. For example, the condition may only be able to be identified 
by multiple codes, thereby requiring the development of special GROUPER 
logic to also exclude similar or related ICD-9-CM codes from being 
classified as a CC or an MCC. Similarly, a condition acquired during a 
hospital stay may arise from another condition that the patient had 
prior to admission, making it difficult to determine whether the 
condition was reasonably preventable. We are inviting public comment on 
the degree to which these conditions fulfill these statutory 
requirements, as well as clinical, coding, and prevention issues on our 
proposal to add Surgical Site Infection (SSI) Following Cardiac 
Implantable Electronic Device (CIED) Procedures as a condition subject 
to the HAC payment provision for discharges occurring on or after 
October 1, 2012.
    CIED therapy reduces morbidity and mortality in selected patients 
with cardiac rhythm disturbances.\1\ More than 500,000 CIEDs are 
implanted each year in the United States and 70 percent of CIED 
recipients are age 65 or older.\2\ However, this benefit with regard to 
the treatment of cardiac rhythm disturbances is somewhat reduced by 
complications following device placement, including infections. 
Patients can present with early or late infections because of CIED 
placement.\3\ Two-thirds of these infections are caused by 
Staphylococcus aureus and coagulase-negative Staphylococcus species. 
Treatment of these infections usually entails surgical explantation of 
the device, sometimes under general anesthesia and a prolonged course 
of intravenous antibiotics, along with external electrical support in a 
monitored intensive care setting. The rate of CIED infection is 
increasing faster than the rate of CIED implantation,\4\ and there are 
published data on the mortality and cost associated with CIED infection 
or the relationship of these outcomes to different CIED types.
---------------------------------------------------------------------------

    \1\ Epstein, A. E., J. P. DiMarco, et al. (2008). ``ACC/AHA/HRS 
2008 Guidelines for Device-Based Therapy of Cardiac Rhythm 
Abnormalities: a report of the American College of Cardiology/
American Heart Association Task Force on Practice Guidelines 
(Writing Committee to Revise the ACC/AHA/NASPE 2002 Guideline Update 
for Implantation of Cardiac Pacemakers and Antiarrhythmia Devices): 
developed in collaboration with the American Association for 
Thoracic Surgery and Society of Thoracic Surgeons.'' Circulation 
117(21): e350-408.
    \2\ Zhan, C., W. B. Baine, et al. (2007). ``Cardiac device 
implantation in the United States from 1997 through 2004: a 
population-based analysis.'' J Gen Intern Med, 23 Suppl 1: 13-19.
    \3\ Baddour, L. M., A. E. Epstein, et al. (2010). ``Update on 
cardiovascular implantable electronic device infections and their 
management: a scientific statement from the American Heart 
Association.'' Circulation, 121(20048212): 458-477.
     Baddour, L. M., A. E. Epstein, et al. (2010). ``Update on 
Cardiovascular Implantable Electronic Device Infections and Their 
Management: A Scientific Statement From the American Heart 
Association.'' Circulation, 121(3): 458-477.
    \4\ Greenspon, A. J., J. D. Patel, et al. (2011). ``16-Year 
Trends in the Infection Burden for Pacemakers and Implantable 
Cardioverter-Defibrillators in the United States 1993 to 2008.'' 
Journal of the American College of Cardiology 58(10): 1001-1006.
---------------------------------------------------------------------------

    There is not a unique code that identifies SSI Following CIED 
Procedures. However, the condition can be identified as a subset of 
discharges with ICD-9-CM diagnosis code 996.61 (Infection and 
inflammatory reaction due to cardiac device, implant and graft) or 
998.59 (Other postoperative infection). Our clinical advisors believe 
that diagnosis code 996.61 or 998.59, in combination with the 
associated procedure codes below, can accurately identify SSI Following 
CIED Procedures. The procedure codes are:
    <bullet> 00.50 (Implantation of cardiac resynchronization pacemaker 
without mention of defibrillation, total system [CRT-P]);
    <bullet> 00.51 (Implantation of cardiac resynchronization 
defibrillator, total system [CRT-D]);
    <bullet> 00.52 (Implantation or replacement of transvenous lead 
[electrode] into left ventricular coronary venous system);
    <bullet> 00.53 (Implantation or replacement of cardiac 
resynchronization pacemaker pulse generator only [CRT-P]);
    <bullet> 00.54 (Implantation or replacement of cardiac 
resynchronization defibrillator pulse generator device only [CRT-D]);
    <bullet> 37.80 (Insertion of permanent pacemaker, initial or 
replacement, type of device not specified);
    <bullet> 37.81 (Initial insertion of single-chamber device, not 
specified as rate responsive);
    <bullet> 37.82 (Initial insertion of single-chamber device, rate 
responsive);
    <bullet> 37.83 (Initial insertion of dual-chamber device);
    <bullet> 37.85 (Replacement of any type pacemaker device with 
single-chamber device, not specified as rate responsive);
    <bullet> 37.86 (Replacement of any type of pacemaker device with 
single-chamber device, rate responsive);
    <bullet> 37.87 (Replacement of any type pacemaker device with dual-
chamber device);
    <bullet> 37.94 (Implantation or replacement of automatic 
cardioverter/defibrillator, total system [AICD]);
    <bullet> 37.96 (Implantation of automatic cardioverter/
defibrillator pulse generator only);
    <bullet> 37.98 (Replacement of automatic cardioverter/defibrillator 
pulse generator only);
    <bullet> 37.74 (Insertion or replacement of epicardial lead 
[electrode] into epicardium);
    <bullet> 37.75 (Revision of lead [electrode]);
    <bullet> 37.76 (Replacement of transvenous atrial and/or 
ventricular lead(s) [electrode]);
    <bullet> 37.77 (Removal of lead(s) [electrode] without 
replacement);
    <bullet> 37.79 (Revision or relocation of cardiac device pocket); 
and
    <bullet> 37.89 (Revision or removal of pacemaker device).
    We are proposing to identify Surgical Site Infection Following CIED 
Procedures with diagnosis code 996.61 or 998.59 in combination with one 
or more of the above associated procedure codes. We believe the 
condition meets the three criteria for inclusion on the HAC list, as 
discussed in greater detail below.
    First, the condition is one that is high cost and high volume. We 
reviewed Medicare claims data in the FY 2011 MedPAR file. For FY 2011, 
we found that there were 859 inpatient discharges coded with Surgical 
Site Infection Following CIED Procedures as specified by diagnosis code 
996.61 or 998.59 when reported with one or more of the above cited 
associated procedure codes submitted through Medicare claims. The cases 
had an average cost of $51,795 for the entire hospital stay. We found 
that there were 583 inpatient discharges coded with Surgical Site 
Infection Following CIED Procedures as specified by diagnosis code 
996.61 or 998.59 when reported with one or more of the above cited 
associated procedure codes submitted through Medicare claims reported 
as POA. These POA cases had an average cost of $41,999. We also found 
that there were 276 inpatient discharges coded with Surgical Site 
Infection Following CIED Procedures as specified by diagnosis code 
996.61 or 998.59 when reported with one or more of the above cited 
associated procedure codes submitted through Medicare claims reported 
as NPOA. These NPOA cases had an average cost of $72,485. We note that 
these data are consistent with other data presented for current HACs. 
Therefore, we believe this condition is high cost and high volume.
    In addition, we reviewed the literature regarding this condition. 
Infection associated with CIED procedures resulted in a substantial 
incremental increase in admission mortality and long-term mortality, 
and varies with the type of CIED. For the purposes of this proposal, we 
are considering CIED procedures in the

[[Page 27896]]

aggregate. Several large studies showed CIED infection associated with 
an approximately 5 percent to 8 percent inhospital mortality as well as 
a 17.5 percent to 35.1 percent one year mortality.\5\ Additionally, 
there is a significant cost impact for patients who suffer infections 
after CIED implantation. A recent large analysis of 2007 data on over 
200,000 Medicare beneficiaries demonstrated the mean hospital cost of 
CIED infections to be $28,676 to $53,349, compared with a mean hospital 
cost ranging from $12,468 to $36,851 for beneficiaries without 
infection.\6\ This additional information supports our conclusion from 
our analysis of data in the MedPAR file that this condition is high 
cost.
---------------------------------------------------------------------------

    \5\ Tarakji, K. G., E. J. Chan, et al. (2010). ``Cardiac 
implantable electronic device infections: Presentation, management, 
and patient outcomes.'' Heart Rhythm 7(8): 1043-1047.
    \6\ Sohail, M. R., C. A. Henrikson, et al. (2011). ``Mortality 
and cost associated with cardiovascular implantable electronic 
device infections.'' Arch Intern Med 171(20): 1821-1828.
---------------------------------------------------------------------------

    Second, the condition of Surgical Site Infection Following CIED 
Procedures, as specified in our proposal, is a CC under the MS-DRG 
system. We have not identified any additional administrative or 
operational difficulties associated with proposing this condition as a 
HAC.
    Third, because there are widely recognized guidelines for the 
prevention of Surgical Site Infection Following CIED Procedures, we 
believe the condition is reasonably preventable through application of 
evidenced-based guidelines. A large randomized controlled trial 
demonstrated that prophylactic preoperative antibiotics reduced CIED 
infection by 81 percent in patients who received them.\7\ Well-accepted 
guidelines for the prevention and prophylaxis of CIED infection now 
exist supporting the use of prophylactic antibiotics.
---------------------------------------------------------------------------

    \7\ de Oliveira, J. C., M. Martinelli, et al. (2009). ``Efficacy 
of Antibiotic Prophylaxis Before the Implantation of Pacemakers and 
Cardioverter-Defibrillators: Results of a Large, Prospective, 
Randomized, Double-Blinded, Placebo-Controlled Trial.'' Circ 
Arrhythm Electrophysiol, 2(1): 29-34.
---------------------------------------------------------------------------

    We are inviting public comment on whether Surgical Site Infection 
Following CIED Procedures meets the requirements set forth under 
section 1886(d)(4)(D) of the Act, as well as other coding and 
prevention issues associated with our proposal to add this condition as 
a proposed condition subject to the HAC payment provision for FY 2013 
(for discharges occurring on or after October 1, 2012). We are 
particularly interested in receiving comments on the degree to which 
Surgical Site Infection Following CIED Procedures is reasonably 
preventable through the application of evidence-based guidelines.
c. Proposal To Add New HAC: Iatrogenic Pneumothorax With Venous 
Catheterization
    We discuss below our rationale for proposing a new condition, 
Iatrogenic Pneumothorax with Venous Catheterization, for selection as a 
HAC for FY 2013 under section 1886(d)(4)(D) of the Act. We had 
previously proposed Iatrogenic Pneumothorax more generally as a HAC in 
the FY 2009 IPPS rulemaking (73 FR 48485).
    In the FY 2009 IPPS final rule (73 FR 48485), we considered 
Iatrogenic Pneumothorax as a condition but did not finalize it due to 
commenters' concerns about the preventability of the condition when 
following the evidence-based guidelines. Most commenters opposed the 
selection of Iatrogenic Pneumothorax as a HAC and indicated that the 
evidence-based guidelines often acknowledge that Iatrogenic 
Pneumothorax is a known relatively common risk for certain procedures. 
Further, with regard to evidence-based guidelines, many commenters 
opposed designation of this condition as a HAC due to a lack of 
consensus within the medical community regarding its preventability.\8\ 
Some commenters offered suggestions to exclude certain procedures or 
situations, including central line placement, thoracotomy, and the use 
of a ventilator, if Iatrogenic Pneumothorax were to be selected as a 
HAC. In that rule, we noted that we would continue to review the 
development of evidence-based guidelines for the prevention of 
Iatrogenic Pneumothorax if evidence warrants and consider Iatrogenic 
Pneumothorax as a HAC in the future. We refer readers to that final 
rule for a more detailed discussion (73 FR 48485). To address concerns 
raised by commenters in FY 2009, we reviewed changes in the standard of 
care and evidence-based guidelines to identify specific situations 
where Iatrogenic Pneumothorax would be considered reasonably 
preventable and identified venous catheterization as one such instance.
---------------------------------------------------------------------------

    \8\ Ahan, et al. ``Accidental Iatrogenic Pneumothorax in 
Hospitalized Patients,'' Medical Care, 44(2):182-6, Feb. 2006.
---------------------------------------------------------------------------

    Pneumothorax is defined as the presence of air or gas in the 
pleural cavity, which is the space between the covering of the tissue 
of the lung and parietal pleura, or the part of the pleura that lines 
the chest wall. The presence of air in this space partially or 
completely collapses the lung and is life threatening. Air can enter 
the intrapleural space through a passage through the chest wall. 
Iatrogenic Pneumothorax is a type of traumatic pneumothorax that 
results from incursion into the pleural space secondary to diagnostic 
or therapeutic medical intervention, such as needle placement for 
central line catheter guidance.
    There is no unique code that identifies Iatrogenic Pneumothorax 
with Venous Catheterization. However, Iatrogenic Pneumothorax with 
Venous Catheterization can be identified as a subset of discharges with 
ICD-9-CM diagnosis code 512.1 (Iatrogenic pneumothorax). Our clinical 
advisors believe that diagnosis code 512.1, in combination with the 
associated procedure code 38.93 (Venous catheterization NEC), can 
accurately identify Iatrogenic Pneumothorax with Venous 
Catheterization. We are proposing to identify Iatrogenic Pneumothorax 
with Venous Catheterization reported in combination with diagnosis code 
512.1 (Iatrogenic pneumothorax) and procedure code 38.93 (Venous 
catheterization NEC). We recognize that, in quality measurement such as 
with the Agency for Healthcare Research and Quality (AHRQ) Patient 
Safety Indicator (PSI) Number 6 (Iatrogenic Pneumothorax Rate), 
exclusion criteria are used to increase the accuracy of identifying 
these cases. We believe that, by limiting our proposal to include 
Iatrogenic Pneumothorax as a HAC only in the context of venous 
catheterization, we have improved our ability to accurately identify 
these cases. While we are not proposing exclusion criteria, we welcome 
public comment in this regard. In addition, we believe this more 
narrowly tailored condition meets the three criteria for inclusion on 
the HAC list, as discussed in greater detail below.
    First, the condition is one that is high cost and high volume. We 
reviewed Medicare claims data in the FY 2011 MedPAR file. We found that 
there were 4,467 inpatient discharge cases coded for Iatrogenic 
Pneumothorax with Venous Catheterization as specified by diagnosis code 
512.1 reported with procedure code 38.93. The cases had an average cost 
of $39,128 for the entire hospital stay. We found that there were 612 
inpatient discharge cases coded for Iatrogenic Pneumothorax with Venous 
Catheterization as specified by diagnosis code 512.1 reported with 
procedure code 38.93 submitted through Medicare claims reported as POA. 
These POA cases had an average cost of $26,693. We also found that 
there were 3,855 inpatient discharge cases coded for

[[Page 27897]]

Iatrogenic Pneumothorax with Venous Catheterization as specified by 
diagnosis code 512.1 reported with procedure code 38.93 submitted 
through Medicare claims reported as NPOA. These NPOA cases had an 
average cost of $41,102. We note that these data are consistent with 
other data presented for current HACs. Therefore, we believe this 
condition is high cost and high volume.
    In addition, we reviewed the literature regarding this condition. 
The cannulation of veins (that is insertion of a catheter) with central 
venous catheterization is an important aspect of patient care for the 
administration of fluids and medications and for monitoring purposes. 
Eight percent of hospitalized patients receive a central venous 
catheter, and more than 5 million central venous catheters are inserted 
in the United States each year. Indwelling catheters have several known 
complications and side effects associated with their use, such as 
infections or vessel damage. Additionally, there are risks associated 
with the placement of central venous catheters including the risk of 
pneumothorax for central catheters placed in the upper area of the 
patient's neck or chest when placed in the internal jugular or 
subclavian veins. Mechanical complications associated with Iatrogenic 
Pneumothorax are reported to occur in 5 to 19 percent of patients.\9\
---------------------------------------------------------------------------

    \9\ McGee, D. C. and M. K. Gould (2003). ``Preventing 
Complications of Central Venous Catheterization.'' New England 
Journal of Medicine, 348(12): 1123-1133.
---------------------------------------------------------------------------

    Second, the condition of Iatrogenic Pneumothorax with Venous 
Catheterization as specified in our proposal is a CC under the MS-DRGs.
    Third, there are widely recognized guidelines that address the 
prevention of Iatrogenic Pneumothorax with Venous Catheterization, and 
we believe that Iatrogenic Pneumothorax in the context of venous 
catheterization is reasonably preventable through application of these 
evidenced-based guidelines.
    In terms of guidelines, the AHRQ, in a 2001 report ``Making Health 
Care Safer: A Critical Analysis of Patient Safety Practices'' (AHRQ 
Publication No. 01-EO58) recommended the use of ultrasound for the 
placement of all central venous catheters as one of its 11 practices 
aimed at improving patient care. Current standard placement techniques 
for these venous catheters rely on the knowledge of anatomic landmarks 
and other indicators to guide the initial cannulation of the vein. The 
increase in the number of small, advanced and portable 2D ultrasound 
devices has inspired the use of these newer ultrasound devices in 
central venous line placement, as now direct visualization of the 
target vessel can be achieved, making it easier to avoid these 
complications. Recommendations for the use of ultrasound as an adjunct 
to central venous line placement now exist and are based on supportive 
literature Category A (Randomized controlled trials report 
statistically significant (P -- .01) differences between clinical 
interventions for a specified clinical outcome) with a Level 1 weight 
of scientific evidence (multiple randomized controlled trials with the 
aggregated findings supported by meta-analysis).\10\ Several studies 
have shown a decrease in the mechanical complication rate with the use 
of ultrasound during line placement.\11\ Guidelines for performing 
ultrasound guided vascular cannulation have been recently 
published.\12\
---------------------------------------------------------------------------

    \10\ Echoc, A., U. R., B. T., A. S., O. A., A. T., S. O., C. A., 
T. F., O. T. (2010). ``Practice Guidelines for Perioperative 
Transesophageal Echocardiography.'' Anesthesiology, 112(5): 1084-
1096 1010.1097/ALN.1080b1013e3181c1051e1090.
    \11\ Hind, D.: ``Ultrasonic device for central venous 
cannulation: Meta-analysis.'' BJM, 2003, vol. 327, 7411:361-364; and
    Troianos, C. A., G. S. Hartman, et al. (2012). ``Guidelines for 
Performing Ultrasound Guided Vascular Cannulation: Recommendations 
of the American Society of Echocardiography and the Society of 
Cardiovascular Anesthesiologists.'' Anesthesia and Analgesia, 
114(1): 46-72.
    \12\ Troianos, C. A., G. S. Hartman, et al. (2012). ``Guidelines 
for Performing Ultrasound Guided Vascular Cannulation: 
Recommendations of the American Society of Echocardiography and the 
Society of Cardiovascular Anesthesiologists.'' Anesthesia and 
Analgesia, 114(1): 46-72.
---------------------------------------------------------------------------

    We believe new evidence-based guidelines provide substantial 
clinical guidance for reasonable prevention when this condition occurs 
in the context of venous catheterization. We are inviting public 
comment on whether Iatrogenic Pneumothorax with Venous Catheterization 
meets the requirements set forth under section 1886(d)(4)(D) of the 
Act, as well as other coding and prevention issues associated with our 
proposal to add this proposed condition, as a condition subject to the 
HAC payment provision for discharges occurring on or after October 1, 
2012. We are particularly interested in public comment on how limiting 
the condition to situations in which it occurs in conjunction with 
venous catheterization influences preventability, and whether 
additional limits should be considered in the context of venous 
catheterization.
    With the exception of the condition of Iatrogenic Pneumothorax with 
Venous Catheterization, at this time, we do not believe that additional 
analysis exists that would require us to change our previous 
determinations regarding the previously considered candidate HACs in 
the FY 2008 IPPS final rule with comment period (72 FR 47200 through 
47218), the FY 2009 IPPS final rule (73 FR 48471 through 48491), the FY 
2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43782 through 43785), and 
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51510 through 51511). We 
refer readers to these rules for a detailed discussion that supports 
our determination regarding each of the previously considered candidate 
HACs and continue to encourage public dialogue about refinements to the 
HAC list.
6. RTI Program Evaluation Summary
    On September 30, 2009, a contract was awarded to Research Triangle 
Institute, International (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. The evaluation includes conditions that are currently treated as 
HACs and also previously considered candidate conditions. We refer 
readers to the FY 2011 IPPS/LTCH PPS final rule (50085 through 50101), 
and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51512 through 51522) 
for a fuller description of this evaluation and findings to date 
regarding analysis of FY 2009 and FY 2010 data, respectively. Summary 
and detailed data were made publicly available on the CMS Web site at: 
http://www.cms.gov/HospitalAcqCond/01_Overview.asp and the RTI Web 
site at: http://www.rti.org/reports/cms/. RTI's analysis of the FY 2011 
MedPAR data file for the HAC-POA program evaluation is being prepared 
for the FY 2013 IPPS/LTCH PPS final rule. When these summary and 
detailed data are available, they also will be made publicly available 
on the two Web sites noted above.
    In addition to the evaluation of HAC and POA MedPAR claims data, 
RTI has also conducted analyses on readmissions due to HACs and the 
incremental costs of HACs to the health care system, a study of 
spillover effects and unintended consequences, as well

[[Page 27898]]

as an updated analysis of the evidence-based guidelines for selected 
and previously considered HACs. Reports on these analyses have been 
made publicly available on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalAcqCond/index.html.

G. Proposed Changes to Specific MS-DRG Classifications

    In this FY 2013 IPPS/LTCH PPS proposed rule, 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.
    We encourage input from our stakeholders concerning the annual IPPS 
updates when that input is made available to us by December of the year 
prior to the next annual proposed rule update. For example, to be 
considered for any updates or changes in FY 2013, comments and 
suggestions should have been submitted by early December 2011. The 
comments that were submitted in a timely manner are discussed below in 
this section.
1. Pre-Major Diagnostic Categories (Pre-MDCs)
a. Ventricular Assist Devices (VADs)
    A ventricular assist device (VAD) is a mechanical circulatory 
device or pump that is used to partially or completely support heart 
function and blood flow in patients with a damaged or weakened heart. 
The device takes blood from the ventricles of the heart and helps pump 
the blood to the rest of the body.
    Some VADs are intended for short-term use, often for patients who 
are recovering from heart attacks or heart surgery, while other VADs 
are intended for long-term use (months to years and, in some cases, for 
life). VADs are not the same device as artificial hearts, which are 
designed to completely take over cardiac function and generally require 
the removal of the patient's native heart.
    VADs are designed to assist the ventricles, either the right (RVAD) 
or the left (LVAD), and, in some cases, both ventricles at once 
(BiVAD). The type of VAD used depends on the patient's underlying heart 
disease and the pulmonary arterial resistance that determines the load 
on the right ventricle. LVADs are the most commonly used, but when 
pulmonary arterial resistance is high, right ventricular assistance 
becomes necessary and an RVAD may be inserted. Long-term VADs are 
normally used to help maintain a patient's quality of life while he or 
she awaits a heart transplant. This process is known as a ``bridge to 
transplant.'' However, sometimes the insertion of an LVAD becomes the 
final treatment for the patient, which is known as ``destination 
therapy.'' In this case, the VAD is a permanent implant, and no heart 
transplantation occurs. In a smaller number of cases, the implantation 
of a VAD, combined with pharmaceutical therapy, has enabled the native 
heart to recover sufficiently to allow the VAD to be explanted, a 
``bridge to recovery.''
    We have issued a national coverage determination (NCD) entitled 
``Artificial Hearts and Related Devices'' under Section 20.9 of the 
Medicare Coverage Manual (Pub. No. 100-3). This NCD, which describes 
CMS' requirements for coverage of medical services provided to Medicare 
beneficiaries for the insertion of VADs, can be found at the CMS Web 
site at: https://www.cms.gov/medicare-coverage-database/details/ncd-details.aspx?NCDId=246&ncdver=5&NCAId=211&ver=20&NcaName=Artificial+Hearts&bc=ACAAAAAAIAAA&. We refer readers to this Web site for the complete 
viewing of the NCD for the insertion of VADs.
    The assignment of procedure codes used to describe the insertion of 
VADs has been discussed repeatedly in IPPS rulemaking, for the CMS-DRGs 
(in effect prior to FY 2008) and more recently for the MS-DRGs (FY 2008 
to present). We refer readers to the FY 2003 IPPS final rule (67 FR 
49989) for a complete discussion of the assignment of these procedure 
codes up to that date. In addition, the topic was discussed in FY 2005; 
we refer readers to the FY 2005 IPPS final rule (69 FR 48927 through 
48930) for a complete discussion regarding the assignment of these 
procedure codes for FY 2005. Specifically, for FY 2005, we moved ICD-9-
CM procedure code 37.66 (Insertion of implantable heart assist system) 
from CMS-DRG 525 (Other Heart Assist System Implant) to CMS-DRG 103 
(Heart Transplant). When we adopted the MS-DRG classification system in 
FY 2008, former CMS-DRG 103 remained in the Pre-MDC section but was 
renamed and subdivided into MS-DRG 001 (Heart Transplant or Implant of 
Heart Assist System with MCC) and MS-DRG 002 (Heart Transplant or 
Implant of Heart Assist System without MCC).
    For FY 2013, we have received a request to restructure MS-DRGs 001 
and 002 by removing all of the procedure codes that describe the 
insertion of a device, leaving only procedure codes 33.6 (Combined 
heart-lung transplantation) and 37.51 (Heart transplantation) in the 
heart transplant DRGs. The requestor further asked that the remaining 
device codes be assigned to newly created MS-DRGs. The requestor 
believed that, within the existing MS-DRG grouping, CMS is underpaying 
for services to patients who have a VAD implanted and overpaying for 
services to patients who have heart transplantations. The requestor 
believed that the recommended restructuring ``would allow defined 
grouping of cases with the higher level of resource [sic] required 
reflected in payment.''
    We have reviewed data in the September 2011 update of the FY 2011 
MedPAR file and found that the average length of stay for heart 
transplantations and VAD implantation cases are very similar (35.1 days 
for heart transplantations and 36.63 days for VAD implantations). We 
also found that the average cost for VAD implantation cases alone is 
higher than the average cost of heart transplantation cases. The table 
below includes our findings.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average cost
----------------------------------------------------------------------------------------------------------------
MS-DRG 001--All Cases...........................................           1,235           36.97        $164,846
MS-DRG 001--Cases with Heart Transplant without VAD.............             384           35.1          123,472
MS-DRG 001--Cases with VAD Insertion Alone......................             811           36.85         181,915
MS-DRG 002--All Cases...........................................             313           19.66          89,818
MS-DRG 002--Cases with Heart Transplant without VAD.............             172           15.1           58,890
MS-DRG 002--Cases with VAD Insertion Alone......................             140           25.31         128,069
----------------------------------------------------------------------------------------------------------------


[[Page 27899]]

    We believe that this higher average cost could be attributable to 
the cost of the device itself. There are very few VADs approved by FDA; 
therefore, we believe this small group of manufacturers is able to set 
their own charges in the market. We point out that the IPPS is not 
designed to pay solely for the cost of devices. The MS-DRG 
classification system (and more importantly, the IPPS) is not based 
solely on the cost of devices.
    Rather, the MS-DRG system is a patient classification system that 
provides an average means of relating the type of patients a hospital 
treats (that is, case-mix) to the costs incurred by the hospital. We 
have previously stated that, ``Central to the success of the Medicare 
inpatient hospital prospective payment system is that DRGs have 
remained a clinical description of why the patient required 
hospitalization. We believe it would be undesirable to transform DRGs 
into detailed descriptions of the technology and processes used by the 
hospital to treat the patient. If such a transformation were to happen, 
the DRGs would become largely a repackaging of fee-for-service without 
the management and communication benefits. The separation of the 
clinical and payment weight methodologies allows a stable clinical 
methodology to be maintained, while the payment weights evolve in 
response to changing practice patterns. The packaging of all services 
associated with the care of a particular type of patient into a single 
payment amount provides the incentive for efficiency inherent in a DRG-
based prospective payment system. Substantial disaggregation of the 
DRGs into smaller units of payment, or a substantial number of cases 
receiving extra payments, would undermine the incentives and 
communication value in the DRG system.'' (66 FR 46904)
    The results of our review of the claims data for MS-DRGs 001 and 
002 are summarized in the following table.

------------------------------------------------------------------------
                                       Description of        Number of
               Code                        code(s)             cases
------------------------------------------------------------------------
MS-DRG 001 (Heart Transplant or Implant of Heart Assist System With MCC)
------------------------------------------------------------------------
All codes.........................  ....................           1,235
33.6 or 37.51.....................  Combined heart-lung              384
                                     transplantation or
                                     Heart
                                     transplantation.
33.6 or 37.51 with 37.66..........  Combined heart-lung               11
                                     transplantation or
                                     Heart
                                     transplantation
                                     with Insertion of
                                     implantable heart
                                     assist system (VAD).
37.52.............................  Implantation of                    2
                                     total internal
                                     biventricular heart
                                     replacement system
                                     (Artificial heart).
37.66.............................  Insertion of                     811
                                     implantable heart
                                     assist system (VAD).
37.60 with 37.64..................  Implantation or                    1
                                     insertion of
                                     biventricular
                                     external heart
                                     assist system +
                                     Removal of external
                                     heart assist
                                     system(s) or
                                     device(s).
37.63 with 37.64..................  Repair of heart                    0
                                     assist system +
                                     Removal of external
                                     heart assist
                                     system(s) or
                                     device(s).
37.64 with 37.65..................  Removal of external               22
                                     heart assist
                                     system(s) or
                                     device(s) + plant
                                     of single
                                     ventricular
                                     (extracorporeal)
                                     external heart
                                     assist system.
                                    Multiple VADs                     22
                                     without heart
                                     transplant.
------------------------------------------------------------------------
MS-DRG 002 (Heart Transplant or Implant of Heart Assist System With MCC)
------------------------------------------------------------------------
All codes.........................  ....................             313
33.6 or 37.51.....................  Combined heart-lung              172
                                     transplantation or
                                     Heart
                                     transplantation.
33.6 or 37.51 with 37.66..........  Combined heart-lung                0
                                     transplantation or
                                     Heart
                                     transplantation
                                     with Insertion of
                                     implantable heart
                                     assist system (VAD).
37.52.............................  Implantation of                    0
                                     total internal
                                     biventricular heart
                                     replacement system
                                     (Artificial heart).
37.66.............................  Insertion of                     140
                                     implantable heart
                                     assist system (VAD).
37.60 with 37.64..................  Implantation or                    0
                                     insertion of
                                     biventricular
                                     external heart
                                     assist system plus
                                     Removal of external
                                     heart assist
                                     system(s) or
                                     device(s).
37.63 with 37.64..................  Repair of heart                    0
                                     assist system +
                                     Removal of external
                                     heart assist
                                     system(s) or
                                     device(s).
37.64 with 37.65..................  Removal of external                1
                                     heart assist
                                     system(s) or
                                     device(s) + plant
                                     of single
                                     ventricular
                                     (extracorporeal)
                                     external heart
                                     assist system.
                                    Multiple VADs                      4
                                     without heart
                                     transplant.
------------------------------------------------------------------------

    In general, we believe that the IPPS should accurately recognize 
differences in utilization for clinically distinct procedures. However, 
we also reiterate the language in the FY 2009 IPPS final rule that the 
payments under a prospective payment system are predicated on averages 
(73 FR 48443). To create a new MS-DRG specific to VAD implantation 
would require basing that MS-DRG almost exclusively on the presence of 
procedure code 37.66, representing a single procedure and currently one 
manufacturer with FDA approval. Currently, other manufacturers are 
reported to be in clinical trials with their VADs. This approach 
negates our longstanding method of grouping like procedures and 
diminishes the concept of averaging. Further, we are concerned that 
ignoring the structure of the MS-DRG system solely for the purpose of 
increasing payment for one device would set an unwarranted precedent 
for defining all of the other MS-DRGs in the system (73 FR 48497 and 
48498).
    The commenter requested that we create two new MS-DRGs for the VADs 
and that the requested MS-DRGs be divided based on the presence or 
absence of an MCC. We point out that the final rule establishing the 
MS-DRGs sets forth five criteria, all five of which are required to be 
met in order to warrant creation of a CC or an MCC subgroup within a 
base MS-DRG. The criteria can be found in the FY 2008 IPPS final rule 
with comment period (72 FR 47169). The original criteria were based on 
average charges; we now use average costs (FY 2007 IPPS final rule (71 
FR 47882)). To reiterate, these criteria are as follows:
    <bullet> A reduction in variance of costs of at least 3 percent.
    <bullet> At least 5 percent of the patients in the MS-DRG fall 
within the CC or MCC subgroup.
    <bullet> At least 500 cases are in the CC or MCC subgroup.
    <bullet> There is at least a 20-percent difference in average costs 
between subgroups.

[[Page 27900]]

    <bullet> There is a $2,000 difference in average cost between 
subgroups.
    As procedure code 37.66 predominates in our claims data for VAD 
implantations, we are including the following table demonstrating the 
cost difference between MS-DRG 001 and MS-DRG 002.

------------------------------------------------------------------------
                                             Number of
                 MS-DRG                        cases       Average cost
------------------------------------------------------------------------
001--Cases with procedure code 37.66....             811        $181,915
002--Cases with procedure code 37.66....             140         128,069
------------------------------------------------------------------------

    As stated in the FY 2008 IPPS final rule with comment period, all 
five criteria must be met in order to subdivide an MS-DRG into MCC and 
non-MCC severity levels. In this instance, the number of cases in MS-
DRG 002 containing procedure code 37.66 is 140, not the minimum number 
of 500 cases as established by the MS-DRG severity criteria. Therefore, 
even if we were to create a new MS-DRG for VAD implantation, unless we 
further divided the MS-DRG based on the presence of an MCC, we would 
substantially overpay approximately 15 percent of total VAD cases. 
However, we could not create multiple MS-DRGs for VAD implantation 
without ignoring our rules for subdividing MS-DRGs.
    For these reasons, for FY 2013, we are not proposing to make any 
changes to the structure of MS-DRGs 001 and 002. We are inviting public 
comment on our proposal.
b. Allogeneic Bone Marrow Transplant
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50101), we deleted 
MS-DRG 009 (Bone Marrow Transplant) and created two new MS-DRGs: MS-DRG 
014 (Allogeneic Bone Marrow Transplant) and MS-DRG 015 (Autologous Bone 
Marrow Transplant). We created MS-DRGs 014 and 015 because of 
differences in costs associated with the procedures in these two MS-
DRGs. In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51525 through 
51526), we further subdivided MS-DRG 015 into two severity levels, by 
deleting MS-DRG 015 and creating MS-DRG 016 (Autologous Bone Marrow 
Transplant with CC/MCC); and MS-DRG 017 (Autologous Bone Marrow 
Transplant without CC/MCC). We created MS-DRGs 014 and 015 as these 
groups meet all five criteria for subdivision by severity level that we 
established in the FY 2008 IPPS final rule with comment period (72 FR 
47169). As we discussed in the FY 2012 IPPS/LTCH PPS final rule, MS-DRG 
014 did not meet the criteria for subdivision by severity level.
    During the comment period for the FY 2012 IPPS/LTCH PPS proposed 
rule, we received a public comment regarding related and unrelated 
allogeneic bone marrow transplants (which are captured in MS-DRG 014) 
that had not been the subject of a proposal in that proposed rule. This 
issue was referred to briefly in the FY 2012 IPPS/LTCH PPS final rule 
(76 FR 51557), but we did not address the issue because we considered 
the comment to be out of the scope of provisions of the proposed rule. 
However, we are addressing this issue in this FY 2013 proposed rule. 
The commenter recommended that MS-DRG 014 be subdivided into two MS-
DRGs based on related and unrelated transplant donor source.
    Allogeneic bone marrow transplantation utilizes the bone marrow or 
stem cells from a donor that is either related (sibling or other close 
family member) or unrelated (not a close family member of the 
recipient) in the treatment of certain cancers and bone marrow 
diseases. Allogeneic transplant recipients must have a tissue type that 
matches the donor. According to the commenter, a related donor will 
typically be managed by the transplant facility from human leukocyte 
antigen (HLA) molecular typing through mobilization and collection, 
while an unrelated donor requires the use of donor registry for 
searching and collection process. According to the commenter, the 
unrelated donor setting adds significant costs to the transplant that 
would not be incurred in the related transplant setting.
    Currently, there are three ICD-9-CM procedure codes that identify 
the transplant donor source:

<bullet> 00.91 (Transplant from live related donor)
<bullet> 00.92 (Transplant from live non-related donor)
<bullet> 00.93 (Transplant from cadaver)

    In our analysis of data in the FY 2011 MedPAR file, we found 467 
cases assigned to MS-DRG 014 with average costs of approximately 
$64,403 and an average length of stay of approximately 24.8 days. There 
were 125 cases that reported procedure code 00.91 on the claim as the 
related transplant donor source with average costs of approximately 
$55,969 and an average length of stay of approximately 24.1 days. In 
our analysis of the unrelated donor source, we included the cases 
reported with the transplant from a cadaver donor source (code 00.93) 
with the transplant from a live nonrelated donor source (code 00.92). 
There were 213 cases that reported either code 00.92 or 00.93 as the 
transplant donor source with average costs of approximately $64,837 and 
an average length of stay of approximately 23 days. There were 129 
cases that did not report a transplant donor source with average costs 
of approximately $71,859 and an average length of stay of approximately 
28.5 days. The following table illustrates our findings:

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 014--All cases...........................................             467            24.8         $64,403
MS-DRG 014--Live related donor (code 00.91).....................             125            24.1          55,969
MS-DRG 014--Live nonrelated donor (code 00.92) or cadaver (code              213              23          64,837
 00.93).........................................................
MS-DRG 014--No donor source.....................................             129            28.5          71,859
----------------------------------------------------------------------------------------------------------------

    We note that one quarter of the cases (129 out of 467 cases) that 
did not report a transplant donor source code had the highest average 
costs of approximately $71,859, compared to $55,969 for live related 
donors and $64,837 for live nonrelated or cadaver donors and $64,403 
for the overall average cost of cases within MS-DRG 014. The cases 
without a transplant donor source code also had a longer length of stay 
(28.5 days) than the live-related donor cases

[[Page 27901]]

(24.1 days), the live nonrelated or cadaver cases (23 days), and the 
overall cases (24.8 days) assigned to MS-DRG 014.
    Based on these findings, we believe that it would not be advisable 
to include cases without a transplant donor source code with the live 
nonrelated or cadaver donor cases, as we believe it would encourage 
providers not to report the transplant donor source code. All possible 
options must be included in any MS-DRG reconfiguration. Therefore, 
cases with no reported transplant donor source code must be included in 
the updated logic because this is the group with the highest average 
costs. Our clinical advisors reviewed this issue and do not support 
splitting MS-DRG 014 into two MS-DRGs because a quarter of the cases 
did not provide a transplant donor source. Therefore, we have concluded 
that the cases reported with a transplant donor source code are 
appropriately assigned to MS-DRG 014 and that MS-DRG does not warrant 
further subdivision. Without more complete information on donor source, 
we are not proposing that MS-DRG 014 be subdivided at this time. We are 
inviting public comment on our proposal not to subdivide MS-DRG 014 
into two MS-DRGs based on related and unrelated donor source.
2. MDC 4 (Diseases and Disorders of the Ear, Nose, Mouth and Throat): 
Influenza With Pneumonia
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51557), we discussed 
a public comment that we considered out of the scope of the FY 2012 
proposed rule. Therefore, we did not address the issues in the final 
rule. The commenter requested that we consider reassigning cases with a 
combined diagnosis of influenza with pneumonia from a set of simple 
pneumonia MS-DRGs to a set of MS-DRGs that captures a more severe type 
of pneumonia. The specific request involves cases now assigned to MS-
DRGs 193 (Simple Pneumonia and Pleurisy with MCC), 194 (Simple 
Pneumonia and Pleurisy with CC), and 195 (Simple Pneumonia and Pleurisy 
without MCC/CC) being moved to MS-DRGs 177 (Respiratory Infections and 
Inflammations with MCC), 178 (Respiratory Infections and Inflammations 
with CC), and 179 (Respiratory Infections and Inflammations without 
MCC/CC).
    We examined data in the FY 2011 MedPAR file on cases that reported 
diagnosis code 487.0 (Influenza with pneumonia) as the principal 
diagnosis with an additional secondary diagnosis code for one of the 
following types of pneumonia:

<bullet> 482.0 (Pneumonia due to Klebsiella pneumoniae)
<bullet> 482.1 (Pneumonia due to Pseudomonas)
<bullet> 482.40 (Pneumonia due to Staphylococcus, unspecified)
<bullet> 482.41 (Methicillin susceptible pneumonia due to 
Staphylococcus aureus)
<bullet> 482.42 (Methicillin resistant pneumonia due to Staphylococcus 
aureus)
<bullet> 482.49 (Other Staphylococcus pneumonia)
<bullet> 482.81 (Pneumonia due to anaerobes)
<bullet> 482.82 (Pneumonia due to Escherichia coli [E. coli])
<bullet> 482.83 (Pneumonia due to other gram-negative bacteria)
<bullet> 482.84 (Pneumonia due to Legionnaires' disease)
<bullet> 482.89 (Pneumonia due to other specified bacteria)

    Currently, when one of the pneumonia codes listed above is reported 
as a principal diagnosis, the case is assigned to MS-DRG 177, 178, or 
179. However, when the patient has been diagnosed with one of these 
types of pneumonia and also has influenza, the ICD-9-CM coding book 
directs the coder to report diagnosis code 487.0 as the principal 
diagnosis and to assign an additional secondary code to describe the 
specific type of pneumonia. This reporting results in cases with 
diagnoses of both influenza and specific types of pneumonia being 
assigned to MS-DRG 193, 194, or 195 (Simple Pneumonia and Pleurisy with 
MCC, with CC, or without CC/MCC, respectively), instead of MS-DRG 177, 
178, or 179. The commenter requested that we reassign cases reporting 
code 487.0 as the principal diagnosis with one of the specific 
pneumonia codes listed above as a secondary diagnosis to MS-DRGs 177, 
178, and 179.
    We analyzed data from the MedPAR file on cases with patients with 
pneumonia and found the following:

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average cost
----------------------------------------------------------------------------------------------------------------
MS-DRG 177--All cases...........................................          69,128            8.20         $13,002
MS-DRG 178--All cases...........................................          59,559            6.40           9,193
MS-DRG 179--All cases...........................................          14,108            4.65           6,365
MS-DRG 193--All cases...........................................         125,892            6.28           9,589
MS-DRG 193--Cases with principal diagnosis code 487.0 and with a              57            9.3           15,867
 secondary diagnosis code of 482.0, 482.1, 482.40, 482.41,
 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.89......
MS-DRG 193--Cases with principal diagnosis code 487.0 and                  1,320            6.93          10,416
 without a secondary diagnosis code of 482.0, 482.1, 482.40,
 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or
 482.89.........................................................
MS-DRG 194--All cases...........................................         191,030            4.73           6,524
MS-DRG 194--Cases with principal diagnosis code 487.0 and with a              59            6.9            9,752
 secondary diagnosis code of 482.0, 482.1, 482.40, 482.41,
 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.89......
MS-DRG 194--Principal diagnosis code 487.0 and without a                   2,088            5.16           6,871
 secondary diagnosis code of 482.0, 482.1, 482.40, 482.41,
 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.89......
MS-DRG 195--All cases...........................................          80,253            3.53           4,660
MS-DRG 195--Cases with a principal diagnosis code 487.0 and a                 12            4.8            5,842
 secondary diagnosis code of 482.0, 482.1, 482.40, 482.41,
 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or 482.89......
MS-DRG 195--Cases with principal diagnosis code 487.0 and                  1,065            3.78           4,580
 without a secondary diagnosis code of 482.0, 482.1, 482.40,
 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or
 482.89.........................................................
----------------------------------------------------------------------------------------------------------------


[[Page 27902]]

    The data showed that cases reporting a principal diagnosis code 
487.0 with one of the pneumonia codes listed above as a secondary 
diagnosis have significantly higher average costs ($15,867 in MS-DRG 
193, $9,752 in MS-DRG 194, and $5,842 in MS-DRG 195) than those cases 
reported without one of the pneumonia codes listed above as a secondary 
diagnosis ($10,416 in MS-DRG 193, $6,871 in MS-DRG 194, and $4,580 in 
MS-DRG 195), and also the overall average costs for all cases in MS-
DRGs 193, 194, and 195 ($9,589, $6,524, and $4,660, respectively). The 
influenza and pneumonia cases had average costs that more closely align 
with the average costs of cases currently assigned to MS-DRGs 177, 178, 
and 179 ($13,002, $9,193, and $6,365, respectively).
    As a result of our analysis, the data support the commenter's 
request that we reassign cases reporting a principal diagnosis code 
487.0 and an additional secondary diagnosis code for one of the 
pneumonia codes listed above, from MS-DRGs 193, 194, and 195 to MS-DRGs 
177, 178, and 179. Our clinical advisors also support reassigning these 
cases to MS-DRGs 177, 178, and 179. Therefore, for FY 2013, we are 
proposing to reassign cases with a principal diagnosis code 487.0 and 
an additional secondary diagnosis code of one of the following 
pneumonia codes listed as a secondary diagnosis codes from MS-DRGs 193, 
194, and 195 to MS-DRGs 177, 178, and 179: 482.0; 482.1; 482.40; 
482.41; 482.42; 482.49; 482.81; 482.82; 482.83; 482.84; and 482.89.
    We are inviting public comment on our proposal for FY 2013.
3. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Percutaneous Mitral Valve Repair With Implant
    We received a request to reassign procedure code 35.97 
(Percutaneous mitral valve repair with implant) to the following MS-
DRGs:
    <bullet> MS-DRG 216 (Cardiac Valve & Other Major Cardiothoracic 
Procedures with Cardiac with MCC);
    <bullet> MS-DRG 217 (Cardiac Valve & Other Major Cardiothoracic 
Procedures with Cardiac with CC);
    <bullet> MS-DRG 218 (Cardiac Valve & Other Major Cardiothoracic 
Procedures with Cardiac without CC/MCC);
    <bullet> MS-DRG 219 (Cardiac Valve & Other Major Cardiothoracic 
Procedures without Cardiac with MCC);
    <bullet> MS-DRG 220 (Cardiac Valve & Other Major Cardiothoracic 
Procedures without Cardiac with CC); and
    <bullet> MS-DRG 221 (Cardiac Valve & Other Major Cardiothoracic 
Procedures without Cardiac without CC/MCC).
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51528 through 
51529), we discussed reassigning procedure code 35.97 from MS-DRGs 231 
and 232 (Coronary Bypass with PTCA with MCC and without MCC, 
respectively) and MS-DRGs 246 (Percutaneous Cardiovascular Procedure 
with Drug-Eluting Stent with MCC or 4+ Vessels/Stents), 247 
(Percutaneous Cardiovascular Procedure with Drug-Eluting Stent without 
MCC), 248 (Percutaneous Cardiovascular Procedure with Non-Drug-Eluting 
Stent with MCC or 4+ Vessels/Stents), 249 (Percutaneous Cardiovascular 
Procedure with Non-Drug-Eluting Stent without MCC), 250 (Percutaneous 
Cardiovascular Procedure without Coronary Artery Stent or AMI with 
MCC), and 251 (Percutaneous Cardiovascular Procedure without Coronary 
Artery Stent or AMI without MCC). In that final rule, we stated that we 
did not have sufficient claims data on which to base and evaluate any 
proposed changes to the current MS-DRG assignment. Procedure code 35.97 
was created for use beginning October 1, 2010 (FY 2011) after the 
concept of percutaneous valve repair was presented at the March 2010 
ICD-9-CM Coordination and Maintenance Committee meeting. Procedure code 
35.97 was created at that time to describe the MitraClip<SUP>TM</SUP> 
device and any other percutaneous mitral valve repair devices currently 
on the market. This procedure code was assigned to the following MS-
DRGs: 231 and 232 (Coronary Bypass with PTCA with MCC and without MCC, 
respectively); 246 (Percutaneous Cardiovascular Procedure with Drug-
Eluting Stent with MCC or 4+ Vessels/Stents); 247 (Percutaneous 
Cardiovascular Procedure with Drug-Eluting Stent without MCC); 248 
(Percutaneous Cardiovascular Procedure with Non-Drug-Eluting Stent with 
MCC or 4+ Vessels/Stents); 249 (Percutaneous Cardiovascular Procedure 
with Non-Drug-Eluting Stent without MCC); 250 (Percutaneous 
Cardiovascular Procedure without Coronary Artery Stent or AMI with 
MCC); and 251 (Percutaneous Cardiovascular Procedure without Coronary 
Artery Stent or AMI without MCC).
    According to the Food and Drug Administration's (FDA's) terms of 
the clinical trial for MitraClip\TM\, the device is to be implanted in 
patients without any additional surgeries performed. Therefore, based 
on these terms, we stated that while the procedure code is assigned to 
MS-DRGs 246 through 251, the most likely MS-DRG assignments would be 
MS-DRGs 250 and 251, as described above. As we stated in the FY 2012 
IPPS/LTCH PPS final rule, because procedure code 35.97 had only been in 
use since October 1, 2010, there were no claims data in the most recent 
update of the MedPAR file at that time to evaluate any alternative MS-
DRG assignments. Therefore, we did not make any MS-DRG assignment 
changes for procedure code 35.97 for FY 2012.
    For this proposed rule, we have analyzed claims data from the FY 
2011 MedPAR file on the procedure that describes mitral valve repair 
with implant and found the following:

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 216--All Cases...........................................           9,624           16.44         $61,015
MS-DRG 217--All Cases...........................................           5,655           10.24          41,324
MS-DRG 218--All Cases...........................................             995            7.43          34,587
MS-DRG 219--All Cases...........................................          15,336           12.53          50,176
MS-DRG 220--All Cases...........................................          18,455            7.53          34,150
MS-DRG 221--All Cases...........................................           4,719            5.59          29,082
MS-DRG 231--All Cases...........................................           1,170           12.17          49,728
MS-DRG 231--Cases with Procedure Code 35.97.....................               4           13.75          35,409
MS-DRG 232--All Cases...........................................           1,010            9.16          37,820
MS-DRG 232--Cases with Procedure Code 35.97.....................               9           13.56          46,008
MS-DRG 246--All Cases...........................................          29,299            5.20          20,725
MS-DRG 247--All Cases...........................................         109,661            2.39          13,014
MS-DRG 248--All Cases...........................................          13,562            6.35          19,785
MS-DRG 248--Cases with Procedure Code 35.97.....................               1           32.00         110,262
MS-DRG 249--All Cases...........................................          35,100            2.86          11,806

[[Page 27903]]

 
MS-DRG 250--All Cases...........................................           8,313            7.07          19,673
MS-DRG 250--Cases with Procedure Code 35.97.....................              39            9.77          29,753
MS-DRG 251--All Cases...........................................          31,316            2.92          12,658
MS-DRG 251--Cases with Procedure Code 35.97.....................              98            2.69          18,651
----------------------------------------------------------------------------------------------------------------

    We note that most of the cases were found in MS-DRGs 250 and 251, 
as we predicted in the FY 2012 IPPS/LTCH PPS final rule based on FDA's 
terms of the clinical trial for MitraClip\TM\. As stated earlier, the 
device is to be implanted in patients without any additional surgeries 
performed. There were 39 cases in MS-DRG 250 with average costs of 
$29,753 (which includes cases with an MCC). These average costs are 
significantly lower than the average costs of $61,015 for cases in MS-
DRG 216, and the average costs of $50,176 for cases in MS-DRG 219 
(which includes cases with an MCC). There were 98 cases in MS-DRG 251 
(without MCC) with average costs of $18,651. These average costs also 
are lower than the average costs of comparable cases in MS-DRGs 217, 
218, 220, and 221, whose average costs range from a high of $41,324 to 
a low of $29,082. While the average costs of mitral valve repair cases 
are higher than the average costs of other cases assigned to MS-DRGs 
250 and 251, they are significantly less than the average costs of 
cardiac valve replacement cases assigned to MS-DRGs 216 through 221. 
Our analysis of the claims data does not support reassigning the 
procedure that describes percutaneous mitral valve repair with implant 
from MS-DRGs 250 and 251 to MS-DRGs 216 through 221. Our clinical 
advisors also support maintaining the current assignment of this 
procedure in MS-DRGs 250 and 251. Therefore, based on our findings, we 
are not proposing to reassign procedure code 35.97 from MS-DRGs 250 and 
251 to MS-DRGs 216 through 221.
    We are inviting public comment on our proposal to maintain the 
current assignment of procedure code 35.97 in MS-DRGs 250 and 251 and 
not to reassign the procedure code to MS-DRGs 217 through 221.
b. Endovascular Implantation of Branching or Fenestrated Grafts in 
Aorta
    The fenestrated (with holes) graft device is designed to treat 
patients with abdominal aortic aneurysms (AAA). Current treatment 
options for patients with AAAs include open surgical repair, 
endovascular repair using stent-grafts, or medical management.
    Aneurysmal disease that extends proximally to the level of the 
renal arteries is usually indicative of more extensive aortic disease 
and comorbidities. As a result, many of these patients are at a higher 
overall risk when undergoing open surgical repair. In addition, these 
patients are often not suitable for endovascular treatment with 
currently available endografts because the length of healthy aorta is 
insufficient to provide an adequate seal at the proximal end. The 
indications for use for many of the standard endografts call for an 
aortic neck length greater than or equal to 15 millimeters.
    Published industry reports estimate that 8 percent to 30 percent of 
patients with AAAs that need repair have aortic necks of less than 15 
millimeters in length. One institution has reported that over half of 
its patients with AAAs were considered ineligible for endovascular 
aneurysm repair or endovascular aortic repair (EVAR) due to an 
inadequate length of nondiseased aorta. These patients also were 
predominantly contraindicated for open repair.
    Prior to the development of a fenestrated graft device, the only 
treatment option available to a large number of these high-risk 
patients would have been medical management. Open surgical repair is 
too challenging to frail patients, as it requires supraceliac clamping 
of the aorta and may result in renal ischemia, mesenteric ischemia, or 
atheroembolization of the visceral vessels of the aorta. EVAR with a 
standard endograft is not a viable option either because the shortened 
neck precludes an adequate proximal end seal, which can lead to type I 
endoleaks (leaking of blood around the device into the aneurysm 
resulting in continued pressurization of the aneurysm). Medical 
management alone leaves these patients at high risk for AAA-related 
morbidity and mortality. These suboptimal choices led to the creation 
of fenestrated endografts that can seal above the renal arteries while 
maintaining access and uninterrupted blood flow to branch vessels of 
the aorta.
    The fenestrated graft is currently under clinical trial in the 
United States, but has not yet received FDA approval. One of the two 
companies that are conducting clinical trials expects to receive FDA 
approval in the second quarter of 2012. Both companies listed on the 
FDA clinical trial Web site are still recruiting participants.
    At the September 15, 2010 meeting of the ICD-9-CM Coordination and 
Maintenance Committee, the topic of fenestrated graft was presented 
with a request for a unique procedure code. As a result of that 
meeting, and additional meetings with manufacturers throughout the 
year, procedure code 39.78 (Endovascular implantation of branching or 
fenestrated graft(s) in aorta) was created for use beginning October 1, 
2011 (FY 2012). This code is assigned to MS-DRGs 252, 253, and 254 
(Other Vascular Procedures with MCC, with CC, and without CC/MCC, 
respectively).
    We have received a request from a manufacturer to reassign 
procedure code 39.78 from MS-DRGs 252, 253, and 254 and to MS-DRGs 237 
and 238 (Major Cardiovascular Procedures with MCC and without MCC, 
respectively). The requestor stated that the assignment to MS-DRGs 252, 
253, and 254 violates both of CMS' stated principles regarding 
assigning new codes to MS-DRGs that reflect both clinical coherence and 
similar consumption of resources.
    From the standpoint of clinical coherence, the requestor noted 
that, while procedures in MS-DRGs 252, 253, and 254 are vascular 
procedures, the procedures do not involve the aorta. The requestor 
further notes that AAA repairs, both open and endovascular, are 
assigned to MS-DRGs 237 and 238. From the standpoint of similar 
consumption of resources, the requestor included anticipated device 
costs of $17,424 to $21,824 for a fenestrated endovascular procedure. 
The requestor noted that these costs only represent the device and do 
not include any additional resources required during the 
hospitalization. The requestor believed that the device costs are more 
similar to devices used in MS-DRGs 237 and 238.
    CMS' practice is to assign new codes to MS-DRGs where similar 
procedures are also located. In terms of clinical coherence, CMS 
assigned the new code to the vascular procedure MS-DRGs (252, 253, and 
254) where other noncoronary endovascular procedures for blood vessel 
repair also are assigned. This decision was based on our practice

[[Page 27904]]

to group similar procedures together, in this case repairs to blood 
vessels, especially for new codes when CMS has no data history.
    With regard to resource consumption, we point out that procedure 
code 39.78 was created for use effective with discharges on or after 
October 1, 2011. Our review of data in the MedPAR file shows no 
utilization of this code because it is too new. That is, we have no 
claims data that would either prove or disprove the requestor's 
supposition that procedure code 39.78 is not adequately paid under MS-
DRGs 252, 253, and 254. As discussed elsewhere in this preamble, CMS is 
not a device classification system. Therefore, because there are very 
few companies currently marketing their fenestrated graft devices, we 
are concerned that these companies are able to set their own charges in 
the market.
    In addition, the requestor opined that ``an argument could possibly 
be made that the increased device costs and longer procedural times for 
[procedure code] 39.78 suggest assignment into MS-DRG 237 alone would 
be appropriate,'' although the requestor further stated that, without a 
significant volume of actual claims data, it might be more reasonable 
[for CMS] to take a conservative approach and assign these procedures 
to either MS-DRG 237 or MS-DRG 238. We note that MS-DRGs 237 and 238 
are paired MS-DRGs, with both MS-DRGs containing the same procedure 
codes, but which have been subdivided based on the formula for the 
presence or absence of comorbid or complicating conditions. It is not 
an inherent part of the GROUPER logic to assign a code to only one DRG 
in a set of paired or triplicate MS-DRGs.
    We will continue to evaluate the clinical coherence and resource 
consumption costs that impact this code and the current MS-DRG 
assignment. We also note that the requestor has expressed its intent to 
apply for New Technology status, provided that its anticipated FDA 
approval is granted in time for this year's IPPS update.
    Because there is no data history for procedure code 39.78 that 
would justify a reassignment based on either clinical coherence or 
resource consumption, we are not proposing to make a change to the MS-
DRG assignment of procedure code 39.78 for FY 2013. We believe that 
procedure code 39.78 has been appropriately placed within the MS-DRG 
structure. We are inviting public comment on our proposal.
4. MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and 
Disorders): Disorders of Porphyrin Metabolism
    We received a request for the creation of a new MS-DRG to better 
identify cases where patients with disorders of porphyrin metabolism 
exist, to recognize the resource requirements in caring for these 
patients, to ensure appropriate payment for these cases, and to 
preserve patient access to necessary treatments. Porphyria is defined 
as a group of rare disorders (``porphyrias'') that interfere with the 
production of hemoglobin that is needed for red blood cells. While some 
of these disorders are genetic (inborn) and others can be acquired, 
they all result in the abnormal accumulation of hemoglobin building 
blocks, called porphyrins, which can be deposited in the tissues where 
they particularly interfere with the functioning of the nervous system 
and the skin.
    Treatment for patients suffering from disorders of porphyrin 
metabolism consists of an intravenous injection of Panhematin[supreg] 
(hemin for injection). This pharmaceutical agent became the first drug 
approved under the Orphan Drug Act for rare diseases in 1983. It is the 
only FDA-approved prescription treatment for acute intermittent 
porphyria.
    ICD-9-CM diagnosis code 277.1 (Disorders of porphyrin metabolism) 
describes these cases, which are currently assigned to MS-DRG 642 
(Inborn and Other Disorders of Metabolism). We analyzed data from the 
FY 2011 MedPAR file for cases assigned to this MS-DRG. As shown in the 
table below, we found a total of 1,447 cases in MS-DRG 642 with an 
average length of stay of 4.63 days and average costs of $7,400. We 
then analyzed the data for cases reporting diagnosis code 277.1 as the 
principal diagnosis in this same MS-DRG. We found a total of 330 cases, 
with an average length of stay of 6.12 days and average costs of 
$11,476.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 642--All cases...........................................           1,447            4.63          $7,400
MS-DRG 642--Cases with principal diagnosis code 277.1...........             330            6.12          11,476
----------------------------------------------------------------------------------------------------------------

     While the average costs for the 330 cases reporting a principal 
diagnosis code of 277.1 were higher than all cases in MS-DRG 642 
($11,476 versus $7,400), the volume of affected cases is small, 
representative of approximately 20 percent of all of the cases in MS-
DRG 642. Under our existing policy (76 FR 51487 and 51488), in deciding 
whether to make modifications to the MS-DRGs, we consider whether the 
resource consumption and clinical characteristics of the patients with 
a given set of conditions are significantly different from the 
remaining patients in the MS-DRG. We evaluate the utilization of 
resources related to patient care using average costs and length of 
stay and rely 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 consider both the absolute and 
percentage differences in average costs between the cases we selected 
for review and the reminder of cases in the MS-DRG. We also consider 
variation in costs within these groups; that is, whether observed 
average differences are consistent across patients or attributable to 
cases that were extreme in terms of charges or length of stay. Further, 
we consider the number of patients who have a given set of 
characteristics and generally prefer not to create a new MS-DRG unless 
it would include a substantial number of cases. Therefore, we have 
determined that the findings do not support the creation of a new MS-
DRG.
    We acknowledge the importance of ensuring that patients diagnosed 
with a disorder of porphyrin metabolism have adequate access to care 
and receive the necessary treatment. Despite the fact that our data 
analysis did not demonstrate support for the creation of a new MS-DRG 
at this time, we also explored an alternative option. In reviewing the 
medical MS-DRGs in terms of resources and clinical coherence that are 
also located within MDC 10, we found three MS-DRGs that we believe are 
similar to MS-DRG 642. We analyzed data from the MedPAR file on cases 
in MS-DRGs 643, 644, and 645 (Endocrine Disorders with MCC, with CC, 
and without CC/MCC, respectively) to determine if the cases reporting a 
principal diagnosis code of 277.1 would be more appropriately 
reassigned from MS-DRG 642 to MS-DRGs 643, 644, and 645. Upon 
examination of the data,

[[Page 27905]]

we found that the average costs of these cases were $10,835, $6,816, 
and $4,762, respectively, as shown in the table below.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average length
                             MS-DRG                                    cases          of stay      Average costs
----------------------------------------------------------------------------------------------------------------
MS-DRG 643--Cases with principal diagnosis code 277.1...........           6,562            7.11         $10,835
MS-DRG 644--Cases with principal diagnosis code 277.1...........          12,769            4.89           6,816
MS-DRG 645--Cases with principal diagnosis code 277.1...........           5,979            3.40           4,762
----------------------------------------------------------------------------------------------------------------

    Based on these findings, if we were to reassign cases where 
disorders of porphyrin metabolism (diagnosis code 277.1) were reported 
as the principal diagnosis with a secondary diagnosis designated as a 
CC (MS-DRG 644) or with a secondary diagnosis that was not a CC/MCC 
(MS-DRG 645), Medicare would pay significantly less for these cases 
than they are now paid under MS-DRG 642. Therefore, it would not be 
appropriate to reassign cases reporting a principal diagnosis code of 
277.1 from MS-DRG 642 to MS-DRGs 643, 644, and 645. In addition, our 
clinical advisors did not support this reassignment. The MS-DRG 
classification system on which the IPPS is based comprises a system of 
averages. As such, it is understood that, in any particular MS-DRG, it 
is not unusual for a small number of cases to demonstrate higher than 
average costs, nor is it unusual for a small number of cases to 
demonstrate lower than average costs. Upon review of the MedPAR data 
and the alternative option discussed, our clinical advisors agree that 
the current MS-DRG assignment for diagnoses of disorders of porphyrin 
metabolism (diagnosis code 277.1) to MS-DRG 642 is most appropriate at 
this time.
    As stated previously, we acknowledge and recognize the severity of 
symptoms that patients diagnosed with disorders of porphyrin metabolism 
may experience. We also are sensitive to concerns about access to care 
and treatment for these patients. We will continue to monitor this 
issue and determine how to better account for the variation in resource 
utilization within the IPPS for these cases.
    In summary, we are not proposing to create a new MS-DRG or to 
reassign cases reporting a principal diagnosis code of 277.1 to MS-DRGs 
643, 644, and 645 for FY 2013. We are inviting public comment on our 
proposal.
5. Proposed Medicare Code Editor (MCE) Changes
    The Medicare Code Editor (MCE) is a software program that detects 
and reports errors in the coding of Medicare claims data. Patient 
diagnoses, procedure(s), and demographic information are entered into 
the Medicare claims processing systems and are subjected to a series of 
automated screens. The MCE screens are designed to identify cases that 
require further review before classification into an MS-DRG.
    We are proposing to make a change to the MCE edits which includes 
the creation of a new length of stay edit for continuous invasive 
mechanical ventilation for 96 consecutive hours or more.
    It was brought to our attention that a number of hospitals 
reporting ICD-9-CM procedure code 96.72 (Continuous invasive mechanical 
ventilation for 96 consecutive hours or more) may be inaccurately 
reporting this code. As the title of the procedure code implies, a 
patient must have received continuous mechanical ventilation for 96 
hours or more in order for this code to be assigned. This equates to a 
patient being hospitalized for at least a 4-day length of stay and 
having received continuous invasive mechanical ventilation for a 
minimum of 4 days. Therefore, a patient with a length of stay less than 
4 days who received continuous invasive mechanical ventilation should 
not have procedure code 96.72 reported on the claim.
    The ICD-9-CM classification system contains three procedure codes 
that identify and describe continuous invasive mechanical ventilation: 
Procedure code 96.70 (Continuous invasive mechanical ventilation of 
unspecified duration); procedure code 96.71 (Continuous invasive 
mechanical ventilation for less than 96 consecutive hours); and 
procedure code 96.72 (Continuous invasive mechanical ventilation for 96 
consecutive hours or more). To assist in the accurate assignment of 
these codes, guidance in the form of a ``Note'' is provided within the 
designated procedure section of ICD-9-CM. This ``Note'' describes the 
calculation of the number of hours during a hospitalization in which a 
patient receives continuous invasive mechanical ventilation. In 
addition, coding advice pertaining to appropriate code assignment for 
mechanical ventilation has been published in various editions of the 
American Hospital Association's (AHA's) Coding Clinic for ICD-9-CM.
    We analyzed the FY 2011 MedPAR data to determine how many cases 
reported procedure code 96.72 with a length of stay less than 4 days. 
Specifically, we reviewed cases reporting procedure code 96.72 with a 
length of stay of 1 day, 2 days, or 3 days. We found a total of 595 
cases meeting those criteria. The data analysis showed there were 89 
cases reporting procedure code 96.72 with a length of stay of 1 day and 
average costs of $5,948, 134 cases reporting procedure code 96.72 with 
a length of stay of 2 days and average costs of $7,776, and 372 cases 
reporting procedure code 96.72 with a length of stay of 3 days and 
average costs of $11,613.
    The data also demonstrate that the 595 cases found were distributed 
across a wide range of MS-DRGs, with the top two (in terms of volume) 
being MS-DRG 207 (Respiratory System Diagnosis with Ventilator Support 
96+ Hours) and MS-DRG 870 (Septicemia or Severe Sepsis with Mechanical 
Ventilation 96+ hours). We note that the two MS-DRGs with the highest 
volume of cases reporting procedure code 96.72 and having a length of 
stay less than 4 days are the two MS-DRGs that specifically reference 
``96+ hours'' in their titles. More importantly, a large percentage of 
these cases reporting procedure code 96.72 in error are being grouped 
to the incorrect MS-DRGs, resulting in significant overpayments. For 
example, of the 89 cases reporting procedure code 96.72 with a length 
of stay of 1 day, 31 cases were grouped to MS-DRGs 207 and 870. Of the 
134 cases reporting procedure code 96.72 with a length of stay of 2 
days, 54 cases were grouped to MS-DRGs 207 and 870. Lastly, of the 372 
cases reporting procedure code 96.72 with a length of stay of 3 days, 
160 cases were grouped to MS-DRGs 207 and 870. Therefore, the data show 
that a total of 245 cases (41 percent) were grouped to MS-DRGs 207 and 
870 in error, resulting in approximately $25,000 in increased payments 
for each case (or approximately $6 million in increased payments for 
all 245 cases). Based on the results of these figures for that portion 
of the total 595 cases found,

[[Page 27906]]

there is an even larger dollar amount that is being overpaid to 
hospitals. These overpayments justify the proposed corrective actions.
    However, we also note that the presumed amount of overpayments for 
claims having a length of stay less than 4 days, as discussed above, is 
merely an estimate based on the data analysis that has been conducted 
at this time. We are aware that, for particular circumstances such as 
those patients who may require observation services, it is possible to 
have procedure code 96.72 reported on the claim with a length of stay 
less than 4 days. Although unlikely, a patient might be briefly 
ventilated in an extended outpatient stay following a toxic ingestion 
with loss of protective reflexes or following outpatient procedures 
with a prolonged effect of anesthesia. A subsequent conversion to an 
inpatient stay would cause the costs to be attributable to the stay, 
while the days themselves were not reported in the inpatient date span 
on the claim. Similar effects could occur following an observation stay 
for a patient on chronic home or skilled nursing facility ventilation. 
It is for this reason that we are proposing a new edit in which claims 
found to have procedure code 96.72 with a length of stay less than 4 
days would be returned to the provider for validation and resubmission. 
Instructions in the form of a Change Request (CR) would be issued prior 
to the implementation date. We are inviting the public to comment on 
our proposal to create this edit, effective for FY 2013.
6. 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 if no other surgical class more closely related to the diagnoses 
in the MDC is appropriate.
    A second example occurs when the difference between the average 
costs for two surgical classes is very small. We have found that small 
differences generally do not warrant reordering of the hierarchy 
because, as a result of reassigning cases on the basis of the hierarchy 
change, the average costs are likely to shift such that the higher-
ordered surgical class has lower average costs than the class ordered 
below it.
    We are proposing limited changes to the MS-DRG classifications for 
FY 2013, as discussed in sections II.G.1. and 4. of this preamble. In 
our review of these proposed changes, we did not identify any needed 
changes to the surgical hierarchy. Therefore, we are not proposing any 
changes to the surgical hierarchy for Pre-MDCs and MDCs for FY 2013.
7. Complications or Comorbidity (CC) Exclusions List
a. Background
    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 2013
    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

[[Page 27907]]

(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:
    <bullet> Chronic and acute manifestations of the same condition 
should not be considered CCs for one another.
    <bullet> Specific and nonspecific (that is, not otherwise specified 
(NOS)) diagnosis codes for the same condition should not be considered 
CCs for one another.
    <bullet> 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.
    <bullet> Codes for the same condition in anatomically proximal 
sites should not be considered CCs for one another.
    <bullet> 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.\13\
---------------------------------------------------------------------------

    \13\ 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), the FY 2010 final rule (74 FR 43799); the FY 2011 final rule 
(75 FR 50114); and the FY 2012 final rule (76 FR 51542). 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) No Revisions Based on Changes to the ICD-9-CM Diagnosis Codes for 
FY 2013
    For FY 2013, we are not proposing to make any revisions to the CC 
Exclusions List. There were no changes made to the ICD-9-CM coding 
system, effective October 1, 2012, due to the partial code freeze. (We 
refer readers to section II.G.9. of the preamble of this proposed rule 
for a discussion of ICD-9-CM coding system.)
(2) Suggested Changes to the MS-DRG Severity Levels for Diagnosis Codes 
for FY 2013
(A) Protein-Calorie Malnutrition
    We received a request that we consider changing the severity levels 
for the following protein-calorie malnutrition diagnosis codes:
    <bullet> 263.0 (Malnutrition of moderate degree)
    <bullet> 263.1 (Malnutrition of mild degree)
    <bullet> 263.9 (Unspecified protein-calorie malnutrition)
    It was suggested that we change the severity level for diagnosis 
codes 263.0 and 263.1 from a non-CC to a CC, while changing the 
severity level for diagnosis code 263.9 from a CC to a non-CC. We 
received this comment during the comment period for the FY 2012 IPPS/
LTCH PPS proposed rule. We referred to this issue briefly in the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51557). We indicated that we 
considered this comment outside of the scope of the proposed rule, as 
we did not propose any severity level changes to these codes for FY 
2012, and did not address it in the final rule. However, we are 
addressing this issue in this FY 2013 proposed rule.
    For this proposed rule, we analyzed the claims data in the FY 2011 
MedPAR file for diagnosis codes 263.0, 263.1, and 263.9. We used the 
same approach we used in initially creating the MS-DRGs and classifying 
secondary diagnosis codes as non-CCs, CCs, or MCCs. A detailed 
discussion of the process and criteria we used in this process is 
described in the FY 2008 IPPS final rule with comment period (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 suggests 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 with comment period (72 FR 47158 
through 47161).
    The following chart shows the analysis for each of the protein-
calorie malnutrition diagnosis codes:

[[Page 27908]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     Cnt 1                 Cnt 2                 Cnt 3
                   Code                          Diagnosis description        CC level    Cnt 1      impact     Cnt 2      impact     Cnt 3      impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
263.0....................................  Malnutrition of moderate degree.     Non-CC      6,040       2.14     21,383       2.61     21,635       3.20
263.1....................................  Malnutrition of mild degree.....     Non-CC      4,139       2.22     11,598       2.50      8,921       3.13
263.9....................................  Unspecified protein-calorie              CC      2,737       2.16    165,825       2.54    178,044       3.34
                                            malnutrition.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We ran the following data as described in FY 2008 IPPS final rule 
with comment period (72 FR 47158 through 47161). The C1 value reflects 
a patient with no other secondary diagnosis or with all other secondary 
diagnoses that are non-CCs. The C2 value reflects a patient with at 
least one other secondary diagnosis that is a CC but none that is a 
MCC. The C3 value reflects a patient with at least one other secondary 
diagnosis that is a MCC.
    The chart above shows that the C1 findings ranged from a low of 
2.14 to a high of 2.22. As stated earlier, a C1 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 a MCC. The C1 findings suggest that 
these codes are more like a CC than a non-CC. The C2 findings ranged 
from 2.50 to 2.61. 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. The C2 findings 
of 2.50 for diagnosis code 263.1 and 2.54 for diagnosis code 263.9 
suggest these codes are more similar to a CC than a non-CC, while the 
finding of 2.61 for diagnosis code 263.0 is borderline more similar to 
a MCC than a CC or non-CC when there is at least one other secondary 
diagnosis code that is a CC but none that is an MCC.
    CC conditions typically have a C1 value over 1.75, a C2 value under 
2.5, and a C3 value under 3.2. MCC conditions typically have a C1 value 
over 2.4, a C2 value over 2.8, and a C3 value over 3.3. We concluded 
that diagnosis code 263.0 is more similar to a CC than an MCC.
    Therefore, the C1 and C2 findings support changing diagnosis codes 
263.0 and 263.1 from a non-CC to a CC and maintaining code 263.9 as a 
CC. Our clinical advisors reviewed this issue and are in support of 
these findings that these conditions are more appropriately classified 
as CCs. Based on the data and clinical analysis, we are proposing for 
FY 2013 to change diagnosis codes 263.0 and 263.1 from a non-CC to a 
CC. We are not proposing any change to the severity level for diagnosis 
code 263.9. We are inviting public comment on our proposals.
(B) Antineoplastic Chemotherapy Induced Anemia
    We received a request from a commenter that the severity level for 
diagnosis code 285.3 (Antineoplastic chemotherapy induced anemia) be 
changed from a non-CC to a CC. We received this comment during the 
comment period for the FY 2012 IPPS/LTCH PPS proposed rule. We referred 
to this issue briefly in the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51557). In that rule, we indicated that we considered this comment 
outside of the scope of the proposed rule because we did not propose 
any severity level changes to diagnosis code 285.3 for FY 2012; 
therefore, we did not address the issue in the final rule. However, we 
are addressing this issue in this FY 2013 proposed rule. We examined 
claims data in the FY 2011 MedPAR file for diagnosis code 285.3 
according to the approach that we used in FY 2008 as described above. 
The following table illustrates our findings:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Cnt 1                   Cnt 2                   Cnt 3
                 Code                      Diagnosis description       CC level      Cnt 1      impact       Cnt 2      impact       Cnt 3      impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
285.3................................  Antineoplastic chemotherapy         Non-CC     1,937        1.36      11,858        2.21       6,036        3.11
                                        induced anemia.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As discussed above, a value close to 1.0 in the C1 field suggests 
that the diagnosis code produces the same expected value as a non-CC. A 
value of 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. The C1 
finding for diagnosis code 285.3 of 1.36 supports the current severity 
level of a non-CC. The C2 finding of 2.21 for diagnosis code 285.3 
suggests that this code is more similar to a CC than a non-CC but not 
as significant as an MCC when there is at least one other secondary 
diagnosis code that is a CC. CC conditions typically have a C1 value 
over 1.75, a C2 value under 2.5, and a C3 value under 3.2.
    Therefore, the C1 and C2 findings do not support changing the 
severity level for diagnosis code 285.3 to a CC. In addition, our 
clinical advisors reviewed this issue and support the decision not to 
change the severity level for diagnosis code 285.3 because the anemia 
is inherent in the treatment of cancer and does not qualify as a CC. As 
a result of our data analysis as well as the advice of our clinical 
advisors, we are not proposing any change to the severity level for 
diagnosis code 285.3 for FY 2013. We are inviting public comment on our 
proposal.
(C) Cardiomyopathy and Congestive Heart Failure, Unspecified
    We received a comment that recommended changes to the severity 
levels for the cardiomyopathy and congestive heart failure, unspecified 
codes. The commenter recommended that cardiomyopathy codes, which are 
currently classified as CCs, be changed to non-CCs and diagnosis code 
428.0 (Congestive heart failure, unspecified) be changed from a non-CC 
to a CC. According to the commenter, these proposed changes would 
better represent the resources utilized in caring for this population 
and reduce the administrative burden in clarifying these diagnoses with 
providers. We received this comment during the comment period for the 
FY 2012 IPPS/LTCH PPS proposed rule. We referred to this issue briefly 
in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51557). We indicated 
that we considered this comment outside of the scope of the proposed 
rule because we did not propose any severity level changes to these 
codes for FY 2012; therefore, we did not address it in the final rule. 
However, we are addressing this issue in this FY 2013 proposed rule.
    The commenter did not provide a list of the cardiomyopathy codes. 
We identified the following codes for analysis of the claims data in 
the FY 2011 MedPAR file:

[[Page 27909]]

    <bullet> 425.4 (Other primary cardiomyopathies)
    <bullet> 425.5 (Alcoholic cardiomyopathy)
    <bullet> 425.7 (Nutritional and metabolic cardiomyopathy)
    <bullet> 425.8 (Cardiomyopathy in other diseases classified 
elsewhere)
    <bullet> 425.9 (Secondary cardiomyopathy, unspecified)
    <bullet> 428.0 (Congestive heart failure, unspecified)
    We did not include diagnosis codes 425.11(Hypertrophic obstructive 
cardiomyopathy) and 425.18 (Other hypertrophic cardiomyopathy) for our 
analysis because these two codes were created in FY 2012 and the data 
are not yet available. We examined claims data according to the 
approach that we used in FY 2008 as described above. The following 
table illustrates our findings:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     Cnt 1                 Cnt 2                 Cnt 3
                   Code                          Diagnosis description        CC Level    Cnt 1      impact     Cnt 2      impact     Cnt 3      impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
425.4....................................  Other primary cardiomyopathies..         CC     39,489       1.47    243,719       2.18    139,689       3.20
425.5....................................  Alcoholic cardiomyopathy........         CC        438       1.68      2,643       2.19      1,670       3.26
425.7....................................  Nutritional and metabolic                CC         60       1.18        869       2.17        799       3.14
                                            cardiomyopathy.
425.8....................................  Cardiomyopathy in other diseases         CC        940       1.19      5,967       2.15      5,171       3.14
                                            classified elsewhere.
425.9....................................  Secondary cardiomyopathy,                CC        356       1.56      2,078       2.07      1.372       3.22
                                            unspecified.
428.0....................................  Congestive heart failure,            Non-CC    304,963       1.40    634,241       2.16    748,649       3.06
                                            unspecified.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The table above shows that the C1 findings for the cardiomyopathy 
codes ranged from a low of 1.18 to a high of 1.68. A value close to 1.0 
in the C1 field suggests that the diagnosis code produces the same 
expected value as a non-CC. A value of 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. The C1 findings suggest that the majority of 
these cardiomyopathy codes are more similar to a non-CC than a CC. The 
C2 findings ranged from a low of 2.07 to a high of 2.19. These findings 
suggest that these cardiomyopathy codes are more similar to a CC.
    The C1 finding for diagnosis code 428.0 of 1.40 suggests that the 
condition is more similar to a non-CC than a CC. The C2 finding for 
diagnosis code 428.0 of 2.16 suggests that the secondary diagnosis is 
more similar to a CC than a non-CC.
    The data are mixed between the C1 and C2 findings for the 
cardiomyopathy codes and do not consistently support a change in the 
severity level. Our clinical advisors reviewed these issues and are not 
in support of proposing any changes to the severity levels for these 
codes. Our clinical advisors stated that the diagnosis of 
cardiomyopathy (diagnosis codes 425.4 through 425.9) is generally 
severe, with significant impact on the patient requiring additional 
monitoring resources and cognitive effort, and is appropriately 
classified as a CC.
    The data are mixed between the C1 and C2 findings for the 
congestive heart failure, unspecified, diagnosis code 428.0. Our 
clinical advisors reviewed these issues and are not in support of 
proposing any changes to the severity level of code 428.0. They 
indicated that diagnosis code 428.0 is very nonspecific and does not 
identify the severity of the heart failure, and concluded that the 
current classification for code 428.0 as a non-CC is appropriate. As a 
result of our data analysis and clinical advisors' review of these 
issues, we are not proposing any changes to the severity level for the 
cardiomyopathy and congestive heart failure, unspecified codes for FY 
2013. We are inviting public comment on our proposal.
(D) Chronic Total Occlusion of Artery of the Extremities
    We received a request to change the severity level designation for 
diagnosis code 440.4 (Chronic total occlusion of artery of the 
extremities) to a CC. Currently, the diagnosis code is classified as a 
non-CC. Chronic total occlusion of artery of the extremities forms when 
plaque accumulates in an artery over an extended period of time, 
resulting in total cessation of blood flow. We analyzed claims data in 
the FY 2011 MedPAR file for this diagnosis code according to the 
approach that we used in FY 2008 as described above. The following 
table illustrates our findings:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Cnt 1                   Cnt 2                   Cnt 3
                 Code                      Diagnosis description       CC level      Cnt 1      impact       Cnt 2      impact       Cnt 3      impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
440.4................................  Chronic total occlusion of          Non-CC     8,439        1.38       8,057        2.70       5,366        3.23
                                        artery of the extremities.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The C1 finding of 1.38 for diagnosis code 440.4 supports the 
current designation of this diagnosis code as a non-CC. However, the C2 
findings of 2.70 suggests that this code is similar to a CC or perhaps 
an MCC, as this value is near to 3.0, which suggests that this 
condition is similar to an MCC. However, we would expect a higher C1 
value such as 2.4 for this condition to qualify as an MCC.
    The C1 and C2 findings support changing diagnosis code 440.4 from a 
non-CC to a CC. Our clinical advisors reviewed this issue and are in 
support of changing the severity level because this condition behaves 
as a CC. Therefore, we are proposing to change the severity level for 
diagnosis code 440.4 from a non-CC to a CC for FY 2013. We are inviting 
public comment on our proposal.
(E) Acute Kidney Failure With Other Specific Pathological Lesion in 
Kidney
    We received a request to consider changing the severity level for 
diagnosis code 584.8 (Acute kidney failure with other specified 
pathological lesion in kidney). This diagnosis code's severity level is 
currently classified as an MCC. We examined claims data for this code 
in the FY 2011 MedPAR file according to the approach described above. 
The following table illustrates those findings.

[[Page 27910]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Severity                  Cnt 1                   Cnt 2                   Cnt 3
                 Code                      Diagnosis description         level       Cnt 1      impact       Cnt 2      impact       Cnt 3      impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
584.8................................  Acute kidney failure with              MCC        12        0.98          13        1.89       1,350        3.17
                                        other specified pathological
                                        lesion in kidney.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As discussed above, a C1 value close to 1.0 in the C1 field 
suggests that the diagnosis code produces the same expected value as a 
diagnosis code that has been classified as a non-CC. A value close to 
2.0 in the C1 field suggests that the condition is more similar to a CC 
severity level than a non-CC severity level, but not as significant in 
resource usage as an MCC severity level. In this case, the C1 value 
finding for diagnosis code 584.8 of 0.98 suggests that this diagnosis 
code is more similar to a non-CC than an MCC. A C2 value close to 3.0 
suggests that the condition is more similar to an MCC than a CC or a 
non-CC. A C2 value close to 2.0 suggests that the condition is more 
similar to a CC than a non-CC. The C2 value finding for diagnosis code 
584.8 of 1.89 supports classifying the severity level of this diagnosis 
code as a CC. Therefore, the C1 and C2 value findings support changing 
the severity level of diagnosis code 584.8 from an MCC to a lower 
severity level, that is, a CC. Our clinical advisors reviewed this 
issue and stated that this condition behaves as a CC. Therefore, they 
supported changing the severity level of this diagnosis code to a CC. 
Based on the clinical analysis and consistent with supporting claims 
data, we believe that the severity level of diagnosis code 584.8 should 
be changed from an MCC to a CC. Therefore, we are proposing to change 
the severity level of diagnosis code 584.8 from an MCC to a CC for FY 
2013. We are inviting public comment on our proposal.
(F) Pressure Ulcer, Unstageable
    We received a request to consider changing the severity level for 
diagnosis code 707.25 (Pressure ulcer, unstageable) from its current 
classification as a non-CC to an MCC. This issue was referred to as an 
out-of-scope public comment in the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51557), but was not addressed in that rule.
    For this FY 2013 proposed rule, we analyzed claims data for 
diagnosis code 707.25 from the FY 2011 MedPAR file according to the 
process and approach described above. The following table illustrates 
our findings:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Cnt 1                   Cnt 2                   Cnt 3
                 Code                      Diagnosis description       CC level      Cnt 1      impact       Cnt 2      impact       Cnt 3      impact
--------------------------------------------------------------------------------------------------------------------------------------------------------
707.25...............................  Pressure ulcer, unstageable..       Non-CC     1,839        1.87       7,161        2.46      13,285        3.08
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As discussed above, a C1 value close to 2.0 suggests the condition 
is more similar to a CC than a non-CC severity level but not as 
significant in resource usage as an MCC. The C1 value finding of 1.87 
for diagnosis code 707.25, which is near but not that close to a 2.0, 
suggests that this code is more similar to a CC than an MCC. A C2 value 
of close to 3.0 suggests the condition is more similar to an MCC than a 
CC or non-CC. The C2 value finding for diagnosis code 707.25 is 2.46, 
which is not close to 3.0 and, therefore, the data do not support 
classifying this as an MCC. The C1 and C2 findings are more supportive 
of a classification as a CC than an MCC. There is another problem with 
this request to change diagnosis code 707.25 from a non-CC to an MCC. 
Currently, only stages III and IV pressure ulcers are MCCs. This 
unstageable code captures a pressure ulcer whose stage has not been 
determined. It would be inappropriate to assume that a pressure ulcer 
reported with diagnosis code 707.25 might be a stage III or IV pressure 
ulcer. Our claims data C1 and C2 findings do not support the fact that 
this code acts as an MCC. As mentioned earlier, the claims data are 
more supportive of a classification as a CC than an MCC. We asked our 
clinical advisors to review this issue. Our clinical advisors agree 
that the data findings and their own clinical evaluation support not 
changing the severity level of this diagnosis code to a CC or an MCC. 
Our clinical advisors recommend that unstageable pressure ulcers should 
continue to be classified as a non-CC because the stage is not clearly 
designated as a stage III or IV. Unstageable codes do not delineate 
what the stage of the ulcer might be. As a result of our data analysis 
as well as the advice of our clinical advisors, we believe that 
unstageable pressure ulcers should continue to be classified as a non-
CC. Therefore, we are proposing that diagnosis code 707.25 remain a 
non-CC for FY 2013.
    We are inviting public comment on our proposal not to change the 
severity level for diagnosis code 707.25 for FY 2013.
    For FY 2013, there are proposed changes to Table 6G (Additions to 
the CC Exclusion List). As we discuss earlier, we are proposing to 
change the severity level for diagnosis codes 263.0, 263.1, and 440.4 
from a non-CC to a CC. There are no proposed changes to Table 6H 
(Deletions to the CC Exclusion List). These tables, which contain codes 
that are effective for discharges occurring on or after October 1, 
2012, 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 diagnosis for 
which there is a CC exclusion is shown in Tables 6G and 6H with an 
asterisk, and the conditions that will not count as a CC are provided 
in an indented column immediately following the affected principal 
diagnosis.
    A complete updated MCC, CC, and Non-CC Exclusions List is available 
through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS. Beginning with discharges on or after October 1, 
2011, the indented diagnoses were not recognized by the GROUPER as 
valid CCs for the asterisked principal diagnosis.
    To assist readers in identifying the proposed changes to the MCC 
and CC lists that occur as a result of our review of severity levels 
for several ICD-9-CM diagnosis codes, we are providing the following 
summaries of those proposed MCC and CC changes for FY 2013. There will 
be no new, revised, or deleted diagnosis codes for FY 2013. Therefore, 
there will be no Tables 6A, 6C, and 6E published for FY 2013.

[[Page 27911]]

Summary of Proposed Additions to The MS-DRG MCC List--Table 6I.1

    There are no proposed additions to the MS-DRG MCC List.

                                           Summary of Proposed Deletions From the MS-DRG MCC List--Table 6I.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                    Code                                                                     Description
--------------------------------------------------------------------------------------------------------------------------------------------------------
584.8......................................  Acute kidney failure with other specified pathological lesion in kidney.
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                             Summary of Proposed Additions to the MS-DRG CC List--Table 6J.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
                    Code                                                                     Description
--------------------------------------------------------------------------------------------------------------------------------------------------------
263.0......................................  Malnutrition of moderate degree.
263.1......................................  Malnutrition of mild degree.
440.4......................................  Chronic total occlusion of artery of the extremities.
584.8......................................  Acute kidney failure with other specified pathological lesion in kidney.
--------------------------------------------------------------------------------------------------------------------------------------------------------

Summary of Proposed Deletions From the MS-DRG CC List--Table 6J.2

    There are no proposed deletions from the MS-DRG CC list.
    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 29.0, is available on a CD 
for $225.00. Version 30.0 of this manual, which will include the final 
FY 2013 MS-DRG changes, will be available on a CD 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.
8. 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:
    <bullet> 60.0, Incision of prostate
    <bullet> 60.12, Open biopsy of prostate
    <bullet> 60.15, Biopsy of periprostatic tissue
    <bullet> 60.18, Other diagnostic procedures on prostate and 
periprostatic tissue
    <bullet> 60.21, Transurethral prostatectomy
    <bullet> 60.29, Other transurethral prostatectomy
    <bullet> 60.61, Local excision of lesion of prostate
    <bullet> 60.69, Prostatectomy, not elsewhere classified
    <bullet> 60.81, Incision of periprostatic tissue
    <bullet> 60.82, Excision of periprostatic tissue
    <bullet> 60.93, Repair of prostate
    <bullet> 60.94, Control of (postoperative) hemorrhage of prostate
    <bullet> 60.95, Transurethral balloon dilation of the prostatic 
urethra
    <bullet> 60.96, Transurethral destruction of prostate tissue by 
microwave thermotherapy
    <bullet> 60.97, Other transurethral destruction of prostate tissue 
by other thermotherapy
    <bullet> 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.\14\
---------------------------------------------------------------------------

    \14\ 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, FY 2010, 
FY 2011 and FY 2012, 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), the FY 2010 final rule (74 FR 43796); the FY 
2011 final rule (75 FR 50122); and the FY 2012 final rule (76 FR 
51549).
---------------------------------------------------------------------------

    Our review of MedPAR claims data showed that there were no cases 
that merited movement or should logically be assigned to any of the 
other MDCs.

[[Page 27912]]

Therefore, for FY 2013, 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. 
As noted above, there were no cases that merited movement or that 
should logically be assigned to any of the other MDCs. Therefore, for 
FY 2013, 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.
    There were no cases representing shifts in treatment practice or 
reporting practice that would make the resulting MS-DRG assignment 
illogical, or that merited movement so that cases should logically be 
assigned to any of the other MDCs. Therefore, for FY 2013, 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 III.G.1. through 4. of this preamble, we are not proposing to 
add any diagnosis or procedure codes to MDCs for FY 2013.
9. Proposed 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
    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 $29.00 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 2013 at a public meeting held on September 14, 
2011 and finalized the coding changes after consideration of comments 
received at the meetings and in writing by November 18, 2011. For FY 
2013, there were no changes to the ICD-9-CM coding system due to the 
partial code freeze or for new technology. Therefore, there will be no 
new, revised, or deleted diagnosis and procedure codes that are usually 
announced in Tables 6A (New Diagnosis Codes), 6B (New Procedure Codes), 
6C (Invalid Diagnosis Codes), 6D (Invalid Procedure Codes), 6E (Revised 
Diagnosis Code Titles), and 6F (Revised Procedure Codes). Therefore, 
these tables will not be published as part of this FY 2013 proposed 
rulemaking.
    Copies of the minutes of the procedure codes discussions at the 
Committee's September 14, 2011 meeting and March 5, 2012 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 14, 2011 meeting and March 
5, 2012 meeting are found at: http://www.cdc.gov/nchs/icd.htm. These 
Web

[[Page 27913]]

sites also provide detailed 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: 
<a href="/cdn-cgi/l/email-protection#680c0e185c280b0c0b460f071e"><span class="__cf_email__" data-cfemail="b2d6d4c286f2d1d6d19cd5ddc4">[email protected]</span></a>.
    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: <a href="/cdn-cgi/l/email-protection#a4d4c5d0d6cdc7cdc58ac6d6cbcbcfd796e4c7c9d78accccd78ac3cbd2"><span class="__cf_email__" data-cfemail="bbcbdacfc9d2d8d2da95d9c9d4d4d0c889fbd8d6c895d3d3c895dcd4cd">[email protected]</span></a>.
    In the September 7, 2001 final rule implementing the IPPS new 
technology add-on payments (66 FR 46906), we indicated we would attempt 
to include proposals for procedure codes that would describe new 
technology discussed and approved at the Spring meeting as part of the 
code revisions effective the following October.
    Section 503(a) of 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 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 l, 2012 implementation of an ICD-9-CM 
code at the September 14, 2011 Committee meeting. Therefore, there were 
no new ICD-9-CM codes implemented on April 1, 2012.
    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

[[Page 27914]]

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 was to 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). However, the Secretary of Health and Human Services 
has issued a proposed rule that would delay, from October 1, 2013, to 
October 1, 2014, the compliance date for the International 
Classification of Diseases, 10th Edition diagnosis and procedure codes 
(ICD-10). The proposed rule, CMS-0040-P, went on display at the Office 
of the Federal Register on April 9, 2012, and was published in the 
Federal Register on April 17, 2012 (77 FR 22950) and is available for 
viewing at: http://www/gpo.gov/fdsys/browse/
collection.action?collectionCode=FR.
    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 that final rule stated that the annual code set 
updates should cease l year prior to the implementation of ICD-10. The 
commenters stated that this freeze of code updates would allow for 
instructional and/or coding software programs to be designed and 
purchased early, without concern that an upgrade would take place 
immediately before the compliance date, necessitating additional 
updates and purchases.
    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, we indicated 
that the issue of consideration of a moratorium on updates to the ICD-
9-CM, ICD-10-CM, and ICD-10-PCS code sets in anticipation of the 
adoption of ICD-10-CM and ICD-10-PCS would be addressed through the 
Committee at a future public meeting.
    The code freeze was discussed at multiple meetings of the ICD-9-CM 
Coordination and Maintenance Committee and public comment was actively 
solicited. The Committee evaluated all comments from participants 
attending the Committee meetings as well as written comments that were 
received. There was an announcement at the September 15-16, 2010 and 
September 14, 2011 ICD-9-CM Coordination and Maintenance Committee 
meetings that a partial freeze of both ICD-9-CM and ICD-10 codes will 
be implemented as follows:
    <bullet> The last regular annual update to both ICD-9-CM and ICD-10 
code sets was made on October 1, 2011.
    <bullet> On October 1, 2012, there will be only limited code 
updates to both ICD-9-CM and ICD-10 code sets to capture new technology 
and new diseases.
    <bullet> On October 1, 2013, there were to be only limited code 
updates to ICD-10 code sets to capture new technology and diagnoses as 
required by section 503(a) of Pub. L. 108-173. There were to be no 
updates to ICD-9-CM on October 1, 2013, as the system would no longer 
be a HIPAA standard and, therefore, no longer be used for reporting. 
With the proposed ICD-10 implementation delay, there will be only 
limited code updates to both ICD-9-CM and ICD-10 to capture new 
technology and new diagnoses on October 1, 2013.
    <bullet> On October 1, 2014, regular updates to ICD-10 were to 
begin. As stated earlier, HHS has issued a proposed rule that would 
delay the compliance date of ICD-10 from October 1, 2013, to October 1, 
2014. If this delay is implemented, there would be only limited ICD-10 
code updates for new technologies and new diseases on October 1, 2014. 
There will be no updates to ICD-9-CM on October 1, 2014, as the system 
will no longer be a HIPAA standard and, therefore, no longer be used 
for reporting. Full ICD-10 updates would begin on October 1, 2015, 1 
year after the implementation of ICD-10.
    The ICD-9-CM Coordination and Maintenance Committee announced that 
it would continue to meet twice a year during the freeze. At these 
meetings, the public will be encouraged to comment on whether or not 
requests for new diagnosis and procedure codes should be created based 
on the need to capture new technology and new diseases. Any code 
requests that do not meet the criteria will be evaluated for 
implementation within ICD-10 on or after October 1, 2014, once the 
partial freeze is ended.
    Complete information on the partial code freeze and discussions of 
the issues at the Committee meetings can be found on the ICD-9-CM 
Coordination and Maintenance Committee Web site at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03. A summary of the September 14, 2011 
Committee meeting, along with both written and audio transcripts of 
this meeting, are posted on the ``Download'' section of this Web page.
c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on Hospital 
Inpatient Claims
    CMS is currently processing all 25 diagnosis codes and 25 procedure 
codes submitted on electronic hospital inpatient claims. Prior to 
January 1, 2011, hospitals could submit up to 25 diagnosis and 25 
procedures; however, CMS' system limitations allowed for the processing 
of only the first 9 diagnosis codes and 6 procedure codes. We discussed 
this change in processing claims in the FY 2011 IPPS/LTCH PPS final 
rule (75 FR 50127), in the FY 2012 IPPS/LTCH PPS proposed rule (76 FR 
25843), in a correction notice issued in the Federal Register on June 
14, 2011 (76 FR 24633), and in the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51553). As discussed in these prior rules, CMS undertook an 
expansion of our 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 HIPAA ASC X12 Technical Reports Type 3, Version 
005010 (Version 5010) standards system update. 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 process up to 25 diagnosis codes 
and 25 procedure codes when received on the 5010 format.
d. ICD-10 MS-DRGs
    In response to the FY 2011 IPPS/LTCH PPS proposed rule, we received 
comments on the creation of the ICD-10 version of the MS-DRGs, which 
will be implemented at the same time as ICD-10 (75 FR 50127 and 50128). 
As we

[[Page 27915]]

stated earlier, the Secretary of Health and Human Services has issued a 
proposed rule that would delay the compliance date of ICD-10 from 
October 1, 2013 to October 1, 2014. While we did not propose an ICD-10 
version of the MS-DRGs in the FY 2011 IPPS/LTCH PPS proposed rule, we 
noted that we have been actively involved in converting our current MS-
DRGs from ICD-9-CM codes to ICD-10 codes and sharing this information 
through the ICD-9-CM Coordination and Maintenance Committee. We 
undertook this early conversion project to assist other payers and 
providers in understanding how to go about their own conversion 
projects. We posted ICD-10 MS-DRGs based on Version 26.0 (FY 2009) of 
the MS-DRGs. We also posted a paper that describes how CMS went about 
completing this project and suggestions for others to follow. All of 
this information can be found on the CMS Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp. We have 
continued to keep the public updated on our maintenance efforts for 
ICD-10-CM and ICD-10-PCS coding systems as well as the General 
Equivalence Mappings that assist in conversion through the ICD-9-CM 
Coordination and Maintenance Committee. Information on these committee 
meetings can be found at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp.
    During FY 2011, we developed and posted Version 28.0 of the ICD-10 
MS-DRGs based on the FY 2011 MS-DRGs (Version 28.0) that we finalized 
in the FY 2011 IPPS/LTCH PPS final rule on the CMS Web site. This ICD-
10 MS-DRGs Version 28.0 also included the CC Exclusion List and the 
ICD-10 version of the hospital-acquired conditions (HACs), which was 
not posted with Version 26.0. We also discussed this update at the 
September 15-16, 2010 and the March 9-10, 2011 meetings of the ICD-9-CM 
Coordination and Maintenance Committee. The minutes of these two 
meetings are posted on the CMS Web site at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp.
    We reviewed comments on the ICD-10 MS-DRGs Version 28.0 and made 
updates as a result of these comments. We called the updated version 
the ICD-10 MS-DRGs Version 28 R1. We posted a Definitions Manual of 
ICD-10 MS-DRGs Version 28 R1 on our ICD-10 MS-DRG Conversion Project 
Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp. To make the review of Version 28 R1 updates easier for the 
public, we also made available pilot software on a CD-ROM that could be 
ordered through the National Technical Information Service (NTIS). A 
link to the NTIS ordering page was provided on the CMS ICD-10 MS-DRG 
Web page. We stated that we believed that, by providing the ICD-10 MS-
DRG Version 28 R1 Pilot Software (distributed on CD-ROM), the public 
would be able to more easily review and provide feedback on updates to 
the ICD-10 MS-DRGs. We discussed the updated ICD-10 MS-DRGs Version 28 
R1 at the September 14, 2011 ICD-9-CM Coordination and Maintenance 
Committee meeting. We encouraged the public to continue to review and 
provide comments on the ICD-10 MS-DRGs so that CMS could continue to 
update the system.
    In FY 2012, we prepared the ICD-10 MS-DRGs Version 29.0, based on 
the FY 2012 MS-DRGs (Version 29.0) that we finalized in the FY 2012 
IPPS/LTCH PPS final rule. We posted a Definitions Manual of ICD-10 MS-
DRGs Version 29.0 on our ICD-10 MS-DRGs Web site. We also prepared a 
document that describes changes made from Version 28.0 to Version 29.0 
to facilitate a review. The ICD-10 MS-DRGs Version 29.0 was discussed 
at the ICD-9-CM Coordination and Maintenance Committee meeting on March 
5, 2012. Information was provided on the types of updates made. Once 
again the public was encouraged to review and comment on the most 
recent update to the ICD-10 MS-DRGs.
    We provided information on a study conducted on the impact on 
converting MS-DRGs to ICD-10-CM and ICD-10-PCS. Information on this 
study is summarized in a paper entitled ``Impact of the Transition to 
ICD-10 on Medicare Inpatient Hospital Payments.'' This paper is posted 
on the CMS ICD-10 MS-DRG conversion Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp. The paper describes 
CMS' approach to the conversion of the MS-DRGs from ICD-9-CM codes to 
ICD-10 codes. The study was undertaken using the ICD-9-CM MS-DRGs 
Version 27.0 (FY 2010) and converted to the ICD-10 MS-DRGs Version 
27.0. The study estimated the impact on aggregate payment to hospitals 
and the distribution of payments across hospitals. The paper was 
distributed and discussed at the September 15, 2010 ICD-9-CM 
Coordination and Maintenance Committee. The impact of the conversion 
from ICD-9-CM to ICD-10 on Medicare MS-DRG hospital payments was 
estimated using 2009 Medicare data. The study found a hospital payment 
increase of 0.05 percent using the ICD-10 MS-DRGs Version 27.0. For 
detailed information on this study, we refer readers to the complete 
report which is posted on the CMS Web site at: http://www.cms.gov/ICD10/17_ICD10_MS_DRG_Conversion_Project.asp.
    CMS provided an overview of this hospital payment impact study at 
the March 5, 2012 ICD-9-CM Coordination and Maintenance Committee 
meeting. This presentation followed presentations on the creation of 
ICD-10 MS-DRGs Version 29.0. A summary report of this meeting can be 
found on the CMS Web site at: http://www.cms.gov/ICD9ProviderDiagnosticCodes/03_meetings.asp. At this March 2012 
meeting, CMS announced that it would produce an update on this impact 
study based on an updated version of the ICD-10 MS-DRGs. This update 
will provide additional information to the public as CMS is evaluating 
refinements made to the ICD-10 MS-DRGs based on public comments.
    We will continue to work with the public to explain how we are 
approaching the conversion of MS-DRGs to ICD-10 and will post drafts of 
updates as they are developed for public review. The final version of 
the ICD-10 MS-DRGs will be implemented at the same time as ICD-10 and 
will be subject to notice and comment rulemaking. In the meantime, we 
will provide extensive and detailed information on this activity 
through the ICD-9-CM Coordination and Maintenance Committee.

H. Recalibration of MS-DRG Weights

1. Data Sources for Developing the Proposed Weights
    In developing the proposed FY 2013 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 2011 MedPAR data used in this proposed rule include 
discharges occurring on October 1, 2010, through September 30, 2011, 
based on bills received by CMS through December 31, 2011, 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 2011 MedPAR file used in calculating the 
proposed relative weights includes data for approximately 10,354,422 
Medicare discharges from IPPS providers. Discharges for Medicare 
beneficiaries enrolled in a Medicare

[[Page 27916]]

Advantage managed care plan are excluded from this analysis. These 
discharges are excluded when the MedPAR ``GHO Paid'' indicator field on 
the claim record is equal to ``1'' or when the MedPAR DRG payment 
field, which represents the total payment for the claim, is equal to 
the MedPAR ``Indirect Medical Education (IME)'' payment field, 
indicating that the claim was an ``IME only'' claim submitted by a 
teaching hospital on behalf of a beneficiary enrolled in a Medicare 
Advantage managed care plan. In addition, the December 31, 2011 update 
of the FY 2011 MedPAR file complies with version 5010 of the X12 HIPAA 
Transaction and Code Set Standards, and includes a variable called 
``claim type.'' Claim type ``60'' indicates that the claim was an 
inpatient claim paid as fee-for-service. Claim types ``61,'' ``62,'' 
``63,'' and ``64'' relate to encounter claims, Medicare Advantage IME 
claims, and HMO no-pay claims. Therefore, the calculation of the 
proposed relative weights for FY 2013 also excludes claims with claim 
type values not equal to ``60.'' The data exclude CAHs, including 
hospitals that subsequently became CAHs after the period from which the 
data were taken. The second data source used in the cost-based relative 
weighting methodology is the Medicare cost report data files from the 
HCRIS. Normally, we use the HCRIS dataset that is 3 years prior to the 
IPPS fiscal year (that is, for the calculation of the FY 2013 MS-DRG 
relative weights, we use data from the FY 2010 HCRIS, which are data 
from cost reports that began on or after October 1, 2009 and before 
October 1, 2010). However, during the development of this proposed 
rule, we have found that those cost reports in the FY 2010 HCRIS 
dataset with fiscal year begin dates that are on or after May 1, 2010, 
and before October 1, 2010, are not accessible. This inaccessibility is 
because cost reports with fiscal year begin dates of May 1, 2010, 
through September 30, 2010, were filed on the new cost report Form 
2552-10, and cost reports filed on Form 2552-10 are not currently 
accessible in the HCRIS. However, because data from cost reports filed 
on Form 2552-10 are not currently available, to ensure that the FY 2013 
MS-DRG relative weights are calculated with a dataset that is as 
comprehensive and accurate as possible, we are proposing to calculate 
the FY 2013 MS-DRG relative weights with data from FY 2010 cost reports 
for providers with fiscal year begin dates of on or after October 1, 
2009 and before May 1, 2010, and to backfill with data from FY 2009 
cost reports for those providers that have fiscal year begin dates on 
or after May 1, 2010 through September 30, 2010. We used cost report 
data for the December 31, 2011 update of the HCRIS for FY 2009 and FY 
2010 in calculating the proposed FY 2013 relative cost-based weights.
2. Methodology for Calculation of the Proposed Relative Weights
    The methodology we used to calculate the proposed FY 2013 MS-DRG 
cost-based relative weights based on claims data in the FY 2011 MedPAR 
file and data from the FY 2009 and FY 2010 Medicare cost reports is as 
follows:
    <bullet> To the extent possible, all the claims were regrouped 
using the proposed FY 2013 MS-DRG classifications discussed in sections 
II.B. and G. of the preamble of this proposed rule.
    <bullet> 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 2010 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.)
    <bullet> 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.
    <bullet> 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.
    <bullet> At least 96.3 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.
    <bullet> 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.
    <bullet> Effective October 1, 2008, because hospital inpatient 
claims include a POA indicator field for each diagnosis present on the 
claim, only for purposes of relative weight-setting, the POA indicator 
field was reset to ``Y'' for ``Yes'' for all claims that otherwise have 
an ``N'' (No) or a ``U'' (documentation insufficient to determine if 
the condition was present at the time of inpatient admission) in the 
POA field.
    Under current payment policy, the presence of specific HAC codes, 
as indicated by the POA field values, can generate a lower payment for 
the claim. Specifically, if the particular condition is present on 
admission (that is, a ``Y'' indicator is associated with the diagnosis 
on the claim), it is not a HAC, and the hospital is paid for the higher 
severity (and, therefore, the higher weighted MS-DRG). If the 
particular condition is not present on admission (that is, an ``N'' 
indicator is associated with the diagnosis on the claim) and there are 
no other complicating conditions, the DRG GROUPER assigns the claim to 
a lower severity (and, therefore, the lower weighted MS-DRG) as a 
penalty for allowing a Medicare inpatient to contract a HAC. While the 
POA reporting meets policy goals of encouraging quality care and 
generates program savings, it presents an issue for the relative 
weight-setting process. Because cases identified as HACs are likely to 
be more complex than similar cases that are not identified as HACs, the 
charges associated with HAC cases are likely to be higher as well. 
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

[[Page 27917]]

claims that otherwise have an ``N'' or a ``U'' in the POA field. This 
resetting ``forced'' the more costly HAC claims into the higher 
severity MS-DRGs as appropriate, and the relative weights calculated 
for each MS-DRG more closely reflect the true costs of those cases.
    Once the MedPAR data were trimmed and the statistical outliers were 
removed, the charges for each of the 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 2009 and FY 2010 cost report data.
    The 15 cost centers that we used in the proposed relative weight 
calculation are shown in the following table. The table shows the lines 
on the cost report and the corresponding revenue codes that we used to 
create the 15 national cost center CCRs.
BILLING CODE 4120-01-P

[[Page 27918]]

[GRAPHIC] [TIFF OMITTED] TP11MY12.001


[[Page 27919]]


[GRAPHIC] [TIFF OMITTED] TP11MY12.002


[[Page 27920]]


[GRAPHIC] [TIFF OMITTED] TP11MY12.003


[[Page 27921]]


[GRAPHIC] [TIFF OMITTED] TP11MY12.004


[[Page 27922]]


[GRAPHIC] [TIFF OMITTED] TP11MY12.005


[[Page 27923]]


[GRAPHIC] [TIFF OMITTED] TP11MY12.006


[[Page 27924]]


[GRAPHIC] [TIFF OMITTED] TP11MY12.007


[[Page 27925]]


[GRAPHIC] [TIFF OMITTED] TP11MY12.008


[[Page 27926]]


[GRAPHIC] [TIFF OMITTED] TP11MY12.009


[[Page 27927]]


[GRAPHIC] [TIFF OMITTED] TP11MY12.010


[[Page 27928]]


[GRAPHIC] [TIFF OMITTED] TP11MY12.011


[[Page 27929]]


[GRAPHIC] [TIFF OMITTED] TP11MY12.012

BILLING CODE 4120-01-C

[[Page 27930]]

3. Development of National Average CCRs
    We developed the national average CCRs as follows:
    Using the FY 2009 and FY 2010 cost report data, we removed CAHs, 
Indian Health Service hospitals, all-inclusive rate hospitals, and cost 
reports that represented time periods of less than 1 year (365 days). 
We included hospitals located in Maryland because we include their 
charges in our claims database. We then created CCRs for each provider 
for each cost center (see prior table for line items used in the 
calculations) and removed any CCRs that were greater than 10 or less 
than 0.01. We normalized the departmental CCRs by dividing the CCR for 
each department by the total CCR for the hospital for the purpose of 
trimming the data. We then took the logs of the normalized cost center 
CCRs and removed any cost center CCRs where the log of the cost center 
CCR was greater or less than the mean log plus/minus 3 times the 
standard deviation for the log of that cost center CCR. Once the cost 
report data were trimmed, we calculated a Medicare-specific CCR. The 
Medicare-specific CCR was determined by taking the Medicare charges for 
each line item from Worksheet D-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 proposed FY 2013 cost-based relative weights were then 
normalized by an adjustment factor of 1.5877342556 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 2013 are as follows:

------------------------------------------------------------------------
                          Group                                 CCR
------------------------------------------------------------------------
Routine Days............................................           0.514
Intensive Days..........................................           0.442
Drugs...................................................           0.199
Supplies & Equipment....................................           0.335
Therapy Services........................................           0.370
Laboratory..............................................           0.142
Operating Room..........................................           0.238
Cardiology..............................................           0.145
Radiology...............................................           0.136
Emergency Room..........................................           0.226
Blood and Blood Products................................           0.389
Other Services..........................................           0.397
Labor & Delivery........................................           0.451
Inhalation Therapy......................................           0.189
Anesthesia..............................................           0.109
------------------------------------------------------------------------

    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 2013 IPPS/LTCH PPS proposed 
rule, we are proposing to use that same case threshold in recalibrating 
the MS-DRG weights for FY 2013. Using data from the FY 2011 MedPAR 
file, there were 8 MS-DRGs that contain fewer than 10 cases. Under the 
MS-DRGs, we have fewer low-volume DRGs than under the CMS DRGs because 
we no longer have separate DRGs for patients aged 0 to 17 years. With 
the exception of newborns, we previously separated some DRGs based on 
whether the patient was age 0 to 17 years or age 17 years and older. 
Other than the age split, cases grouping to these DRGs are identical. 
The DRGs for patients aged 0 to 17 years generally have very low 
volumes because children are typically ineligible for Medicare. In the 
past, we have found that the low volume of cases for the pediatric DRGs 
could lead to significant year-to-year instability in their relative 
weights. Although we have always encouraged non-Medicare payers to 
develop weights applicable to their own patient populations, we have 
received frequent complaints from providers about the use of the 
Medicare relative weights in the pediatric population. We believe that 
eliminating this age split in the MS-DRGs will provide more stable 
payment for pediatric cases by determining their payment using adult 
cases that are much higher in total volume. 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 2013, 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 2012 weights by the percentage change in the average weight of 
the cases in other MS-DRGs. The crosswalk table is shown below:

------------------------------------------------------------------------
 Low[dash]volume MS-DRG        MS-DRG title         Crosswalk to MS-DRG
------------------------------------------------------------------------
768....................  Vaginal Delivery with    FY 2012 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 2012 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 2012 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 2012 FR weight
                          Problems.                (adjusted by percent
                                                   change in average
                                                   weight of the cases
                                                   in other MS-DRGs).
792....................  Prematurity without      FY 2012 FR weight
                          Major Problems.          (adjusted by percent
                                                   change in average
                                                   weight of the cases
                                                   in other MS-DRGs).
793....................  Full-Term Neonate with   FY 2012 FR weight
                          Major Problems.          (adjusted by percent
                                                   change in average
                                                   weight of the cases
                                                   in other MS-DRGs).
794....................  Neonate with Other       FY 2012 FR weight
                          Significant Problems.    (adjusted by percent
                                                   change in average
                                                   weight of the cases
                                                   in other MS-DRGs).
795....................  Normal Newborn.........  FY 2012 FR weight
                                                   (adjusted by percent
                                                   change in average
                                                   weight of the cases
                                                   in other MS-DRGs).
------------------------------------------------------------------------


[[Page 27931]]

4. Bundled Payments for Care Improvement (BPCI) Initiative
a. Background
    Section 3021 of the Affordable Care Act, codified at section 1115A 
of the Act, authorizes CMS to test innovative payment and service 
delivery models with the goal of reducing Medicare program expenditures 
while preserving or enhancing the quality of care furnished to 
individuals. Because initiatives established under this authority could 
result in IPPS hospitals receiving a payment different than what they 
otherwise would receive under the IPPS, we believe it is important to 
identify how these initiatives are addressed in the context of MS-DRG 
recalibration and ratesetting, budget neutrality, and the impact 
analysis in the Addendum of this proposed rule.
    Under the Bundled Payments for Care Improvement (BPCI) initiative, 
CMS would link payments for multiple services that patients receive 
during an episode of care. CMS is working in partnership with providers 
to develop and test models of bundling payments through the BPCI 
initiative. On August 23, 2011, CMS invited providers to apply to help 
develop and test four different models of bundling payments. For 
additional information, we refer readers to the CMS Web site at: http://www.innovations.cms.gov/initiatives/Bundled-Payments/index.html. We 
are providing below a brief overview of payments under each model. 
However, the BPCI initiative Request for Application and related 
information on the CMS Web site at http://innovations.cms.gov/initiatives/bundled-payments/ provide more details of this initiative.
    As described below and also in the Addendum to this proposed rule, 
we are generally proposing to include data from hospitals participating 
in the BPCI initiative and to treat these hospitals without regard to 
their participation in the BPCI initiative for the purposes of IPPS 
ratesetting.
Model 1
    In Model 1, the episode of care is defined as the inpatient 
hospital services for the acute care hospital stay only. Applicants for 
this model were asked to propose discount percentages for various 
periods of the 3-year program, which would be applied to the IPPS 
operating MS-DRG payment for each participating hospital's MS-DRGs over 
the lifetime of the initiative. That is, for hospitals participating in 
Model 1, Medicare would continue to pay participating acute care 
hospitals under the IPPS. However, these payments to participating 
acute care hospitals would be at a reduced payment amount that reflects 
the applicable discount percentage for cases in all MS-DRGs for the 
specific period of the program. We note that an adjustment would be 
made such that payments for IME, DSH, and outliers would be calculated 
based on the nondiscounted MS-DRG operating IPPS payment amount and 
then paid, if applicable, in addition to the discounted MS-DRG 
operating IPPS payment. The minimum discount percentage that awardees 
are expected to offer would be phased in over time, with the discount 
percentage updated as frequently as every 6 months.
Model 2
    In Model 2, the episode of care is defined as the inpatient acute 
care hospital stay for specific clinical conditions and a specified 
period of time following discharge (with a minimum episode length of at 
least 30 days following hospital discharge). The payment bundle for 
Model 2 would encompass all Medicare Part A payments for designated MS-
DRGs, Part B professional services paid under the Medicare Physician 
Fee Schedule (MPFS) during the hospital stay, and related professional 
services furnished after discharge during the episode, ``related 
readmissions'' (as defined under the BPCI initiative), care by a 
postacute care provider such as an HHA, IRF, SNF, LTCH, and other 
related services furnished during the episode (that is, all Medicare 
Part A and Part B with the exception of hospice care). Applicants, 
which may be a Medicare supplier or provider, groups of such entities, 
or other organizations that bring together providers and suppliers to 
test the model, are asked to propose specific MS-DRG(s) for the 
clinical condition(s) to be tested in Model 2. Furthermore, the 
applicants are asked to propose the target price on an MS-DRG basis for 
the episode that includes a single rate of discount off of the expected 
Medicare payment (including hospital, postacute care, Medicare Part B 
professional services, and other services, as applicable) for all Model 
2 beneficiaries discharged from the inpatient hospital stay with the 
specified MS-DRG(s). We note that, when proposing the target price, 
applicants are instructed to include IPPS outlier payments in their 
calculation; however, IPPS IME and DSH payments should be excluded from 
the target price. In Model 2, payments would be made at the usual fee-
for-service payment rates to the participating providers through the 
regular claims processing system, after which the aggregate Medicare 
payment for the episode would be reconciled against the target price. 
If aggregate Medicare expenditures are less than the target price, the 
awardee would be paid the difference as a reconciliation payment. 
Conversely, if aggregate Medicare expenditures exceed the target price, 
CMS would recoup that amount from the awardee.
Model 3
    In Model 3, the episode of care begins at initiation of postacute 
services at one of four postacute care providers (HHAs, IRFs, SNFs, and 
LTCHs) within 30 days after discharge from any acute care hospital for 
specific clinical conditions. As with the other three models, 
applicants may be one or more Medicare providers or supplier or other 
organization(s) bringing those entities together to test the model. 
Applicants are asked to propose an episode length that would extend to 
at least 30 days following initiation of care at an HHA, IRF, SNF, or 
LTCH. The payment bundle for Model 3 would encompass care by a 
postacute care provider, and other related services furnished during 
the episode, including Medicare Part B professional services paid under 
the MPFS, and inpatient hospital readmissions (as defined under the 
BPCI initiative). In contrast to Model 2, the payment bundle for Model 
3 does not include services provided in the initial acute care hospital 
stay. We note that, while the episode is initiated at one of the four 
postacute care providers rather than at an acute care hospital, 
applicants are asked to specify the clinical condition(s) to be tested 
in Model 3 by proposing relevant MS-DRG(s). Therefore, applicable to 
all Model 3 beneficiaries discharged from any inpatient acute care 
hospital stay with the specified MS-DRG(s), applicants are to propose a 
target price on an MS-DRG basis for the episode that includes a single 
rate of discount off of the expected Medicare payment, which includes 
care by a postacute care provider, related Medicare Part B professional 
services paid under the MPFS, inpatient hospital readmissions, and 
other related services furnished during the episode. In Model 3, 
payments would be made at the usual fee-for-service payment rates to 
the participating providers through the regular claims processing 
process, after which the aggregate Medicare payment for the episode 
would be reconciled against the target price. Like Model 2, if 
aggregate Medicare expenditures are less than the target price, the 
awardee would be paid the difference as a reconciliation payment. 
Conversely, if

[[Page 27932]]

aggregate Medicare expenditures exceed the target price, CMS would 
recoup that amount from the awardee. We note that Model 3 does address 
payment for related hospital readmissions.
Model 4
    In Model 4, the episode of care is defined as the acute care 
hospital stay and includes all ``related readmissions'' (as defined 
under the BPCI initiative). The payment bundle for Model 4 would 
encompass Medicare inpatient hospital services, Medicare Part B 
professional services paid under the MPFS furnished during the initial 
hospitalization, as well as hospital services and Medicare Part B 
professional services during any related readmissions. Applicants are 
asked to propose specific MS-DRG(s) for the clinical condition(s) to be 
tested in Model 4. Applicants for this model are asked to propose a 
target price for the episode that includes a single rate of discount 
off of expected Medicare payment (including both Medicare Part A 
hospital services and Part B professional services) for all 
beneficiaries discharged from the inpatient hospital stay with the 
specified MS-DRG(s).
    In contrast to Models 2 and 3, where usual Medicare fee-for-service 
payments are made to all providers and reconciliation of Medicare 
spending against the target price for the episode is conducted 
retrospectively, under Model 4, hospitals would receive a prospectively 
established bundled payment for specified MS-DRGs. This payment would 
include both the MS-DRG payment for the hospital and a fixed payment 
amount for the Medicare Part B professional services anticipated to be 
furnished during the episode. That is, separate payment for providers' 
professional services furnished during the inpatient hospital stay 
would not be made. Participating Model 4 hospitals receiving payment 
would take responsibility for distributing payment to providers that 
would otherwise be paid separately. We note that IPPS IME and DSH 
payments to Model 4 hospitals would be calculated based on the 
nondiscounted base MS-DRG operating IPPS payment that would have been 
made in the absence of the model. Other applicable payment adjustors 
would also be calculated based on the base MS-DRG operating IPPS 
payment amount that would otherwise have applied to the case, as 
opposed to the prospectively established amount paid through this 
initiative, which would be higher as it includes payment for Part B 
services as well as the base MS-DRG payment. Under Model 4, no separate 
IPPS outlier payments would be made.
b. Proposed Treatment of Data From Hospitals Participating in the BPCI 
Initiative
    As discussed above, acute care hospitals have the opportunity to 
apply and participate in the BPCI payment models described above. For 
Model 1 and Model 2, participating acute care hospitals would continue 
to receive an IPPS payment under section 1886(d) of the Act (subject to 
a predetermined discount for hospitals participating in Model 1). For 
Model 2, participating hospitals may also receive a reconciliation 
payment under the BPCI initiative (based on their predetermined target 
price). Under Model 3, services provided in the initial acute care 
hospital stay are not included; however, the model does address payment 
for possible hospital readmissions. Under Model 1, hospitals 
participate for all MS-DRGs, while, under Model 2, hospitals 
participate for only pre-selected MS-DRGs. We believe it is appropriate 
to include all applicable data from these subsection(d) hospitals in 
our IPPS payment modeling and ratesetting calculations because these 
hospitals are still receiving IPPS payments under section 1886(d) of 
the Act (in addition to, with respect to Model 2 hospitals, any 
reconciliation payment the hospital may receive under the BPCI 
initiative). Moreover, even if these hospitals were not receiving IPPS 
payments under section 1886(d) of the Act (and were participating in 
Models 1 and 2), the Secretary has the authority to make appropriate 
adjustments for payment amounts under section 1886(d)(5)(I)(i) of the 
Act to include all applicable data from these subsection(d) hospitals 
in our IPPS ratesetting calculations. We believe it is appropriate to 
use the Secretary's authority under section 1886(d)(5)(I)(i) of the Act 
to include all IPPS, short-term, acute care hospitals within the IPPS 
ratesetting calculations because excluding these hospitals would 
diminish the number of providers used to determine the IPPS rates, 
which could cause fluctuations in the IPPS rates and could produce 
instability to the IPPS rates. Therefore, because we believe it is 
appropriate to include all claims from hospitals participating within 
Models 1 and 2 within the IPPS ratesetting calculations, using the 
Secretary's authority under section 1886(d)(5)(I)(i) of the Act, we are 
proposing to include all applicable data from ``subsection (d)'' 
hospitals participating in Models 1 and 2 under the BPCI initiative in 
our IPPS payment modeling and ratesetting calculations (which includes 
recalibration of the MS-DRG weights, ratesetting, calculation of the 
budget neutrality factors, and the impact analysis). In essence, we 
would continue to treat these hospitals the same as prior fiscal years 
for purposes of the FY 2013 (and subsequent years) IPPS payment 
modeling and ratesetting process without regard to a hospital's 
participation within these two bundled payment models (that is, we 
would treat these hospitals as if they are not participating in Model 1 
or Model 2 under the BPCI initiative).
    In contrast to BPCI Models 1 and 2 (wherein participating IPPS 
hospitals would receive an IPPS payment under section 1886(d) of the 
Act, and, in the case of Model 2, may also receive a reconciliation 
payment under the BPCI initiative), IPPS hospitals participating in 
Model 4 would receive a predetermined bundled payment for Medicare Part 
A and Part B services for a pre-specified MS-DRG ``episode'' (and any 
``related readmissions'' as defined under the BPCI initiative). These 
bundled payments are for certain pre-specified MS- DRG(s) episodes (not 
all cases) and would be made in accordance with the terms of the model, 
as authorized by section 1115A of the Act (these IPPS hospitals would 
also receive ``regular'' IPPS payments under section 1886(d) of the Act 
for those MS-DRGs not included in the bundling model). Similar to 
Models 1 and 2, we believe it is appropriate to keep all applicable 
data from these ``subsection (d)'' hospitals in our IPPS payment 
modeling and ratesetting calculations because the majority of Medicare 
payments these hospitals would receive would be IPPS payments under 
section 1886(d) of the Act (that is, payments for cases in MS-DRGs that 
are not included in the bundled payment model). Moreover, although 
these hospitals are not receiving payments under 1886(d) of the Act for 
the cases included in the prospective bundled payment under Model 4, 
the Secretary has the authority to make appropriate adjustments for 
payment amounts at section 1886(d)(5)(I)(i) of the Act to include all 
applicable data from these subsection(d) hospitals in our IPPS 
ratesetting calculations. We believe it is appropriate to use the 
Secretary's authority under section 1886(d)(5)(I)(i) of the Act to 
include all IPPS, short-term, acute care hospitals and their claims 
within the IPPS ratesetting calculations because excluding these 
hospitals would diminish the number of providers used to determine the 
IPPS rates, which could cause fluctuations in the IPPS rates and could 
produce

[[Page 27933]]

instability to the IPPS rates. Therefore, because we believe it is 
appropriate to include all claims from hospitals participating within 
Models 1 and 2 within the IPPS ratesetting calculations and use the 
Secretary's authority under section 1886(d)(5)(I)(i) of the Act to 
include those hospitals and claims, we also believe it is appropriate 
to include all applicable data from subsection (d) hospitals 
participating in Model 4 in our IPPS payment modeling and ratesetting 
calculations (which includes recalibration of the MS-DRG weights, 
ratesetting, calculation of the budget neutrality factors, and the 
impact analysis) and propose to do so. In essence, we would continue to 
treat these hospitals the same as prior fiscal years for purposes of 
the FY 2013 (and subsequent years) IPPS payment modeling and 
ratesetting process without regard to a hospital's participation within 
this bundled payment model (that is, we would treat these hospitals as 
if they are not participating in Model 4 under the BPCI initiative).
    We note that Model 3 only addresses payments for related 
readmissions and postacute care services (rather than IPPS payments). 
Therefore, we believe it is not necessary to propose to address the 
treatment of any data for participating hospitals in Model 3.

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

1. Background
    Sections 1886(d)(5)(K) and (L) of the Act establish a process of 
identifying and ensuring adequate payment for new medical services and 
technologies (sometimes collectively referred to in this section as 
``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the 
Act specifies that a medical service or technology will be considered 
new if it meets criteria established by the Secretary after notice and 
opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act 
specifies that a new medical service or technology may be considered 
for new technology add-on payment if, ``based on the estimated costs 
incurred with respect to discharges involving such service or 
technology, the DRG prospective payment rate otherwise applicable to 
such discharges under this subsection is inadequate.'' We note that 
beginning with discharges occurring in FY 2008, CMS transitioned from 
CMS-DRGs to MS-DRGs.
    The regulations at 42 CFR 412.87 implement these provisions and 
specify three criteria for a new medical service or technology to 
receive the additional payment: (1) The medical service or technology 
must be new; (2) the medical service or technology must be costly such 
that the DRG rate otherwise applicable to discharges involving the 
medical service or technology is determined to be inadequate; and (3) 
the service or technology must demonstrate a substantial clinical 
improvement over existing services or technologies. Below we highlight 
some of the major statutory and regulatory provisions relevant to the 
new technology add-on payment criteria as well as other information. 
For a complete discussion on the new technology add-on payment 
criteria, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51572 through 51574).
    Under the first criterion, as reflected in 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. We note 
that we do not consider a service or technology to be new if it is 
substantially similar to one or more existing technologies. That is, 
even if a technology receives a new FDA approval, it may not 
necessarily be considered ``new'' for purposes of new technology add-on 
payments if it is ``substantially similar'' to a technology that was 
approved by FDA and has been on the market for more than 2 to 3 years. 
In the FY 2006 IPPS final rule (70 FR 47351) and FY 2010 IPPS/RY 2010 
LTCH PPS final rule (74 FR 43813 and 43814), we explained our policy 
regarding substantial similarity in detail.
    Under the second criterion, 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. Table 10 
that was released with the FY 2012 IPPS/LTCH PPS final rule contains 
the final thresholds that will be used to evaluate applications for new 
technology add-on payments for FY 2013. We refer readers to the Web 
site http://www.cms.gov/AcuteInpatientPPS/FR2012/list.asp#TopOfPage for 
a complete viewing of Table 10 from the FY 2012 IPPS/LTCH PPS final 
rule.
    In the September 7, 2001 final rule that established the new 
technology add-on payment regulations (66 FR 46917), we discussed the 
issue of whether the Health Insurance Portability and Accountability 
Act (HIPAA) Privacy Rule at 45 CFR Parts 160 and 164 applies to claims 
information that providers submit with applications for new technology 
add-on payments. We refer readers to the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51573) for complete information on this issue.
    Under the third criterion, Sec.  412.87(b)(1) of our existing 
regulations provides that a new technology is an appropriate candidate 
for an additional payment when it represents ``an advance that 
substantially improves, relative to technologies previously available, 
the diagnosis or treatment of Medicare beneficiaries.'' For example, a 
new technology represents a substantial clinical improvement when it 
reduces mortality, decreases the number of hospitalizations or 
physician visits, or reduces recovery time compared to the technologies 
previously available. (We refer readers to the September 7, 2001 final 
rule for a complete discussion of this criterion (66 FR 46902).)
    The new medical service or technology add-on payment policy under 
the IPPS provides additional payments for cases with relatively high 
costs involving eligible new medical services or technologies while 
preserving some of the incentives inherent under an average-based 
prospective payment system. The payment mechanism is based on the cost 
to hospitals for the new medical service or technology. Under 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 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

[[Page 27934]]

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 longstanding 
practice of how CMS evaluates the eligibility criteria for new medical 
service or technology add-on payment applications. That is, we first 
determine whether a medical service or technology meets the newness 
criteria, and only if so, do we then make a determination as to whether 
the technology meets the cost threshold and represents a substantial 
clinical improvement over existing medical services or technologies. We 
also amended Sec.  412.87(c) to specify that all applicants for new 
technology add-on payments must have FDA approval or clearance 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 (CM), who is 
also designated as the CTI's Executive Coordinator.
    The specific processes for coverage, coding, and payment are 
implemented by CM, 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.
    To improve the understanding of CMS' processes for coverage, 
coding, and payment and how to access them, the CTI has developed an 
``Innovator's Guide'' to these processes. The intent is to consolidate 
this information, much of which is already available in a variety of 
CMS documents and in various places on the CMS Web site, in a user-
friendly format. This guide was published in August 2008 and is 
available on the CMS Web site at: http://www.cms.gov/CouncilonTechInnov/Downloads/InnovatorsGuide5_10_10.pdf.
    As we indicated in the FY 2009 IPPS final rule (73 FR 48554), we 
invite any product developers or manufacturers of new medical 
technologies to contact the agency early in the process of product 
development if they have questions or concerns about the evidence that 
would be needed later in the development process for the agency's 
coverage decisions for Medicare.
    The CTI aims to provide useful information on its activities and 
initiatives to stakeholders, including Medicare beneficiaries, 
advocates, medical product manufacturers, providers, and health policy 
experts. Stakeholders with further questions about Medicare's coverage, 
coding, and payment processes, or who want further guidance about how 
they can navigate these processes, can contact the CTI at 
<a href="/cdn-cgi/l/email-protection#5013041910333d237e3838237e373f26"><span class="__cf_email__" data-cfemail="e8abbca1a88b859bc680809bc68f879e">[email protected]</span></a>.
    We note that applicants for add-on payments for new medical 
services or technologies for FY 2014 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 the CMS 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 2014, the Web site also 
will post the tracking forms completed by each applicant.
2. Public Input Before Publication of a Notice of Proposed Rulemaking 
on Add-On Payments
    Section 1886(d)(5)(K)(viii) of the Act, as amended by section 
503(b)(2) of 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--
    <bullet> 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;
    <bullet> Make public and periodically update a list of the services 
and technologies for which applications for add-on payments are 
pending;
    <bullet> Accept comments, recommendations, and data from the public 
regarding whether a service or technology represents a substantial 
clinical improvement; and
    <bullet> 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 2013 prior 
to publication of this FY 2013 IPPS/LTCH PPS proposed rule, we 
published a notice in the Federal Register on November 18, 2011 (76 FR 
71571 through 71572), and held a town hall meeting at the CMS 
Headquarters Office in Baltimore, MD, on February 14, 2012. 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 2013 new 
medical service and technology add-on payment applications before the 
publication of this FY 2013 proposed rule.
    Approximately 70 individuals registered to attend the town hall 
meeting in person, while additional individuals listened over an open 
telephone line. Four of the five FY 2013

[[Page 27935]]

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 that were received by the due date of March 6, 2012, 
in our evaluation of the new technology add-on applications for FY 2013 
in this proposed rule.
    In response to the published notice and the new technology town 
hall meeting, we received written comments regarding applications for 
FY 2013 new technology add-on payments. We summarize these comments 
below or, if applicable, indicate that there were no comments received, 
at the end of each discussion of the individual applications in this 
proposed rule.
    Comment: A number of attendees at the new technology town hall 
meeting provided comments that were unrelated to the issue of whether 
the FY 2013 new technology add-on applications met the ``substantial 
clinical improvement'' criterion.
    Response: As explained above and in the Federal Register notice 
announcing the new technology town hall meeting (76 FR 71571), the 
purpose of the new technology town hall meeting was specifically to 
discuss the substantial clinical improvement criterion in regard to 
pending new technology applications for FY 2013. Therefore, we are not 
summarizing those comments in this proposed rule. Commenters are 
welcome to resubmit these comments in response to proposals presented 
in this proposed rule.
3. FY 2013 Status of Technology Approved for FY 2012 Add-On Payments: 
Auto Laser Interstitial Thermal Therapy (AutoLITT\TM\) System
    Monteris Medical submitted an application for new technology add-on 
payments for FY 2011 for the AutoLITT\TM\. AutoLITT\TM\ is a minimally 
invasive, MRI-guided laser tipped catheter designed to destroy 
malignant brain tumors with interstitial thermal energy causing 
immediate coagulation and necrosis of diseased tissue. 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 became effective on 
October 1, 2009.
    The AutoLITT\TM\ received a 510K FDA clearance in May 2009. The 
AutoLITT\TM\ 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 
AutoLITT\TM\ may be used in patients with glioblastoma multiforme brain 
tumors. The applicant stated in its application and through 
supplemental information that, due to required 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. In the FY 2011 IPPS/LTCH PPS 
proposed rule, we welcomed public comments on this issue.
    After evaluation of the newness, costs, and substantial clinical 
improvement criteria for new technology payments for the AutoLITT\TM\ 
and consideration of the public comments we received in response to the 
FY 2011 IPPS/RY 2011 LTCH PPS proposed rule, including the additional 
analysis of clinical data and supporting information submitted by the 
applicant, we approved the AutoLITT\TM\ for new technology add-on 
payments for FY 2011. Consistent with the applicant's clinical trial, 
the add-on payment is intended only for use of the device in cases of 
glioblastoma multiforme. Therefore, we limited the new technology add-
on payment to cases involving the AutoLITT\TM\ in MS-DRGs 025 
(Craniotomy and Endovascular Intracranial Procedures with MCC), 026 
(Craniotomy and Endovascular Intracranial Procedures with CC), and 027 
(Craniotomy and Endovascular Intracranial Procedures without CC or 
MCC). Cases involving the AutoLITT\TM\ that are eligible for the new 
technology add-on payment are identified by assignment to MS-DRGs 025, 
026, and 027 with a procedure code of 17.61 (Laser interstitial 
thermotherapy of lesion or tissue of brain under guidance) in 
combination with a principal diagnosis code that begins with a prefix 
of 191 (Malignant neoplasm of brain). We note that using the procedure 
and diagnosis codes above and restricting the add-on payment to cases 
that map to MS-DRGs 025, 026, and 027 is consistent with information 
provided by the applicant, which demonstrated that cases of the 
AutoLITT\TM\ would only map to MS-DRGs 025, 026, and 027. Procedure 
code 17.62 (Laser interstitial thermotherapy of lesion or tissue of 
head and neck under guidance) does not map to MS-DRGs 025, 026, or 027 
under the GROUPER software and, therefore, is ineligible for new 
technology add-on payment.
    The average cost of the AutoLITT\TM\ is reported as $10,600 per 
case. Under Sec.  412.88(a)(2) of the 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, the maximum add-on payment for a 
case involving the AutoLITT\TM\ is $5,300.
    The new technology add-on payment regulations provide that ``a 
medical service or technology may be considered new within 2 or 3 years 
after the point at which data begin to become available reflecting the 
ICD-9-CM code assigned to the new medical service or technology'' (42 
CFR 412.87(b)(2)). Our practice has been to begin and end new 
technology add-on payments on the basis of a fiscal year, and we have 
generally followed a guideline that uses a 6-month window before and 
after the start of the fiscal year to determine whether to extend the 
new technology add-on payment for an additional fiscal year. In 
general, we extend add-on payments for an additional year only if the 
3-year anniversary date of the product's entry on the market occurs in 
the latter half of the fiscal year (70 FR 47362). With regard to the 
newness criterion for the AutoLITT<SUP>TM</SUP>, as stated above, we 
consider the beginning of the newness period for the device to commence 
from the market release date of December 2009. Therefore, for FY 2013, 
as of December 2012, the AutoLITT<SUP>TM</SUP> will have been on the 
market for 3 years, and would therefore no longer be considered ``new'' 
as of December 2012 nor be considered eligible for new technology add-
on payments in FY 2013. However, we received information from the 
manufacturer that the market release date of the AutoLITT<SUP>TM</SUP> 
occurred after April 2010 (which occurs in the latter half of the 
fiscal year) and, therefore, it appears that the AutoLITT<SUP>TM</SUP> 
would still be considered ``new'' for FY 2013 and would still be 
eligible for new technology add-on payments in FY 2013. We note that we 
received this information in close proximity to the

[[Page 27936]]

publication of the proposed rule and anticipate receiving further 
information on the delayed market release date from the manufacturer 
and welcome public comment as well.
4. FY 2013 Applications for New Technology Add-On Payments
    We received six applications for new technology add-on payments for 
FY 2013. However, two applicants withdrew their applications prior to 
the publication of this proposed rule.
a. Glucarpidase (Trade Brand Voraxaze[supreg])
    BTG International, Inc. submitted an application for new technology 
add-on payments for Glucarpidase (trade brand Voraxaze[supreg]) for FY 
2013. Glucarpidase is used in the treatment of patients who have been 
diagnosed with toxic methotrexate (MTX) concentrations as a result of 
renal impairment. The administration of Glucarpidase causes a rapid and 
sustained reduction of toxic MTX concentrations.
    Methotrexate (MTX) is a widely used anticancer agent. The 
administration of high-dose methotrexate (HDMTX) is an important 
component of the treatment provided to patients who have been diagnosed 
with various types of cancer. According to the applicant, HDMTX, in 
particular, is specifically used in the treatment of patients who have 
been diagnosed with osteosarcoma, acute lymphoblastic leukemia, non-
Hodgkin's lymphoma, or primary CNS lymphoma. The applicant further 
stated that the administration of HDMTX can cause renal dysfunction. 
Renal dysfunction impairs the elimination of MTX, which in turn causes 
the levels of MTX to rise to the point of life-threatening toxicity.
    The applicant maintains that there are not any currently FDA-
approved pharmaceutical treatment options available to rapidly decrease 
MTX levels in patients who have been diagnosed with toxic MTX 
concentrations as a result of renal impairment. The applicant asserts 
that extracorporeal treatment options that are routinely employed to 
rapidly treat this condition, such as hemodialysis, hemodiafiltration, 
high-flux hemodialysis, charcoal hemoperfusion or hemofiltration, 
peritoneal dialysis, exchange transfusion, or plasma exchange, are 
invasive, may add excess morbidity to the treatment regimen, and have 
proven to have limited effects.\15\ High flux hemodialysis is the most 
effective method of extracorporeal MTX removal, but this method 
requires 5 to 6 days of daily treatment (4 to 6 hours per session).\16\ 
The risks associated with repeated hemodialysis procedures such as 
anemia, infection, and increased mortality, especially in neutropenic 
or thrombocytopenic patients, are significant and cause rebounds in MTX 
levels. The applicant maintains that other treatment options, such as 
the administration of leucovorin, hydration, and urinary 
alkalinization, also are commonly used to reduce harmful levels of MTX. 
However, these treatment options do not reduce toxic MTX concentrations 
in all patient populations.\17\
---------------------------------------------------------------------------

    \15\ Widemann et al., [Cancer, 2004, and Vilay et al.,], 
Pharmacotherapy, Vol 30, January, 2010).
    \16\ Wall et al., American Journal of Kidney Diseases, Vol. 28, 
No. 6, 1996.
    \17\ Pinedo et al, Cancer Research, 36, 4418-4424 December, 
1976.
---------------------------------------------------------------------------

    Voraxaze[supreg] is an orphan drug that was approved by the FDA on 
January 17, 2012. Beginning in 1993, certain patients could obtain 
expanded access for treatment use to Voraxaze[supreg] as an 
investigational drug. Since 2007, the applicant has been authorized to 
recover the costs of making Voraxaze[supreg] available through its 
expanded access program. We describe expanded access for treatment use 
of investigational drugs and authorization to recover certain costs of 
investigational drugs in more detail below. The applicant intends to 
make Voraxaze[supreg] available on the market in the United States as a 
commercial product to the larger population in April 2012.
    With regard to newness, we are concerned that Voraxaze[supreg] may 
no longer be considered ``new''. Specifically, 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''. In addition, the regulations at Sec.  
412.87(b)(2) state that ``A medical service or technology may be 
considered new within 2 or 3 years after the point at which data begin 
to become available reflecting the ICD-9-CM code assigned to the new 
service or technology (depending on when a new code is assigned and 
data on the new service or technology become available for DRG 
recalibration). After CMS has recalibrated the DRGs, based on available 
data, to reflect the costs of an otherwise new medical service or 
technology, the medical service or technology will no longer be 
considered `new' under the criterion of this section.'' As we have 
indicated in the past, we generally believe that the newness period 
begins on the date that FDA approval is granted. The FDA approval date 
is typically the date when new technologies are available on the market 
and as a result begin to be reflected within the MS-DRGs cost data.
    As noted above, Voraxaze[supreg] was approved by the FDA in January 
2012. However, starting in 1993, certain patients were able to obtain 
access to Voraxaze[supreg] as an investigational drug through an 
expanded access program, and the applicant has been authorized to 
recover certain costs of making Voraxaze[supreg] available through its 
expanded access program since 2007. We discuss below in more detail 
whether the cost of Voraxaze[supreg] is already reflected within the 
MS-DRG relative weights.
    To determine the date of newness for Voraxaze[supreg], we believe 
it is appropriate to compare investigational drugs provided under the 
expanded access program to devices eligible for the Humanitarian Use 
Device (HUD) Program because these programs contain similarities to 
evaluate the newness criterion.
    In prior final rules, we have evaluated and approved technologies 
with a Humanitarian Device Exemption (HDE) approval. In the FY 2010 
IPPS/LTCH PPS final rule, we approved new technology add-on payments 
for the Spiration[supreg] IBV[supreg], which received a HDE approval 
from the FDA on October 24, 2008, and had its first IRB approval on 
March 12, 2009 (74 FR 43754, 43819). Therefore, technologies with an 
HDE approval may be eligible for new technology add-on payments. In 
other words, we have concluded that HDE approval constitutes an FDA 
approval in the context of the newness criterion and would begin the 
newness period, subject to market availability.
    There are separate processes and standards for providing expanded 
access to investigational drugs for treatment use and for the HUD 
Program. The term ``expanded access'' refers to the use of 
investigational drugs, or approved drugs where availability is limited 
by a risk evaluation or mitigation strategy, when the primary purpose 
is to diagnose, monitor, or treat a patient's disease or condition. 
When the requirements in (FDA's regulations at) 21 CFR part 312, 
Subpart I are met, a patient or group of patients with a serious or 
immediately life-threatening disease or condition, and no comparable or 
satisfactory alternative therapy, may obtain expanded access to an 
investigational drug. When patients obtain expanded access to an 
unapproved investigational drug, the safety and effectiveness of the 
drug have

[[Page 27937]]

not been fully established, and the drug does not have formal FDA 
approval under a New Drug Application (NDA) or Biologics Licensing 
Application (BLA) for commercial marketing. Manufacturers may continue 
conducting clinical trials in parallel to the expanded access program 
in order to pursue formal market approval from the FDA under an NDA or 
BLA for commercial marketing. The FDA's Office of Orphan Products 
Development administers the HUD Program. A HUD is a device that is 
intended to benefit patients by treating or diagnosing a disease or 
condition that affects fewer than 4,000 individuals in the United 
States per year. To obtain approval for a HUD, a HDE application is 
submitted to FDA. A HDE application is similar in both form and content 
to a Premarket Approval (PMA) application, but is exempt from the 
effectiveness requirements of a PMA. A HDE application must, however, 
contain sufficient information for FDA to determine that the device 
does not pose an unreasonable or significant risk of illness or injury, 
and that the probable benefit to health outweighs the risk of injury or 
illness from its use, taking into account the probable risks and 
benefits of currently available devices or alternative forms of 
treatment. An approved HDE authorizes marketing of the HUD, however, an 
HDE approval requires that the device only be used in facilities that 
have established a local Institutional Review Board (IRB) to supervise 
clinical testing of devices, and that an IRB approve the use of the 
device to treat or diagnose the specific disease. Although HUDs can be 
marketed, they are subject to a general prohibition on profit; that is, 
they may not, except in narrow circumstances, be sold for an amount 
that exceeds the cost of research and development, fabrication and 
distribution.
    Expanded access to investigational drugs and the HUD Program have 
similarities and differences that are relevant to the newness 
criterion. Both have limits on who is eligible to receive a drug or use 
a device. In addition, to satisfy the requirements for expanded access 
in FDA's regulations, and for a HDE to meet the standard for approval, 
a sponsor is not required to demonstrate effectiveness of the product 
at the same level as for approval of a PMA, NDA, or BLA. Expanded 
access to investigational drugs and the HUD Program differ in many 
ways, including that the HUD Program is for devices, and the expanded 
access programs provide access to drugs. In addition, under the HUD 
Program, the device is granted FDA approval for limited use. However, 
while FDA authorizes expanded access to an investigational drug, FDA 
does not approve the investigational drug when it authorizes expanded 
access.
    This second difference is key to our interpretation of our policy 
to recognize a HDE approval as an FDA approval. We believe that the 
availability of a drug through the expanded access program would not 
constitute FDA approval in the context of the newness criterion because 
unapproved, investigational drugs made available to certain patients 
through the expanded access program do not receive FDA approval prior 
to enrollment in the program and cannot be marketed. In other words, we 
believe that for the purposes of evaluating whether a new technology 
meets the newness criterion, it may be appropriate not to consider the 
date when Voraxaze[supreg] became available to certain patients through 
the applicant's expanded access program as the date of market 
availability.
    We note that cost recovery for investigational drugs is of concern 
with regard to the newness criterion. Although a sponsor (for example, 
a drug manufacturer) may not commercially distribute an investigational 
drug, in certain circumstances, a sponsor of a clinical trial or an 
expanded access program may receive authorization from FDA to charge 
for certain costs associated with making an investigational drug 
available. The applicant has been authorized to recover certain costs 
by making Voraxaze[supreg] available since 2007. As we stated earlier, 
once CMS has recalibrated the DRGs based on available data to reflect 
the costs of an otherwise new technology, that technology will no 
longer be considered ``new''' for the purposes of the new technology 
add-on payments. It is possible that a hospital may have submitted a 
claim to Medicare for the cost of Voraxaze[supreg] provided through the 
applicant's expanded access program. Therefore, it is also possible 
that the costs associated with this technology may already be reflected 
in some limited fashion in the data used to determine the MS-DRG 
relative weights. While these are possibilities, we have not in the 
past been confronted with a situation where an applicant has indicated 
that hospitals have sought cost recovery for their technology when the 
technology was available through the expanded access program. We also 
have not been confronted with a situation where an applicant has 
indicated that cost recovery was sought for technologies (that were not 
available via an expanded access program) during clinical trials. We 
note that our data do not distinguish charges for drugs by FDA approval 
status, and, therefore, we do not exclude from the relative weight 
calculation costs (as derived from charges) associated with 
investigational drugs if they are included by hospitals on a claim. 
Therefore, cost data for non-FDA approved technologies (that is, still 
involved in clinical trials) may be present in the relative weights on 
a very limited basis prior to FDA approval, regardless of whether a 
technology received new technology add-on payments.
    We are inviting public comment regarding the issue of whether a 
drug is considered ``new'' for the purposes of new technology add-on 
payments starting with its availability in the expanded access program, 
and how that may differ from devices being considered ``new'' starting 
from the date the device received FDA approval under a HDE (subject to 
market availability or availability to Medicare beneficiaries) and 
specifically request comment on these considerations in the context of 
Voraxaze[supreg]. We also are inviting public comment on whether the 
costs of Voraxaze[supreg], or more generally, any unapproved 
investigational drug for which cost recovery is authorized are already 
included in data used to determine relative weights, and how that 
influences the start of a newness period, if at all. In addition, we 
are inviting public comment regarding the market availability of 
Voraxaze[supreg] between its FDA approval date of January 17, 2012, and 
the market availability date according to the applicant of April 2012 
and the reasons for the delay in availability.
    The applicant submitted a request to the ICD-9-CM Coordination and 
Maintenance Committee for a new procedure code, which was discussed at 
the committee's March 2012 meeting. For further information regarding 
the code proposal, we refer readers to the following CMS Web site: 
http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials.html.
    We are inviting public comment on whether or not Voraxaze[supreg] 
meets the newness criterion, especially in light of its reported 
availability date through the applicant's expanded access program, and 
the ability for the applicant to charge for certain costs associated 
with making an investigational drug available. In addition, we are 
inviting public comment on considerations that should be given in 
regard to the technology's delay in availability after FDA's approval 
was granted, in addition to the reason for the delay, as it relates to 
the newness criterion.

[[Page 27938]]

    With respect to cost criterion, the applicant researched the 2009 
Standard Analytic Inpatient File (SAF) for cases with a principal or 
secondary diagnosis of osteosarcoma (ICD-9-CM code series 170.xx), 
acute lymphoblastic leukemia (ICD-9-CM code series 204.0x), non-
Hodgkin's lymphoma (ICD-9-CM code series 200.xx and 202.xx), or primary 
CNS lymphoma (ICD-9-CM code series 200.5x) with a corresponding ICD-9-
CM procedure code for chemotherapy (99.25) that may be eligible for 
Voraxaze[supreg], based on the product's approved indications. The 
applicant's search yielded potentially eligible cases within 249 MS-
DRGs, of which 56 MS-DRGs captured 12 or more cases.
    Using this universe of cases (249 MS-DRGs), the applicant added the 
additional costs of Voraxaze[supreg] to the case-weighted average 
standardized charge per case. Although the applicant submitted data 
related to the estimated cost of Voraxaze[supreg], the applicant noted 
that the cost of the technology was proprietary information. According 
to the applicant, it did not convert the costs to charges for this 
analysis because of the technology's high cost. The applicant maintains 
that an average adult receiving treatment for one of the diagnoses 
above would require a minimum of four vials of Voraxaze[supreg].
    The applicant used the following multiple analysis of different 
subsets of MS-DRGs to compare the average case-weighted standardized 
charge per case to the average case-weighted threshold to determine 
that Voraxaze[supreg] met the cost criteria:
    <bullet> The applicant found 12,324 eligible cases within 249 MS-
DRGs, and determined a case-weighted average standardized charge per 
case of $87,582 (which includes the cost of Voraxaze[supreg]) and a 
case-weighted threshold of $39,216. The applicant maintains that 
Voraxaze[supreg] meets the cost criterion because the case-weighted 
average standardized charge per case exceeds the case-weighted 
threshold.
    <bullet> The applicant excluded those MS-DRGs that had fewer than 
11 cases, which resulted in 12,134 eligible cases within 56 MS-DRGs. 
The applicant determined a case-weighted average standardized charge 
per case of $84,039 (which includes the cost of Voraxaze[supreg]) and a 
case-weighted threshold of $37,195. The applicant maintains that 
Voraxaze[supreg] meets the cost criterion because the case-weighted 
average standardized charge per case exceeds the case-weighted 
threshold.
    <bullet> The applicant analyzed the 20 MS-DRGs that contained the 
highest number of cases and, based on the 20 cases they stated they 
found, determined a case-weighted average standardized charge per case 
of $80,400 (which includes the cost of Voraxaze[supreg]) and a case-
weighted threshold of $34,990. The applicant maintains that 
Voraxaze[supreg] meets the cost criterion because the case-weighted 
average standardized charge per case exceeds the case-weighted 
threshold.
    We are inviting public comment on whether or not Voraxaze[supreg] 
meets the cost criterion. Specifically, we welcome public comment on 
the methodologies used in the applicant's analysis, including (1) the 
methods used to identify the eligible cases used in the cost analysis 
of this technology, especially if there are cases that should be 
excluded from the analysis because of clinical reasons, and if there 
are other ways to identify cases for which this technology may be 
appropriate, and (2) the appropriateness of not converting the costs to 
charges for the purposes of this analysis and what would be an accurate 
and appropriate CCR for this technology.
    With regard to substantial clinical improvement, the applicant 
maintains that Voraxaze[supreg] is a clinical improvement compared to 
current treatment options because it is less time intensive, allows 
certain patient populations to avoid risks associated with current 
treatment options, and has characteristics that allows it to reduce MTX 
concentrations more effectively. As noted above, the applicant 
maintains that current treatment options for renal impairment as a 
result of toxic MTX concentrations are limited to extracorporeal 
methods that are time-intensive and could subject patients in certain 
populations to harm from the associated risks. The applicant states 
that the administration of Voraxaze[supreg] to patients who have been 
diagnosed with HDMTX-induced renal dysfunction metabolizes circulating 
MTX to the inactive metabolite DAMPA. The applicant asserts that this 
characteristic action of the technology represents a substantial 
clinical improvement over current treatment options available to 
patients who have toxic MTX concentrations in a more effective, and 
rapid way, and provides protection to eligible patient populations 
against potential harm associated with current treatment options.
    In addition, the applicant provided the results from a study of 23 
patients diagnosed with MTX-induced renal dysfunction treated with 
Voraxaze[supreg]. During this study, the applicant reported that the 
administration of Voraxaze[supreg] lowered toxic MTX concentrations in 
patients within 15 minutes after the administration by more than 98 
percent. Because the administration of Voraxaze[supreg] could 
metabolize both leucovorin and its active metabolite, 5-mTHF, these 
patients were also administered Thymidine, a drug used to enhance the 
treatment for patients with high levels of MTX. The applicant notes 
that the combination of Voraxaze[supreg] and Thymidine rescue was well 
tolerated by the 23 patients studied, and MTX-related toxicities were 
reduced from severe to mild to moderate. The range of age of these 23 
patients was 19 to 94 years old. The applicant asserts that the types 
of health conditions treated with HDMTX, such as acute lymphoblastic 
leukemia, osteosarcoma, central nervous system (CNS) lymphoma, and 
leptomeningeal cancer, tend to occur within the Medicare population and 
cites research that states ``HD-MTX-induced renal failure with 
persistence of toxic blood MTX levels is a rare but life threatening 
complication that occurs more frequently in adults, particularly those 
with advanced age and CNS lymphoma.'' \18\ When these malignancies 
arise which require treatment with HDMTX, HDMTX-induced renal failure 
with persistent toxic MTX levels is a complication that occurs more 
frequently in adults. The applicant asserts that the administration of 
Voraxaze[supreg] has been shown to be well-tolerated by older adult 
patients, while achieving similar reduction rates in younger patient 
populations who have been diagnosed with toxic MTX concentrations and 
treated with Voraxaze[supreg].\19\ The applicant also provided 
additional published peer-reviewed articles 
<SUP>20,21,22,23,24,25</SUP> relevant to their application to support 
their

[[Page 27939]]

assertion that they meet the substantial clinical improvement criteria.
---------------------------------------------------------------------------

    \18\ Schwartz, Borner et al., The Oncologist, December 2007.
    \19\ Schwartz, Borner et al., The Oncologist, December 2007.
    \20\ Levy CC, Goldman P. The enzymatic hydrolysis of 
methotrexate and folic acid. J Biol Chem. 1967; 242:2993-2998.
    \21\ Minton NP, Atkinson T, Sherwood RF. Molecular cloning of 
the Pseudomonas carboxypeptidase G2 gene and its expression in 
Escherichia coli and Pseudomonas putida. J Bacteriol. 1983; 156: 
1222-1227.
    \22\ Widemann BC, Balis FM, Kim A, et al. Glucarpidase, 
leucovorin and thymidine for high-dose methotrexate induced renal 
dysfunction. Clinical and pharmacologic factors affecting outcome. J 
Clin Oncology 2010; 28:1-8.
    \23\ Patterson DM, Lee SM. Glucarpidase following high-dose 
methotrexate: Update on development. Expert Opin Biol Ther. 
2010;10(1):105-111.
    \24\ Phillips M, Smith W, Balan G, et al. Pharmacokinetics of 
glucarpidase in subjects with normal and impaired renal function. J 
Clin Pharmacol 2008; 48:279-284.
    \25\ Bleyer WA. Methotrexate: Clinical pharmacology, current 
status and therapeutic guidelines. Cancer Treat Rev. 1977;4:87-101.
---------------------------------------------------------------------------

    We are inviting public comment on whether or not Voraxaze[supreg] 
meets the criterion of representing a substantial clinical improvement 
for Medicare beneficiaries.
b. DIFICID<SUP>TM</SUP> (Fidaxomicin) Tablets
    Optimer Pharmaceuticals, Inc. submitted an application for new 
technology add-on payments for FY 2013 for the use of 
DIFICID<SUP>TM</SUP> (Fidaxomicin) tablets. The applicant asserts that 
Fidaxomicin is a major clinical advancement in the options available to 
treat Clostridium difficile-associated diarrhea (CDAD).
    Clostridium difficile (C. Diff.) is a bacterium that can cause 
infection with symptoms that range from diarrhea to life-threatening 
inflammation of the colon, and is also commonly referred to as CDAD. 
The symptoms associated with CDAD can be treated by stopping 
administration of an antibiotic because often antibiotics can alter the 
native intestinal microflora and thus trigger CDAD. For mild cases of 
CDAD, this step may be sufficient to relieve the associated symptoms. 
However, many patients who have been diagnosed with more severe cases 
of CDAD require further treatment. Further treatment options include 
prescribing antibiotics such as Metronidazole or Vancomycin, 
prescribing probiotics administered in conjunction with antibiotics, 
and performing surgery using a fecal transplant to restore healthy 
intestinal bacteria by placing donor stool in the colon. According to 
the applicant, about one-fourth of the patients diagnosed with CDAD 
experience a recurrence of these associated symptoms.
    As indicated on the labeling submitted to the FDA, the applicant 
noted that Fidaxomicin is taken twice a day as a daily dosage (200 mg 
tablet twice daily = 400 mg per day) as an oral antibiotic. The 
applicant asserts that Fidaxomicin provides potent bactericidal 
activity against C. Diff., and moderate bactericidal activity against 
certain other gram-positive organisms, such as enterococcus and 
staphylococcus. Unlike other antibiotics used to treat CDAD, the 
applicant noted that the effects of Fidaxomicin preserve bacteroides 
organisms in the fecal flora. These are markers of normal anaerobic 
microflora. The applicant asserts that this helps prevent pathogen 
introduction or persistence, which potentially inhibits the re-
emergence of C. Diff., and reduces the likelihood of overgrowths as a 
result of vancomycin-resistant Enterococcus (VRE). Because of this 
narrow spectrum of activity, the applicant asserts that Fidaxomicin 
does not alter this native intestinal microflora.\26\
---------------------------------------------------------------------------

    \26\ Koo, Garey et al. Future novel therapeutic agents for 
Clostridium difficile infection. Expert Opin Investig Drugs, 
2010;19(7):825-836. Tannock, Munro et al., A new macrocyclic 
antibiotic, fidaxomicin (OPT-80), causes less alteration to the 
bowel microbiota of Clostridium difficile-infected patients than 
does vancomycin. Microbiology. 2010 Nov;156(Pt 11):3354-9.
---------------------------------------------------------------------------

    With regard to the newness criterion, Fidaxomicin was approved by 
the FDA on May 27, 2011, for the treatment of CDAD in adult patients, 
18 years of age and older. Fidaxomicin was commercially available on 
the market within 7 weeks after the FDA's approval was granted. 
Currently, there are not any ICD-9-CM diagnosis or procedure codes that 
exist to uniquely identify the use of Fidaxomicin, or any oral drug, as 
a procedure. Optimer has submitted a request to the ICD-9-CM 
Coordination and Maintenance Committee for a new ICD-9-CM procedure 
code, which was discussed at the committee's meeting on March 5, 2012. 
For further information regarding the code proposal, we refer readers 
to the CMS Web site at: http://www.cms.hhs.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/ICD-9-CM-C-and-M-Meeting-Materials.html.
    We believe that under our current new technology add-on payment 
policy, eligibility for consideration for new technology add-on 
payments is limited to new technologies associated with procedures 
described by ICD-9-CM codes. In the FY 2002 IPPS final rule, we 
establish the framework for our current policy (66 FR 46907 through 
46915). The discussion of technologies in that rule focuses on those 
technologies identifiable by ICD-9-CM codes. We also discuss in 
response to comments the feasibility and appropriateness of HCPCS codes 
and V-codes. Similar to ICD-9-CM codes, HCPCS codes are also a 
procedure-based system and identify procedures. We noted in that rule 
that V-codes would not be appropriate to use for identification of new 
technology because they are not a substitute for procedure coding. 
Volume 3 of ICD-9-CM contains codes that describe inpatient procedures 
(65 FR 50325). In other words, we have not considered drugs that are 
only taken orally to be eligible for consideration for new technology 
add-on payments, because there is no procedure associated with these 
drugs and, therefore, no ICD-9-CM code(s).
    This interpretation is also consistent with other Medicare payment 
policies. For example, when drugs taken orally are given as part of an 
outpatient encounter, they would likely be considered self-administered 
drugs under the Hospital Outpatient Prospective Payment System (OPPS). 
If a Medicare beneficiary who has outpatient status were to be provided 
a self-administered drug by a hospital or wholly-owned or wholly-
operated entity of that hospital and that beneficiary were subsequently 
admitted to that hospital for a related reason within three days, the 
hospital may not include these self-administered drugs on the inpatient 
bill (under the 3-day payment window policy), because self-administered 
drugs are not covered under the OPPS. However, they would be required 
to include nondiagnostic services related to admission and all other 
diagnostic services on the inpatient bill (under the 3-day payment 
window).
    We are inviting public comment on our interpretation of our policy 
regarding drugs that are only self-administered for consideration for 
new technology add-on payments. Further, we are inviting public comment 
on whether or not Fidaxomicin meets the newness criterion.
    With regard to the cost criterion, Optimer researched the FY 2010 
MedPAR file for cases that would be eligible for treatment with 
Fidaxomicin to determine it if would qualify for the cost criterion for 
new technology add-on payments. Based on its analysis, the applicant 
identified cases in which a patient had been diagnosed with CDAD by 
searching the MedPAR file for claims that included ICD-9-CM diagnosis 
code 008.45 (Intestinal infection due to Clostridium difficile) as a 
principal diagnosis or secondary diagnosis. Optimer provided three 
examples of how the results of the analyses of different MS-DRGs 
demonstrate that it meets the cost criterion.
    Under the first analysis, the applicant researched the FY 2010 
MedPAR file for cases that included ICD-9-CM diagnosis code 008.45 as a 
principal or secondary diagnosis across all MS-DRGs. The applicant 
found 162,310 cases within 536 MS-DRGs, and determined a case-weighted 
average standardized charge per case (excluding charges for the cost of 
Fidaxomicin) of $50,136. Using a factor of 6.5 percent to inflate the 
charges to 2012 rates based on the Medical Consumer Price Index (CPI), 
the applicant determined a case-weighted standardized charge per case 
that equals $53,394. The applicant then added the charges related to 
the technology to the inflated charges. The applicant then determined a 
final case-weighted average standardized charge per case of $58,994, 
which exceeds the

[[Page 27940]]

case-weighted threshold of $43,673. Because the final case-weighted 
average standardized charge per case for the applicable MS-DRGs exceeds 
the case-weighted threshold amount in this first analysis, the 
applicant maintains that Fidaxomicin meets the cost criterion for new 
technology add-on payments.
    Under the second analysis, the applicant researched the FY 2010 
MedPAR file for cases that included ICD-9-CM diagnosis code 008.45 only 
as a principal diagnosis, which mapped to MS-DRGs 371 (Major 
Gastrointestinal Disorders and Peritoneal Infections with MCC), 372 
(Major Gastrointestinal Disorders and Peritoneal Infections with CC), 
and 373 (Major Gastrointestinal Disorders and Peritoneal Infections 
without CC/MCC). The applicant found 55,410 cases, and determined a 
case-weighted average standardized charge per case (excluding charges 
for the cost of Fidaxomicin) of $28,007. Using a factor of 6.5 percent 
to inflate the charges to 2012 rates based on the Medical CPI, the 
applicant determined a case-weighted standardized charge per case that 
equals $29,828. The applicant then added the charges related to the 
drug to the inflated charges. The applicant then determined a final 
case-weighted average standardized charge per case of $35,428, which 
exceeds the case-weighted threshold of $34,730. Because the final case-
weighted average standardized charge per case for the applicable MS-
DRGs exceeds the case-weighted threshold amount in this second 
analysis, the applicant maintains that Fidaxomicin meets the cost 
criterion for new technology add-on payments.
    Under the third analysis, the applicant again researched the FY 
2010 MedPAR file for cases that included ICD-9-CM diagnosis code 008.45 
as a principal or secondary diagnosis across all MS-DRGs. The applicant 
then narrowed the results of the analysis to include only the top 37 
MS-DRGs (in volume of cases), which accounted for 75 percent of all 
cases. The applicant's methodology resulted in 121,748 cases, and the 
applicant determined a case-weighted average standardized charge per 
case (excluding charges for the cost of Fidaxomicin) of $45,523. Using 
a factor of 6.5 percent to inflate the charges to 2012 rates based on 
the Medical CPI, the applicant determined a case-weighted standardized 
charge per case that equals $48,482. The applicant then added the 
charges related to the drug to the inflated charges. The applicant then 
determined a final case-weighted average standardized charge per case 
of $54,082, which exceeds the case-weighted threshold of $42,452. 
Because the final case-weighted average standardized charge per case 
for the applicable MS-DRGs exceeds the case-weighted threshold amount 
in this third analysis, the applicant maintains that Fidaxomicin meets 
the cost criterion for new technology add-on payments.
    In the three analyses discussed above, the applicant submitted data 
related to the estimated cost and charge of the drug (using a charge 
markup). However, the applicant has not released the cost of the 
technology, asserting that it is proprietary information. The applicant 
converted the cost of the technology to a charge using a charge markup 
(a factor of 6.5 percent based on the Medical CPI) that represented a 
10-day dosage.
    We are concerned that these analyses do not take into account 
situations in which patients would be prescribed Fidaxomicin later in 
the duration of their inpatient stay, and may finish the course of 
Fidaxomicin sometime after being discharged from the hospital. In 
addition, as discussed above, if Fidaxomicin is prescribed and self-
administered during the 3-day period prior to admission to an IPPS 
hospital for a related encounter, we do not believe that this service 
is payable under the OPPS, nor that it can be included on the inpatient 
claim submitted to Medicare because of the 3-day payment window policy. 
Therefore, it may not be appropriate to include in the applicant's 
calculations the full charges related to Fidaxomicin and the 
corresponding proprietary charges for the 10-day dose. In addition, we 
believe that it is necessary for the applicant to adjust its estimates 
to remove from the MedPAR file's claims for the charges that describe 
other types of treatment options such as Vancomycin, since use of these 
treatments would preclude use of Fidaxomicin. Furthermore, to identify 
the cases that may be eligible for the technology's use, the applicant 
researched and analyzed claims that included ICD-9-CM diagnosis code 
008.45 as the principal diagnosis or as the principal or secondary 
diagnosis. We are concerned that this baseline for eligible cases may 
not represent the appropriate universe of cases, such as if all MS-DRGs 
were considered or if a subset of MS-DRGs were considered.
    We are inviting public comment on whether or not Fidaxomicin meets 
the cost criterion. In addition, we are inviting public comment on the 
methodologies used by the applicant in its analyses, in particular the 
assumptions made about the dosage in developing the cost analysis. We 
also are interested in comments about the applicant's selection of 
claims with an ICD-9-CM diagnosis code 008.45 as the principal 
diagnosis or secondary diagnosis, and whether those cases accurately 
represent the Medicare population that may benefit from the 
technology's use.
    With regard to the substantial clinical improvement criterion, the 
applicant maintains that Fidaxomicin represents a substantial clinical 
improvement to the treatment options currently available. According to 
the applicant, Fidaxomicin represents the first major clinical 
advancement in the treatment options available to address CDAD in more 
than 25 years, and it is one of only two agents indicated by the FDA to 
treat this condition. The applicant notes that reports from its 
clinical trials show that a higher proportion of patients achieve 
positive clinical response to treatment with Fidaxomicin as opposed to 
treatment with Vancomycin. The applicant reported that these patients 
did not experience recurrences of associated symptoms for at least 25 
days after the end of treatment. The applicant asserts that Fidaxomicin 
has longer acting antimicrobial activity and inhibits spore production 
in C. difficile in vitro. The applicant stated that C. difficile cells 
produce spores when exposed to air; therefore, transmission of 
infection occurs even when the cells themselves are killed.
    The applicant reported on two randomized, double-blinded trials 
<SUP>27,28</SUP>. A non-inferiority design was utilized to demonstrate 
the efficacy of administering Fidaxomicin (200 mg twice daily for 10 
days) compared to administering Vancomycin (125 mg four times daily for 
10 days) to adult patients diagnosed with CDAD. The demographic profile 
and baseline CDAD characteristics of the subjects enrolled in both 
trials were similar. These patients had a median age of 64 years, were 
mainly white (90 percent), female (58 percent), and inpatients (63 
percent).
---------------------------------------------------------------------------

    \27\ Pivotal trial 101.1.C.003:
    Thomas J. Louie, M.D., Mark A. Miller, M.D., Kathleen M. 
Mullane, D.O., Karl Weiss, M.D., Arnold Lentnek, M.D., Yoav Golan, 
M.D., Sherwood Gorbach, M.D., Pamela Sears, Ph.D., and Youe-Kong 
Shue, Ph.D. for the OPT-80-003 Clinical Study Group. Fidaxomicin 
versus Vancomycin for Clostridium difficile Infection. N Engl J Med 
2011; 364:422-431 February 3, 2011. Attached reference: 12--
LouieNEJM2011.pdf.
    \28\ Crook D, Weiss K, Comely O, Miller M, Esposito R, Gorbach 
8. Randomized Clinical Trial (RCT) in Clostridium difficile 
Infection (CDI) Confirms Equivalent Cure Rate and Lower Recurrence 
Rate of Fidaxomicin (FDX) versus Vancomycin (VCN). 20th European 
Congress of Clinical Microbiology and Infectious Diseases; April 10-
13, 2010; Vienna, Austria.
---------------------------------------------------------------------------

    The applicant reported that the primary efficacy endpoint (for both 
trials) was the clinical response rate at

[[Page 27941]]

the end of therapy, based upon improvement in diarrhea or other 
symptoms such that, in the investigator's judgment, further CDAD 
treatment was not needed. An additional efficacy endpoint was sustained 
clinical response 25 days after the end of treatment. Sustained 
response was only evaluated for patients who were clinical successes at 
the end of treatment. Sustained response was defined as clinical 
response at the end of treatment, and survival without proven or 
suspected reoccurrence of a diagnosis of CDAD beyond 25 days after the 
end of treatment. The results for clinical response at the end of 
treatment in both trials, which the applicant submitted in the table 
below, indicate that the effects of administering Fidaxomicin is 
noninferior to the effects of administering Vancomycin based on the 95 
percent confidence interval (CI) lower limit being greater than the 
non-inferiority margin of -10 percent.
    The applicant stated that the results for sustained clinical 
response at the end of the follow-up period, also shown in the table 
below, indicate that the effects of administering Fidaxomicin is 
superior to the effects of administering Vancomycin on this endpoint. 
Because clinical success at the end of treatment and mortality rates 
were similar across treatment arms (approximately 6 percent in each 
group), the applicant determined that the differences in sustained 
clinical response were due to lower rates of proven or suspected 
reoccurrence of diagnoses of CDAD in patients during the follow-up 
period. In addition, the applicant asserts that the effects of 
administering Fidaxomicin has minimal impact on normal gut flora due to 
its limited specificity, and could be associated with a lower risk of 
acquisition of VRE if used as a treatment option instead of 
administering Vancomycin.

                                                    Clinical Response Rates at End-of-Therapy and Sustained Response at 25 Days Post-Therapy
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       Clinical response at end of treatment                                              Sustained response at follow-up
                                ----------------------------------------------------------------------------------------------------------------------------------------------------------------
                                    FIDAXOMICIN % (N)         Vancomycin % (N)           Difference (95% CI)          FIDAXOMICIN % (N)       Vancomycin % (N)          Difference (95% CI)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Trial 1........................  88% (N = 289)            86% (N = 307)            2.6% (-2.9%, 8.0%)              70% (N = 289)           57% (N = 307)           12.7% (4.4%, 20.9%)
Trial 2........................  88% (N = 253)            87% (N = 256)            1.0% (-4.8%, 6.8%)              72% (N = 253)           57% (N = 256)           14.6% (5.8%, 23.3%)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Based on the analysis described above, the applicant asserts 
Fidaxomicin meets the substantial clinical improvement criterion as a 
treatment option with the potential to decrease hospitalizations and 
physician office visits, as well as to improve the quality of life for 
patients who have been diagnosed with CDAD.
    We are concerned that this technology may not offer a substantial 
clinical improvement compared to other effective treatment alternatives 
already available in the treatment of patients who have been diagnosed 
with CDAD. In addition, although the applicant maintains that there is 
no evidence of significant clinical resistance developing with the use 
of this drug, we are still concerned about the long-term possibility 
that patients may develop resistance to this drug since the applicant 
provided no data to substantiate its claim. We are inviting public 
comment on whether or not Fidaxomicin meets the substantial clinical 
improvement criterion based on the analysis and results presented by 
the applicant.
c. Zilver[supreg] PTX[supreg] Drug Eluting Stent
    Cook[supreg] Medical submitted an application for new technology 
add-on payments for the Zilver[supreg] PTX[supreg] Drug Eluting Stent 
(Zilver[supreg] PTX[supreg]) for FY 2013. The Zilver[supreg] 
PTX[supreg] is intended for use in the treatment of peripheral artery 
disease (PAD) of the above-the-knee femoropopliteal arteries 
(superficial femoral arteries). According to the applicant, the stent 
is percutaneously inserted into the artery(s), usually by accessing the 
common femoral artery in the groin. The applicant states that an 
introducer catheter is inserted over the wire guide and into the target 
vessel where the lesion will first be treated with an angioplasty 
balloon to prepare the vessel for stenting. The applicant indicates 
that the stent is self-expanding, made of nitinol (nickel titanium), 
and is coated with the drug Paclitaxel. Paclitaxel is a drug approved 
for use as an anticancer agent and for use with coronary stents to 
reduce the risk of renarrowing of the coronary arteries after stenting 
procedures.
    The manufacturer maintains that there are currently no FDA approved 
drug-eluting stents used for superficial femoral arteries. The 
applicant expects to receive FDA approval for the stent in the second 
quarter of 2012. The technology is currently described by ICD-9-CM 
procedure code 00.60 (Insertion of drug-eluting stent(s) of the 
superficial femoral artery). We are inviting public comment regarding 
how the Zilver[supreg] PTX[supreg] meets the newness criterion.
    With regard to the cost criterion, the applicant believes that 
cases of superficial femoral arteries typically map to MS-DRGs 252 
(Other Vascular Procedures with MCC), 253 (Other Vascular Procedures 
with CC), and 254 (Other Vascular Procedures without CC/MCC). The 
applicant searched the FY 2009 MedPAR file for cases with a procedure 
code of 39.90 (Insertion of non-drug-eluting peripheral vessel stents) 
in combination with a diagnosis code of 440.20 (Atherosclerosis of the 
extremities, unspecified), 440.21 (Atherosclerosis of the extremities, 
with intermittent claudication), 440.22 (Atherosclerosis of the 
extremities with rest pain), 440.23 (Atherosclerosis of the extremities 
with ulceration), and 440.24 (Atherosclerosis of the extremities with 
gangrene). The applicant found 7,144 cases (or 24.4 percent of all 
cases) in MS-DRG 252; 9,146 cases (or 31.2 percent of all cases) in MS-
DRG 253; and 13,012 cases (or 44.4 percent of all cases) in MS-DRG 254. 
The average charge per case was $78,765 for MS-DRG 252, $63,758 for MS-
DRG 253, and $47,586 for MS-DRG 254, equating to a case-weighted 
average charge per case of $60,236.
    The case-weighted average charge per case above does not include 
charges related to the Zilver[supreg] PTX[supreg]; therefore, it is 
first necessary to remove the amount of charges related to the nondrug-
eluting peripheral vessel stents and replace them with charges related 
to the Zilver[supreg] PTX[supreg]. The applicant used two methodologies 
to remove the charges of the nondrug-eluting peripheral vessel stents 
and replace them with charges related to the Zilver[supreg] 
PTX[supreg]. Although the applicant submitted data related to the 
estimated cost of the nondrug-eluting peripheral vessel stents and the 
Zilver[supreg] PTX[supreg], the applicant noted that the cost of these 
devices was proprietary information.
    Under the first methodology, the applicant determined the amount of

[[Page 27942]]

stents per case based on the following ICD-9-CM codes on each claim: 
00.45 (Insertion of one vascular stent), 00.46 (Insertion of two 
vascular stents), 00.47 (Insertion of three vascular stents) and 00.48 
(Insertion of four or more vascular stents). If a claim had a code of 
00.48, the applicant assumed a maximum of four stents per case. The 
applicant multiplied the amount of stents used per case by the average 
market price for nondrug-eluting peripheral vessel stents and then 
converted the cost of the stents used per case to a charge by dividing 
the results by the national average CCR of 0.329 for supplies and 
equipment (76 FR 51571). The applicant removed the appropriate amount 
of charges per case and then standardized the charges per case. Because 
the applicant used FY 2009 MedPAR data, it was necessary to inflate the 
charges from FY 2009 to FY 2012. Using data from the U.S. Department of 
Labor Bureau of Labor Statistics Consumer Price Index, the applicant 
inflated the average standardized charge per case with an inflation 
factor of 6 percent. To determine the amount of Zilver[supreg] 
PTX[supreg] stents per case, instead of using the amount of stents used 
per case based on the ICD-9-CM codes above, the applicant used an 
average of 1.9 stents per case based on the Zilver[supreg] PTX[supreg] 
Global Registry Clinical Study.\29\ The applicant believed that it is 
appropriate to use data from the clinical study (to determine the 
average amount of stents used per case) rather than the actual data 
from the claims because the length of a nondrug-eluting peripheral 
vessel stent typically ranges from 80mm to 120 mm, while the length of 
the Zilver[supreg] PTX[supreg] is 80 mm (which could cause a variance 
in the actual amount of stents used per case when using the 
Zilver[supreg] PTX[supreg]). Similar to above, the applicant multiplied 
the average of 1.9 stents used per case by the future market price for 
the Zilver[supreg] PTX[supreg] and then converted the cost of the 
stents used per claim to a charge by dividing the results by the 
national average CCR of 0.329 for supplies and equipment. The applicant 
then added the amount of charges related to the Zilver[supreg] 
PTX[supreg] to the inflated average standardized charge per case and 
determined a final case-weighted average standardized charge per case 
of $60,014. Using the FY 2013 Table 10 thresholds, the case-weighted 
threshold for MS-DRGs 252, 253, and 254 was $52,293 (all calculations 
above were performed using unrounded numbers). Because the case-
weighted average standardized charge per case for the applicable MS-
DRGs exceed the case-weighted threshold amount, the applicant maintains 
that the Zilver[supreg] PTX[supreg] meets the cost criterion.
---------------------------------------------------------------------------

    \29\ Dake, M.D., Ansel, G.M., Jaff, M.R., Ohki, T., Saxon, R.R., 
Smouse, H.B., Zeller, T., Roubin, G.S., Burket, M.W., Khatib, Y., 
Snyder, S.A., Ragheb, A.O., White, J.K., Machan, L.S.(2011), 
Paclitaxel-eluting stents show superiority to balloon angioplasty 
and bare metal stents in femoropopliteal disease: twelve-month 
zilver PTX randomized study results. Circulation Cardiovascular 
Interventions, published online September 27, 2011, 495-504.
---------------------------------------------------------------------------

    The second methodology was similar to the first methodology 
described above, but the applicant used hospital-specific CCRs from the 
FY 2009 IPPS impact file to convert the cost of the nondrug-eluting 
peripheral vessel stents and the cost of the Zilver[supreg] PTX[supreg] 
to charges. In summary, the applicant determined the amount of nondrug-
eluting peripheral vessel stents used per case based on the ICD-9-CM 
codes on each claim (as discussed above). The applicant multiplied the 
amount of stents used per case by the average market price for nondrug-
eluting peripheral vessel stents and then converted the cost of the 
stents used per case to a charge by dividing by the hospital-specific 
CCR (from the FY 2009 IPPS impact file). The applicant removed the 
appropriate amount of charges per case and then standardized the 
charges per case. Similar to the step described above, because the 
applicant used FY 2009 MedPAR data, it was necessary to inflate the 
charges from FY 2009 to FY 2012. Using data from the Bureau of Labor 
Statistics Consumer Price Index, the applicant inflated the average 
standardized charge per case with an inflation factor of 6 percent. To 
determine the amount of Zilver[supreg] PTX[supreg] stents per case, 
instead of using the amount of stents used per case based on the ICD-9-
CM codes above, the applicant used an average of 1.9 stents per case 
based on the Zilver[supreg] PTX[supreg] Global Registry Clinical Study 
(because of the reason stated in the first methodology). The applicant 
then multiplied the average of 1.9 stents used per case by the future 
market price for the Zilver[supreg] PTX[supreg] and then converted the 
cost of the stents used per claim to a charge by dividing the results 
by the hospital-specific CCR (from the FY 2009 IPPS impact file). The 
applicant then added the amount of charges related to the 
Zilver[supreg] PTX[supreg] to the inflated average standardized charge 
per case and determined a final case-weighted average standardized 
charge per case of $60,339. Using the FY 2013 Table 10 thresholds, the 
case-weighted threshold for MS-DRGs 252, 253, and 254 was $52,293 (all 
calculations above were performed using unrounded numbers). Because the 
case-weighted average standardized charge per case for the applicable 
MS-DRGs exceed the case-weighted threshold amount, the applicant 
maintains that the Zilver[supreg] PTX[supreg] would meet the cost 
criterion.
    We are inviting public comment on whether or not the Zilver[supreg] 
PTX[supreg] meets the cost criterion. Additionally, we are inviting 
public comment on the methodologies used by the applicant in its 
analysis, including its assumptions regarding the types of cases in 
which this technology could potentially be used, the number of stents 
required for each case, and the CCRs used in the cost calculation.
    In an effort to demonstrate that the technology meets the 
substantial clinical improvement criterion, the applicant shared 
several findings from the clinical trial data. The applicant stated 
that current treatment options for patients who have been diagnosed 
with PAD includes angioplasty, bare metal stenting, bypass graft and 
endarterectomy. The applicant asserts that the Zilver[supreg] 
PTX[supreg] meets the substantial clinical improvement because it 
decreases the recurrence of symptoms arising from restenotic SFA 
lesions, the rate of subsequent diagnostic or therapeutic interventions 
required to address restenotic lesions, and the number of future 
hospitalizations.
    The applicant cited a 480-patient, multicenter, multinational 
randomized controlled trial that compared the Zilver[supreg] 
PTX[supreg] to balloon angioplasty; an additional component of the 
study allowed a direct comparison of the Zilver[supreg] PTX[supreg] to 
a bare (uncoated) metal Zilver[supreg] stent. The primary safety 
endpoint of the randomized controlled study was ``Event-Free Survival'' 
(EFS), defined as ``freedom from the major adverse events of death, 
target lesion revascularization, target limb ischemia requiring 
surgical intervention or surgical repair of the target vessel, and 
freedom of worsening systems as described by the Rutherford 
classification by 2 classes or to class 5 or 6.'' The primary 
effectiveness endpoint was primary patency (defined as a less than 50 
percent renarrowing).
    The applicant noted that the Zilver[supreg] PTX[supreg] had an EFS 
of 90.4 percent compared to balloon angioplasty, which had an EFS of 
83.9 percent, demonstrating that the Zilver[supreg] PTX[supreg] is as 
safe or safer than balloon angioplasty. In addition, the applicant 
noted that the Zilver[supreg] PTX[supreg] demonstrated a 50-percent 
reduction in restenosis rates compared to angioplasty and a 20-percent 
reduction compared to bare metal stents. The 12-month patency rate

[[Page 27943]]

for the Zilver[supreg] PTX[supreg] was 83.1 percent, which compared 
favorably to the balloon angioplasty patency rate of 32.8 percent. In 
the provisional stenting arm of the study, which allowed a direct 
comparison of the Zilver[supreg] PTX[supreg] and a bare metal stent, 
the Zilver[supreg] PTX[supreg] primary patency exceeded the bare metal 
stent patency by nearly 20 percent (89.9 percent versus 73.0 percent). 
The applicant stated that these differences are significant, as they 
result in a substantial clinical improvement compared to angioplasty 
and bare metal stenting, with patients being spared a recurrence of 
their leg pain and the need to be admitted to the hospital for repeat 
procedures on these treated lesions.
    The applicant also cited a prospective, multicenter, multinational, 
787-patient single arm study on the Zilver[supreg] PTX[supreg] that 
demonstrated similar safety and effectiveness results consistent with 
those from the pivotal randomized controlled study above. The applicant 
cited an EFS for the Zilver[supreg] PTX[supreg] of 89.0 percent and an 
86.2 percent primary patency rate. The applicant stated that these 
results confirm the safety and effectiveness of the Zilver[supreg] 
PTX[supreg], and compare favorably to current results for angioplasty 
and bare metal stenting. The applicant added that these results also 
demonstrate a 67 to 81 percent relative reduction in Target Lesion 
Revascularization (the need to retreat an already treated lesion that 
has restenosed, resulting in a recurrence of symptoms) rates compared 
to recently published results of contemporary bare metal stents.\30\
---------------------------------------------------------------------------

    \30\ Dake, M. D., Scheinert, D., Tepe, G., Tessarek, J., 
Fanelli, F., Bosiers, M., et al. (2011). Nitinol stents with 
polymer-free paclitaxel coating for lesions in the superficial 
femoral and popliteal arteries above the knee: Twelve-month safety 
and effectiveness results from the zilver PTX single-arm clinical 
study. Journal of Endovascular Therapy, 18(5), 613-623.
---------------------------------------------------------------------------

    We are inviting public comment regarding whether the Zilver[supreg] 
PTX[supreg] meets the substantial clinical improvement criterion.
d. Zenith[supreg] Fenestrated Abdominal Aortic Aneurysm (AAA) 
Endovascular Graft
    Cook[supreg] Medical submitted an application for new technology 
add-on payments for the Zenith[supreg] Fenestrated Abdominal Aortic 
Aneurysm (AAA) Endovascular Graft (Zenith[supreg] F. Graft) for FY 
2013. The applicant stated that the current treatment for patients who 
have had an AAA is an endovascular graft. The applicant explained that 
the Zenith[supreg] F. Graft is an implantable device designed to treat 
patients who have an AAA and who are anatomically unsuitable for 
treatment with currently approved AAA endovascular grafts because of 
the length of the infrarenal aortic neck. The applicant noted that, 
currently, an AAA is treated through an open surgical repair or medical 
management for those patients not eligible for currently approved AAA 
endovascular grafts.
    The applicant stated that the Zenith[supreg] F. Graft is custom-
made for each patient. It is a modular system consisting of three 
components: a two-part main body graft and one iliac leg. The two-part 
main body of the graft consists of a proximal tubular graft and a 
distal bifurcated graft body. The proximal body graft contains 
precisely located holes (fenestrations) and/or cut-outs from the 
proximal margin (scallops) of the polyester graft material along with a 
bare proximal stent with barbs to provide fixation. The iliac leg 
component, which couples with the main bifurcated body, completes the 
basic fenestrated endograft.
    With respect to newness, the applicant stated that FDA approval for 
the use of the Zenith[supreg] F. Graft was granted on April 4, 2012. 
The technology is described by ICD-9-CM procedure code 39.78 
(Endovascular implantation of branching or fenestrated graft(s) in 
aorta), which became effective October 1, 2011. While procedure code 
39.78 maps to MS-DRGs 252, 253, and 254 (Other Vascular Procedures with 
MCC, with CC, and without MCC/CC, respectively), the applicant believes 
that MS-DRGs 237 and 238 (Major Cardiovascular Procedures with MCC and 
without MCC, respectively) would be a more appropriate assignment for 
procedure code 39.78. (We note that in section III.G.3.b. of this 
preamble, we discuss our response to the request for consideration of 
MS-DRGs 237 and 238 as a more appropriate assignment for procedure code 
39.78.) We are inviting public comment regarding whether the 
Zenith[supreg] F. Graft meets the newness criterion for new technology 
add-on payment.
    With regard to the cost criterion, the applicant used clinical 
trial data and three separate analyses of FY 2010 MedPAR data to 
demonstrate that the Zenith[supreg] F. Graft meets the cost criteria. 
The clinical trial data \31\ was based on 173 claims (all Medicare 
patients except one patient). The applicant found that, of the 173 
cases, 35 cases (or 20.2 percent of all cases) mapped to MS-DRG 252, 86 
cases (or 49.7 percent of all cases) mapped to MS-DRG 253, and 52 cases 
(or 30.1 percent of all cases) mapped to MS-DRG 254, equating to a 
case-weighted average charge per case of $87,733.
---------------------------------------------------------------------------

    \31\ Evaluation of the Safety and Effectiveness of the Zenith(R) 
Fenestrated AAA Endovascular Graft, Zenith Fenestrated AAA 
Endovascular Graft Pivotal Study, Clinicaltrials.gov: Identifier 
NCT00875563 and a Physician Sponsored IDE.
---------------------------------------------------------------------------

    The applicant noted that the investigational devices (the bare 
metal renal stents that are used in the procedure and the 
Zenith[supreg] F. Graft) were sold to the trial sites at reduced 
prices. Therefore, the average charge per case cited above contains 
reduced charges for the investigational devices rather than commercial 
charges. As a result, the applicant believes it is necessary to remove 
the reduced charges for the investigational devices and replace them 
with commercial charges, in order to determine the cost of the 
investigational devices for each of the three analyses. Although the 
applicant submitted data related to the estimated cost of the 
investigational devices, the applicant noted that the cost of these 
devices was proprietary information.
    To remove the reduced charges for the investigational devices, the 
applicant searched the clinical trial claims data and removed those 
charges with a revenue code of 0624 (investigational device exempt). 
Because the claims data for the clinical trial ranged from 2002 to 
2010, it was necessary to inflate the charges. Using data from the U.S. 
Department of Labor Bureau of Labor Statistics (BLS) Consumer Price 
Index, the applicant applied an inflation factor to the claim charges 
ranging from 3 percent to 27 percent, depending on the year of the 
claim. After inflating the charges, the applicant then added the 
commercial charges of the investigational devices to the inflated 
charge per case. To determine the amount of commercial charges related 
to the investigational devices, the applicant divided the cost of the 
investigational devices by the hospital-specific CCR from the FY 2012 
IPPS Final Rule Impact File. After adding the charges of the 
investigational devices to the inflated charges, the applicant then 
standardized the charges on each claim. As a result, the applicant 
determined a final case-weighted average standardized charge per case 
of $122,821. Using the FY 2013 Table 10 thresholds, the case-weighted 
threshold for MS-DRGs 252, 253, and 254 was $53,869 (all calculations 
above were performed using unrounded numbers). Because the final case-
weighted average standardized charge per case for the applicable MS-
DRGs exceeds the case-weighted threshold amount, the applicant 
maintains that the Zenith[supreg] F.

[[Page 27944]]

Graft meets the cost criterion for new technology add-on payment.
    We note that, in addition to the analysis above, the applicant 
conducted a similar cost analysis using drug eluting renal stents 
instead of bare metal renal stents. The applicant noted that the price 
of drug eluting renal stents exceeds the price of bare metal renal 
stents by approximately $2,200 per stent. Therefore, the applicant 
asserted that if the price of drug eluting renal stents is more 
expensive than bare metal renal stents and the Zenith[supreg] F. Graft 
meets the cost criteria with bare metal renal stents, the 
Zenith[supreg] F. Graft also meets the cost criteria when the applicant 
uses drug eluting renal stents in its analysis.
    As mentioned above, the applicant conducted three separate analyses 
using FY 2010 MedPAR data to identify cases eligible for the 
Zenith[supreg] F. Graft to demonstrate that it meets the cost 
criterion. Cases of endovascular implantation of branching or 
fenestrated graft(s) in the aorta are coded with procedure code 39.78, 
which currently map to MS-DRGs 252, 253, and 254. Because procedure 
code 39.78 was effective October 1, 2011, the applicant noted that it 
was unable to conduct a MedPAR data analysis with claims that contained 
a procedure code of 39.78. Therefore, in order to identify cases 
eligible for the Zenith[supreg] F. Graft prior to October 1, 2011, the 
applicant searched the MedPAR file for the following three scenarios. 
The first analysis searched the FY 2010 MedPAR file for cases with 
procedure code 39.71 (Endovascular implantation of graft in abdominal 
aorta) in combination with a diagnosis code of 441.4 (Abdominal 
aneurysm without mention of rupture). The applicant conducted this 
analysis using MS-DRGs 237 and 238 rather than MS-DRGs 252, 253, and 
254 because procedure code 39.71 maps to MS-DRGs 237 and 238. The 
applicant found 1,679 cases (or 9.1 percent of all cases) in MS-DRG 237 
and 16,793 cases (or 90.9 percent of all cases) in MS-DRG 238. The 
average charge per case was $122,252 for MS-DRG 237 and $76,883 for MS-
DRG 238, equating to a case-weighted average charge per case of 
$81,006.
    The applicant noted that these MedPAR claims data included charges 
for the existing stent graft but did not include charges for the 
Zenith[supreg] F. Graft. Therefore, the applicant stated that it was 
first necessary to remove the amount of charges related to the existing 
stent graft and replace them with charges for the Zenith[supreg] F. 
Graft. Although the applicant submitted data related to the estimated 
cost of the existing stent graft and the Zenith[supreg] F. Graft, the 
applicant noted that the cost of these devices was proprietary 
information.
    To determine the amount of charges for the existing stent graft, 
the applicant divided the costs for the existing stent graft by the 
national average CCR of 0.329 for supplies and equipment (76 FR 51571). 
The applicant removed the appropriate amount of charges per case from 
the average charge per case. Because the applicant used FY 2010 MedPAR 
data, it was necessary to inflate the charges from FY 2010 to FY 2012. 
Using data from the BLS' Consumer Price Index, the applicant inflated 
the case-weighted average standardized charge per case with an 
inflation factor of 4 percent. The applicant then determined the amount 
of charges for the Zenith[supreg] F. Graft by dividing the costs of the 
Zenith[supreg] F. Graft by the national average CCR of 0.329 for 
supplies. The applicant then added the amount of charges related to the 
Zenith[supreg] F. Graft to the inflated charges and then standardized 
the charges. The applicant determined a final case-weighted average 
standardized charge per case of $80,509. Using the FY 2013 Table 10 
thresholds, the case-weighted threshold for MS-DRGs 237and 238 was 
$72,512 (all calculations above were performed using unrounded 
numbers). Because the final case-weighted average standardized charge 
per case for the applicable MS-DRGs exceeds the case-weighted threshold 
amount under this first analysis, the applicant maintains that the 
Zenith[supreg] F. Graft meets the cost criterion for new technology 
add-on payment. The applicant noted that the FY 2013 Table 10 
thresholds for MS-DRGs 237 and 238 are much higher than the FY 2013 
Table 10 thresholds for MS-DRGs 252, 253, and 254. Therefore, the 
applicant believes that if the final case-weighted average standardized 
charge per case exceeds the case-weighted threshold for MS-DRGs 237 and 
238, it would exceed any case-weighted threshold for MS-DRGs 252, 253, 
and 254.
    For their second analysis, the applicant searched the FY 2010 
MedPAR file for cases with procedure code 38.44 (Resection of vessel 
with replacement, aorta) in combination with a diagnosis code of 441.4. 
Similar to the first analysis, the applicant conducted this analysis 
using MS-DRGs 237 and 238 rather than MS-DRGs 252, 253, and 254 because 
procedure code 38.44 maps to MS-DRGs 237 and 238. The applicant found 
1,310 cases (or 37.9 percent of all cases) in MS-DRG 237 and 2,145 
cases (or 62.1 percent of all cases) in MS-DRG 238. The average charge 
per case was $110,708 for MS-DRG 237 and $64,095 for MS-DRG 238, 
equating to a case-weighted average charge per case of $81,769.
    The next steps of the applicant's second analysis were similar to 
the steps in the first analysis. The applicant noted that the MedPAR 
claims data included charges for the vascular graft for open procedures 
but did not include charges for the Zenith[supreg] F. Graft. Therefore, 
the applicant indicated that it was first necessary to remove the 
amount of charges related to the vascular graft for open procedures and 
replace them with charges for the Zenith[supreg] F. Graft. Although the 
applicant submitted data related to the estimated cost of the vascular 
graft for open procedures and the Zenith[supreg] F. Graft, the 
applicant noted that the cost of these devices was proprietary 
information.
    To determine the amount of charges for the vascular graft for open 
procedures, the applicant divided the costs for the vascular graft for 
open procedures by the national average CCR of 0.329 for supplies and 
equipment (76 FR 51571). The applicant removed the appropriate amount 
of charges per case from the average charge per case. Similar to the 
first analysis, the applicant inflated the case-weighted average charge 
per case with an inflation factor of 4 percent (based on data from the 
BLS' Consumer Price Index). The applicant then determined the amount of 
charges for the Zenith[supreg] F. Graft by dividing the costs of the 
Zenith[supreg] F. Graft by the national average CCR of 0.329 for 
supplies. The applicant then added the amount of charges related to the 
Zenith[supreg] F. Graft to the inflated charges and then standardized 
the charges. The applicant determined a final case-weighted average 
standardized charge per case of $118,774. Using the FY 2013 Table 10 
thresholds, the case-weighted threshold for MS-DRGs 237 and 238 was 
$81,776 (all calculations above were performed using unrounded 
numbers). Because the final case-weighted average standardized charge 
per case for the applicable MS-DRGs exceeds the case-weighted threshold 
amount in this second analysis, the applicant maintains that the 
Zenith[supreg] F. Graft meets the cost criterion for new technology 
add-on payments. As discussed above, the applicant noted that the FY 
2013 Table 10 thresholds for MS-DRGs 237 and 238 are much higher 
($101,728 for MS-DRG 237 and $69,591 for MS-DRG 238) than the FY 2013 
Table 10 thresholds for MS-DRGs 252, 253, and 254 ($60,619 for MS-DRG 
252, $56,719 for MS-DRG 253 and $44,611 for MS-DRG 254).

[[Page 27945]]

Therefore, the applicant believes that if the final case-weighted 
average standardized charge per case exceeds the case-weighted 
threshold for MS-DRGs 237 and 238, it would exceed any case-weighted 
threshold for MS-DRGs 252, 253, and 254.
    While the applicant removed charges for the vascular graft for open 
procedures, we are concerned that the applicant did not remove charges 
for other services such as extra operating room time and other possible 
charges that would be incurred during an open procedure but would 
possibly not be incurred during cases when the Zenith[supreg] F. Graft 
is implanted.
    The third analysis was a combination of the first and second 
analyses discussed above. The applicant searched the FY 2010 MedPAR 
file for cases with a procedure code of 38.44 or 39.71 in combination 
with a diagnosis code of 441.4. Similar to the first and second 
analyses, the applicant conducted this analysis using MS-DRGs 237 and 
238 rather than MS-DRGs 252, 253, and 254 because both procedure codes 
map to MS-DRGs 237 and 238. The applicant found 2,981 cases (or 13.6 
percent of all cases) in MS-DRG 237 and 18,928 cases (or 86.4 percent 
of all cases) in MS-DRG 238. The applicant removed those cases that had 
both procedure codes 38.44 and 39.71 on the claim. The average charge 
per case was $116,826 for MS-DRG 237 and $75,298 for MS-DRG 238, 
equating to a case-weighted average charge per case of $80,948.
    The applicant noted that the MedPAR claims data included charges 
for the existing stent graft or vascular graft for open procedures but 
did not include charges for the Zenith[supreg] F. Graft. Therefore, the 
applicant stated that it was first necessary to remove the amount of 
charges related to the existing stent graft or vascular graft for open 
procedures and replace them with charges for the Zenith[supreg] F. 
Graft. Similar to the first and second analyses, to determine the 
amount of charges for the existing stent graft or vascular graft for 
open procedures, the applicant divided the costs for these devices by 
the national average CCR of 0.329 for supplies and equipment (76 FR 
51571). The applicant removed the appropriate amount of charges per 
case from the average charge per case. The applicant inflated the case-
weighted average standardized charge per case with an inflation factor 
of 4 percent (based on data from the BLS' Consumer Price Index). The 
applicant then determined the amount of charges for the Zenith[supreg] 
F. Graft by dividing the costs of the Zenith[supreg] F. Graft by the 
national average CCR of 0.329 for supplies. The applicant then added 
the amount of charges related to the Zenith[supreg] F. Graft to the 
inflated charges and then standardized the charges. As a result, the 
applicant determined a final case-weighted average standardized charge 
per case of $86,081. Using the FY 2013 Table 10 thresholds, the case-
weighted threshold for MS-DRGs 237 and 238 was $73,964 (all 
calculations above were performed using unrounded numbers). Because the 
final case-weighted average standardized charge per case for the 
applicable MS-DRGs exceeds the case-weighted threshold amount, the 
applicant maintains that the Zenith[supreg] F. Graft meets the cost 
criterion for new technology add-on payment. As discussed above, the 
applicant noted that the FY 2013 Table 10 thresholds for MS-DRGs 237 
and 238 are much higher than the FY 2013 Table 10 thresholds for MS-
DRGs 252, 253, and 254. The applicant believes that if the final case-
weighted average standardized charge per case exceeds the case-weighted 
threshold for MS-DRGs 237-238, it would exceed any case-weighted 
threshold for MS-DRGs 252, 253, and 254.
    Similar to our concerns with the second analysis, we are concerned 
that for this third analysis the applicant did not remove charges for 
other services such as extra operating room time and other possible 
charges that would be incurred during an open procedure, but would 
possibly not be incurred during cases when the Zenith[supreg] F. Graft 
is implanted.
    We appreciate the multiple analyses of the FY 2010 MedPAR data 
provided by the applicant and are inviting public comment on whether or 
not the Zenith[supreg] F. Graft meets the cost criterion for new 
technology add-on payments. In addition, we are inviting public comment 
on the methodologies used by the applicant, specifically on whether and 
the degree to which the second and third analyses may contain charges 
not relevant to the final case-weighted standardized charge per case 
determined by the applicant.
    The applicant maintains that the technology also meets the 
substantial clinical improvement criterion. The applicant first 
explained that current treatment for those patients who are not 
eligible for standard endovascular AAA devices is an open repair. The 
applicant referenced data from a published series \32\ that 
demonstrated an open repair can lead to a high risk of morbidity and 
increased mortality. The applicant added that an open procedure 
requires suprarenal aortic cross-clamping.\33\ The applicant also noted 
that there is a high risk of blood loss during an open procedure and 
the de-branching of vessels increases the level of surgical risk. The 
applicant further noted that 30 to 40 percent of patients who have an 
infrarenal AAA cannot be treated with current commercial devices 
because of anatomical reasons (for example, insufficient neck length to 
achieve graft adequate seal). The applicant added that use of standard 
endografts in patients with neck lengths less than 10 mm can result in 
a fourfold increase in an endoleak.\34\
---------------------------------------------------------------------------

    \32\ Wilderman, M. et al. Fenestrated Grafts or Debranching 
Procedures for Complex Abdominal Aortic Aneurysms. Perspectives in 
Vascular Surgery and Endovascular Therapy, March 2009; 21(1): 13-18.
    \33\ Jongkind V, Yeung K, et al. Juxtarenal aortic aneurysm 
repair. Journal of Vascular Surgery 2010 Sept; 29(3) 760-767.
    \34\ Amiot, S., et al., Fenestrated endovascular grafting: The 
French multicentre experience. Eur J Vasc Endovasc Surg, 2010. 
39(5): p. 537-44.
---------------------------------------------------------------------------

    The applicant also stated that the intended use of the 
Zenith[supreg] F. Graft differs from standard AAA endovascular grafts 
in that the fenestrated device provides physicians the ability to treat 
patients who have infrarenal aortic neck lengths as short as 4 mm, 
where standard endovascular AAA devices require an infrarenal aortic 
neck length of at least 10 to 15 mm. Therefore, the applicant believes 
that the Zenith[supreg] F. Graft offers an additional AAA repair option 
to those patients who have limited surgical treatment options (for 
example, if short infrarenal neck lengths make the patients at too high 
a risk to be candidates for open surgical repair).
    The applicant also stated, for patients who have AAAs and short 
infrarenal neck lengths, the Zenith[supreg] F. Graft offers a less 
invasive treatment option than open surgical repair. The applicant 
referred to several sources of literature to support the following 
endpoints for fenestrated endovascular aortic repair (EVAR) versus open 
repair of the juxtarenal AAA relative to open repair of the juxtarenal 
AAA: Reduced peri-operative mortality (2.4 percent (range: 0 to 5.7 
percent)) \35,36,37,38,39,40,41,42,43\

[[Page 27946]]

reported for fenestrated EVAR repairs versus 2.9 percent (range 0 to 
7.4 percent) \44,45\ reported for open repair of juxtarenal AAA); \46\ 
reduced morbidity by reducing renal failure requiring permanent 
dialysis (1.9 percent (pooled average) for fenestrated EVAR repairs 
versus 3.4 percent reported for open repair of juxtarenal AAA); shorter 
hospital stay and less operative blood loss to open repair. The 
applicant maintains that fenestrated EVAR repair results in an average 
length of stay of 3.5 days, compared to 14.2 days for open repair of 
juxtarenal AAA, and blood loss of 537 ml, compared to 2586 ml for open 
repair of juxtarenal AAA.
---------------------------------------------------------------------------

    \35\ Nordon, I.M., et al., Modern treatment of juxtarenal 
abdominal aortic aneurysms with fenestrated endografting and open 
repair--a systematic review. Eur J Vasc Endovasc Surg, 2009. 38(1): 
p. 35-41
    \36\ Verhoeven, E.L., et al., Fenestrated stent grafting for 
short-necked and juxtarenal abdominal aortic aneurysm: An 8-year 
single-centre experience. Eur J Vasc Endovasc Surg, 2010. 39(5): p. 
529-36.
    \37\ Chisci E, Kristmundsson T, de Donato G, et al. The AAA with 
a challenging neck: Outcome of open versus endovascular repair with 
standard and fenestrated stent-grafts. J Endovasc Ther 2009;16:137-
146.
    \38\ Amiot, S., et al., Fenestrated endovascular grafting: The 
French multicentre experience. Eur J Vasc Endovasc Surg, 2010. 
39(5): p. 537-44.
    \39\ Kristmundsson T, Sonesson B, Malina M, et al. Fenestrated 
endovascular repair for juxtarenal aortic pathology. J Vasc Surg 
2009;49:568-574.
    \40\ Beck AW, Bos WT, Vourliotakis G, et al. Fenestrated and 
branched endograft repair of juxtarenal aneurysms after previous 
open aortic reconstruction. J Vasc Surg 2009;49:1387-1394.
    \41\ Tambyraja, A.L., et al., Fenestrated aortic endografts for 
juxtarenal aortic aneurysm: Medium term outcomes. Eur J Vasc 
Endovasc Surg, 2011. 42(1): p. 54-8.
    \42\ Unpublished results, Evaluation of the Safety and 
Effectiveness of the Zenith(R) Fenestrated AAA Endovascular Graft, 
Zenith Fenestrated AAA Endovascular Graft Pivotal Study, 
Clinicaltrials.gov identifier NCT00875563.
    \43\ Unpublished results, British Society of Endovascular 
Therapy-sponsored GlobalStar Collaborative Study.
    \44\ Jongkind V, Yeung K, et al. Juxtarenal aortic aneurysm 
repair. J. Vasc. Surg. 2010 Sept; 29(3) 760-767.
    \45\ Landry G, Lau I, Liem T, Mitchell E, Moneta G.. Open 
abdominal aortic aneurysm repair in the endovascular era: Effect of 
clamp site on outcomes. Arch. Surg., 144 (9) Sep. 2009, 811-6.
---------------------------------------------------------------------------

    We note that the information provided by the applicant to evaluate 
substantial clinical improvement compares this technology to open 
surgical repair. We are concerned that the applicant does not present 
publicly available information comparing the technology to medical 
management, which the applicant mentions as another method for treating 
patients anatomically unsuited for currently approved AAA endovascular 
grafts. In these comparisons, we are also concerned that information 
regarding the longevity of the Zenith[supreg] F. Graft as well as long-
term complications and secondary interventions or reinterventions has 
not been presented. In terms of the data presented by the applicant, we 
are concerned that these clinical study data were nonrandomized, did 
not differentiate between patients by infrarenal neck length and/or 
suitability for other endovascular grafts, and were of noninferiority. 
We are inviting public comment on whether or not the Zenith[supreg] F. 
Graft meets the substantial clinical improvement criterion.

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 delineations 
of statistical areas established by the Office of Management and Budget 
(OMB). A discussion of the proposed FY 2013 hospital wage index based 
on the statistical areas, including OMB's revised definitions of 
Metropolitan Areas, appears under section III.B. 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 2013 is discussed in section II.B. of the Addendum to this proposed 
rule.
    As discussed below in section III.H. 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 2013 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, 2012 (the FY 2013 wage index) appears under 
section III.F. of this preamble.
    In response to concerns frequently expressed by providers and other 
relevant parties that the current wage index system does not 
effectively reflect the true variation in labor costs for a large 
cross-section of hospitals, two studies were undertaken by the 
Department. First, section 3137(b) of the Affordable Care Act required 
the Secretary to submit to Congress a report that includes a plan to 
comprehensively reform the Medicare wage index applied under section 
1886(d) of the Act. In developing the plan, the Secretary was directed 
to take into consideration the goals for reforming the wage index that 
were set forth by the Medicare Payment Advisory Commission (MedPAC) in 
its June 2007 report entitled ``Report to Congress: Promoting Greater 
Efficiency in Medicare'' and to ``consult with relevant affected 
parties.'' Second, the Secretary commissioned the Institute of Medicine 
(IOM) to ``evaluate hospital and physician geographic payment 
adjustments, the validity of the adjustment factors, measures and 
methodologies used in those factors, and sources of data used in those 
factors.'' Reports on both of these studies recently have been 
released. We refer readers to section IX.B. of this preamble for 
summaries of the studies, their findings, and recommendations on 
reforming the wage index system.

B. 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 
delineations of CBSAs and our implementation of the CBSA definitions, 
we refer readers to the preamble of the FY 2005 IPPS final rule (69 FR 
49026 through 49032). We also discussed in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51582) that, in 2013, OMB plans to announce new area 
delineations based on new standards adopted in 2010 (75 FR 37246) and 
the

[[Page 27947]]

2010 Census of Population and Housing data. For the FY 2013 wage index, 
to be effective October 1, 2012 and before the availability of OMB's 
new area delineations, we are proposing to use the same labor market 
areas that we used for the FY 2012 wage index (76 FR 51581).

C. Worksheet S-3 Wage Data for the FY 2013 Proposed Wage Index

    The FY 2013 proposed wage index values are based on the data 
collected from the Medicare cost reports submitted by hospitals for 
cost reporting periods beginning in FY 2009 (the FY 2012 wage indices 
were based on data from cost reporting periods beginning during FY 
2008).
1. Included Categories of Costs
    The FY 2013 proposed wage index includes the following categories 
of data associated with costs paid under the IPPS (as well as 
outpatient costs):
    <bullet> Salaries and hours from short-term, acute care hospitals 
(including paid lunch hours and hours associated with military leave 
and jury duty)
    <bullet> Home office costs and hours
    <bullet> 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))
    <bullet> Wage-related costs, including pension costs (based on 
policies adopted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51586 
through 51590) and other deferred compensation costs.
2. Excluded Categories of Costs
    Consistent with the wage index methodology for FY 2012, the 
proposed wage index for FY 2013 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 2013 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.

D. Verification of Worksheet S-3 Wage Data

    The wage data for the FY 2013 proposed 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, 2008, and 
before October 1, 2009. For wage index purposes, we refer to cost 
reports during this period as the ``FY 2009 cost report,'' the ``FY 
2009 wage data,'' or the ``FY 2009 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 2009 data submitted to us as of 
March 2, 2011. 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 result in specific edit failures. For the FY 2013 
proposed wage index, we identified and excluded 32 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 2013 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 11, 2012. We intend that all 
unresolved data elements will be resolved by the date the final rule is 
issued. The revised data will be reflected in the FY 2013 IPPS final 
rule.
    In constructing the FY 2013 proposed wage index, we included the 
wage data for facilities that were IPPS hospitals in FY 2009, 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 7 hospitals that converted to CAH status between February 15, 
2011, the cut-off date for CAH exclusion from the FY 2012 wage index, 
and February 14, 2012, the cut-off date for CAH exclusion from the FY 
2013 wage index. After removing hospitals with aberrant data and 
hospitals that converted to CAH status, the proposed FY 2013 wage index 
is calculated based on 3,443 hospitals.
    For the FY 2013 proposed wage index, we allotted the wages and 
hours data for a multicampus hospital among the different labor market 
areas where its campuses are located in the same manner we allotted 
such hospitals' data in the FY 2012 wage index (76 FR 51591). Table 2 
containing the FY 2013 proposed wage index associated with this 
proposed rule (available on the CMS Web site) includes separate wage 
data for the campuses of four multicampus hospitals.

E. Method for Computing the Proposed FY 2013 Unadjusted Wage Index

    The method used to compute the FY 2013 proposed wage index without 
an occupational mix adjustment follows the same methodology that we 
used to compute the FY 2012 final wage index without an occupational 
mix adjustment (76 FR 51591 through 51593).
    As discussed in that final rule, in ``Step 5,'' for each hospital, 
we adjust the total salaries plus wage-related costs to a common period 
to determine total adjusted salaries plus wage-related costs. To make 
the wage adjustment, we estimate the percentage change in the 
employment cost index (ECI) for compensation for each 30-day increment 
from October 14, 2008, through April 15, 2010, for private industry 
hospital workers from the BLS' Compensation and Working Conditions. We 
have consistently used the ECI as the data source for our wages and 
salaries and other price proxies in the IPPS market basket, and we are 
not proposing any changes to the usage for FY 2013. The factors used to 
adjust the hospital's data were based on the midpoint of the cost 
reporting period, as indicated below.

[[Page 27948]]



                    Midpoint of Cost Reporting Period
------------------------------------------------------------------------
                                                            Adjustment
                  After                       Before          factor
------------------------------------------------------------------------
10/14/2008..............................      11/15/2008         1.03003
11/14/2008..............................      12/15/2008         1.02786
12/14/2008..............................      01/15/2009         1.02582
01/14/2009..............................      02/15/2009         1.02386
02/14/2009..............................      03/15/2009         1.02199
03/14/2009..............................      04/15/2009         1.02014
04/14/2009..............................      05/15/2009         1.01826
05/14/2009..............................      06/15/2009         1.01635
06/14/2009..............................      07/15/2009         1.01446
07/14/2009..............................      08/15/2009         1.01263
08/14/2009..............................      09/15/2009         1.01086
09/14/2009..............................      10/15/2009         1.00910
10/14/2009..............................      11/15/2009         1.00728
11/14/2009..............................      12/15/2009         1.00539
12/14/2009..............................      01/15/2010         1.00352
01/14/2010..............................      02/15/2010         1.00172
02/14/2010..............................      03/15/2010         1.00000
03/14/2010..............................      04/15/2010         0.99830
------------------------------------------------------------------------

    For example, the midpoint of a cost reporting period beginning 
January 1, 2009, and ending December 31, 2009, is June 30, 2009. An 
adjustment factor of 1.01446 would be applied to the wages of a 
hospital with such a cost reporting period.
    Using the data as described above and in the FY 2012 IPPS-LTCH PPS 
final rule, the FY 2013 proposed national average hourly wage 
(unadjusted for occupational mix) is $37.4023. The proposed Puerto Rico 
overall average hourly wage (unadjusted for occupational mix) is 
$15.8467.

F. Proposed Occupational Mix Adjustment to the FY 2013 Wage Index

    As stated earlier, section 1886(d)(3)(E) of the Act provides for 
the collection of data every 3 years on the occupational mix of 
employees for each short-term, acute care hospital participating in the 
Medicare program, in order to construct an occupational mix adjustment 
to the wage index, for application beginning October 1, 2004 (the FY 
2005 wage index). The purpose of the occupational mix adjustment is to 
control for the effect of hospitals' employment choices on the wage 
index. For example, hospitals may choose to employ different 
combinations of registered nurses, licensed practical nurses, nursing 
aides, and medical assistants for the purpose of providing nursing care 
to their patients. The varying labor costs associated with these 
choices reflect hospital management decisions rather than geographic 
differences in the costs of labor.
1. Development of Data for the FY 2013 Proposed Occupational Mix 
Adjustment Based on the 2010 Occupational Mix Survey
    As provided for under section 1886(d)(3)(E) of the Act, we collect 
data every 3 years on the occupational mix of employees for each short-
term, acute care hospital participating in the Medicare program.
    As discussed in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51582 
through 51586), the FY 2013 proposed wage index is based on data 
collected on the new 2010 Medicare Wage Index Occupational Mix Survey 
(Form CMS-10079 (2010)). The survey is available on the CMS Web site 
at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage 
and through the fiscal intermediaries/MACs. Hospitals were required to 
submit their completed 2010 surveys to their fiscal intermediaries/MACs 
by July 1, 2011. The preliminary, unaudited 2010 survey data was 
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.
2. Calculation of the Proposed Occupational Mix Adjustment for FY 2013
    For FY 2013, we are proposing to calculate the occupational mix 
adjustment factor using the same methodology that we used for the FY 
2012 wage index (76 FR 51582 through 51586). As a result of applying 
this methodology, the FY 2013 proposed occupational mix adjusted 
national average hourly wage is $37.3721. The FY 2013 proposed 
occupational mix adjusted Puerto Rico-specific average hourly wage is 
$15.8838.
    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 
2013 wage index. For the FY 2010 survey, the response rate was 91.7 
percent. In the FY 2013 proposed wage index established in this 
proposed rule, we applied proxy data for noncompliant hospitals, new 
hospitals, or hospitals that submitted erroneous or aberrant data in 
the same manner that we applied proxy data for such hospitals in the FY 
2012 wage index occupational mix adjustment (76 FR 51586).
    In the FY 2011 IPPS/LTCH PPS proposed and final rules (75 FR 23943 
and 50167, respectively), we stated that, in order to gain a better 
understanding of why some hospitals are not submitting the occupational 
mix data, we will require hospitals that do not submit occupational mix 
data to provide an explanation for not complying. This requirement was 
effective beginning with the new 2010 occupational mix survey. We 
instructed fiscal intermediaries/MACs to begin gathering this 
information as part of the FY 2013 wage index desk review process. We 
will review these data for future analysis and consideration of 
potential penalties for noncompliant hospitals.

[[Page 27949]]

G. Analysis and Implementation of the Proposed Occupational Mix 
Adjustment and the Proposed FY 2013 Occupational Mix Adjusted Wage 
Index

1. Analysis of the Occupational Mix Adjustment and the Occupational Mix 
Adjusted Wage Index
    As discussed in section III.F. of this preamble, for FY 2013, we 
are proposing to apply the occupational mix adjustment to 100 percent 
of the proposed FY 2013 wage index. We calculated the proposed 
occupational mix adjustment using data from the 2010 occupational mix 
survey data, using the methodology described in the FY 2012 IPPS-LTCH 
PPS final rule (76 FR 51582 through 51586).
    Using the occupational mix survey data and applying the 
occupational mix adjustment to 100 percent of the FY 2013 wage index 
results in a proposed national average hourly wage of $37.3721 and a 
proposed Puerto-Rico specific average hourly wage of $15.8838. After 
excluding data of hospitals that either submitted aberrant data that 
failed critical edits, or that do not have FY 2009 Worksheet S-3, Parts 
II and III, cost report data for use in calculating the proposed FY 
2013 wage index, we calculated the proposed FY 2013 wage index using 
the occupational mix survey data from 3,443 hospitals. Using the 
Worksheet S-3, Parts II and III, cost report data of 3,443 hospitals 
and occupational mix survey data from 3,157 hospitals represents a 91.7 
percent survey response rate. The proposed FY 2013 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............................................     37.362735568
National LPN and Surgical Technician...................     21.762566488
National Nurse Aide, Orderly, and Attendant............     15.312800678
National Medical Assistant.............................     17.240367808
National Nurse Category................................     31.807020884
------------------------------------------------------------------------

    The proposed national average hourly wage for the entire nurse 
category as computed in Step 5 of the occupational mix calculation is 
$31.807020884. Hospitals with a nurse category average hourly wage (as 
calculated in Step 4) of greater than the national nurse category 
average hourly wage receive an occupational mix adjustment factor (as 
calculated in Step 6) of less than 1.0. Hospitals with a nurse category 
average hourly wage (as calculated in Step 4) of less than the national 
nurse category average hourly wage receive an occupational mix 
adjustment factor (as calculated in Step 6) of greater than 1.0.
    Based on the 2010 occupational mix survey data, we determined (in 
Step 7 of the occupational mix calculation) that the national 
percentage of hospital employees in the nurse category is 43.34 
percent, and the national percentage of hospital employees in the all 
other occupations category is 56.66 percent. At the CBSA level, the 
percentage of hospital employees in the nurse category ranged from a 
low of 27.03 percent in one CBSA, to a high of 59.70 percent in another 
CBSA.
    We also compared the FY 2013 wage data adjusted for occupational 
mix from the 2010 survey to the FY 2013 wage data adjusted for 
occupational mix from the 2007-2008 survey. This analysis illustrates 
the effect on area wage indices of using the 2010 survey data compared 
to the 2007-2008 survey data; that is, it shows whether hospitals' wage 
indices are increasing or decreasing under the current survey data as 
compared to the prior survey data. Our analysis shows that the FY 2013 
wage index values for 190 (48.6 percent) urban areas and 18 (37.5 
percent) rural areas will increase. Fifty (12.8 percent) urban areas 
will increase by 1 percent or more, and no urban areas will increase by 
5 percent or more. Three (6.3 percent) rural areas will increase by 1 
percent or more, and no rural areas will increase by 5 percent or more. 
However, the wage index values for 197 (50.4 percent) urban areas and 
30 (62.5 percent) rural areas will decrease using the 2010 data. Sixty-
four (16.4 percent) urban areas will decrease by 1 percent or more, and 
no urban areas will decrease by 5 percent or more. Three (6.3 percent) 
rural areas will decrease by 1 percent or more, and no rural areas will 
decrease by 5 percent or more. The largest positive impacts using the 
2010 data compared to the 2007-2008 data are 4.37 percent for an urban 
area and 3.24 percent for a rural area. The largest negative impacts 
are 4.86 percent for an urban area and 2.28 percent for a rural area. 
Four urban areas and no rural areas will be unaffected. These results 
indicate that the wage indices of more CBSAs overall (51.7 percent) 
will be decreasing due to application of the 2010 occupational mix 
survey data as compared to the 2007-2008 survey data to the wage index. 
Further, a larger percentage of urban areas (48.6 percent) will benefit 
from the 2010 occupational mix survey as compared to the 2007-2008 
survey than will rural areas (37.5 percent).
    We compared the proposed FY 2013 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 207 (52.9 percent) urban 
areas and 32 (66.7 percent) rural areas would increase. One hundred 
seventeen (29.9 percent) urban areas would increase by 1 percent or 
more, and 3 (0.77 percent) urban areas would increase by 5 percent or 
more. Fourteen (29.2 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 184 (47.1 percent) urban areas and 
15 (31.3 percent) rural areas would decrease. Eighty-five (21.7 
percent) urban areas would decrease by 1 percent or more, and one urban 
area would decrease by 5 percent or more (0.26 percent). Seven (14.6 
percent) rural areas would decrease by 1 percent or more, and no rural 
areas would decrease by 5 percent or more. The largest positive impacts 
are 6.71 percent for an urban area and 3.10 percent for a rural area. 
The largest negative impacts are 5.22 percent for an urban area and 
3.10 percent for a rural area. No urban areas are unaffected, but one 
rural area is unaffected. These results indicate that a larger 
percentage of rural areas (66.7 percent) would benefit from the 
occupational mix adjustment than do urban areas (52.9 percent). While 
these results are more positive overall for rural areas than under the 
previous occupational mix adjustment that used survey data from 2007-
2008, approximately one-third (31.3 percent) of rural CBSAs would still 
experience a decrease in their wage indices as a result of the 
occupational mix adjustment.
2. Application of the Rural, Imputed, and Frontier Floors
a. Rural Floor
    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. This provision is referred to as the ``rural floor.'' 
Section 3141 of Public Law 111-148 also requires that a national budget 
neutrality adjustment be applied in implementing the rural floor. In 
the FY 2013 proposed wage index associated with this proposed rule and 
available on the CMS Web site, 393 hospitals are receiving an increase 
in their FY 2013 proposed wage index due to the application of the 
rural floor.

[[Page 27950]]

b. Imputed Floor and Proposal for an Alternative, Temporary Methodology 
for Computing the Imputed Floor
    In the FY 2005 IPPS final rule (69 FR 49109), we adopted the 
``imputed floor'' policy as a temporary 3-year regulatory measure to 
address concerns from hospitals in all-urban States that have argued 
that they are disadvantaged by the absence of rural hospitals to set a 
wage index floor for those States. Since its initial implementation, we 
have extended the imputed floor policy three times, with the latest 
extension being set to expire on September 30, 2013 (we refer readers 
to the discussion in the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51593)). There are currently two all-urban States, New Jersey and Rhode 
Island, that have a range of wage indices assigned to hospitals in the 
State, including through reclassification or redesignation (we refer 
readers to discussions of geographic reclassifications and 
redesignations in section III.H. of this preamble). However, as we 
explain below, the current method for computing the imputed floor 
benefits only New Jersey, and not Rhode Island.
    The current methodology for computing the imputed floor is 
contained in our regulations at 42 CFR 412.64(h)(4). In computing the 
imputed floor, we calculate the ratio of the lowest-to-highest CBSA 
wage index for each all-urban State (that is, New Jersey and Rhode 
Island) as well as the average of the ratios of lowest-to-highest CBSA 
wage indices of those all-urban States. We compare the State's own 
ratio to the average ratio and whichever is higher is multiplied by the 
highest CBSA wage index value in the State--the product of which 
establishes the imputed floor for the State. Rhode Island has only one 
CBSA (Providence-New Bedford-Fall River, RI-MA); therefore, Rhode 
Island's own ratio equals 1.0, and its imputed floor is equal to its 
original CBSA wage index value. Conversely, New Jersey has 10 CBSAs. As 
the average ratio of New Jersey and Rhode Island is higher than New 
Jersey's own ratio, the current methodology provides a benefit for New 
Jersey.
    For the FY 2013 wage index, the final year of the extension of the 
imputed floor policy under Sec.  412.64(h)(4), we are proposing an 
alternative, temporary methodology for computing the imputed floor wage 
index to address the concern that the current imputed floor methodology 
guarantees a benefit for one all-urban State with multiple wage indices 
but cannot benefit the other. This proposed alternative methodology for 
calculating the imputed floor would be established using empirical data 
from the application of the rural floor policy for FY 2013. Under this 
proposal, we would first determine the average percentage difference 
between the post-reclassified, pre-floor area wage index and the post-
reclassified, rural floor wage index (without rural floor budget 
neutrality applied) for all CBSAs receiving the rural floor. (Table 4D 
associated with this proposed rule and available on the CMS Web site 
includes the CBSAs receiving a State's rural floor wage index.) The 
lowest post-reclassified wage index assigned to a hospital in an all-
urban State having a range of such values would then be increased by 
this factor, the result of which would establish the State's 
alternative imputed floor. We are proposing to amend Sec.  412.64(h)(4) 
to add new paragraphs (v)(A) and (B) to incorporate this proposed 
alternative methodology, and to make conforming references.
    In addition, for the FY 2013 wage index, we are proposing no 
changes to the current imputed floor methodology at Sec.  412.64(h)(4) 
and, therefore, no changes to the New Jersey imputed floor computation 
for FY 2013. Instead, for FY 2013, we are proposing a second, 
alternative methodology that would be used in cases where an all-urban 
State has a range of wage indices assigned to its hospitals, but the 
State cannot benefit from the methodology in existing Sec.  
412.64(h)(4). We intend to further evaluate the need, applicability, 
and methodology for the imputed floor before the September 30, 2013 
expiration of the imputed floor policy and address these issues in the 
FY 2014 proposed rule.
    The proposed wage index and impact tables associated with this FY 
2013 proposed rule that are available on the CMS Web site include the 
application of the imputed floor policy at Sec.  412.64(h)(4) and a 
national budget neutrality adjustment for the imputed floor. There are 
29 providers in New Jersey that would receive an increase in their FY 
2013 proposed wage index due to the imputed floor policy. The proposed 
wage index and impact tables for this proposed rule do not reflect the 
application of the proposed second alternative methodology for 
computing the imputed floor, which we anticipate would benefit four 
hospitals in Rhode Island.
c. Frontier Floor
    Section 10324 of Public Law 111-148 requires that hospitals in 
frontier States cannot be assigned a wage index of less than 1.0000 (we 
refer readers to a discussion of the implementation of this provision 
in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50160). Four States in 
the FY 2013 proposed wage index are being treated as frontier States: 
Montana, North Dakota, South Dakota, and Wyoming; 51 providers in these 
States are receiving the frontier floor value of 1.0000 in the FY 2013 
proposed wage index associated with this proposed rule. Although Nevada 
is also, by definition, a frontier State and was assigned a frontier 
floor value of 1.0000 for FY 2012, its FY 2013 proposed rural floor 
value of 1.0293 is greater and, therefore, is the State's proposed 
minimum wage index for FY 2013.
    The areas affected by the rural, imputed, and frontier floor 
policies for the FY 2013 proposed wage index are identified in Table 4D 
associated with this proposed rule and available on the CMS Web site.
3. Proposed FY 2013 Wage Index Tables
    The proposed wage index values for FY 2013 (except those for 
hospitals receiving wage index adjustments under section 1886(d)(13) of 
the Act), included in Tables 4A, 4B, 4C, and 4F, available on the CMS 
Web site, include the proposed occupational mix adjustment, geographic 
reclassification or redesignation as discussed in section III.H. of 
this preamble, and the application of the rural, imputed, and frontier 
State floors as discussed in section III.G.2. of this preamble.
    Tables 3A and 3B, available on the CMS Web site, list the 3-year 
average hourly wage for each labor market area before the redesignation 
or reclassification of hospitals based on FYs 2007, 2008, and 2009 cost 
reporting periods. Table 3A lists these data for urban areas, and Table 
3B lists these data for rural areas. In addition, Table 2, which is 
available on the CMS Web site, includes the adjusted average hourly 
wage for each hospital from the FY 2007 and FY 2008 cost reporting 
periods, as well as the FY 2009 period used to calculate the proposed 
FY 2013 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, which are available on the CMS Web site, include 
the proposed occupational mix adjustment. The proposed wage index 
values in Tables 4A, 4B, 4C, and 4D also

[[Page 27951]]

include the proposed national rural and imputed floor budget neutrality 
adjustment. The proposed wage index values in Table 2 also include the 
proposed outmigration adjustment for eligible hospitals.

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

1. General Policies and Effects of Reclassification and Redesignation
    Under section 1886(d)(10) of the Act, the MGCRB considers 
applications by hospitals for geographic reclassification for purposes 
of payment under the IPPS. Hospitals must apply to the MGCRB to 
reclassify 13 months prior to the start of the fiscal year for which 
reclassification is sought (generally by September 1). Generally, 
hospitals must be proximate to the labor market area to which they are 
seeking reclassification and must demonstrate characteristics similar 
to hospitals located in that area. The MGCRB issues its decisions by 
the end of February for reclassifications that become effective for the 
following fiscal year (beginning October 1). The regulations applicable 
to reclassifications by the MGCRB are located in 42 CFR 412.230 through 
412.280. (We refer readers to a discussion of the proximity 
requirements in the FY 2002 IPPS final rule (66 FR 39874 and 39875).) 
The general policies for reclassifications and redesignations that we 
are proposing for FY 2013, and the policies for the effects of 
hospitals' reclassifications and redesignations on the wage index, are 
the same as those discussed in the FY 2012 IPPS/LTCH PPS final rule for 
the FY 2012 final wage index (76 FR 51595 and 51596). Also, in the FY 
2012 IPPS/LTCH PPS final rule, we discussed the effects on the wage 
index of urban hospitals reclassifying to rural areas under 42 CFR 
412.103. Hospitals that are geographically located in States without 
any rural areas are ineligible to apply for rural reclassification 
pursuant to 42 CFR 412.103.
2. FY 2013 MGCRB Reclassifications
a. FY 2013 Reclassification Requirements and Approvals
    Under section 1886(d)(10) of the Act, the MGCRB considers 
applications by hospitals for geographic reclassification for purposes 
of payment under the IPPS. The specific procedures and rules that apply 
to the geographic reclassification process are outlined in regulations 
under 42 CFR 412.230 through 412.280.
    At the time this proposed rule was constructed, the MGCRB had 
completed its review of FY 2013 reclassification requests. Based on 
such reviews, there were 238 hospitals approved for wage index 
reclassifications by the MGCRB for FY 2013. Because MGCRB wage index 
reclassifications are effective for 3 years, for FY 2013, hospitals 
reclassified during FY 2011 or FY 2012 are eligible to continue to be 
reclassified to a particular labor market area based on such prior 
reclassifications. There were 277 hospitals approved for wage index 
reclassifications in FY 2011, and 255 hospitals approved for wage index 
reclassifications in FY 2012. Of all of the hospitals approved for 
reclassification for FY 2011, FY 2012, and FY 2013, based upon the 
review at the time of this proposed rule, 770 hospitals are in a 
reclassification status for FY 2013.
    Under 42 CFR 412.273, hospitals that have been reclassified by the 
MGCRB are permitted to withdraw their applications within 45 days of 
the publication of a proposed rule. For information about withdrawing, 
terminating, or canceling a previous withdrawal or termination of a 3-
year reclassification for wage index purposes, we refer readers to 42 
CFR 412.273, as well as the FY 2002 IPPS final rule (66 FR 39887) 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 2013 will be incorporated 
into the wage index values published in the FY 2013 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 2014
    Applications for FY 2014 reclassifications are due to the MGCRB by 
September 4, 2012 (the first working day of September 2012). 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 2012, via the Internet on the CMS 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.
3. 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. The FY 2013 chart with the listing of the rural 
counties containing the hospitals designated as urban under section 
1886(d)(8)(B) of the Act is available via the Internet on the CMS Web 
site.
4. Reclassifications Under Section 1886(d)(8)(B) of the Act
    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 are permitted to compare the reclassified 
wage index for the labor market area in Table 4C associated with this 
proposed rule (available on the CMS Web site) 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 FY 2013 proposed rule. (We refer readers to the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51598 through 51599) for the 
procedural rules and requirements for a hospital that is redesignated 
under section 1886(d)(8)(B) of the Act and seeking reclassification 
under the MGCRB, as well as our policy of measuring the urban area, 
exclusive of the Lugar County, for purposes of meeting proximity 
requirements.) We treat New England deemed counties in a manner 
consistent with how we treat Lugar counties. (We refer readers to FY 
2008 IPPS final rule with comment period (72

[[Page 27952]]

FR 47337) for a discussion of this policy.)
5. 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 2012 notice, CMS-1442-N, which 
went on public display at the Office of the Federal Register on April 
19, 2012, and was published in the Federal Register on April 20, 2012. 
The most recent extension of the provision was included in section 302 
of the Temporary Payroll Tax Cut Continuation Act of 2011 (Pub. L. 112-
78), as amended by section 3001 of the Middle Class Tax Relief and Job 
Creation Act of 2012 (Pub. L. 112-96), which extends certain section 
508 reclassifications and special exception wage indices for a 6-month 
period during FY 2012, from October 1, 2011 through March 31, 2012. As 
of the drafting of this proposed rule, section 508 reclassifications 
and certain special exceptions have not been extended for FY 2013.
6. Waiving Lugar Redesignation for the Out-Migration Adjustment
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through 
51600), we adopted the policy that, beginning with FY 2012, an eligible 
hospital that waives its Lugar status in order to receive the out-
migration adjustment has effectively waived its deemed urban status 
and, thus, is rural for all purposes under the IPPS, including being 
considered rural for the DSH payment adjustment, effective for the 
fiscal year in which the hospital receives the out-migration 
adjustment. (We refer readers to a discussion of DSH payment adjustment 
under section IV.G. of this preamble.)
    In addition, we adopted a minor procedural change that would allow 
a Lugar hospital that qualifies for and accepts the out-migration 
adjustment (through written notification to CMS within the requisite 
number of days from the publication of the proposed rule \47\) to 
automatically waive its urban status for the 3-year period for which 
its out-migration adjustment is effective. That is, such a Lugar 
hospital would no longer be required during the second and third years 
of eligibility for the out-migration adjustment to advise us annually 
that it prefers to continue being treated as rural and receive the 
adjustment. Thus, under the procedural change, a Lugar hospital that 
requests to waive its urban status in order to receive the rural wage 
index in addition to the out-migration adjustment would be deemed to 
have accepted the out-migration adjustment and agrees to be treated as 
rural for the duration of its 3-year eligibility period, unless, prior 
to its second or third year of eligibility, the hospital explicitly 
notifies CMS in writing, within the required period (generally 45 days 
from the publication of the proposed rule), that it instead elects to 
return to its deemed urban status and no longer wishes to accept the 
out-migration adjustment.
---------------------------------------------------------------------------

    \47\ Hospitals generally have 45 days from publication of the 
proposed rule to request an out-migration adjustment in lieu of the 
section 1886(d)(8) deemed urban status.
---------------------------------------------------------------------------

    We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51599 through 51600) for a detailed discussion of the policy and 
process for waiving Lugar status for the out-migration adjustment.

I. Proposed FY 2013 Wage Index Adjustment Based on Commuting Patterns 
of Hospital Employees

    In accordance with the broad discretion granted to the Secretary 
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. The proposed FY 2013 out-migration adjustment is 
based on the same policies, procedures, and computation that were used 
for the FY 2012 out-migration adjustment (we refer readers to a full 
discussion of the adjustment, including rules on deeming hospitals 
reclassified under section 1886(d)(8) or section 1886(d)(10) to have 
waived the out-migration adjustment, in the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51601 through 51602)). Table 4J, available via the Internet 
on the CMS Web site, lists the out-migration adjustments for the FY 
2013 proposed wage index.

J. Process for Requests for Wage Index Data Corrections

    The preliminary, unaudited Worksheet S-3 wage data and occupational 
mix survey data files for the proposed FY 2013 wage index were made 
available on October 4, 2011, 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 notify the 
hospital community of the availability of these data as we do with the 
current public use wage data files through our Hospital Open Door 
forum. We encourage hospitals to sign up for automatic notifications of 
information about hospital issues and the scheduling of the Hospital 
Open Door forums at the CMS Web site at: http://www.cms.hhs.gov/OpenDoorForums/.
    In a memorandum dated September 29, 2011, 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 4, 2011 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 5, 2011. 
Hospitals were notified of this deadline and of all other 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 September 29, 2011 memorandum referenced above.
    In the September 29, 2011 memorandum, we also specified that a 
hospital requesting revisions to its occupational mix survey data was 
to copy its record(s) from the CY 2010 occupational mix preliminary 
files posted to the CMS Web site in October, highlight the revised 
cells on its spreadsheet, and submit its spreadsheet(s) and complete

[[Page 27953]]

documentation to its fiscal intermediary/MAC no later than December 5, 
2011.
    The fiscal intermediaries/MACs notified the hospitals by mid-
February 2012 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 2012. CMS published the proposed 
wage index public use files that included hospitals' revised wage index 
data on February 21, 2012. Hospitals had until March 5, 2012, 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' or the fiscal 
intermediary's (or, if applicable, the MAC's) mishandling of the wage 
index data. Hospitals also were required to submit sufficient 
documentation to support their requests.
    After reviewing requested changes submitted by hospitals, fiscal 
intermediaries/MACs were required to transmit any additional revisions 
resulting from the hospitals' reconsideration requests by April 11, 
2012. The deadline for a hospital to request CMS intervention in cases 
where the hospital disagrees with the fiscal intermediary's (or, if 
applicable, the MAC's) policy interpretations was April 18, 2012.
    Hospitals should examine Table 2, which is listed in section VI. of 
the Addendum to this proposed rule and available on the CMS Web site 
at: http://www.cms.gov. Table 2 contains each hospital's adjusted 
average hourly wage used to construct the wage index values for the 
past 3 years, including the FY 2009 data used to construct the proposed 
FY 2013 wage index. We note that the hospital average hourly wages 
shown in Table 2 only reflect changes made to a hospital's data that 
were transmitted to CMS by March 2012.
    We will release the final wage index data public use files in early 
May 2012 on the Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp. The May 2012 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 
11, 2012). If, after reviewing the May 2012 final public use 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 4, 2012.
    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.
    After the release of the May 2012 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:
    <bullet> 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 11, 2012.
    <bullet> Requests for correction of errors that were not, but could 
have been, identified during the hospital's review of the February 21, 
2012 wage index public use files.
    <bullet> 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 4, 2012) 
will be incorporated into the final wage index in the FY 2013 IPPS/LTCH 
PPS final rule, which will be effective October 1, 2012.
    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 2013 payment rates. Accordingly, 
hospitals that do not meet the procedural deadlines set forth above 
will not be afforded a later opportunity to submit wage index data 
corrections or to dispute the 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 appeals to the PRRB for wage index data corrections.
    Again, we believe the wage index data correction process described 
above provides hospitals with sufficient opportunity to bring errors in 
their wage and occupational mix data to the fiscal intermediary's (or, 
if applicable, the MAC's) attention. Moreover, because hospitals have 
access to the final wage index data by early May 2012, 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 2013 wage index by August 2012, and the 
implementation of the FY 2013 wage index on October 1, 2012. If 
hospitals avail themselves of the opportunities afforded to provide and 
make corrections to the wage and occupational mix data, the wage index 
implemented on October 1 should be accurate. Nevertheless, in the event 
that errors are identified by hospitals and brought to our attention 
after June 4, 2012, 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 4 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

[[Page 27954]]

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 4, 
2012 deadline for the FY 2013 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 calculated the final wage index (that 
is, by the June 4, 2012 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.

K. Labor-Related Share for the Proposed FY 2013 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.'' Thus, 
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 FY 2013 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, for FY 2013, we are proposing to continue to use a 
labor-related share of 68.8 percent for discharges occurring on or 
after October 1, 2012. Tables 1A and 1B, which are published in section 
VI. of the Addendum to this proposed rule and available via the 
Internet, reflect this 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 
proposing to apply the wage index to a labor-related share of 62 
percent of the national standardized amount. For all IPPS hospitals 
whose wage indices are greater than 1.0000, we are proposing to apply 
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 national wage index for all Puerto 
Rico hospitals is less than 1.0. In this proposed rule, 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, 2012. 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

[[Page 27955]]

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 percent, 
depending on which results in higher payments to the hospital. If the 
hospital has a Puerto Rico-specific wage index of greater than 1.0, 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 Puerto Rico labor-related share of 62.1 percent for FY 2013 is 
reflected in Table 1C, which is published in section VI. of the 
Addendum to this proposed rule and available via the Internet.

IV. Other Decisions and Proposed Changes to the IPPS for Operating 
Costs and Graduate Medical Education (GME) Costs

A. Hospital Readmissions Reduction Program

1. Statutory Basis for the Hospital Readmissions Reduction Program
    Section 3025 of the Affordable Care Act, as amended by section 
10309 of the Affordable Care Act, added a new subsection (q) to section 
1886 of the Act. Section 1886(q) of the Act establishes the ``Hospital 
Readmissions Reduction Program'' effective for discharges from an 
``applicable hospital'' beginning on or after October 1, 2012, under 
which payments to those hospitals under section 1886(d) of the Act will 
be reduced to account for certain excess readmissions.
    Section 1886(q)(1) of the Act sets forth the methodology by which 
payments to ``applicable hospitals'' will be adjusted to account for 
excess readmissions. Pursuant to section 1886(q)(1) of the Act, 
payments for discharges from an ``applicable hospital'' will be an 
amount equal to the product of the ``base operating DRG payment 
amount'' and the adjustment factor for the hospital for the fiscal 
year. That is, ``base operating DRG payments'' are reduced by an 
adjustment factor that accounts for excess readmissions. Section 
1886(q)(1) of the Act requires the Secretary to make payments for a 
discharge in an amount equal to the product of ``the base operating DRG 
payment amount'' and ``the adjustment factor'' for the hospital in a 
given fiscal year. Section 1886(q)(2) of the Act defines the base 
operating DRG payment amount as ``the payment amount that would 
otherwise be made under subsection (d) (determined without regard to 
subsection (o) [the Hospital VBP Program]) for a discharge if this 
subsection did not apply; reduced by * * * any portion of such payment 
amount that is attributable to payments under paragraphs (5)(A), 
(5)(B), (5)(F), and (12) of subsection (d).'' Paragraphs (5)(A), 
(5)(B), (5)(F), and (12) of subsection(d) refer to outlier payments, 
IME payments, DSH payments, and payments for low-volume hospitals, 
respectively.
    Furthermore, section 1886(q)(2)(B) of the Act specifies special 
rules for defining ``the payment amount that would otherwise be made 
under subsection (d)'' for certain hospitals. Specifically, section 
1886(q)(2)(B) of the Act states that ``[i]n the case of a Medicare-
dependent, small rural hospital (with respect to discharges occurring 
during fiscal years 2012 and 2013) or a sole community hospital * * * 
the payment amount that would otherwise be made under subsection (d) 
shall be determined without regard to subparagraphs (I) and (L) of 
subsection (b)(3) and subparagraphs (D) and (G) of subsection (d)(5).'' 
We are proposing policies to implement the statutory provisions related 
to the definition of ``base operating DRG payment amount'' in this 
proposed rule.
    Section 1886(q)(3)(A) of the Act defines the ``adjustment factor'' 
for an applicable hospital for a fiscal year as equal to the greater of 
``(i) the ratio described in subparagraph (B) for the hospital for the 
applicable period (as defined in paragraph (5)(D)) for such fiscal 
year; or (ii) the floor adjustment factor specified in subparagraph 
(C).'' Section 1886(q)(3)(B) of the Act, in turn, describes the ratio 
used to calculate the adjustment factor. It states that the ratio is 
``equal to 1 minus the ratio of--(i) the aggregate payments for excess 
readmissions * * * and (ii) the aggregate payments for all discharges * 
* *.'' Section 1886(q)(3)(C) of the Act describes the floor adjustment 
factor, which is set at 0.99 for FY 2013, 0.98 for FY 2014, and 0.97 
for FY 2015 and subsequent fiscal years.
    Section 1886(q)(4) of the Act sets forth the definitions of 
``aggregate payments for excess readmissions'' and ``aggregate payments 
for all discharges'' for an applicable hospital for the applicable 
period. The term ``aggregate payments for excess readmissions'' is 
defined in section 1886(q)(4)(A) of the Act as ``the sum, for 
applicable conditions * * * of the product, for each applicable 
condition, of (i) the base operating DRG payment amount for such 
hospital for such applicable period for such condition; (ii) the number 
of admissions for such condition for such hospital for such applicable 
period; and (iii) the ``Excess Readmission Ratio * * * for such 
hospital for such applicable period minus 1.'' The ``Excess Readmission 
Ratio'' is a hospital-specific ratio based on each applicable 
condition. Specifically, section 1886(q)(4)(C) of the Act defines the 
Excess Readmission Ratio as the ratio of ``risk-adjusted readmissions 
based on actual readmissions'' for an applicable hospital for each 
applicable condition, to the ``risk-adjusted expected readmissions'' 
for the applicable hospital for the applicable condition.
    Section 1886(q)(5) of the Act provides definitions of ``applicable 
condition,'' ``expansion of applicable conditions,'' ``applicable 
hospital,'' ``applicable period,'' and ``readmission.'' The term 
``applicable condition,'' which is addressed in detail in section 
IV.C.3.a. of the FY 2012 IPPS/LTCH PPS final rule (76 FR 51665 through 
51666), is defined as a ``condition or procedure selected by the 
Secretary among conditions and procedures for which: (i) Readmissions * 
* * represent conditions or procedures that are high volume or high 
expenditures * * * and (ii) measures of such readmissions * * * have 
been endorsed by the entity with a contract under section 1890(a) * * * 
and such endorsed measures have exclusions for readmissions that are 
unrelated to the prior discharge (such as a planned readmission or 
transfer to another applicable hospital).'' Section 1886(q)(5)(B) of 
the Act also requires the Secretary, beginning in FY 2015, ``to the 
extent practicable, [to] expand the applicable conditions beyond the 3 
conditions for which measures have been endorsed * * * to the 
additional 4 conditions that have been identified by the Medicare 
Payment Advisory Commission in its report to Congress in June 2007 and 
to other conditions and procedures as determined appropriate by the 
Secretary.''
    Section 1886(q)(5)(C) of the Act defines ``applicable hospital,'' 
that is, a hospital subject to the Hospital Readmissions Reduction 
Program, as a ``subsection (d) hospital or a hospital that is paid 
under section 1814(b)(3) [of the Act], as the case may be.'' The term 
``applicable period,'' as defined under

[[Page 27956]]

section 1886(q)(5)(D) of the Act, ``means, with respect to a fiscal 
year, such period as the Secretary shall specify.'' As explained in the 
FY 2012 IPPS/LTCH PPS final rule, the ``applicable period'' is the 
period from which data are collected in order to calculate various 
ratios and adjustments under the Hospital Readmissions Reduction 
Program.
    Section 1886(q)(6) of the Act sets forth the public reporting 
requirements for hospital-specific readmission rates. Section 
1886(q)(7) of the Act limits administrative and judicial review of 
certain determinations made pursuant to section 1886(q) of the Act. 
Finally, section 1886(q)(8) of the Act requires the Secretary to 
collect data on readmission rates for all hospital inpatients for 
``specified hospitals'' in order to calculate the hospital-specific 
readmission rates for all hospital inpatients and to publicly report 
these readmission rates.
2. Overview
    As we stated in the FY 2012 IPPS/LTCH PPS final rule, we intend to 
implement the requirements of the Hospital Readmissions Reduction 
Program in the FY 2012, FY 2013, and future IPPS/LTCH PPS rulemaking 
cycles.
    As explained above, the payment adjustment factor set forth in 
section 1886(q) of the Act does not apply to discharges until FY 2013. 
Therefore, we elected to implement the Hospital Readmissions Reduction 
Program over a 2-year period, beginning in FY 2012. In the FY 2012 
IPPS/LTCH PPS final rule, we addressed the issues of the selection of 
readmission measures and the calculation of the excess readmission 
ratio, which will be used, in part, to calculate the readmission 
adjustment factor. Specifically, in the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51660 through 51676), we addressed portions of section 
1886(q) of the Act related to the following provisions:
    <bullet> Selection of applicable conditions;
    <bullet> Definition of ``readmission;''
    <bullet> Measures for the applicable conditions chosen for 
readmission;
    <bullet> Methodology for calculating the excess readmission ratio; 
and
    <bullet> Definition of ``applicable period.''
    With respect to the topics of ``measures for readmission'' for the 
applicable conditions, and ``methodology for calculating the excess 
readmission ratio,'' we specifically addressed the following:
    <bullet> Index hospitalizations;
    <bullet> Risk adjustment;
    <bullet> Risk standardized readmission rate;
    <bullet> Data sources; and
    <bullet> Exclusion of certain readmissions.
    We are providing below a summary of the provisions of section 
1886(q) of the Act that were finalized in the FY 2012 IPPS/LTCH PPS 
final rule.
    Applicable conditions: In the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51665 through 51666), we finalized the applicable conditions for the 
FY 2013 Hospital Readmissions Reduction Program as heart failure (HF), 
acute myocardial infarction (AMI), and pneumonia (PN). Section 
1886(q)(5)(A) of the Act requires that the ``applicable conditions'' be 
conditions or procedures for which readmissions are ``high volume or 
high expenditure'' and that ``measures of such readmissions'' have been 
endorsed by the entity with a contract under section 1890(a) of the Act 
(currently National Quality Forum (NQF)) and such endorsed measures 
have exclusions for readmissions that are unrelated to the prior 
discharge. In this proposed rule, we are proposing to codify this 
definition of ``applicable conditions'' in the regulations we are 
proposing at 42 CFR 412.152.
    In the FY 2012 IPPS/LTCH PPS final rule, we discussed how each of 
the finalized ``applicable conditions'' for FY 2013 meets these 
statutory requirements. We noted that section 1886(q)(5)(B) of the Act 
allows for the Secretary to expand the conditions for the Hospital 
Readmissions Reduction Program starting in FY 2015.
    Readmission: In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51666), 
we finalized a definition of ``readmission'' as occurring when a 
patient is discharged from an applicable hospital and then admitted to 
the same or another acute care hospital, that is, another applicable 
hospital, within a specified time period (30 days) from the date of 
discharge from the initial index hospitalization. In this proposed 
rule, we are proposing to codify this definition of ``readmission'' 
under the regulations we are proposing at 42 CFR 412.152. As also 
discussed in the FY 2012 IPPS/LTCH PPS final rule, only one readmission 
during the 30 days following the discharge from the initial 
hospitalization will count as a readmission for purposes of calculating 
the ratios set forth in section 1886(q)(3) of the Act. For any given 
patient, none of the subsequent readmissions he or she experiences 
within 30 days after discharge would be counted as a new ``index'' 
admission (that is, an admission evaluated for a subsequent 
readmission).
    Measures for applicable conditions: As finalized in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51666 and 51667), we will use three 
NQF-endorsed, hospital risk-standardized readmission measures for FY 
2013, which are currently in the Hospital IQR Program: Acute Myocardial 
Infarction 30-day Risk Standardized Readmission Measure (NQF 
<greek-i>0505); Heart Failure 30-Day Risk Standardized Readmission 
Measure (NQF <greek-i>0330); and Pneumonia 30-day Risk Standardized 
Readmission Measure (NQF <greek-i>0506). The measures, as endorsed by 
the NQF, include the 30-day time window, risk-adjustment methodology, 
and exclusions for certain readmissions.
    As finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51673), 
we will use the risk-standardized readmission ratio of the NQF-endorsed 
readmission measures as the excess readmission ratio. The ratio is a 
measure of relative performance. If a hospital performs better than an 
average hospital that admitted similar patients (that is, patients with 
the same risk factors for readmission such as age and comorbidities), 
the ratio will be less than 1.0. If a hospital performs worse than 
average, the ratio will be greater than 1.0.
    Measure methodology: In the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51668 through 51669), we finalized the methodology of the measures and 
are summarizing it briefly below.
    Index hospitalizations included in the measure calculation: We 
finalized the definition of ``index hospital'' consistent with the NQF-
endorsed definition. The measures define an index hospitalization as a 
hospitalization evaluated in the measure for a possible readmission 
within 30 days after discharge (that is, a hospitalization included in 
the measure calculation). The measures exclude as index 
hospitalizations any hospitalization for patients with an in-hospital 
death, without at least 30 days post-discharge enrollment in Medicare 
fee-for-service (FFS), discharged against medical advice, and under the 
age of 65.
    Risk adjustment: The three measures, as endorsed by the NQF and 
finalized in the FY 2012 IPPS/LTCH PPS final rule, adjust for key 
factors that are clinically relevant and have strong relationships with 
the outcome (for example, patient demographic factors, patient 
coexisting medical conditions, and indicators of patient frailty). 
Under the current NQF-endorsed methodology, these covariates are 
obtained from Medicare claims extending 12 months prior to, and 
including, the index admission. This risk-adjustment approach adjusts 
for differences in the clinical status of the patient at the time of 
the index admission as well as for demographic variables. A complete 
list of the

[[Page 27957]]

variables used for risk adjustment and the clinical and statistical 
process for selecting the variables for each NQF-endorsed measure, as 
proposed, is available at the Web site: http://qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069855841.
    Data sources: The finalized measures use Medicare inpatient claims 
data for Medicare FFS patients 65 years and older to identify index 
hospitalizations and readmissions. For risk adjustment, the measures 
use Part A and Part B claims for the 12 months prior to the index 
hospitalization as well as index hospitalization claims.
    Exclusion of certain readmissions: The NQF-endorsed measures of 
readmissions finalized in the FY 2012 IPPS/LTCH PPS final rule include 
exclusions of readmissions consistent with the statutory requirement 
that all measures exclude certain readmissions that are unrelated to 
the prior discharge, such as transfers to other acute care facilities 
and planned readmissions.
    Minimum number of discharges for applicable conditions: Section 
1886(q)(4)(C)(ii) of the Act allows the Secretary discretion to 
determine the minimum number of discharges for the applicable 
condition. We finalized a policy in the FY 2012 IPPS/LTCH PPS final 
rule that the minimum number of discharges for applicable conditions is 
25 for each condition for the FY 2013 Hospital Readmissions Reduction 
Program.
    Applicable period: Under 1886(q)(5)(D) of the Act, the Secretary 
has the authority to specify the applicable period with respect to a 
fiscal year. In the FY 2012 IPPS/LTCH PPS final rule, we finalized our 
policy to use 3 years worth of claims data to calculate the proposed 
readmission measures. Specifically, we finalized the policy to use 
claims data from July 1, 2008, to June 30, 2011, to calculate the 
excess readmission ratios and to calculate the FY 2013 Hospital 
Readmissions Reduction Program payment adjustment. As discussed in 
section IV.A.3.d. of this preamble, for the purpose of this proposed 
rule, the excess readmission ratios used to model our proposed 
methodology to calculate the Hospital Readmissions Reduction Program 
payment adjustment will be based on the 3-year time period of July 1, 
2007 to June 30, 2010. For the final rule, we intend to use excess 
readmission ratios based on the applicable period of July 1, 2008 to 
June 30, 2011, as finalized in the FY 2012 IPPS/LTCH PPS final rule. In 
this proposed rule, we are proposing to codify the definition of 
``applicable period'' under the regulations we are proposing at 42 CFR 
412.152 as the 3-year period from which data are collected in order to 
calculate excess readmission ratios and adjustments for the fiscal 
year.
    Excess Readmission Ratio calculation: In the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51673 through 51676), we finalized the excess 
readmission ratio pursuant to section 1886(q)(4)(C) of the Act. We 
established the excess readmission ratio as the risk-standardized 
readmission ratio from the NQF-endorsed measures. The ratio is 
calculated using hierarchical logistic regression. The method adjusts 
for variation across hospitals in how sick their patients are when 
admitted to the hospital (and therefore variation in hospital patients' 
readmission risk) as well as the variation in the number of patients 
that a hospital treats to reveal difference in quality. The method 
produces an adjusted actual (or ``predicted'') number in the numerator 
and an ``expected'' number in the denominator. The expected calculation 
is similar to that for logistic regression--it is the sum of all 
patients' expected probabilities of readmission, given their risk 
factors and the risk of readmission at an average hospital.
    For each hospital, the numerator of the ratio used in the NQF-
endorsed methodology (actual adjusted readmissions) is calculated by 
estimating the probability of readmission for each patient at that 
hospital and summing up over all the hospital's patients to get the 
actual adjusted number of readmissions for that hospital. 
Mathematically, the numerator equation can be expressed as:
[GRAPHIC] [TIFF OMITTED] TP11MY12.013

    The denominator of the risk-standardized ratio (excess readmission 
ratio) under this NQF-endorsed methodology sums the probability of 
readmission for each patient at an average hospital. This can be 
expressed mathematically as:

[[Page 27958]]

[GRAPHIC] [TIFF OMITTED] TP11MY12.014

    Thus, the ratio compares the total adjusted actual readmissions at 
the hospital to the number that would be expected if the hospital's 
patients were treated at an average hospital with similar patients. 
Hospitals with more adjusted actual readmissions than expected 
readmissions will have a risk-standardized ratio (excess readmission 
ratio) greater than one. In summary, in the FY 2012 IPPS/LTCH PPS final 
rule, we defined the ``excess readmission ratio'' as the risk-
standardized readmission ratio of the NQF-endorsed readmission 
measures. More in-depth detail surrounding the methodology of excess 
readmission ratio calculation can be accessed on the Web site at: 
http://qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069855841.
    In this proposed rule, we are proposing to codify the definition of 
``excess readmission ratio'' under the regulations we are proposing at 
42 CFR 412.152 as a hospital-specific ratio for each applicable 
condition for an applicable period, which is the ratio (but not less 
than 1.0) of (1) risk-adjusted readmissions based on actual 
readmissions for an applicable hospital for each applicable condition 
to (2) the risk-adjusted expected readmissions for the applicable 
hospital for the applicable condition.
3. FY 2013 Proposed Policies for the Hospital Readmissions Reduction 
Program
a. Overview
    In this proposed rule, we are addressing the provisions in section 
1886(q) of the Act that are related to the Hospital Readmissions 
Reduction Program payment adjustment, as well as any other provisions 
in section 1886(q) of the Act that were not addressed in the FY 2012 
IPPS/LTCH PPS final rule that are effective for discharges beginning on 
or after October 1, 2012. Specifically, in this proposed rule, we are 
addressing section 1886(q) of the Act related to the following 
provisions:
    <bullet> Base operating DRG payment amount, including policies for 
SCHs and MDHs and hospitals paid under section 1814(b) of the Act;
    <bullet> Adjustment factor (both the ratio and floor adjustment 
factor);
    <bullet> Aggregate payments for excess readmissions and aggregate 
payments for all discharges;
    <bullet> Applicable hospital;
    <bullet> Limitations on review;
    <bullet> Reporting of hospital-specific information, including the 
process for hospitals to review and submit corrections.
    We are proposing to establish a new Subpart I under 42 CFR Part 412 
to incorporate the rules relating to the payment adjustments under the 
Hospital Readmissions Reduction Program.
b. Proposals Regarding Base Operating DRG Payment Amount, Including 
Special Rules for SCHs and MDHs and Hospitals Paid Under Section 1814 
of the Act
(1) Proposed Definition of Base Operating DRG Payment Amount (Proposed 
Sec.  412.152)
    Under the Hospital Readmissions Reduction Program at section 
1886(q) of the Act, payments for discharges from an ``applicable 
hospital'' will be an amount equal to the product of the ``base 
operating DRG payment amount'' and an ``adjustment factor'' that 
accounts for excess readmissions for the hospital for the fiscal year, 
for discharges beginning on or after October 1, 2012. Specifically, 
section 1886(q)(1) of the Act requires the Secretary to make payments 
for a discharge in an amount equal to the product of ``the base 
operating DRG payment amount'' and ``the adjustment factor'' for the 
hospital in a given fiscal year. The ``base operating DRG payment 
amount'' is defined under section 1886(q)(2) of the Act as ``the 
payment amount that would otherwise be made under subsection (d) 
(determined without regard to subsection (o) [the Hospital VBP 
Program]) for a discharge if this subsection did not apply; reduced by 
* * * any portion of such payment amount that is attributable to 
payments under paragraphs (5)(A), (5)(B), (5)(F), and (12) of 
subsection (d).'' Paragraphs (5)(A), (5)(B), (5)(F), and (12) of 
subsection (d) [of section 1886 of the Act] refer to outlier payments, 
indirect medical education (IME) payments, disproportionate share (DSH) 
payments, and low-volume hospital payments, respectively.
    In general, ``the payment amount that would otherwise be made under 
subsection (d) * * * for a discharge'' (that is, the discharge payment 
amount made under section 1886(d) of the Act) determined without 
consideration of the adjustments to payments made under the Hospital 
VBP Program (section 1886(o) of the Act) or under the Hospital 
Readmissions Reduction Program (section 1886(q) of the Act) is the 
applicable average standardized amount adjusted for resource 
utilization by the applicable MS-DRG relative weight and adjusted for 
differences in geographic costs by the applicable area wage index (and 
by the applicable cost-of-living adjustment (COLA) for hospitals 
located in Alaska and Hawaii), which is often

[[Page 27959]]

referred to as the ``wage-adjusted DRG operating payment.'' This 
payment amount may then be further adjusted if the hospital qualifies 
for an IME adjustment (under section 1886(d)(5)(B) of the Act), a DSH 
payment adjustment (under section 1886(d)(5)(F) of the Act), and/or a 
low-volume payment adjustment (under section 1886(d)(12) of the Act), 
or if the discharge qualifies for an outlier payment (under section 
1886(d)(5)(A) of the Act). Furthermore, certain discharges may qualify 
for an additional payment for new medical services or technologies 
under section 1886(d)(5)(K) of the Act (often referred to as a ``new 
technology add-on payment'').
    Consistent with section 1886(q)(2) of the Act, under the 
regulations we are proposing at 42 CFR 412.152, we would define the 
``base operating DRG payment amount'' under the Hospital Readmissions 
Reduction Program as the wage-adjusted DRG operating payment plus any 
applicable new technology add-on payments. As required by the statute, 
the proposed definition of ``base operating DRG payment amount'' does 
not include adjustments or add-on payments for IME, DSH, outliers and 
low-volume hospitals provided for under sections 1886(d)(5)(B), 
(d)(5)(F), (d)(5)(A), and (d)(12) of the Act, respectively. Section 
1886(q)(2) of the Act does not exclude new technology payments made 
under section 1886(d)(5)(K) of the Act; therefore, any payments made 
under section 1886(d)(5)(K) of the Act are included in the proposed 
definition of ``base operating DRG payment amount.'' In addition, under 
the regulations we are proposing at 42 CFR 412.152, we are proposing to 
define ``wage-adjusted DRG operating payment'' as the applicable 
average standardized amount adjusted for resource utilization by the 
applicable MS-DRG relative weight and adjusted for differences in 
geographic costs by the applicable area wage index (and by the 
applicable COLA for hospitals located in Alaska and Hawaii). We are 
proposing that, under Sec.  412.154(b)(1), to account for excess 
readmissions, an applicable hospital's base operating DRG payment 
amount is adjusted for each discharge occurring during the fiscal year. 
The payment adjustment for each discharge is determined by subtracting 
the product of the base operating DRG payment amount for such discharge 
by the hospital's admission payment adjustment factor for the fiscal 
year from the base operating DRG payment amount for such discharge.
    Under this proposal, consistent with section 1886(q)(2)(B)(i) of 
the Act and proposed Sec.  412.154(b)(2), for SCHs that receive 
payments based on their hospital-specific payment rate, we also are 
proposing to exclude the difference between the hospital's applicable 
hospital-specific payment rate and the Federal payment rate from the 
definition of ``base operating DRG payment amount.'' We note that, 
under the Hospital Readmissions Reduction Program at section 1886(q) of 
the Act, the proposed definition of ``base operating DRG payment 
amount'' would be used to calculate both the ``aggregate payments for 
excess readmissions'' and ``aggregate payments for all discharges'' 
under sections 1886(q)(4)(A) and (B) of the Act, which would then be 
used to determine the readmission adjustment factor that accounts for 
excess readmissions under section 1886(q)(3) of the Act (as discussed 
in greater detail in section IV.A.3.c. of this preamble), and would 
also be used to determine which payment amounts will be adjusted to 
account for excess readmissions. (We note that, as discussed in section 
IV.G. of this preamble, under current law, the MDH program expires at 
the end of FY 2012 (that is, the MDH program is currently only 
applicable to discharges occurring before October 1, 2012). Therefore, 
due to the expiration of the MDH program beginning with FY 2013, we are 
not including MDHs in the discussion of our proposals regarding the 
base operating DRG payment amount in this proposed rule.)
(2) Proposal on Special Rules for Certain Hospitals: Hospitals Paid 
Under Section 1814(b)(3) of the Act (Proposed Sec.  412.154(d))
    Although the definition of ``applicable hospital'' under section 
1886(q)(5)(C) of the Act includes hospitals paid under section 
1814(b)(3) of the Act (that is, certain Maryland hospitals), section 
1886(q)(2)(B)(ii) of the Act allows the Secretary to exempt such 
hospitals from the Hospital Readmissions Reduction Program, provided 
that the State submits an annual report to the Secretary describing how 
a similar program to reduce hospital readmissions in that State 
achieves or surpasses the measured results in terms of health outcomes 
and cost savings established by Congress for the program as applied to 
``subsection (d) hospitals.'' Accordingly, a program established by the 
State of Maryland that could serve to exempt the State from the 
Hospital Readmissions Reduction program would focus on those 
``applicable'' Maryland hospitals operating under the ``waiver'' 
provided by section 1814(b)(3) of the Act, that is, those hospitals 
that would otherwise have been paid by Medicare under the IPPS, absent 
the provision.
    In this proposed rule, we are proposing to establish criteria for 
evaluation of an annual report to CMS to determine whether Maryland 
should be exempted from the program each year. Accordingly, we would 
evaluate a report submitted by the State of Maryland documenting how 
its program that is described below meets those criteria. Based on the 
information in the report, we would determine whether or not Maryland's 
readmission program meets our criteria to be exempt from the Hospital 
Readmissions Reduction Program for FY 2013. We note that our proposed 
criteria to evaluate Maryland's program is for FY 2013, the first year 
of the program, and our evaluation criteria may change through notice-
and-comment rulemaking as the Hospital Readmissions Reduction Program 
evolves. We are proposing to codify this requirement at Sec.  
412.154(d) of the regulations.
    Based on preliminary discussions with the State, we understand 
that, effective July 1, 2011, Maryland has established the Admission-
Readmission Revenue (ARR) Program. The State has described its program 
as a voluntary program for acute care hospitals, of which 30 out of the 
46 acute care hospitals in the State are currently enrolled. Under the 
program, the State pays hospitals under a case-mix adjusted bundled 
payment per episode of care, where the episode of care is defined as 
the initial admission and any subsequent readmissions to the same 
hospital or linked hospital system that occur within 30 days of the 
original discharge. According to the State, an initial admission with 
no readmissions provides the hospital with the same weight as an 
initial admission with multiple readmissions. Therefore, hospitals 
receive a financial reward for decreased readmissions (as determined 
through the case mix adjusted, episode of care weights). Unlike the 
Hospital Readmissions Reduction Program under section 1886(q) of the 
Act, which is currently based on measures for three conditions (HF, 
AMI, and PN) for the Medicare FFS population and only adjusts the IPPS 
operating payments, Maryland's program applies to all conditions for 
all patients. In addition, while the Hospital Readmissions Reduction 
Program considers a readmission to be a subsequent admission to either 
the original acute care hospital from where the patient was initially 
discharged or an admission to another acute care hospital, currently 
Maryland only tracks readmissions to the same acute care hospital (or 
linked

[[Page 27960]]

hospital system) from which the patient was originally discharged. The 
State has noted that, under its ARR program, the readmission rates for 
the hospitals participating in the ARR program for the first quarter of 
its fiscal year compared to the first quarter of its previous fiscal 
year decreased from 9.86 percent to 8.96 percent.
    We are proposing to evaluate Maryland's ARR program based on 
whether the State can demonstrate that cost savings under its program 
achieve or exceed the savings to the Medicare program due to the 
Hospital Readmissions Reduction Program under section 1886(q) of the 
Act. We also are proposing to evaluate whether Maryland's program can 
demonstrate similar results in reducing unnecessary readmissions among 
hospitals in the State, as described in more detail below. With 
specific regard to Maryland's demonstration of cost savings, we are 
proposing to evaluate whether Maryland's ARR program can demonstrate 
savings to the Medicare program that are at least similar to those 
expected under the Hospital Readmissions Reduction Program. As 
discussed later in this proposed rule, we estimate that, under the 
Hospital Readmissions Reduction Program, for FY 2013, Medicare IPPS 
operating payments will decrease by approximately $300 million (or 0.3 
percent) of total Medicare IPPS operating payments. Maryland has 
indicated that it believes it can achieve comparable savings because it 
intends to reduce the rate update factor for all hospitals by 0.3 
percent, regardless of a hospital's performance on readmissions.
    In addition, we plan to propose in future rulemaking to evaluate 
whether Maryland's ARR program can meet or exceed health outcomes that 
we expect to improve under the Hospital Readmissions Reduction Program. 
Because the Hospital Readmissions Reduction Program is not effective 
until October 1, 2012, we do not yet have measured health outcomes 
against which we can evaluate Maryland's ARR program. However, we 
intend to have outcomes data in the future with which to evaluate 
Maryland's ARR program. We anticipate that, under the Hospital 
Readmissions Reduction Program, hospitals will experience a reduction 
in unnecessary readmissions. Therefore, in future rulemaking, we intend 
to propose to evaluate whether Maryland's ARR program can demonstrate 
similar decreases in potential preventable readmissions among hospitals 
in the State. Furthermore, we are proposing that the State's annual 
report and request for exemption from the Hospital Readmissions 
Reduction Program must be resubmitted and reconsidered annually in 
accordance with the statute and as proposed at Sec.  412.154(d)(2).
    Based on preliminary information provided by Maryland, the State 
believes that its program can meet our evaluation criteria and 
demonstrate that its program achieves or surpasses the measured results 
in terms of health outcomes and cost savings. We are reviewing whether 
the Maryland's ARR program, which currently cannot monitor readmissions 
to other hospitals and a financial reward for hospitals that reduce 
within-hospital readmissions and provides a 0.3 percent reduction to 
the annual rate update to account for comparable savings to the 
Hospital Readmissions Reduction Program, meets the criteria to exempt 
Maryland hospitals from the Hospital Readmissions Reduction Program. We 
welcome public comments on whether the Maryland ARR program meets the 
requirements for exemption from the Hospital Readmissions Reduction 
Program set forth in section 1886(q)(2)(B)(ii) of the Act.
    For the purposes of modeling the impacts of this proposal in this 
proposed rule, we have modeled under the assumption that Maryland 
hospitals will not have Hospital Readmission Reduction Program 
adjustment factors applied to them. Although the adjustment factors do 
not apply to these hospitals under our models, Maryland hospitals have 
excess readmission ratios, consistent with the definition of excess 
readmission ratio. Any readmission to a Maryland hospital from a 
subsection(d) hospital in another State is still considered a 
readmission for purposes of the original hospital in another State. 
This is consistent with the definition of readmissions in section 
1886(q)(5)(E) of the Act, which includes admissions to the same or 
another ``applicable hospital.'' As discussed above, we interpret the 
definition of ``applicable hospital'' under section 1886(q)(5)(C) of 
the Act includes both subsection (d) hospitals and hospitals paid under 
section 1814(b)(3) of the Act that would, absent the provisions of 
section 1814(b)(3) of the Act, be paid under subsection (d).
c. Proposals Regarding Adjustment Factor (Both the Ratio and Floor 
Adjustment Factor) (Proposed Sec.  412.154(c))
    Section 1886(q)(3)(A) of the Act defines the ``adjustment factor'' 
for an applicable hospital for a fiscal year as equal to the greater of 
``(i) the ratio described in subparagraph (B) for the hospital for the 
applicable period (as defined in paragraph (5)(D)) for such fiscal 
year; or (ii) the floor adjustment factor specified in subparagraph 
(C).'' Section 1886(q)(3)(B) of the Act in turn describes the ratio 
used to calculate the adjustment factor. Specifically, it states that 
the ratio is ``equal to 1 minus the ratio of--(i) the aggregate 
payments for excess readmissions * * *; and (ii) the aggregate payments 
for all discharges. * * *'' We are proposing to codify the calculation 
of this ratio at Sec.  412.154(c)(1) of the regulations. Section 
1886(q)(3)(C) of the Act specifies the floor adjustment factor, which 
is set at 0.99 for FY 2013, 0.98 for FY 2014, and 0.97 for FY 2015 and 
subsequent fiscal years. We are proposing to codify the floor 
adjustment factor at Sec.  412.154(c)(2) of the regulations.
    For FY 2013, under proposed Sec.  412.154(c), we are proposing that 
an applicable hospital would receive an adjustment factor that is 
either the greater of the ratio described in section IV.A.3.d. of this 
preamble or a floor adjustment factor of 0.99. We are proposing that 
the ratio would be rounded to the fourth decimal place, consistent with 
the calculation of other IPPS payment adjustments such as the wage 
index, DSH adjustment, and the IME adjustment. In other words, a 
hospital included in this program can have an adjustment factor that is 
between 1.0 and 0.9900 for FY 2013. Consistent with section 1886(q)(3) 
of the Act, under proposed Sec.  412.154(c), we are proposing that, for 
FY 2013, the hospital will receive an adjustment factor under the 
Hospital Readmissions Reduction Program that is the greater of the 
ratio or the floor of 0.99. Consistent with this proposal, under the 
regulations we are proposing at 42 CFR 412.152, we are proposing to 
define the ``floor adjustment factor'' as the value that the 
readmissions adjustment factor cannot be less than for a given fiscal 
year. As noted above, the floor adjustment factor is set at 0.99 for FY 
2013, 0.98 for FY 2014, and 0.97 for FY 2015 and subsequent fiscal 
years.
d. Proposals Regarding Aggregate Payments for Excess Readmissions and 
Aggregate Payments for All Discharges (Proposed Sec.  412.152)
    As discussed earlier, section 1886(q)(3)(B) of the Act specifies 
the ratio used to calculate the adjustment factor under the Hospital 
Readmissions Reduction Program. It states that the ratio is ``equal to 
1 minus the ratio of--(i) the aggregate payments for excess 
readmissions * * *; and (ii) the aggregate payments for all discharges 
* * *.'' In this section, we set forth

[[Page 27961]]

proposals to define aggregate payments for excess readmissions and 
aggregate payments for all discharges, as well as a methodology for 
calculating the numerator of the ratio (aggregate payments for excess 
readmissions) and the denominator of the ratio (aggregate payments for 
all discharges).
    Section 1886(q)(4) of the Act sets forth the definitions of 
``aggregate payments for excess readmissions'' and ``aggregate payments 
for all discharges'' for an applicable hospital for the applicable 
period. The term ``aggregate payments for excess readmissions'' is 
defined in section 1886(q)(4)(A) of the Act as ``for a hospital for an 
applicable period, the sum, for applicable conditions * * * of the 
product, for each applicable condition, of (i) the base operating DRG 
payment amount for such hospital for such applicable period for such 
condition; (ii) the number of admissions for such condition for such 
hospital for such applicable period; and (iii) the `Excess Readmission 
Ratio' * * * for such hospital for such applicable period minus 1.'' We 
are proposing to include this definition of ``aggregate payments for 
excess readmissions'' under the regulations we are proposing at 42 CFR 
412.152.
    The ``excess readmission ratio'' is a hospital-specific ratio 
calculated for each applicable condition. Specifically, section 
1886(q)(4)(C) of the Act defines the excess readmission ratio as the 
ratio of ``risk-adjusted readmissions based on actual readmissions'' 
for an applicable hospital for each applicable condition, to the 
``risk-adjusted expected readmissions'' for the applicable hospital for 
the applicable condition. The methodology for the calculation of the 
excess readmission ratio was finalized in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51673). ``Aggregate payments for excess 
readmissions'' is the numerator of the ratio used to calculate the 
adjustment factor under the Hospital Readmissions Reduction Program.
    The term ``aggregate payments for all discharges'' is defined at 
section 1886(q)(4)(B) of the Act as ``for a hospital for an applicable 
period, the sum of the base operating DRG payment amounts for all 
discharges for all conditions from such hospital for such applicable 
period.'' ``Aggregate payments for all discharges'' is the denominator 
of the ratio used to calculate the adjustment factor under the Hospital 
Readmissions Reduction Program. We are proposing to include this 
definition of ``aggregate payments for all discharges'' under the 
regulations we are proposing at Sec.  412.152.
    As discussed above, when calculating the numerator (aggregate 
payments for excess readmission), CMS determines the base operating DRG 
for the applicable period. ``Aggregate payments for excess 
readmissions'' (the numerator) is defined as ``the sum, for applicable 
conditions * * * of the product, for each applicable condition, of (i) 
the base operating DRG payment amount for such hospital for such 
applicable period for such condition; (ii) the number of admissions for 
such condition for such hospital for such applicable period; and (iii) 
the `Excess Readmission Ratio' * * * for such hospital for such 
applicable period minus 1.''
    We discussed above our proposed definition of ``base operating DRG 
payment amount.'' When determining the base operating DRG payment 
amount for an individual hospital for such applicable period for such 
condition, we are proposing to use Medicare inpatient claims from the 
MedPAR file with discharge dates that are within the same applicable 
period that was finalized in the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51671) to calculate the excess readmission ratio. We are proposing 
to use MedPAR claims data as our data source for determining aggregate 
payments for excess readmissions and aggregate payments for all 
discharges, as this data source is consistent with the claims data 
source used in IPPS rulemaking in order to determine IPPS rates. For FY 
2013, we are proposing to use data from MedPAR claims with discharge 
dates that are on or after July 1, 2008, and no later than June 30, 
2011, the applicable period finalized in the FY 2012 IPPS/LTCH PPS 
final rule. We are proposing to use the update of the MedPAR file for 
each Federal fiscal year, which is updated 6 months after the end of 
each Federal fiscal year within the applicable period, as our data 
source (that is, the March updates of the respective Federal fiscal 
year MedPAR files for the final rules, as described in greater detail 
below). These are the same MedPAR files that are used in the annual 
IPPS rulemaking for each Federal fiscal year.
    For the purposes of this proposed rule, for FY 2013, we are 
proposing to use the March 2009 update of the FY 2008 MedPAR file to 
identify claims within FY 2008 with discharges dates that are on or 
after July 1, 2008, the March 2010 update of the FY 2009 MedPAR file to 
identify claims within FY 2009, the March 2011 update of the FY 2010 
MedPAR file to identify claims within FY 2010, and the December 2011 
update of the FY 2011 MedPAR file to identify claims within FY 2011 
with discharge dates no later than June 30, 2011. However, for the FY 
2013 IPPS/LTCH PPS final rule, we plan to use the March 2012 update of 
the FY 2011 MedPAR file to identify claims within FY 2011, as these 
would be the most recently available FY 2011 claims data used for FY 
2013 rulemaking. These MedPAR data files are used each year in other 
areas of the IPPS, including calculating the IPPS relative weights, 
budget neutrality factors, outlier thresholds, and the standardized 
amount. Accordingly, we believe it is appropriate to use these same 
data files for the purpose of calculating the readmission adjustment 
factors. The FY 2008 through FY 2011 MedPAR data files can be purchased 
from CMS. These files allow the public to verify the readmission 
adjustment factors. Interested individuals may order these files 
through the Web site at: http://www.cms.hhs.gov/LimitedDataSets/ by 
clicking on the MedPAR Limited Data Set (LDS)-Hospital (National). This 
Web page describes the files and provides directions and further 
detailed instructions for how to order the data sets. Persons placing 
an order must send the following: a Letter of Request, the LDS Data Use 
Agreement and Research Protocol (refer to the Web site for further 
instructions), the LDS Form, and a check for $3,655 to:
    Mailing address if using the U.S. Postal Service: Centers for 
Medicare and Medicaid Services, RDDC Account, Accounting Division, P.O 
Box 7520, Baltimore, MD 21207-0520.
    Mailing address if using express mail: Centers for Medicare and 
Medicaid Services, OFM/Division of Accounting RDDC, Mailstop 
C<greek-i>-07-11, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    We note that, in this proposed rule, we are proposing to determine 
aggregate payments for excess readmissions and aggregate payments for 
all discharges using data from MedPAR claims with discharge dates that 
are on or after July 1, 2008, and no later than June 30, 2011, which is 
the applicable period finalized in the FY 2012 IPPS/LTCH PPS final 
rule. However, in this proposed rule, for the purposes of modeling, we 
are using excess readmission ratios based on an older performance 
period of July 1, 2007 to June 30, 2010. For the final rule, we intend 
to use both the excess readmission ratios and MedPAR claims data to 
calculate aggregate payments for excess readmissions and aggregate 
payments for all discharges based on the applicable period finalized in 
the FY 2012 IPPS/LTCH PPS final rule (July 1, 2008 to June 30, 2011).

[[Page 27962]]

    In order to identify the admissions for each condition for an 
individual hospital for calculating the aggregate payments for excess 
readmissions, we are proposing to identify each applicable condition 
using the same ICD-9-CM codes used to identify applicable conditions to 
calculate the excess readmission ratios. In the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51669), in our discussion of the methodology of the 
readmissions measures, we stated that we identify eligible 
hospitalizations and readmissions of Medicare patients discharged from 
an applicable hospital having a principal diagnosis for the measured 
condition in an applicable period. The discharge diagnoses for each 
applicable condition are based on a list of specific ICD-9-CM codes for 
that condition. These codes are listed in the 2010 Measures Maintenance 
Technical Report: Acute Myocardial Infarction, Heart Failure, and 
Pneumonia 30-Day Risk-Standardized Readmission Measures. They also are 
posted on the Web site at: http://www.QualityNet.org > Hospital-
Inpatient > Readmission Measures > methodologies.
    In order to identify the applicable conditions to calculate the 
aggregate payments for excess readmissions, we are proposing to 
identify the claim as an applicable condition if the ICD-9-CM code for 
that condition is listed as the principal diagnosis on the claim, 
consistent with the methodology to identify conditions to calculate the 
excess readmission ratio. Furthermore, we are proposing to only 
identify Medicare FFS claims that meet the criteria (that is, claims 
paid for under Part C, Medicare Advantage, would not be included in 
this calculation), consistent with the methodology to calculate excess 
readmission ratios based on readmissions for Medicare FFS patients. The 
tables below list the ICD-9-CM codes we are proposing to use to 
identify each applicable condition to calculate the aggregate payments 
for excess readmissions under this proposal. These ICD-9-CM codes will 
also be used to identify the applicable conditions to calculate the 
excess readmission ratios, consistent with our policy finalized in the 
FY 2012 IPPS/LTCH PPS final rule.

               ICD-9-CM Codes To Identify Pneumonia Cases
------------------------------------------------------------------------
             ICD-9-CM Code                     Description of code
------------------------------------------------------------------------
480.0.................................  Pneumonia due to adenovirus.
480.1.................................  Pneumonia due to respiratory
                                         syncytial virus.
480.2.................................  Pneumonia due to parainfluenza
                                         virus.
480.3.................................  Pneumonia due to SARS-associated
                                         coronavirus.
480.8.................................  Viral pneumonia: pneumonia due
                                         to other virus not elsewhere
                                         classified.
480.9.................................  Viral pneumonia unspecified.
481...................................  Pneumococcal pneumonia
                                         [streptococcus pneumoniae
                                         pneumonia].
482.0.................................  Pneumonia due to klebsiella
                                         pneumoniae.
482.1.................................  Pneumonia due to pseudomonas.
482.2.................................  Pneumonia due to hemophilus
                                         influenzae [h. influenzae].
482.30................................  Pneumonia due to streptococcus
                                         unspecified.
482.31................................  Pneumonia due to streptococcus
                                         group a.
482.32................................  Pneumonia due to streptococcus
                                         group b.
482.39................................  Pneumonia due to other
                                         streptococcus.
482.40................................  Pneumonia due to staphylococcus
                                         unspecified.
482.41................................  Pneumonia due to staphylococcus
                                         aureus.
482.42................................  Methicillin Resistant Pneumonia
                                         due to Staphylococcus Aureus.
482.49................................  Other staphylococcus pneumonia.
482.81................................  Pneumonia due to anaerobes.
482.82................................  Pneumonia due to escherichia
                                         coli [e.coli].
482.83................................  Pneumonia due to other gram-
                                         negative bacteria.
482.84................................  Pneumonia due to legionnaires'
                                         disease.
482.89................................  Pneumonia due to other specified
                                         bacteria.
482.9.................................  Bacterial pneumonia unspecified.
483.0.................................  Pneumonia due to mycoplasma
                                         pneumoniae.
483.1.................................  Pneumonia due to chlamydia.
483.8.................................  Pneumonia due to other specified
                                         organism.
485...................................  Bronchopneumonia organism
                                         unspecified.
486...................................  Pneumonia organism unspecified.
487.0.................................  Influenza with pneumonia.
488.11................................  Influenza due to identified
                                         novel H1N1 influenza virus with
                                         pneumonia.
------------------------------------------------------------------------


             ICD-9-CM Codes To Identify Heart Failure Cases
------------------------------------------------------------------------
             ICD-9-CM Code                      Code description
------------------------------------------------------------------------
402.01................................  Hypertensive heart disease,
                                         malignant, with heart failure.
402.11................................  Hypertensive heart disease,
                                         benign, with heart failure.
402.91................................  Hypertensive heart disease,
                                         unspecified, with heart
                                         failure.
404.01................................  Hypertensive heart and chronic
                                         kidney disease, malignant, with
                                         heart failure and with chronic
                                         kidney disease stage I through
                                         stage IV, or unspecified.
404.03................................  Hypertensive heart and chronic
                                         kidney disease, malignant, with
                                         heart failure and with chronic
                                         kidney disease stage V or end
                                         stage renal disease.
404.11................................  Hypertensive heart and chronic
                                         kidney disease, benign, with
                                         heart failure and with chronic
                                         kidney disease stage I through
                                         stage IV, or unspecified.
404.13................................  Hypertensive heart and chronic
                                         kidney disease, benign, with
                                         heart failure and with chronic
                                         kidney disease stage I through
                                         stage IV, or unspecified
                                         failure and chronic kidney
                                         disease stage V or end stage
                                         renal disease.

[[Page 27963]]

 
404.91................................  Hypertensive heart and chronic
                                         kidney disease, unspecified,
                                         with heart failure and chronic
                                         kidney disease stage V or end
                                         stage renal disease heart
                                         failure and with chronic kidney
                                         disease stage I through stage
                                         IV, or unspecified.
404.93................................  Hypertensive heart and chronic
                                         kidney disease, unspecified,
                                         with heart failure and chronic
                                         kidney disease stage V or end
                                         stage renal disease.
428.xx................................  Heart Failure.
------------------------------------------------------------------------


      ICD-9-CM Codes To Identify Acute Myocardial Infarction Cases
------------------------------------------------------------------------
             ICD-9-CM Code                     Description of Code
------------------------------------------------------------------------
410.00................................  AMI (anterolateral wall)--
                                         episode of care unspecified.
410.01................................  AMI (anterolateral wall)--
                                         initial episode of care.
410.10................................  AMI (other anterior wall)--
                                         episode of care unspecified.
410.11................................  AMI (other anterior wall)--
                                         initial episode of care.
410.20................................  AMI (inferolateral wall)--
                                         episode of care unspecified.
410.21................................  AMI (inferolateral wall)--
                                         initial episode of care.
410.30................................  AMI (inferoposterior wall)--
                                         episode of care unspecified.
410.31................................  AMI (inferoposterior wall)--
                                         initial episode of care.
410.40................................  AMI (other inferior wall)--
                                         episode of care unspecified.
410.41................................  AMI (other inferior wall)--
                                         initial episode of care.
410.50................................  AMI (other lateral wall)--
                                         episode of care unspecified.
410.51................................  AMI (other lateral wall)--
                                         initial episode of care.
410.60................................  AMI (true posterior wall)--
                                         episode of care unspecified.
410.61................................  AMI (true posterior wall)--
                                         initial episode of care.
410.70................................  AMI (subendocardial)--episode of
                                         care unspecified.
410.71................................  AMI (subendocardial)--initial
                                         episode of care.
410.80................................  AMI (other specified site)--
                                         episode of care unspecified.
410.81................................  AMI (other specified site)--
                                         initial episode of care.
410.90................................  AMI (unspecified site)--episode
                                         of care unspecified.
410.91................................  AMI (unspecified site)--initial
                                         episode of care.
------------------------------------------------------------------------

    Section 1886(q)(2) of the Act defines the base operating DRG 
payment amount as ``the payment amount that would otherwise be made 
under subsection (d) (determined without regard to subsection (o) [the 
Hospital VBP Program]) for a discharge if this subsection did not 
apply; reduced by * * * any portion of such payment amount that is 
attributable to payments under paragraphs (5)(A), (5)(B), (5)(F), and 
(12) of subsection (d).'' Paragraphs (d)(5)(A), (d)(5)(B), (d)(5)(F), 
and (d)(12) of section 1886 refer to outlier payments, IME payments, 
DSH payments, and payments for low-volume hospitals, respectively.
    As discussed earlier in section IV.A.3.b.(1) of this preamble, we 
are proposing to define ``base operating DRG payment amount'' under the 
Hospital Readmissions Reduction Program as the wage-adjusted DRG 
operating payment plus any new technology add-on payments. Thus, in 
order to calculate the base operating DRG payment amount for such 
condition for such hospital, we are proposing to identify the base 
operating DRG payment amount for such conditions based on the payment 
amounts in the MedPAR files on the claims identified to meet those 
conditions based on their ICD-9-CM code.
    As discussed in section IV.A.3.b. of this preamble, applicable 
hospitals in the Hospital Readmissions Reduction Program include SCHs 
and current MDHs (whose status is set to expire at the end of FY 2012), 
as these hospitals meet the definition of subsection (d) hospitals. 
SCHs are paid in the interim (prior to cost report settlement) on a 
claim-by-claim basis at the amount that is the higher of the payment 
based on the hospital-specific rate or the IPPS Federal rate based on 
the standardized amount. At cost report settlement, the fiscal 
intermediary or MAC determines whether the hospital would receive 
higher IPPS payments in the aggregate using the hospital-specific rate 
(on all claims) or the Federal rate (on all claims). MDHs are paid the 
sum of the Federal payment amount plus 75 percent of the amount by 
which their hospital-specific rate exceeds the Federal payment amount. 
Although MDH status is to expire beginning in FY 2013, because we are 
using historical data to determine the base operating DRG payments to 
calculate adjustment factor, the payments reflected on claims for 
current MDHs may be based on the hospital-specific rate. For SCHs and 
current MDHs, we are proposing to model their base operating DRG 
payment amount as they would have been paid under the Federal 
standardized amount, rather than using the information on the claim 
(which may represent a payment either made under the hospital-specific 
rate or the Federal rate) so that their payments are consistent with 
our proposed definition of base operating DRG payment. As such, the 
payment difference between the payment made under the hospital-specific 
rate and the payment made under the Federal rate is not included in the 
base operating DRG amount to determine the readmission adjustment 
factor; that is, it is neither included in the numerator of the 
aggregate dollars for excess readmissions nor in the denominator of the 
aggregate dollars for all discharges.
    As discussed earlier, we are proposing to use data from the MedPAR 
files that contain claims from the 3-year applicable period of July 1, 
2008, to June 30, 2011, for FY 2013 to calculate aggregate payments for 
excess readmissions (the numerator of the ratio). To calculate 
aggregate payments for excess readmissions, we are proposing to 
calculate the base operating DRG payment amounts for all the claims in 
the 3-year applicable period that list each applicable

[[Page 27964]]

condition as the principal diagnosis (as described above). Once we have 
calculated the base operating DRG payment amounts for all the claims 
that list each condition as the principal diagnosis, we are proposing 
to add up the base operating DRG payment amounts by each condition, 
resulting in three summed amounts, one amount for each of the three 
applicable conditions. We then are proposing to multiply each amount 
for each condition by their respective excess readmission ratio minus 
1. The methodology for the calculation of the excess readmission ratio 
was finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51673). We 
are proposing that the excess readmission ratios for each condition 
used to calculate the numerator of this ratio are excess readmission 
ratios that have gone through the proposed review and correction 
process described later in this proposed rule. Each product in this 
computation represents the payment for excess readmissions for that 
condition. We are proposing to then sum the resulting products, which 
represent a hospital's proposed ``aggregate payments for excess 
readmissions'' (the numerator of the ratio).
    If a hospital has an excess readmission ratio that is greater than 
1 for a condition, that hospital has performed, with respect to 
readmissions for that applicable condition, worse than the average 
hospital with similar patients. As such, it will have aggregate 
payments for excess readmissions. If a hospital has an excess 
readmission ratio that is less than (or equal) to one, that hospital 
has performed better (or on average), with respect to readmissions for 
that applicable condition, than an average hospital with similar 
patients. As such, that hospital would not be considered to have 
``aggregate payments'' for excess readmissions, and its payments would 
not be reduced under section 1886(q) of the Act. As described in 
section 1886(q)(4)(C) of the Act, and finalized in the FY 2012 IPPS/
LTCH PPS final rule, the excess readmission ratio used cannot be less 
than 1 because the hospital will not have aggregate payments for excess 
readmissions and will not be subject to a readmission payment 
adjustment, as the hospital will have performed better than average. 
Because this calculation is performed separately for the three 
conditions, a hospital's excess readmission ratio must be less than or 
equal to 1 on each measure to avoid aggregate payments for excess 
readmissions.
    Section 1886(q)(4)(B) of the Act defines ``aggregate payments for 
all discharges'' (the denominator of the ratio) as ``for a hospital for 
an applicable period, the sum of the base operating DRG payment amounts 
for all discharges for all conditions from such hospital for such 
applicable period.'' We are proposing to use the same MedPAR files to 
calculate the denominator as we are proposing to use to calculate the 
numerator, for the 3-year applicable period of July 1, 2008 to June 30, 
2011, for FY 2013. We are proposing to calculate base operating DRG 
payments in the same manner as we calculate base operating DRG payments 
for the numerator. We are proposing to sum the base operating DRG 
payment amounts for all Medicare FFS claims for such hospital during 
the 3-year applicable period. We also are proposing that we would model 
base operating DRG payment amount for SCHs and current MDHs as they 
would have been paid under the Federal standardized amount, rather than 
using the information on the claim (as described above).
    We are proposing that the ratio described in section 1886(q)(3)(B) 
of the Act is 1 minus the ratio of the numerator and denominator 
described above. In addition, we are proposing that the readmission 
adjustment for an applicable hospital is the higher of this ratio under 
section 1886(q)(3)(B) of the Act or the floor of 0.99 for FY 2013. 
Consistent with this proposal, under the regulations we are proposing 
at 42 CFR 412.152, we are proposing to define ``readmissions adjustment 
factor'' as equal to the greater of: (i) 1 minus the ratio of the 
aggregate payments for excess readmissions to aggregate payments for 
all discharges or (ii) the floor adjustment factor.
    For this proposed rule, for the purpose of modeling the proposed 
aggregate payments for excess readmissions and the proposed 
readmissions adjustment factors, we are using excess readmission ratios 
for the applicable hospitals from the 3-year period of July 1, 2007 to 
June 30, 2010, because the underlying data from this period have 
already been available to the public on the Hospital Compare Web site 
(as of July 2011). The data from the 3-year applicable period for FY 
2013 of July 1, 2008 to June 30, 2011, have not been through the review 
and correct process required by section 1886(q)(6) of the Act (as 
discussed below). For the final rule, we intend to use excess 
readmission ratios based on discharges for the finalized applicable 
period of July 1, 2008 to June 30, 2011, to calculate the aggregate 
payments for excess readmissions and, ultimately, to calculate the 
readmission adjustment factors. Applicable hospitals will have had the 
opportunity to review and correct these data before they are made 
public under our proposal set forth below regarding the reporting of 
hospital-specific readmission rates, consistent with section 1886(q)(6) 
of the Act.

Formulas To Calculate the Readmission Adjustment Factor

Aggregate payments for excess readmissions = [sum of base operating DRG 
payments for AMI x (Excess Readmission Ratio for AMI-1)] + [sum of base 
operating DRG payments for HF x (Excess Readmission Ratio for HF-1)] + 
[sum of base operating DRG payments for PN x (Excess Readmission Ratio 
for PN-1)].
Aggregate payments for all discharges = sum of base operating DRG 
payments for all discharges.
Ratio = 1-(Aggregate payments for excess readmissions/Aggregate 
payments for all discharges).
Readmissions Adjustment Factor for FY 2013 is the higher of the ratio 
or 0.99.

    *Based on claims data from July 1, 2008 to June 30, 2011 for FY 
2013.

    During the FY 2012 IPPS rulemaking cycle, we received public 
comments expressing concern that hospitals that treat a larger 
proportion of patients of lower socioeconomic circumstances may have 
higher readmission rates and could be unfairly penalized under the 
Hospital Readmissions Reduction Program. The table below shows, based 
on the excess readmission ratios and the proposed methodology to 
calculate the readmissions adjustment factor discussed in this proposed 
rule, the estimated distribution of the readmission adjustment factors 
among hospitals ranked by their DSH patient percentage (DPP). The DPP 
is used as a proxy for low-income patients and is the sum of the 
hospital's Medicare fraction and Medicaid fraction. The Medicare 
fraction is computed by dividing the number of a hospital's inpatient 
days that are furnished to patients who were entitled to both Medicare 
Part A and Supplemental Security Income (SSI) benefits by the 
hospital's total number of patient days furnished to patients entitled 
to benefits under Medicare Part A. The Medicaid fraction is computed by 
dividing the hospital's number of inpatient 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. The DPP is used to determine a hospital's Medicare DSH 
payment adjustment. Thus, hospitals with higher

[[Page 27965]]

percentages of Medicare patients entitled to SSI and higher percentages 
of Medicaid patients have higher DPPs. In the table, the hospitals are 
ranked by their estimated DPP and categorized into deciles. The table 
shows the number of hospitals within each decile that are subject to no 
proposed readmission payment adjustment, the -1 percent floor 
readmission payment adjustment, and a readmission payment adjustment 
that is less than the -1 percent floor. We are inviting public comment 
on this analysis.

             Distribution of Hospitals Readmission Adjustment Factor by DSH Patient Percentage (DPP)
----------------------------------------------------------------------------------------------------------------
                                                                 Payment
                                              Number of       adjustment of   -1 Percent floor   No readmission
                 Decile                       hospitals       less  than -1      adjustment        adjustment
                                                                 percent                             factor
----------------------------------------------------------------------------------------------------------------
Lowest DPP..............................               339               156                38               145
Second..................................               339               164                57               118
Third...................................               339               168                44               127
Fourth..................................               339               170                48               121
Fifth...................................               339               182                42               115
Sixth...................................               339               171                43               125
Seventh.................................               339               187                44               108
Eighth..................................               339               182                43               114
Ninth...................................               339               179                58               102
Highest DPP.............................               342               185                61                96
                                         -----------------------------------------------------------------------
    Total...............................             3,393             1,744               478             1,171
----------------------------------------------------------------------------------------------------------------

    In addition, we have examined the estimated distribution of the 
proposed readmission adjustment factor based on the excess readmission 
ratios in this proposed rule (determined using the 2007-2010 data 
discussed above). The table below shows the number and percentage of 
hospitals ranked by the percent reduction received under the Hospital 
Readmissions Reduction Program. The table shows that about 71 percent 
of hospitals would receive either no adjustment or a readmission 
adjustment factor that would reduce their base operating DRG payments 
by less than 0.5 percent.

             Distribution of Readmission Adjustment Factors
------------------------------------------------------------------------
                                          Number of        Percent of
          Percent reduction               hospitals         hospitals
------------------------------------------------------------------------
No Adjustment.......................             1,171              34.5
Up to -.09 Percent..................               347              10.2
-0.1 Percent to -0.19 Percent.......               280               8.3
-0.20 Percent to -0.29 Percent......               228               6.7
-0.30 Percent to -0.39 Percent......               196               5.8
-0.40 Percent to -0.49 Percent......               180               5.3
-0.50 Percent to -0.59 Percent......               129               3.8
-0.60 Percent to -0.69 Percent......               118               3.5
-0.70 Percent to -0.79 Percent......               110               3.2
-0.80 Percent to -0.89 Percent......                77               2.3
-0.90 Percent to -0.99 Percent......                76               2.2
-1.0 Percent........................               481              14.2
                                     -----------------------------------
    Total...........................             3,393             100.0
------------------------------------------------------------------------

e. Proposals Regarding Applicable Hospitals
    An ``applicable hospital,'' is defined at section 1886(q)(5)(C) of 
the Act as (1) ``a subsection(d) hospital or (2) a hospital that is 
paid under section 1814(b)(3).'' Specifically, hospitals subject to the 
Hospital Readmissions Reduction Program are hospitals paid under the 
IPPS and hospitals paid under the authority of section 1814(b)(3) of 
the Act. We are interpreting this reference to section 1814(b)(3) of 
the Act to mean those Maryland hospitals that are paid under section 
1814(b)(3) of the Act and that, absent the ``waiver'' specified by 
section 1814(b)(3) of the Act, would have been paid under the IPPS. A 
subsection (d) hospital is defined in section 1886(d)(1)(B) of the Act, 
in part, as a ``hospital located in one of the fifty States or the 
District of Columbia.'' The term subsection (d) hospital does not 
include hospitals located in the Territories or hospitals located in 
Puerto Rico. Section 1886(d)(9)(A) of the Act separately defines a 
``subsection(d) Puerto Rico hospital'' as a hospital that is located in 
Puerto Rico and that ``would be a subsection(d) hospital * * * if it 
were located in one of the 50 States.'' Therefore, Puerto Rico 
hospitals are not considered applicable hospitals under the Hospital 
Readmissions Reduction Program. Indian Health Services hospitals 
enrolled as a Medicare provider meet the definition of a subsection (d) 
hospital and, therefore, are considered an applicable hospital under 
the Hospital Readmissions Reduction Program, even if they are not paid 
under the IPPS. In addition, hospitals that are SCHs and current MDHs, 
although they may be paid under a hospital-specific rate instead of 
under the Federal rate under the IPPS, are subsection (d) hospitals 
and, therefore, are included in the definition of an applicable 
hospital

[[Page 27966]]

under the Hospital Readmissions Reduction Program.
    A subsection (d) hospital as defined in section 1886(d)(1)(B) of 
the Act does not include hospitals and hospital units excluded from the 
IPPS, such as LTCHs, cancer hospitals, children's hospitals, IRFs, and 
IPFs, and, therefore, these hospitals are not considered ``applicable 
hospitals.'' CAHs are not ``applicable hospitals'' because they do not 
meet the definition of a ``subsection (d) hospital,'' as they are 
separately defined under section 1886(mm) of the Act and are paid under 
a reasonable cost methodology under section 1814(l) of the Act. 
Consistent with the statute, therefore, we are proposing to define 
``applicable hospital'' under the regulations at 42 CFR 412.152 to 
include both (1) subsection (d) hospitals, that is, hospitals paid 
under the IPPS and (2) hospitals in Maryland that are paid under 
section 1814(b)(3) of the Act and that, absent the ``waiver'' specified 
by section 1814(b)(3) of the Act, would have been paid under the IPPS.
    The term ``applicable hospital'' is also referenced in the 
definition of readmission in section 1886(q)(5)(E) of the Act, which 
defines ``readmission'' as ``in the case of an individual who is 
discharged from an applicable hospital, the admission of the individual 
to the same or another applicable hospital within a time period 
specified by the Secretary from the date of such discharge.'' In the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51666), we finalized the 
definition of readmission as ``occurring when a patient is discharged 
from the applicable hospital and then is admitted to the same or 
another acute care hospital within a specified time period from the 
time of discharge from the index hospitalization.'' Furthermore, we 
finalized the time period specified for these readmission measures as 
30 days. With our proposal to define an applicable hospital as a 
subsection (d) hospital or certain Maryland hospitals described above, 
we also are proposing to refine the definition of readmission to only 
include admissions and readmissions occurring from an applicable 
hospital (that is, a subsection (d) hospital or certain Maryland 
hospitals) to the same or another applicable hospital (again, a 
subsection (d) hospital or certain Maryland hospitals) (proposed Sec.  
412.152). Accordingly, excess readmission ratios calculated for the 
purpose of the Hospital Readmissions Reduction Program would include 
only admissions and readmissions to ``applicable hospitals.''
    We note that because the Hospital Readmissions Reduction Program 
only includes admissions and readmissions to ``applicable hospitals'' 
to calculate the excess readmission ratios used under section 1886(q) 
of the Act, these excess readmission ratios will differ from the 
readmission rates reported on Hospital Compare for the purpose of the 
Hospital IQR Program. The excess readmission ratios for the purpose of 
the Hospital IQR Program were determined based on admissions and 
readmissions to all hospitals, not just hospitals specified in sections 
1886(d) and 1814(b)(3) of the Act. Therefore, as discussed above, the 
excess readmission ratios used in this proposed rule will use a subset 
of the claims used to calculate the readmission rates reported on 
Hospital Compare for the purpose of the Hospital IQR Program and would 
be limited to admissions and readmissions to ``applicable hospitals'' 
and are based on the period of June 30, 2007 to July 1, 2010. In this 
proposed rule, we are using these excess readmission ratios, as they 
are based on the most recent data available and will allow the public 
to replicate our methodology to understand how the readmission 
adjustment factor is calculated. We believe that the differences 
between these proposed excess readmission ratios and those excess 
readmission ratios currently published on Hospital Compare under the 
Hospital IQR Program are minimal, and we believe that it is helpful for 
hospitals to see the impact of our proposed methodology to calculate 
the readmission adjustment using excess readmission ratios calculated 
under our methodology finalized in the FY 2012 IPPS/LTCH PPS final 
rule. For the final rule, we intend to use excess readmission ratios 
based on the applicable period of June 30, 2008 to July 1, 2011, as 
finalized in the FY 2012 IPPS/LTCH PPS final rule, and hospitals will 
have the opportunity to review and correct their data related to their 
excess readmission ratios prior to the publication of those excess 
readmission ratios.
    We are specifically inviting public comment on our readmissions 
proposal, including our proposed definition of base operating DRG 
payment, our proposed methodology to calculate the readmission 
adjustment factor, the minimum number of cases, and our proposed 
definition of applicable hospital.
4. Limitations on Review (Proposed Sec.  412.154(e))
    Section 1886(q)(7) of the Act provides that there will be no 
administrative or judicial review under section 1869 of the Act, under 
section 1878 of the Act, or otherwise for any of the following:
    <bullet> The determination of base operating DRG payment amounts.
    <bullet> The methodology for determining the adjustment factor, 
including the excess readmissions ratio, aggregate payments for excess 
readmissions, and aggregate payments for all discharges, and applicable 
periods and applicable conditions.
    We are proposing to include under proposed Sec.  412.154(e) that 
the provisions listed above will not be subject to administrative or 
judicial review, consistent with section 1886(q)(7) of the Act. We note 
that section 1886(q)(6) of the Act requires that the Secretary ``make 
information available to the public regarding readmissions rates of 
each subsection (d) hospital under the [Hospital Readmissions Reduction 
Program]'' and also requires the Secretary to ``ensure that a 
subsection (d) hospital has the opportunity to review and submit 
corrections for, the information to be made public.'' Our proposal for 
reporting hospital-specific information, including a hospital's 
opportunity to review and submit corrections, consistent with section 
1886(q)(7) of the Act, is discussed below.
5. Reporting Hospital-Specific Information, Including Opportunity To 
Review and Submit Corrections (Proposed Sec.  412.154(f))
    Section 1886(q)(6)(A) of the Act requires the Secretary to ``make 
information available to the public regarding readmissions rates of 
each subsection (d) hospital under the [Hospital Readmissions Reduction 
Program]''. Section 1886(q)(6)(B) of the Act also requires the 
Secretary to ``ensure that a subsection (d) hospital has the 
opportunity to review, and submit corrections for, the information to 
be made public with respect to the hospital.'' In addition, section 
1886(q)(6)(C) of the Act requires the Secretary to post the hospital-
specific readmission information for each subsection (d) hospital on 
the Hospital Compare Web site in an easily understood format.
    For purposes of the Hospital Readmissions Reduction Program for FY 
2013, we will calculate excess readmission ratios for each of the three 
conditions, AMI, HF, and PN, using the previously finalized 3-year 
applicable period for the FY 2013 payment determination that spans from 
July 1, 2008 through June 30, 2011 (76 FR 51671), data sources, and the 
minimum number of discharges previously finalized in the FY 2012 IPPS/
LTCH

[[Page 27967]]

PPS final rule for each applicable hospital (76 FR 51671 through 
51672). We intend to make these excess readmission ratios available to 
the public, consistent with the requirements of section 1886(q)(6)(B) 
of the Act, as part of the FY 2013 rulemaking process, in addition to 
posting this information on the Hospital Compare Web site in a 
subsequent release.
    In the FY 2012 IPPS/LTCH PPS final rule, we indicated that we would 
provide hospitals an opportunity to review and submit corrections using 
a process similar to what is currently used for posting results on 
Hospital Compare. We currently provide hospitals with the data elements 
necessary to verify the accuracy of their readmission rates for the 
Hospital IQR Program prior to posting their rates on Hospital Compare. 
Because we believe it is important to provide hospitals with relevant 
information available to hospitals for assessing payment impacts for 
purposes of the Hospital Readmissions Reduction Program, we plan to 
make the excess readmission ratios used for the Hospital Readmissions 
Reduction Program adjustment factor calculation available during the 
rulemaking cycle. As a result, the timeline and details of this process 
must accommodate the rulemaking timeline in addition to posting on 
Hospital Compare. We are proposing below the details regarding the 
process for hospitals to review and submit corrections to their excess 
readmission ratios prior to making this information available to the 
public in rulemaking and on Hospital Compare.
    For FY 2013, we are proposing to deliver confidential reports and 
accompanying confidential discharge-level information to applicable 
hospitals as defined in section IV.A.2. of this preamble, which contain 
their excess readmission ratios for the three applicable conditions by 
June 20, 2012. These reports will be delivered in hospitals' secure 
QualityNet accounts. The information in the confidential reports and 
accompanying confidential discharge-level information would be 
calculated using the claims information we had available approximately 
90 days after the last discharge date in the applicable period, which 
is when we would create the data extract for the calculations (we 
discuss this practice in more detail later).
    The discharge-level information accompanying the excess readmission 
ratios would include the risk-factors for the discharges that factor 
into the calculation of the excess readmission ratio, as well as 
information about the readmissions associated with these discharges 
(such as dates, provider numbers, and diagnosis upon readmission). Our 
intent in providing this information is twofold: (1) To facilitate 
hospitals' verification of the excess readmission ratio calculations we 
provide during the review and correction period based upon the 
information CMS had available at the time our data extract was created; 
and (2) to facilitate hospitals' quality improvement efforts with 
respect to readmissions.
    We are proposing to provide hospitals with a period of 30 days to 
review and submit corrections for their excess readmission ratios for 
the Hospital Readmissions Reduction Program. This 30-day period would 
begin the day hospitals' confidential reports and accompanying 
discharge-level information are posted to their QualityNet accounts. 
Based on previous experience with public reporting of measures under 
the Hospital IQR program, including the 30-day risk standardized 
readmission rates, we believe this 30-day period would allow enough 
time for hospitals to review their data and notify CMS of calculation 
errors, and for CMS to incorporate appropriate corrections to the 
excess readmission ratio calculations prior to the publication of the 
final rule, at which time the excess readmission ratios would be made 
available to the public in a table to be cited in the final rule and 
available via the Internet on the CMS Web site. During the review and 
correction period, hospitals should notify CMS of suspected errors in 
their excess readmission ratio calculations using the technical 
assistance contact information provided in their confidential reports.
    The review and correction process we are proposing for the excess 
readmission ratios above would not allow hospitals to submit additional 
corrections related to the underlying claims data we used to calculate 
the ratios, or allow hospitals to add new claims to the data extract we 
used to calculate the ratios. This is because it is necessary to take a 
static ``snapshot'' of the claims in order to perform the calculations. 
For purposes of this program, we would calculate the excess readmission 
ratios using a static snapshot (data extract) taken at the conclusion 
of the 90 day period following the last date of discharge used in the 
applicable period. We recognize that under our current timely claims 
filing policy, hospitals have up to one year from the date of discharge 
to submit a claim to CMS. However, in using claims data to calculate 
measures for this program, we are proposing to create data extracts 
using claims in CMS' Common Working File (CWF) 90 days after the last 
discharge date in the applicable period which we will use for the 
calculations. For example, if the last discharge date in the applicable 
period for a measure is June 30, 2011, we would create the data extract 
on September 30, 2011, and use that data to calculate the ratios for 
that applicable period. Hospitals would then receive the excess 
readmission ratio calculations in their confidential reports and 
accompanying discharge-level information and they would have an 
opportunity to review and submit corrections for the calculations. As 
we stated above, hospitals would not be able to submit corrections to 
the underlying data that were extracted on September 30, 2011, and 
would also not be able to add claims to the data set. Therefore, we 
would consider hospitals' claims data to be complete for purposes of 
calculating the excess readmission ratios for the Hospital Readmissions 
Reduction Program at the conclusion of the 90-day period following the 
last date of discharge used in the applicable period.
    We considered a number of factors in determining that a 90-day 
``run-out'' period is appropriate for purposes of calculating claims 
based measures. First, we seek to provide timely quality data to 
hospitals for the purpose of quality improvement and to the public for 
the purpose of transparency. Next, we seek to make payment adjustments 
to hospitals based on their performance on measures as close in time to 
the performance period as possible. Finally, with respect to claims-
based measures, we seek to have as complete a data set as possible, 
recognizing that hospitals have up to one year from the date of 
discharge to submit a claim under CMS' timely claims filing policy.
    After the data extract is created, it takes several months to 
incorporate other data needed for the calculations (particularly in the 
case of risk-adjusted, and/or episode-based measures). We then need to 
generate and check the calculations, as well as program, populate, and 
deliver the confidential reports and accompanying data to be delivered 
to hospitals. We also are aware that hospitals would prefer to receive 
the calculations to be used for the Hospital Readmissions Reduction 
Program as soon as possible. Because several months lead time is 
necessary after acquiring the data to generate these claims-based 
calculations, if we were to delay our data extraction point to 12 
months after the last date of the last discharge in the applicable 
period, we would not be able to deliver the calculations to hospitals 
sooner than 18 to 24 months after the last discharge

[[Page 27968]]

date. We believe this would create an unacceptably long delay both for 
hospitals and for CMS to deliver timely calculations to hospitals for 
quality improvement and transparency, and ultimately timely readmission 
adjustment factors for purposes of this program. Therefore, we are 
proposing to extract the data needed to calculate the excess 
readmission ratios for this program 90 days after the last date of 
discharge for the applicable period so that we can balance the need to 
provide timely program information to hospitals with the need to 
calculate the claims-based measures using as complete a data set as 
possible.
    During the 30-day review and correction process for the excess 
readmission ratios, if a subsection (d) hospital suspects that such 
discrepancies exist in the CMS application of the measures' 
methodology, it should notify CMS during the review and correction 
period using the technical support contacts provided in the hospital's 
confidential report. We would investigate the validity of each 
submitted correction and notify hospitals of the results. If we confirm 
that we made an error in creating the data extract or in calculating 
the excess readmission ratios, we would strive to correct the 
calculations, issue new confidential reports to subsection (d) 
hospitals, and then publicly report the corrected excess readmission 
ratios through the rulemaking process, and subsequently on Hospital 
Compare. However, if the errors take more time than anticipated to 
correct, not allowing for publication of the corrected ratios in the 
final rule, we would notify hospitals in the final rule that corrected 
ratios will be made available after the final rule through delivery of 
confidential reports followed by a second 30-day review and correction 
period, subsequent publication, and posting on Hospital Compare. In 
addition, we are proposing that any corrections to a hospital's excess 
readmission ratios would then be used to recalculate a hospital's ratio 
under section 1886(q)(4)(B) of the Act in order to determine the 
hospital's adjustment factor in accordance with section 1886(q)(3) of 
the Act.
    We believe that this proposed process would fulfill the statutory 
requirements at section 1886(q)(6)(A), section 1886(q)(6)(B), and 
section 1886(q)(6)(C) of the Act. We further believe that the proposed 
process would allow hospitals to review and correct their excess 
readmission ratios. We note that, under the proposed process, hospitals 
would retain the ability to submit new claims and corrections to 
submitted claims for payment purposes in line with CMS' timely claims 
filing policies. However, we emphasize that the administrative claims 
data used to calculate the excess readmission ratios reflect the state 
of the claims at the time of extraction from CMS' Common Working File. 
Under the proposed process, a hospital's opportunity to submit 
corrections to the calculation of the excess readmission ratios ends at 
the conclusion of the review and correction period. We welcome public 
comments on the proposed review and corrections process for the 
Hospital Readmissions Reduction Program.

B. Sole Community Hospitals (SCHs) (Sec.  412.92)

1. Background
    Section 1886(d)(5)(D)(iii) of the Act defines a sole community 
hospital (SCH) in part 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 inpatient hospital services reasonably available to Medicare 
beneficiaries. The regulations at 42 CFR 412.92 set forth the criteria 
that a hospital must meet to be classified as a SCH. For more 
information on SCHs, we refer readers to the FY 2009 IPPS/LTCH PPS 
final rule (74 FR 43894 through 463897).
2. Clarification of Regulations Regarding Duration of Classification 
(Proposed Sec.  412.92(b)(3)(iv))
    The regulations at Sec.  412.92(b)(2) and (b)(3) address the 
effective dates of a classification as an SCH and the duration of this 
classification. Currently, a hospital's SCH classification status 
remains in effect without the need for reapproval unless there is a 
change in the circumstances under which the classification was 
approved. Section 412.92(b)(3) requires a hospital to notify the fiscal 
intermediary (or MAC) within 30 days of when a change occurs that could 
affect its classification as an SCH. Specifically, the regulations 
require an SCH to notify its fiscal intermediary or MAC if any of the 
following changes specified in Sec.  412.92(b)(3)(ii) (A) through (E) 
occur:
    <bullet> The opening of a new hospital in its service area.
    <bullet> The opening of a new road between itself and a like 
provider within 35 miles.
    <bullet> An increase in the number of beds to more than 50, if the 
hospital qualifies as an SCH under Sec.  412.92(a)(1)(ii).
    <bullet> Its geographic classification changes.
    <bullet> Any changes to the driving conditions that result in a 
decrease in the amount of travel time between itself and a like 
provider if the hospital qualifies as an SCH under Sec.  412.92(a)(3).
    As discussed in the FY 2007 IPPS final rule (71 FR 48060), in the 
context of CMS becoming aware of several hospitals that had been paid 
based on SCH status, even after the original circumstances that led to 
the classification changed, CMS determined that an SCH's classification 
status would end 30 days after CMS notifies the SCH that it no longer 
meets the requirements to be classified as an SCH. However, if a 
hospital does not report when any one of the changes listed above 
occurs, CMS will cancel the hospital's SCH classification effective 
with the date that the hospital no longer met the criteria for SCH 
classification, subject to the reopening rules at 42 CFR 405.1885 
(Sec.  412.92(a)(3)(i)).
    For any change that is not listed under Sec.  412.92(b)(3)(ii)(A) 
through (E) that affects an SCH's classification status, CMS requires a 
hospital to report that change to the fiscal intermediary or MAC only 
if it ``becomes aware'' of the change. If a hospital does not report a 
change, other than those listed under Sec.  412.92(b)(3)(ii)(A) through 
(E), and it becomes known to CMS that the hospital had knowledge of 
that change, CMS will cancel the hospital's SCH classification 
effective with the date the hospital became aware of the event. 
Specifically, Sec.  412.92(b)(3)(iii) states that ``a sole community 
hospital must report to the fiscal intermediary if it becomes aware of 
any change that would affect its classification as a sole community 
hospital beyond the events listed in paragraph (b)(3)(ii) of this 
section within 30 days of the event. If CMS determines that a sole 
community hospital has failed to comply with this requirement, CMS will 
cancel the hospital's classification as a sole community hospital 
effective with the date the hospital became aware of the event that 
resulted in the sole community hospital no longer meeting the criteria 
for such classification, consistent with the provisions of Sec.  
405.1885 of this chapter.'' (Emphasis added.)
    It has come to our attention that the existing regulations only 
address a situation where an SCH no longer meets the requirements to be 
classified as an SCH. The existing language at Sec.  412.92(b)(3)(iii) 
only refers to a hospital becoming aware of a ``change,'' because it 
deals specifically with a situation where a hospital was

[[Page 27969]]

appropriately classified as an SCH because it had previously met the 
requirements to become an SCH. However, the regulations do not 
explicitly address the situation where a hospital never met the 
requirements to be classified as an SCH, but was incorrectly classified 
as an SCH. We believe that the regulations need to be clarified to 
state explicitly our current authority that if a determination is 
subsequently made that, in fact, a hospital did not ever qualify as an 
SCH, the withdrawal of SCH status could be made retroactively to revoke 
the SCH status for the entire time period, consistent with the 
reopening rules at Sec.  405.1885.
    We continue to believe that any factor or information, not only a 
change or an event, that could affect a hospital's SCH classification 
status, must be reported by the SCH to its fiscal intermediary or MAC. 
Accordingly, we are proposing to revise the regulations by adding a new 
paragraph (b)(3)(iv) to Sec.  412.92 to clarify our current authority 
that if CMS determines that the hospital was incorrectly classified as 
an SCH, SCH status could be cancelled retroactively, consistent with 
the provisions at Sec.  405.1885.
3. Proposed Change to Effective Date of Classification for MDHs 
Applying for SCH Status Upon the Expiration of the MDH Program 
(Proposed Sec.  412.92(b)(2)(v))
    Under existing regulations at Sec.  412.92(b)(2), a SCH's status is 
generally effective 30 days after CMS's written notification of 
approval. It has come to our attention that there may be a number of 
hospitals currently classified as MDHs under Sec.  412.108 of the 
regulations that intend to apply for classification as SCHs upon the 
expiration of the MDH program provision on September 30, 2012. Those 
hospitals may be reluctant to apply for SCH classification status well 
before the expiration of their MDH status because they would prefer to 
maintain their MDH status for as long as possible. Conversely, if those 
hospitals were to wait to apply for SCH classification status after 
expiration of their MDH status, they could experience a financial 
hardship if there were a delay in the approval for SCH classification 
status. In order to facilitate a seamless transition for hospitals that 
are currently classified as MDHs and that will qualify as SCHs, we are 
proposing to add an exception to the effective dates of SCH 
classification by adding a new paragraph (v) under Sec.  412.92(b)(2). 
We are proposing that, for any MDH that applies for SCH classification 
status at least 30 days prior to the expiration of the MDH program 
provision and requests that SCH classification status be effective with 
the expiration of the MDH program provision, and the MDH is approved 
for SCH classification status, the effective date of the hospital's 
classification as an SCH would be the day following the expiration date 
of the MDH program provision (that is, October 1, 2012). For example, 
Hospital A is an MDH that would like to maintain its MDH status for as 
long as possible and be classified as an SCH only after its MDH status 
expires. In order to seamlessly transition from MDH status to SCH 
status, Hospital A must apply for SCH status prior to September 1, 
2012, and must request that, if approved, SCH classification status be 
effective with the expiration of the MDH program provision. If CMS 
determines that Hospital A qualifies for SCH status, the effective date 
of its SCH classification will be October 1, 2012.

C. Rural Referral Centers (RRCs): Annual Update to Case-Mix Index (CMI) 
and Discharge Criteria (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 a rural referral center 
(RRC). RRCs receive some special treatment under both the DSH payment 
adjustment and the criteria for geographic reclassification.
    Section 402 of Public Law 108-173 raised the DSH payment adjustment 
for RRCs such that they are not subject to the 12-percent cap on DSH 
payments that is applicable to other rural hospitals. RRCs are also not 
subject to the proximity criteria when applying for geographic 
reclassification. In addition, they do not have to meet the requirement 
that a hospital's average hourly wage must exceed, by a certain 
percentage, the average hourly wage of the labor market area where the 
hospital is located.
    Section 4202(b) of 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--
    <bullet> 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
    <bullet> 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 2013 includes data from all urban hospitals 
nationwide, and the proposed regional values for FY 2013 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 2011 (October 1, 2010 through September 30, 2011), 
and include bills

[[Page 27970]]

posted to CMS' records through December 2011.
    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, 
2012, they must have a CMI value for FY 2011 that is at least--
    <bullet> 1.5378; or
    <bullet> 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:

------------------------------------------------------------------------
                                                         Case-mix index
                        Region                                value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)...............            1.3085
2. Middle Atlantic (PA, NJ, NY).......................            1.3739
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)            1.4647
4. East North Central (IL, IN, MI, OH, WI)............            1.4557
5. East South Central (AL, KY, MS, TN)................            1.4025
6. West North Central (IA, KS, MN, MO, NE, ND, SD)....            1.4734
7. West South Central (AR, LA, OK, TX)................            1.5861
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)..........            1.6132
9. Pacific (AK, CA, HI, OR, WA).......................            1.5156
------------------------------------------------------------------------

    The preceding numbers will be revised in the FY 2013 final rule to 
the extent required to reflect the updated FY 2011 MedPAR file, which 
will contain data from additional bills received through March 2012.
    A hospital seeking to qualify as an RRC should obtain its hospital-
specific CMI value (not transfer-adjusted) from its fiscal intermediary 
or MAC. Data are available on the Provider Statistical and 
Reimbursement (PS&R) System. In keeping with our policy on discharges, 
the CMI values are computed based on all Medicare patient discharges 
subject to the IPPS MS-DRG-based payment.
2. Discharges
    Section 412.96(c)(2)(i) provides that CMS set forth the national 
and regional numbers of discharges in each year's annual notice of 
prospective payment rates for purposes of determining RRC status. As 
specified in section 1886(d)(5)(C)(ii) of the Act, the national 
standard is set at 5,000 discharges. We would normally propose to 
update the regional standards based on discharges for urban hospitals' 
cost reporting periods that began during FY 2010 (that is, October 1, 
2009 through September 30, 2010), which would normally be the latest 
cost report data available at the time of the development of this 
proposed rule. However, due to a transition in our data system, in lieu 
of a full year of FY 2010 cost report data, we needed to use a 
combination of FY 2009 and FY 2010 cost report data in order to create 
a full fiscal year of cost report data for this analysis. Due to CMS' 
transition to a new cost reporting form effective for cost reporting 
periods beginning on or after May 1, 2010, cost reports with fiscal 
year begin dates of May 1, 2010 through September 30, 2010 were not 
accessible on our system for analysis at the time of the development of 
this proposed rule. Therefore, in order to have a complete fiscal year 
of cost report data, we utilized FY 2009 cost report data for providers 
with fiscal years beginning on or after May 1, 2010 and by September 
30, 2010, in addition to the FY 2010 cost report data for providers 
with fiscal years beginning on or after October 1, 2009 and before May 
1, 2010.
    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, 2012, must 
have, as the number of discharges for its cost reporting period that 
began during FY 2010 (based on a combination of FY 2009 and FY 2010 
cost report data as explained in the preceding paragraph), at least--
    <bullet> 5,000 (3,000 for an osteopathic hospital); or
    <bullet> The median number of discharges for urban hospitals in the 
census region in which the hospital is located, as indicated in the 
following table.

------------------------------------------------------------------------
                                                            Number of
                        Region                             discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)...............             8,159
2. Middle Atlantic (PA, NJ, NY).......................            11,448
3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)            11,728
4. East North Central (IL, IN, MI, OH, WI)............             8,833
5. East South Central (AL, KY, MS, TN)................             7,234
6. West North Central (IA, KS, MN, MO, NE, ND, SD)....             8,129
7. West South Central (AR, LA, OK, TX)................             6,253
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)..........             9,347
9. Pacific (AK, CA, HI, OR, WA).......................             8,745
------------------------------------------------------------------------

    These numbers will be revised in the FY 2013 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 under this proposed rule.
    We reiterate that, if an osteopathic hospital is to qualify for RRC 
status for cost reporting periods beginning on or after October 1, 
2012, the hospital would be required to have at least 3,000 discharges 
for its cost reporting period that began during FY 2010 (based on a 
combination of FY 2009 and FY 2010 cost report data as explained 
earlier in this section).

[[Page 27971]]

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

1. Expiration of the Affordable Care Act Provision for FYs 2011 and 
2012
    For FYs 2011 and 2012, the Affordable Care Act expanded the 
definition of low-volume hospital and modified the methodology for 
determining the payment adjustment for hospitals meeting that 
definition. Beginning with FY 2013, the low-volume hospital qualifying 
criteria and payment adjustment will revert to the statutory 
requirements that were in effect prior to the amendments made by the 
Affordable Care Act. We discuss the proposed payment policies for FY 
2013 in section IV.D.4. of this preamble.
2. Background
    Section 1886(d)(12) of the Act, as added by section 406(a) of 
Public Law 108-173, provides for a payment adjustment to account for 
the higher costs per discharge for low-volume hospitals under the IPPS, 
effective beginning FY 2005. The additional payment adjustment to a 
low-volume hospital provided for under section 1886(d)(12) of the Act 
is ``in addition to any payment calculated under this section.'' 
Therefore, the additional payment adjustment is based on the per 
discharge amount paid to the qualifying hospital under section 1886 of 
the Act. In other words, the low-volume add-on payment amount is based 
on total per discharge payments made under section 1886 of the Act, 
including capital, DSH, IME, and outliers. For SCHs and MDHs, the low-
volume add-on payment amount is based on either the Federal rate or the 
hospital-specific rate, whichever results in a greater operating IPPS 
payment.
    Section 1886(d)(12)(C)(i) of the Act defined a low-volume hospital 
as ``a subsection (d) hospital (as defined in paragraph (1)(B)) that 
the Secretary determines is located more than 25 road miles from 
another subsection (d) hospital and that has less than 800 discharges 
during the fiscal year.'' Section 1886(d)(12)(C)(ii) of the Act further 
stipulates that the term ``discharge'' means ``an inpatient acute care 
discharge of an individual regardless of whether the individual is 
entitled to benefits under Part A.'' Therefore, the term ``discharge'' 
refers to total discharges, regardless of payer (that is, not only 
Medicare discharges). Furthermore, under section 406(a) of Public Law 
108-173, which initially added subparagraph (12) to section 1886(d) of 
the Act, the provision requires the Secretary to determine an 
applicable percentage increase for these low-volume hospitals based on 
the ``empirical relationship'' between ``the standardized cost-per-case 
for such hospitals and the total number of discharges of such hospitals 
and the amount of the additional incremental costs (if any) that are 
associated with such number of discharges.'' The statute thus mandates 
that the Secretary develop an empirically justifiable adjustment based 
on the relationship between costs and discharges for these low-volume 
hospitals. Section 1886(d)(12)(B)(iii) of the Act limits the applicable 
percentage increase adjustment to no more than 25 percent.
    Based on an analysis we conducted for the FY 2005 IPPS final rule 
(69 FR 49099 through 49102), a 25 percent low-volume adjustment to all 
qualifying hospitals with less than 200 discharges was found to be most 
consistent with the statutory requirement to provide relief to low-
volume hospitals where there is empirical evidence that higher 
incremental costs are associated with low numbers of total discharges. 
In the FY 2006 IPPS final rule (70 FR 47432 through 47434), we stated 
that multivariate analyses supported the existing low-volume adjustment 
implemented in FY 2005. Therefore, the low-volume adjustment of an 
additional 25 percent continues to be provided for qualifying hospitals 
with less than 200 discharges.
3. Affordable Care Act Provisions for FYs 2011 and 2012
    Sections 3125 and 10314 of the Affordable Care Act amended section 
1886(d)(12) of the Act, modifying the definition of a low-volume 
hospital and the methodology for calculating the payment adjustment for 
low-volume hospitals, effective only for discharges occurring during 
FYs 2011 and 2012. Beginning with FY 2013, the preexisting low-volume 
hospital qualifying criteria and payment adjustment, as implemented in 
FY 2005, will resume.
    Sections 3125(3) and 10314(1) of the Affordable Care Act amended 
the qualifying criteria for low-volume hospitals under section 
1886(d)(12)(C)(i) of the Act to make it easier for hospitals to qualify 
for the low-volume adjustment. Specifically, the provision specifies 
that, for FYs 2011 and 2012, a hospital qualifies as a low-volume 
hospital if it is ``more than 15 road miles from another subsection (d) 
hospital and has less than 1,600 discharges of individuals entitled to, 
or enrolled for, benefits under Part A during the fiscal year.'' In 
addition, section 1886(d)(12)(D) of the Act, as added by section 
3125(4) and amended by section 10314 of the Affordable Care Act, 
provides that the payment adjustment (the applicable percentage 
increase) is to be determined ``using a continuous linear sliding scale 
ranging from 25 percent for low-volume hospitals with 200 or fewer 
discharges of individuals entitled to, or enrolled for, benefits under 
Part A in the fiscal year to 0 percent for low-volume hospitals with 
greater than 1,600 discharges of such individuals in the fiscal year.''
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275 
and 50414), we revised our regulations at 42 CFR 412.101 to reflect the 
changes to the qualifying criteria and the payment adjustment for low-
volume hospitals according to the provisions of the Affordable Care 
Act. In addition to changing the regulations to conform them to the 
Affordable Care Act changes, we also defined, at Sec.  412.101(a), the 
term ``road miles'' to mean ``miles'' as defined at Sec.  412.92(c)(i). 
The definition of ``road miles'' continues to apply even after the 
Affordable Care Act provisions expire at the end of FY 2012. We also 
clarified the existing regulations to indicate that a hospital must 
continue to qualify as a low-volume hospital in order to receive the 
payment adjustment in that year; that is, it is not based on a one-time 
qualification. Furthermore, in that same final rule, we discussed the 
process for requesting and obtaining the low-volume hospital payment 
adjustment (75 FR 50240).
4. Proposed Payment Adjustment for FY 2013 and Subsequent Fiscal Years
    In accordance with section 1886(d)(12) of the Act, beginning with 
FY 2013, the low-volume hospital definition and payment adjustment 
methodology will revert back to the statutory requirements that were in 
effect prior to the amendments made by the Affordable Care Act. 
Therefore, effective for FY 2013 and subsequent years, in order to 
qualify as a low-volume hospital, a subsection (d) hospital must be 
more than 25 road miles from another subsection (d) hospital and have 
less than 200 discharges (that is, less than 200 discharges total, 
including both Medicare and non-Medicare discharges) during the fiscal 
year. As discussed above, the statute specifies that a low-volume 
hospital must have less than 800 discharges during the fiscal year. 
However, as required by section 1886(d)(12)(B)(i) of the Act and as 
discussed above, the Secretary has developed an empirically justifiable 
payment adjustment based on the relationship, for IPPS hospitals with 
less than 800 discharges, between the

[[Page 27972]]

additional incremental costs (if any) that are associated with a 
particular number of discharges. Based on an analysis we conducted for 
the FY 2005 IPPS final rule (69 FR 49099 through 49102), a 25-percent 
low-volume adjustment to all qualifying hospitals with less than 200 
discharges was found to be most consistent with the statutory 
requirement to provide relief for low-volume hospitals where there is 
empirical evidence that higher incremental costs are associated with 
low numbers of total discharges. (Under the policy we established in 
that same final rule, hospitals with between 200 and 799 discharges do 
not receive a low-volume hospital adjustment.)
    As described above, for FYs 2005 through 2010 and FY 2013 and 
subsequent years, the discharge determination is made based on the 
hospital's number of total discharges, that is, Medicare and non-
Medicare discharges. The hospital's most recently submitted cost report 
is used to determine if the hospital meets the discharge criterion to 
receive the low-volume payment adjustment in the current year (Sec.  
412.101(b)(2)(i)). We use cost report data to determine if a hospital 
meets the discharge criterion because this is the best available data 
source that includes information on both Medicare and non-Medicare 
discharges. We note that, for FYs 2011 and 2012, CMS used the most 
recently available MedPAR data to determine the hospital's Medicare 
discharges because only Medicare discharges were used to determine if a 
hospital met the discharge criterion for those years.
    For FY 2013 and for subsequent fiscal years, in addition to a 
discharge criterion, the eligibility for the low-volume payment 
adjustment is also dependent upon the hospital meeting the mileage 
criterion specified at Sec.  412.101(b)(2)(i). Specifically, to meet 
the mileage criterion to qualify for the low-volume payment adjustment 
for FY 2013 and subsequent fiscal years, a hospital must be located 
more than 25 road miles from the nearest ``subsection (d) hospital.'' 
As mentioned above, we define, at Sec.  412.101(a), the term ``road 
miles'' to mean ``miles'' as defined at Sec.  412.92(c)(i) (75 FR 30238 
through 50275 and 50414).
    As discussed in the FY 2011 IPPS/LTCH PPS final rule (75 FR 30238 
through 50275 and 50414), we discussed the process for requesting and 
obtaining the low-volume hospital payment adjustment. In order to 
qualify for the low-volume hospital payment adjustment, a hospital must 
provide to its fiscal intermediary or MAC sufficient evidence to 
document that it meets the discharge and distance requirements. The 
fiscal intermediary or MAC will determine, based on the most recent 
data available, if the hospital qualifies as a low-volume hospital, so 
that the hospital will know in advance whether or not it will receive a 
payment adjustment. The fiscal intermediary or MAC and CMS may review 
available data, in addition to the data the hospital submits with its 
request for low-volume hospital status, in order to determine whether 
or not the hospital meets the qualifying criteria.
    In order to receive a low-volume hospital payment adjustment under 
Sec.  412.101, a hospital must notify and provide documentation to its 
fiscal intermediary or MAC that it meets the mileage criterion. The use 
of a Web-based mapping tool, such as MapQuest, as part of documenting 
that the hospital meets the mileage criterion for low-volume hospitals, 
is acceptable. The fiscal intermediary or MAC will determine if the 
information submitted by the hospital, such as the name and street 
address of the nearest hospitals, location on a map, and distance (in 
road miles, as defined in the regulations at Sec.  412.101(a)) from the 
hospital requesting low-volume hospital status, is sufficient to 
document that it meets the mileage criterion. If not, the fiscal 
intermediary or MAC will follow up with the hospital to obtain 
additional necessary information to determine whether or not the 
hospital meets the low-volume mileage criterion. In addition, the 
fiscal intermediary or MAC will refer to the hospital's most recently 
submitted cost report to determine whether or not the hospital meets 
the discharge criterion. A hospital should refer to its most recently 
submitted cost report for total discharges (Medicare and non-Medicare) 
in order to decide whether or not to apply for low-volume hospital 
status for a particular fiscal year. As noted previously, a hospital 
must continue to meet the qualifying criterion at Sec.  
412.101(b)(2)(i) as a low-volume hospital (that is, the discharge 
criterion and the mileage criterion) in order to receive the payment 
adjustment in that year; that is, low-volume hospital status is not 
based on a ``one-time'' qualification.
    In order to be a low-volume hospital in FY 2013 and subsequent 
fiscal years, in accordance with our previously established procedure, 
a hospital must make its request for low-volume hospital status in 
writing to its fiscal intermediary or MAC by September 1 immediately 
preceding the start of the Federal fiscal year for which the hospital 
is applying for low-volume hospital status in order for the 25 percent 
low-volume add-on payment adjustment to be applied to payments for its 
discharges for the fiscal year beginning on or after October 1 
immediately following the request (that is, the start of the Federal 
fiscal year). For a hospital whose request for low-volume hospital 
status is received after September 1, if the fiscal intermediary or MAC 
determines the hospital meets the criteria to qualify as a low-volume 
hospital, the fiscal intermediary or MAC will apply the 25 percent low-
volume add-on payment adjustment to determine payment for the 
hospital's discharges for the fiscal year, effective prospectively 
within 30 days of the date of the fiscal intermediary's or MAC's low-
volume status determination.
    Specifically, for FY 2013, a hospital must make its request for 
low-volume hospital status in writing to its fiscal intermediary or MAC 
by September 1, 2012, in order for the 25 percent low-volume add-on 
payment adjustment to be applied to payments for its discharges 
beginning on or after October 1, 2012 (through September 30, 2013). If 
a hospital's request for low-volume hospital status for FY 2013 is 
received after September 1, 2012, and if the fiscal intermediary or MAC 
determines the hospital meets the criteria to qualify as a low-volume 
hospital, the fiscal intermediary or MAC will apply the 25 percent low-
volume add-on payment adjustment to determine the payment for the 
hospital's FY 2013 discharges, effective prospectively within 30 days 
of the date of the fiscal intermediary's or MAC's low-volume status 
determination. For additional information on our established 
application process for the low-volume hospital payment adjustment, we 
refer readers to the FY 2011 IPPS/LTCH PPS final rule (75 FR 20574 
through 20575), Transmittal 2060 (Change Request 7134; October 1, 
2010), and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51680).
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275 
and 50414), in addition to implementing the Affordable Care Act 
provisions affecting low-volume hospitals for FYs 2011 and 2012, we 
also implemented changes to the regulations at 42 CFR 412.101 to 
conform them to the statutory requirements to require that, beginning 
with FY 2013, the low-volume hospital qualifying criteria and payment 
adjustment methodology will return to that which was in effect prior to 
the amendments made by the Affordable Care Act (that is, the low-volume 
hospital payment policy in effect for FYs 2005 through 2010). 
Therefore, no further revisions to the policy or to the

[[Page 27973]]

regulations at Sec.  412.101 are required to conform them to the 
statutory requirement that the low-volume hospital policy in effect 
prior to the Affordable Care Act returns for FY 2013 and subsequent 
years.

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

1. IME Adjustment Factor for FY 2013
    Under the IPPS, an additional payment amount is made to 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 payment 
amount is determined by use of a statutorily specified adjustment 
factor. The regulations regarding the calculation of this additional 
payment, known as the IME adjustment, are located at Sec.  412.105. We 
refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51680) for 
a full discussion of the IME adjustment and IME adjustment factor. 
Section 1886(d)(5)(B) of the Act states that, for discharges occurring 
during FY 2008 and fiscal years thereafter, the IME formula multiplier 
is 1.35. Accordingly, for discharges occurring during FY 2013, the 
formula multiplier is 1.35. We estimate that application of this 
formula multiplier for the FY 2013 IME adjustment will result in an 
increase in IPPS payment of 5.5 percent for every approximately 10-
percent increase in the hospital's resident-to-bed ratio.
2. Clarification and Proposal Regarding Timely Filing Requirements 
Under Fee-for-Service Medicare
a. IME and Direct GME
    The Balanced Budget Act of 1997 (Pub. L. 105-33) amended sections 
1886(d) and 1886(h) of the Act by adding paragraphs (d)(11) and 
(h)(3)(D), respectively, to establish payment provisions for IME and 
direct GME costs to hospitals providing services to Medicare + Choice 
(now Medicare Advantage) enrollees. Sections 1886(d)(11) and 
1886(h)(3)(D) of the Act specify that the Secretary shall provide for 
an ``additional payment amount'' for services furnished to individuals 
who are enrolled in a Medicare Advantage plan under Medicare Part C. To 
implement sections 1886(d)(11) and 1886(h)(3)(D) of the Act, we issued 
two final rules in the Federal Register that specifically addressed IME 
and direct GME payments to teaching hospitals for services provided to 
Medicare Advantage enrollees (the FY 1997 IPPS final rule (62 FR 46003) 
and the FY 1998 IPPS final rule (63 FR 26341)). Subsequent to the FY 
1998 IPPS final rule, we (then HCFA) issued a Program Memorandum (PM), 
A-98-21, in July 1998, which outlined fiscal intermediary and standard 
system changes needed to process requests for IME and direct GME 
supplemental payments for services provided to Medicare Advantage 
enrollees. The PM explained that hospitals must submit their Medicare 
claims to the fiscal intermediary in UB-92 format in order for the 
standard system to process the claims so that hospitals may be paid the 
supplemental IME and direct GME payments for services provided to 
Medicare Advantage enrollees. It was always our intent that the claims 
filing requirements under 42 CFR Part 424, including the time limits at 
42 CFR 424.44, fully applied to these claims submissions.
    Existing Sec.  424.44 of the regulations contains the time limits 
for filing all Medicare claims. In this proposed rule, we are 
clarifying again that the regulations governing time limits for filing 
claims at Sec.  424.44 apply to claims submitted for IME and direct GME 
payments associated with services provided to Medicare Advantage 
enrollees. The process that was established by PM A-98-21 is within the 
same framework of the preexisting methodology for submitting claims 
under Medicare Part A. Therefore, because IME and direct GME payments 
for services provided to Medicare Advantage enrollees are also made 
under Medicare Part A, the same timely filing requirements that apply 
to other Part A claims for payments also apply to claims for IME and 
direct GME payments for services provided to Managed Advantage 
enrollees. In this proposed rule, we are clarifying once again that 
when hospitals submit claims for services provided to Medicare 
Advantage enrollees for additional IME and direct GME payments, the 
hospitals must comply with the regulations governing time limits for 
filing claims at Sec.  424.44.
b. Nursing and Allied Health Education
    Section 541 of the Balanced Budget Refinement Act (BBRA) of 1999 
(Pub. L. 106-113) further amended section 1886 of the Act by adding 
subsection (l) to provide for additional payments to hospitals that 
operate nursing or allied health education programs and incur costs 
associated with services provided to Medicare+Choice (now Medicare 
Advantage) enrollees. Section 512 of the Benefits Improvement and 
Protection Act (BIPA) (Pub. L. 106-554) changed the formula for 
determining the additional payment amount paid to hospitals that 
operate nursing or allied health education programs and incur costs for 
services provided to Medicare+Choice (now Medicare Advantage) 
enrollees. We issued several PMs (Transmittals A-00-86 on November 22, 
2000, and A-03-043 on May 23, 2003) to implement section 541 of the 
BBRA and section 512 of the BIPA. We also issued related Transmittal A-
03-007 on February 3, 2003, and Transmittal A-03-045 on May 30, 2003, 
to instruct hospitals that operate a nursing or allied health education 
program and that qualify for additional payment related to services 
provided to Medicare Advantage enrollees to also submit those claims 
for processing as no-pay bills in the UB-92 format. These transmittals 
also instructed hospitals that are not paid under the IPPS, hospitals 
with rehabilitation and psychiatric units, and hospitals that operate 
approved nursing or allied health education programs (but may not have 
approved GME residency programs) to submit claims for services provided 
to Medicare Advantage enrollees to their fiscal intermediary in UB-92 
format with specific condition codes present. In this proposed rule, we 
also are clarifying that the regulations governing the time limits for 
filing claims at Sec.  424.44 also apply to claims submitted for 
nursing or allied health education program payments for services 
provided to Medicare Advantage enrollees.
c. Disproportionate Share Hospital (DSH) Payments
    On July 20, 2007, we issued Change Request 5647 instructing 
applicable hospitals to submit no pay bills for their Medicare 
Advantage patients for FY 2007 forward in order for these days to be 
captured in the DSH calculation. Because we issued this request in the 
middle of FY 2007, we later believed it was appropriate to extend the 
deadline for submission of FY 2007 and FY 2008 no pay Medicare 
Advantage bills to August 31, 2010.
    In this proposed rule, we are proposing to adopt a policy that 
hospitals that are required to submit no pay bills for services 
furnished on a prepaid capitation basis by a Medicare Advantage 
organization, or through cost settlement with either a health 
maintenance organization (HMO), a competitive medical plan (CMP), a 
health care prepayment plan (HCPP), or a demonstration, for the purpose 
of calculating the DSH patient percentage (DPP) must also do so within 
the time limits for filing claims specified at Sec.  424.44. In the FY 
2011 IPPS/LTCH PPS final rule (75 FR 50282), we

[[Page 27974]]

changed our methodology for calculating the SSI fraction of the DSH 
adjustment, in part, by using claims information that is updated 15 
months after the close of each Federal fiscal year. We believed that 
allowing for a 15-month run-out period would more closely align the 
timing of the match process with the requirements for the timely 
submission of claims. As we stated in that final rule, hospitals may 
not have an incentive to submit no pay bills in as timely a manner as 
they would for fee-for-service claims. In order to ensure that no pay 
claims are properly incorporated into the DSH calculation, in this 
proposed rule, we are proposing to extend our rules regarding the 
timely submission of claims to no pay bills submitted for the purposes 
of calculating the DPP.
    To clarify our existing policy for hospitals to file timely claims 
in order to receive supplemental IME, direct GME and/or nursing or 
allied health education payments for Medicare Advantage enrollees and 
to propose that hospitals that are required to submit no pay bills for 
the purpose of calculating the DPP must also follow the time limits for 
filing claims, we are proposing to revise the regulations at Sec.  
424.30 to reflect these requirements.
3. Other Related Proposed Policy Changes
    In sections IV.F. and IV.I of this preamble, we present other 
proposed policy changes relating to determining labor and delivery bed 
counts for purposes of the DSH payment adjustment and relating to 
determining FTE resident caps for direct GME and IME payment purposes 
that would have an effect on the IME payment adjustment.

F. Payment Adjustment for Medicare Disproportionate Share Hospitals 
(DSHs) and Indirect Medical Education (IME) (Sec. Sec.  412.105 and 
412.106)

1. Background
    For the most recent background discussion regarding the Medicare 
payment adjustment for subsection (d) hospitals that serve a 
significantly disproportionate number of low-income patients, we refer 
readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51681).
    As we did in FY 2012 IPPS/LTCH PPS final rule, we are combining, 
under section IV.I.2. of this preamble, our discussion of proposed 
changes to the policies for counting beds in relation to the 
calculations for the IME adjustment at Sec.  412.105(b) and the DSH 
payment adjustment at Sec.  412.106(a)(1)(i) because the underlying 
concepts are similar, and we believe they should generally be 
interpreted in a consistent manner for both purposes.
2. Proposed Policy Change Relating to Treatment of Labor and Delivery 
Beds in the Calculation of the Medicare DSH Payment Adjustment and the 
IME Payment Adjustment
a. Background
    Medicare's policy with respect to the treatment of labor and 
delivery services in the calculation of the Medicare DSH payment 
adjustment has undergone a number of changes over the years. (We refer 
readers to the background discussion regarding these policy changes in 
the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43899 through 
43901)). The most recent change in policy was adopted in the FY 2010 
IPPS/RY 2010 LTCH PPS final rule. Prior to FY 2010, our policy was to 
exclude from the count of inpatient days for purposes of the Medicare 
DSH calculation labor and delivery patient days associated with beds 
used for ancillary labor and delivery services when the patient did not 
occupy a routine bed prior to occupying an ancillary labor and delivery 
bed. This policy applied whether the hospital maintained separate labor 
and delivery rooms and postpartum rooms, or whether it maintained 
``maternity suites'' in which labor, delivery, and postpartum services 
all occurred in the same bed. However, in the latter case, patient days 
were counted proportionally based on the proportion of (routine/
ancillary) services furnished. (We refer readers to the example 
provided in the FY 2004 IPPS final rule (68 FR 45420) that describes 
how routine and ancillary days are allocated under this policy.)
    In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we revised our 
regulations to include in the DPP of the Medicare DSH adjustment all 
patient days associated with patients occupying labor and delivery beds 
once the patient has been admitted to the hospital as an inpatient, 
regardless of whether the patient days are associated with patients who 
occupied a routine bed prior to occupying an ancillary labor and 
delivery bed. Our rationale for adopting this change was that the costs 
associated with labor and delivery patient days are generally payable 
under the IPPS. Although we adopted this change with respect to labor 
and delivery patient days, we did not make a similar change to our 
policy for counting hospital beds.
b. Proposed Policy Change
    As we recently stated in the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51682), our policy for counting hospital beds is to include bed days 
available for IPPS-level acute care hospital services. In the FY 2004 
IPPS final rule (68 FR 45417), we stated that beds in a particular unit 
would be considered available for IPPS-level acute care services if the 
services furnished in that unit were generally payable under the IPPS. 
Moreover, as stated above, our policy for counting patient days with 
respect to the Medicare DSH payment adjustment is to include patient 
days in units that provide services that are generally payable under 
the IPPS. Under our current policy, the services furnished to a labor 
and delivery patient are considered to be generally payable under the 
IPPS (74 FR 43900).
    We recognize that, under our current policy, while the services 
furnished to a labor and delivery patient are considered to be 
generally payable under the IPPS, under Sec.  412.105(b)(4), the bed 
where the services are furnished is not considered to be available for 
IPPS-level care.
    Upon further examination of our existing policies, we believe that 
if a patient day is counted because the services furnished are 
generally payable under the IPPS, the bed in which the services were 
furnished should also be considered to be available for IPPS-level 
care. Accordingly, we believe it is appropriate to extend our current 
approach of including labor and delivery patient days in the DPP of the 
Medicare DSH payment adjustment to our rules for counting hospital beds 
for purposes of both the IME payment adjustment and the Medicare DSH 
payment adjustment. Specifically, because we have described labor and 
delivery patient days as being generally payable under the IPPS (74 FR 
43900), we believe that the bed in which such services are furnished 
should also be considered to be available for IPPS-level care, and 
should be included in the count of beds available for IPPS-level acute 
care hospital services. The rules for counting hospital beds for 
purposes of the IME payment adjustment are codified in the IME 
regulations at Sec.  412.105(b), which are cross-referenced in Sec.  
412.106(a)(1)(i) for purposes of determining the DSH payment 
adjustment.
    In light of the similar policy rationales for determining patient 
days in the calculation of the Medicare DSH payment adjustment, and for 
determining bed days for both the Medicare DSH payment adjustment and

[[Page 27975]]

IME payment adjustment, we are proposing to include labor and delivery 
bed days in the count of available beds used in the IME and DSH 
calculations. Moreover, our proposal to treat labor and delivery 
patient days and bed days consistently is consistent with our approach 
with respect to the observation, swing-bed, and hospice days, which are 
excluded from both the patient day count and the available bed count. 
Accordingly, we are proposing to revise the regulations at Sec.  
412.105(b)(4) to remove from the list of currently excluded beds those 
beds associated with ``ancillary labor/delivery services.'' We are 
proposing that this regulation change would be effective for cost 
reporting periods beginning on or after October 1, 2012.
    As we noted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43900), our policy for counting labor and delivery patient days does 
not allow for the inclusion of days of labor and delivery patients who 
are not admitted to the hospital as inpatients. For example, if a woman 
presents at a hospital for labor and delivery services, but is 
determined by medical staff to be in false labor and is sent home 
without ever being admitted to the hospital as an inpatient, any days 
associated with such services furnished by the hospital would not be 
included in the DPP for purposes of the calculation of the Medicare DSH 
payment adjustment. For the same reason, days on which labor and 
delivery beds are used for such services also will be excluded from the 
count of available bed days.

G. Expiration of the Medicare-Dependent, Small Rural Hospital (MDH) 
Program (Sec.  412.108)

    Under current law, separate special payment protections are 
provided to a Medicare-dependent, small rural hospital (MDH) under the 
IPPS through the end of FY 2012. (For additional information on the MDH 
program and the payment methodology, we refer readers to the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51683 through 51684.) The provisions 
for MDHs at section 1886(d)(5) of the Act expire at the end of FY 2012 
(that is, with discharges occurring on September 30, 2012). As we 
discussed in the FY 2012 IPPS/LTCH PPS final rule, section 3124 of the 
Affordable Care Act extended the MDH program from the end of FY 2011 
(that is, for discharges occurring before October 1, 2011) to the end 
of FY 2012 (that is, for discharges occurring before October 1, 2012). 
Under prior law, as specified in section 5003(a) of Public Law 109-171 
(DRA 2005), the MDH program was to be in effect through the end of FY 
2011 only. Section 3124(a) of the Affordable Care Act amended sections 
1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act to extend the MDH 
program and payment methodology from the end of FY 2011 to the end of 
FY 2012, by striking ``October 1, 2011'' and inserting ``October 1, 
2012''. Section 3124(b) of the Affordable Care Act also made conforming 
amendments to sections 1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of the 
Act. Section 3124(b)(2) of the Affordable Care Act also amended section 
13501(e)(2) of OBRA 1993 to extend the provision permitting hospitals 
to decline reclassification as an MDH through FY 2012. In the FY 2011 
IPPS/LTCH PPS final rule (75 FR 50287 and 50414), we amended the 
regulations at Sec.  412.108(a)(1) and (c)(2)(iii) to reflect the 
statutory extension of the MDH program through FY 2012. In the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51683 through 51684), we did not make 
any additional changes to this regulatory text for FY 2012.
    Because the MDH program is not authorized by statute beyond FY 
2012, all hospitals that previously qualified for MDH status will no 
longer have MDH status and will be paid based on the Federal rate 
beginning in FY 2013. (We note that, in section IV.B.3. of this 
preamble, we are proposing to revise our SCH policies to allow MDHs to 
apply for SCH status and be paid as such under certain proposed 
conditions, following expiration of the MDH program.) For the FY 2013 
impact of the expiration of the MDH program at the end of FY 2012, we 
refer readers to section I.G.2.j. of Appendix A to this proposed rule.

H. Proposed Changes in the Inpatient Hospital Update

1. FY 2013 Inpatient Hospital Update
    In accordance with section 1886(b)(3)(B)(i) of the Act, each year 
we update the national standardized amount for inpatient operating 
costs by a factor called the ``applicable percentage increase.'' Prior 
to enactment of the Affordable Care Act, section 1886(b)(3)(B)(i)(XX) 
of the Act set the applicable percentage increase equal to the rate-of-
increase in the hospital market basket for subsection (d) hospitals 
(hereafter referred to as ``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 did not provide these data, the update was 
equal to the market basket percentage increase less an additional 2.0 
percentage points. The update for the hospital-specific rates for SCHs 
is set by section 1886(b)(3)(B)(iv) of the Act as discussed further 
below.
    Section 1886(b)(3)(B) of the Act, as amended by sections 3401(a) 
and 10319(a) of the Affordable Care Act, sets the applicable percentage 
increase under the IPPS for FY 2013 as equal to the rate-of-increase in 
the hospital market basket for IPPS hospitals in all areas (which is 
currently based on the first quarter 2012 forecast of the FY 2006-based 
IPPS market basket), subject to a reduction of 2.0 percentage points if 
the hospital fails to submit quality information under rules 
established by the Secretary in accordance with section 
1886(b)(3)(B)(viii) of the Act, and then subject to an adjustment based 
on changes in economy-wide productivity (the multifactor productivity 
(MFP) adjustment), and an additional reduction of 0.1 percentage point. 
Sections 1886(b)(3)(B)(xi) and (b)(3)(B)(xii) of the Act, as added by 
section 3401(a) of the Affordable Care Act, state that application of 
the MFP adjustment and the additional FY 2013 adjustment of 0.1 
percentage point may result in the applicable percentage increase being 
less than zero.
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51689 through 
51692), we finalized our methodology for calculating and applying the 
MFP adjustment. For FY 2013, we are not proposing any change in our 
methodology for calculating and applying the MFP adjustment. Similar to 
the market basket increase, we are using the most recent data available 
for this proposed rule to compute the MFP adjustment. Using the 
methodology that we finalized in the FY 2012 IPPS/LTCH PPS final rule 
(76 FR 51690), based on the most recent data available for this 
proposed rule, in accordance with section 1886(b)(3)(B) of the Act, we 
based the proposed FY 2013 market basket update used to determine the 
applicable percentage increase for the IPPS on the IHS Global Insight, 
Inc. (IGI's) first quarter 2012 forecast of the FY 2006-based IPPS 
market basket rate-of-increase, which is estimated to be 3.0 percent. 
This proposed percentage increase, subject to the hospital submitting 
quality data under rules established by the Secretary in accordance 
with section 1886(b)(3)(B)(viii) of the Act, is then reduced by the 
most recent estimate of the MFP adjustment (the 10-year moving average 
of MFP for the period ending FY 2013) of 0.8 percent, which is 
calculated using the methodology described in the FY 2012 IPPS/LTCH

[[Page 27976]]

PPS final rule (76 FR 51690) and based on IGI's first quarter 2012 
forecast. Following application of the MFP adjustment, the applicable 
percentage increase is then reduced by 0.1 percentage point, as 
required by section 1886(b)(3)(B)(xii) of the Act (as discussed in 
section I. of the Addendum to this proposed rule).
    Consistent with current law, and based on IGI's first quarter 2012 
forecast of the FY 2013 market basket increase, we are proposing an 
applicable percentage increase to the FY 2013 operating standardized 
amount of 2.1 percent (that is, the FY 2013 estimate of the market 
basket rate-of-increase of 3.0 percent less an adjustment of 0.8 
percentage point for economy-wide productivity (that is, the MFP 
adjustment) and less 0.1 percentage point) for hospitals in all areas, 
provided the hospital submits quality data under rules established in 
accordance with section 1886(b)(3)(B)(viii) of the Act in accordance 
with our rules. For hospitals that do not submit these quality data, we 
are proposing an applicable percentage increase to the operating 
standardized amount of 0.1 percent (that is, the FY 2013 estimate of 
the market basket rate-of-increase of 3.0 percent, less 2.0 percentage 
points for failure to submit quality data, less an adjustment of 0.8 
percentage point for the MFP adjustment, and less an additional 
adjustment of 0.1 percentage point). Lastly, we also are proposing that 
if more recent data are subsequently available (for example, a more 
recent estimate of the market basket and MFP adjustment), we would use 
such data, if appropriate, to determine the FY 2013 market basket 
update and MFP adjustment in the final rule.
    We are proposing to revise the existing regulations at 42 CFR 
412.64(d)(1)(iv) to reflect the current law for the FY 2013 update. 
Specifically, in accordance with section 1886(b)(3)(B) of the Act, we 
are proposing to revise paragraph (d)(1)(iv) to reflect the applicable 
percentage increase to the FY 2013 operating standardized amount as the 
percentage increase in the market basket index less an MFP adjustment 
and less an additional reduction of 0.1 percentage point.
    Section 1886(b)(3)(B)(iv) of the Act provides that the applicable 
percentage increase to the hospital-specific rates for SCHs equals the 
applicable percentage increase set forth in section 1886(b)(3)(B)(i) of 
the Act (that is, the same update factor as for all other hospitals 
subject to the IPPS). Therefore, the update to the hospital-specific 
rates for SCHs is also subject to section 1886(b)(3)(B)(i) of the Act, 
as amended by sections 3401(a) and 10319(a) of the Affordable Care Act. 
Accordingly, we are proposing an update to the hospital-specific rates 
applicable to SCHs of 2.1 percent for hospitals that submit quality 
data or 0.1 percent for hospitals that fail to submit quality data. For 
FY 2013, the regulations in Sec. Sec.  412.73(c)(16), 412.75(d), 
412.77(e) and 412.78(e) already contain provisions that set the update 
factor for SCHs equal to the update factor applied to the national 
standardized amount for all IPPS hospitals. Therefore, we are not 
proposing to make further changes to these four regulatory provisions 
to reflect the FY 2013 update factor for the hospital-specific rates of 
SCHs.
    We note that, as discussed in section IV.G. of this preamble, 
section 3124 of the Affordable Care Act extended the MDH program from 
the end of FY 2011 (that is, for discharges occurring before October 1, 
2011) to the end of FY 2012 (that is, for discharges occurring before 
October 1, 2012). Under prior law, the MDH program was to be in effect 
through the end of FY 2011 only. Absent additional legislation further 
extending the MDH program, the MDH program will expire for discharges 
beginning in FY 2013. Accordingly, we are not including MDHs in our 
proposal to update the hospital-specific rates for FY 2013.
2. FY 2013 Puerto Rico Hospital Update
    Puerto Rico hospitals are paid a blended rate for their inpatient 
operating costs based on 75 percent of the national standardized amount 
and 25 percent of the Puerto Rico-specific standardized amount. Section 
1886(d)(9)(C)(i) of the Act is the basis for determining the applicable 
percentage increase applied to the Puerto Rico-specific standardized 
amount. Section 401(c) of Pub. L. 108-173 amended section 
1886(d)(9)(C)(i) of the Act, which states that, for discharges 
occurring in a fiscal year (beginning with FY 2004), the Secretary 
shall compute an average standardized amount for hospitals located in 
any area of Puerto Rico that is equal to the average standardized 
amount computed under subclause (I) for fiscal year 2003 for hospitals 
in a large urban area (or, beginning with FY 2005, for all hospitals in 
the previous fiscal year) increased by the applicable percentage 
increase under subsection (b)(3)(B) for the fiscal year involved. 
Therefore, the update to the Puerto Rico-specific operating 
standardized amount equals the applicable percentage increase set forth 
in section 1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) 
and 10319(a) of the Affordable Care Act (that is, the same update 
factor as for all other hospitals subject to the IPPS). Accordingly, we 
are proposing an applicable percentage increase to the Puerto Rico-
specific operating standardized amount of 2.1 percent for FY 2013. The 
regulations at Sec.  412.211(c) already set the update factor for the 
Puerto Rico-specific operating standardized amount equal to the update 
factor applied to the national standardized amount for all IPPS 
hospitals. Therefore, it is not necessary for us to propose changes to 
the existing regulatory text.

I. Payment for Graduate Medical Education (GME) and Indirect Medical 
Education (IME) Costs (Sec. Sec.  412.105, 413.75 Through 413.83)

1. Background
    Section 1886(h) of the Act, as added by section 9202 of the 
Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (Pub. L. 
99-272) and as currently implemented in the regulations at 42 CFR 
413.75 through 413.83, establishes a methodology for determining 
payments to hospitals for the direct costs of approved graduate medical 
education (GME) programs. Section 1886(h)(2) of the Act sets forth a 
methodology for the determination of a hospital-specific base-period 
per resident amount (PRA) that is calculated by dividing a hospital's 
allowable direct costs of GME in a base period by its number of full-
time equivalent (FTE) residents in the base period. The base period is, 
for most hospitals, the hospital's cost reporting period beginning in 
FY 1984 (that is, October 1, 1983 through September 30, 1984). The base 
year PRA is updated annually for inflation. In general, Medicare direct 
GME payments are calculated by multiplying the hospital's updated PRA 
by the weighted number of FTE residents working in all areas of the 
hospital complex (and at nonprovider sites, when applicable), and the 
hospital's Medicare share of total inpatient days.
    Section 1886(d)(5)(B) of the Act provides for a payment adjustment 
known as the indirect medical education (IME) adjustment under the 
hospital inpatient prospective payment system (IPPS) for hospitals that 
have residents in an approved GME program, in order to account for the 
higher indirect patient care costs of teaching hospitals relative to 
nonteaching hospitals. The regulations regarding the calculation of 
this additional payment are located at 42 CFR 412.105. The

[[Page 27977]]

hospital's IME adjustment applied to the DRG payments is calculated 
based on the ratio of the hospital's number of FTE residents training 
in either the inpatient or outpatient departments of the IPPS hospital 
to the number of inpatient hospital beds.
    The calculation of both direct GME and IME payments is affected by 
the number of FTE residents that a hospital is allowed to count. 
Generally, the greater the number of FTE residents a hospital counts, 
the greater the amount of Medicare direct GME and IME payments the 
hospital will receive. In an attempt to end the implicit incentive for 
hospitals to increase the number of FTE residents, Congress, through 
the Balanced Budget Act of 1997 (Pub. L. 105-33), established a limit 
on the number of allopathic and osteopathic residents that a hospital 
may include in its FTE resident count for direct GME and IME payment 
purposes. Under section 1886(h)(4)(F) of the Act, for cost reporting 
periods beginning on or after October 1, 1997, a hospital's unweighted 
FTE count of residents for purposes of direct GME may not exceed the 
hospital's unweighted FTE count for direct GME in its most recent cost 
reporting period ending on or before December 31, 1996. Under section 
1886(d)(5)(B)(v) of the Act, a similar limit based on the FTE count for 
IME during that cost reporting period is applied effective for 
discharges occurring on or after October 1, 1997. Dental and podiatric 
residents are not included in this statutorily mandated cap.
    The Affordable Care Act made a number of statutory changes relating 
to the determination of a hospital's FTE resident count for direct GME 
and IME payment purposes and the manner in which FTE resident limits 
are calculated and applied to hospitals under certain circumstances. 
Section 5503 of the Affordable Care Act added a new section 1886(h)(8) 
to the Act to provide for the reduction in FTE resident caps for direct 
GME under Medicare for certain hospitals training fewer residents than 
allowed by their caps, and to authorize the ``redistribution'' of the 
estimated number of excess FTE resident slots to other qualified 
hospitals. In addition, section 5503 amended section 1886(d)(5)(B)(v) 
of the Act to require the application of the section 1886(h)(8) of the 
Act provisions ``in the same manner'' to the IME FTE resident caps. The 
regulations implementing section 5503 of the Affordable Care Act were 
included in the November 24, 2010 final rule with comment period (75 FR 
72263).
2. New Teaching Hospitals: Proposed Change in New Program Growth From 3 
Years to 5 Years
    Section 1886(h)(4)(H)(i) of the Act requires CMS to establish rules 
for calculating the direct GME caps of teaching hospitals training 
residents in new programs established on or after January 1, 1995. 
Under section 1886(d)(5)(B)(viii) of the Act, these rules also apply to 
the establishment of a hospital's IME cap. CMS implemented these 
statutory requirements in the August 29, 1997 Federal Register (62 FR 
46005) and in the May 12, 1998 Federal Register (63 FR 26333). 
Generally, under existing regulations at 42 CFR 413.79(e)(1) and 42 CFR 
412.105(f)(1)(vii), if a hospital did not train any allopathic or 
osteopathic residents in its most recent cost reporting period ending 
on or before December 31, 1996, and it begins to participate in 
training residents in a new residency program (allopathic or 
osteopathic) on or after January 1, 1995, the hospital's unweighted FTE 
resident cap (which would otherwise be zero) may be adjusted based on 
the product of the highest number of FTE residents in any program year 
during the third year of the first new program, for all new residency 
training programs established during that 3-year period, and the 
minimum accredited length for each type of program. The number of FTE 
resident cap slots that a teaching hospital receives for each new 
program may not exceed the number of accredited slots that are 
available for each new program. Once a hospital's FTE resident cap is 
established, no subsequent cap adjustments may be made for new programs 
unless the teaching hospital is a rural hospital. A rural hospital's 
FTE resident caps may be adjusted for participation in subsequent new 
residency training programs. As a reminder, a hospital that did not 
train any allopathic or osteopathic residents in its most recent cost 
reporting period ending on or before December 31, 1996, may only 
receive a permanent FTE resident cap adjustment for training residents 
in a truly ``new'' residency training program; no permanent cap 
adjustment would be given for training residents associated with an 
existing program. That is, if a hospital that did not train any 
allopathic or osteopathic residents in its most recent cost reporting 
period ending on or before December 31, 1996, serves as a training site 
for residents in a program that exists or existed previously at another 
teaching hospital that remains open, that ``new'' teaching hospital 
does not receive a ``new program'' cap adjustment because it is not 
participating in training residents in a truly ``new'' program. 
However, it is possible for that hospital to receive a temporary cap 
adjustment if the new teaching hospital enters into a Medicare GME 
affiliation agreement with the existing teaching hospital as specified 
at 42 CFR 413.79(f) and 412.105(f)(1)(vi). (For a detailed discussion 
of the distinctions between a new residency program and an existing 
residency program, we refer readers to the August 27, 2009 final rule 
(74 FR 43908).)
    As stated previously, the existing regulations provide for a 3-year 
period in which a new teaching hospital can ``grow'' its programs, for 
the purpose of establishing its FTE resident caps. This 3-year period, 
which we will refer to as the ``3-year window'' for ease of reference, 
starts when (typically a July 1) the new teaching hospital first begins 
to train residents in its first new program, and it ends when the third 
program year of that first new program ends. For example, assume 
residents begin training in a new program for the first time on July 1, 
2012. The 3-year window begins on July 1, 2012, and ends on June 30, 
2015, the end of the third program year of that (first) new program. At 
this point in time, regardless of the actual accredited length of the 
new program, or the number of new programs started, the new teaching 
hospital's FTE resident caps are established permanently and are 
effective beginning with the fourth program year from the date the 
first new program started (using the same example, this would be July 
1, 2015).
    The provider community has expressed concerns that 3 years do not 
provide for a sufficient amount of time for a hospital to ``grow'' its 
new residency programs and to establish FTE resident caps that are 
properly reflective of the number of FTE residents that it will 
actually train, once the programs are fully grown. Providers have 
explained that 3 years is an insufficient amount of time primarily 
because a period of 3 years is not compatible with program 
accreditation requirements, particularly in instances where the new 
teaching hospital wishes to start more than one new program. For 
example, we understand that a new teaching hospital may not begin all 
of its new programs at the same time because of accreditation 
prerequisites; rather, a new teaching hospital must wait until the 
first program is in place for a specified amount of time before it can 
begin training residents in a second or third program. This potential 
delay means that a new teaching hospital may not be able to 
sufficiently ``grow'' all of

[[Page 27978]]

its new programs by the end of the ``3-year window.'' We understand, 
for example, that the Accreditation Council for Graduate Medical 
Education (ACGME) requires that, for a hospital to sponsor an 
anesthesiology program, the hospital must sponsor or be affiliated with 
at least one internal medicine program and one general surgery program. 
Furthermore, we understand that the ACGME can require new residency 
training programs to pass through an ``initial'' accreditation period 
of up to 3 years until they can be granted ``continued'' accreditation. 
During this initial accreditation period, a hospital is not allowed to 
add any additional positions to its new program. Therefore, even if a 
hospital has plans to expand its new training program beyond the number 
of positions for which it is initially accredited, it may not be 
possible for the hospital to actually do so until this initial period 
has expired. Lastly, we have been made aware that providers may want to 
stagger the start dates for their residency training programs if they 
plan on training residents in several programs because they may want to 
gain some experience in residency training before they begin all of 
their new programs.
    Given the concerns about new teaching hospitals having insufficient 
time to ``grow'' their new residency training programs and to establish 
an appropriately reflective permanent FTE resident cap within a 3-year 
window, we are proposing that a new teaching hospital will have 5 
years, or a ``5-year window,'' in which to establish and grow new 
programs. At the end of the fifth program year of the first new program 
in which the new teaching hospital participates, the new teaching 
hospital's FTE resident caps would be determined, and set permanently, 
effective with the beginning of the sixth program year. We are 
proposing that this change would apply to new teaching hospitals that 
begin training residents in new programs for the first time on or after 
October 1, 2012. Although we understand that many residency training 
programs begin July 1 of the calendar year, consistent with the 
proposed effective date of the FY 2013 IPPS provisions in this proposed 
rule, we are proposing an effective date for this change of October 1, 
2012. We are proposing to amend the regulations at Sec.  413.79(e)(1) 
to state that if a new teaching hospital participates in training 
residents in a new program for the first time on or after October 1, 
2012, the new teaching hospital's FTE resident cap may be adjusted 
based on the product of the highest number of FTE residents training in 
any program year during the fifth year of the first program's existence 
for all new residency training program(s) and the number of years in 
which residents are expected to complete the program based on the 
minimum accredited length for each type of program. This proposed 
policy would apply to the establishment of a hospital's cap for both 
direct GME and IME payment purposes. The IME regulations at Sec.  
412.105(f)(1)(vii) refer to the direct GME regulations at Sec.  
413.79(e)(1) through (e)(4) for the rules for the establishment of a 
new teaching hospital's cap. As is required under existing regulations, 
the number of cap slots associated with each new program cannot exceed 
the number of accredited slots available to the hospital for that new 
program.
    We note that we are not proposing to make any changes to 
regulations governing treatment of the rolling average and the intern 
and resident-to-bed (IRB) ratio for new programs. That is, new program 
FTE residents will continue to be exempt from the rolling average and 
the cap on the IRB ratio for the minimum accredited length for the 
specific type of residency training program. These exceptions are 
discussed in the regulations at Sec. Sec.  412.105(a)(1)(i) through 
(a)(1)(ii) and 413.79(d)(5). The current cost report instructions for 
Worksheet E-4, Line 6 (current year unweighted allopathic and 
osteopathic FTE count) instruct hospitals to contact their Medicare 
contractor for instructions on how to complete that line if the 
hospital has a new program for which the period of years is less than 
or greater than 3 years. Similarly, in the case of this proposed policy 
where the exemption from the rolling average for a new program could 
expire prior to the hospital's cap being set in the sixth year of the 
first new program, we would encourage our Medicare contractors to 
contact us if they have questions on the method of reporting FTE 
resident counts that are subject to the rolling average but not subject 
to the cap.
    We also are proposing to revise the regulations at Sec.  
413.79(e)(1)(i) that discuss the methodology used to calculate a new 
teaching hospital's cap adjustment for a new residency training program 
if residents training in the new program are rotating to more than one 
hospital during the 5-year window. This same methodology would apply to 
a rural teaching hospital because a rural teaching hospital can always 
receive a cap adjustment for starting a brand-new program. We are 
proposing to revise the regulations to specify that, in calculating the 
cap adjustment for each new program started within the 5-year window, 
we would look at the highest total number of FTE residents training in 
any program year during the fifth academic year of the first new 
program's existence at all participating hospitals involved and 
multiply that highest FTE resident count by the number of years in 
which residents are expected to complete the program, based on the 
minimum accredited length of the specific program. Furthermore, we are 
proposing that, for each new program started within the 5-year window, 
we would then take that product and multiply it by each hospital's 
ratio of the number of FTE residents in the new program training over 
the course of the 5-year period at each hospital to the total number 
FTE residents training at all participating hospitals over the course 
of the 5 years. We believe it is appropriate to propose to apportion 
the overall FTE cap among the hospitals participating in training 
residents in the new program based on the percentage of FTE residents 
each hospital trained over the course of the entire 5-year period, 
rather than the percentage of FTE residents each hospital trained only 
during the fifth academic year, because the trend of training over the 
entire 5-years may reflect more completely the patterns in the training 
in years subsequent to the fifth academic year. Otherwise, a hospital's 
FTE cap adjustment, which is permanent, may reflect too heavily the 
share of training time solely in the fifth academic year, which may or 
may not be beneficial to the hospital. We note that a hospital's cap 
adjustment could differ, depending on whether we look only at the fifth 
academic year of the first new program or look at every available year 
(up to 5 years) for which training occurred to calculate each 
hospital's share of the aggregate cap for a specific program.
    In addition, we are proposing to revise the existing regulation 
text at Sec.  413.79(e)(1)(i) to include the phrase ``the number of 
years in which residents are expected to complete the program based on 
the minimum accredited length for the type of program.'' This proposed 
language is consistent with our past, current, and proposed policy. We 
also note that Sec.  413.79(e)(1) applies in instances where the 
residents in the new program train only at one hospital; Sec.  
413.79(e)(1)(i) applies when residents in the new program train at more 
than one hospital, regardless of whether each of those hospitals are 
new hospitals or existing teaching hospitals with previously 
established caps. The example below illustrates the proposed 
methodology of how we would calculate

[[Page 27979]]

a new teaching hospital's cap (or rural teaching hospital's cap) if we 
changed the cap-building period from 3 years to 5 years. In this 
example, as explained above, we are proposing that we would calculate 
the cap based on what is occurring at the new teaching hospital(s) 
during the fifth academic year of the new teaching hospital's first new 
program (or the fifth academic year of the rural teaching hospital's 
new residency training program). The provider community has requested 
that the cap-building period be increased from 3 years to 5 years. 
Therefore, we are proposing that we would only look at the training 
that is occurring during the fifth academic year of the first new 
program to calculate the aggregate cap adjustment. However, we would 
look at the FTE residents training at the hospital(s) during all 5 
years to determine how we would distribute the aggregate cap adjustment 
among the participating hospitals.

    Example: Hospital A is a hospital that becomes a new teaching 
hospital by training residents in a new family medicine program in 
academic year 1. Within its 5-year window, it also begins a new 
surgery program in academic year 4 of the first new program, the 
family medicine program. The family medicine program is accredited 
for 15 positions, 5 positions per year (the minimum accredited 
length of a family medicine program is 3 years). The surgery program 
is accredited for 20 positions, 4 positions per year (the minimum 
accredited length of a surgery program is 5 years). Residents in 
both the family medicine program and the surgery program also rotate 
to Hospital B. Hospital B is an existing teaching hospital 
(nonrural) with a cap that is already established; therefore, it 
will not receive any cap adjustments for training FTE residents in 
the new family medicine program or the new surgery program. However, 
because both of these programs are approved programs and FTE 
residents are training at Hospital B for part of the time, Hospital 
B can count the FTE residents training in the family medicine 
program and the surgery program at its facility if it has room under 
its caps to do so.

    First, we will determine the cap adjustment that Hospital A will 
receive for training FTE residents in the family medicine program. The 
following table includes the allowable FTE resident counts in the 
family medicine program at both Hospital A and Hospital B during the 5-
year window. These numbers are FTE resident counts because they reflect 
the share of training time spent at Hospital A and Hospital B, and also 
assume for this example that we have excluded some nonallowable time, 
such as the time residents spend training in didactic activities in a 
medical school lecture hall.

                                                   Hospital A
----------------------------------------------------------------------------------------------------------------
             Year 1                     Year 2              Year 3              Year 4              Year 5
----------------------------------------------------------------------------------------------------------------
0.75 PGY 1......................  2.60 PGY 1........  4.00 PGY 1........  4.10 PGY 1........  4.20 PGY 1.
0.00 PGY 2......................  2.80 PGY 2........  3.40 PGY 2........  3.40 PGY 2........  3.70 PGY 2.
0.00 PGY 3......................  0.00 PGY 3........  2.40 PGY 3........  2.80 PGY 3........  2.80 PGY 3.
----------------------------------------------------------------------------------------------------------------
Total 0.75......................  Total 5.40........  Total 9.80........  Total 10.30.......  Total 10.70.
----------------------------------------------------------------------------------------------------------------

    Hospital A's 5 year total = 36.95.

                                                   Hospital B
----------------------------------------------------------------------------------------------------------------
             Year 1                     Year 2              Year 3              Year 4              Year 5
----------------------------------------------------------------------------------------------------------------
3.75 PGY 1......................  2.20 PGY 1........  0.90 PGY 1........  0.80 PGY 1........  0.60 PGY 1.
0.00 PGY 2......................  2.00 PGY 2........  1.50 PGY 2........  1.50 PGY 2........  1.20 PGY 2.
0.00 PGY 3......................  0.00 PGY 3........  2.40 PGY 3........  2.00 PGY 3........  2.00 PGY 3.
----------------------------------------------------------------------------------------------------------------
Total 3.75......................  Total 4.20........  Total 4.80........  Total 4.30........  Total 3.80.
----------------------------------------------------------------------------------------------------------------

    Hospital B's 5 year total = 20.85.
    Total Hospital A and Hospital B over 5 years = 36.95 + 20.85 = 
57.80 FTEs.
    To calculate the cap adjustment for Hospital A with respect to the 
family medicine program, we need to take the highest number of FTE 
residents training in any program year in the program (that is, FTE 
residents training at both Hospital A and Hospital B) in the fifth 
academic year of the first new program (which is the family medicine 
program). If we add the PGY 1s, the PGY 2s, and the PGY 3s at both 
hospitals, in year 5, we see that we would use the total number of PGY 
2s to calculate the FTE cap adjustment for the family medicine program, 
because the total number of PGY 2s at both hospitals is 4.90 FTEs (3.70 
+ 1.20), whereas the total number of PGY 1s and PGY 3s is only 4.80. We 
multiply 4.90 by the minimum accredited length of the family medicine 
program to get the total possible cap adjustment for the family 
medicine program (4.90 x 3 = 14.70). The cap adjustment that Hospital A 
receives for the family medicine program will be some number less than 
14.70 based on the ratio of the number of FTEs in the new program 
training over the course of the 5-year period at Hospital A to the 
total number FTE residents training at both hospitals over the course 
of the 5 year period.
    To determine this ratio, note that Hospital A's total FTE residents 
in the new family medicine program over the course of 5 years is the 
numerator, 36.95. The total FTE residents at Hospitals A and B in the 
new family medicine program over the course of 5 years is the 
denominator, 57.80 (that is, 36.95 + 20.85). The ratio of training that 
occurred at Hospital A is 36.95/57.80 = 0.64. Therefore, Hospital A's 
cap for its share of the family medicine program is 0.64 x 14.70, or 
9.41. (If Hospital B had been eligible to receive a cap adjustment, its 
ratio of the cap would have been 0.36, that is, (20.85/57.80), and its 
share would have been 5.30 (0.36 x 14.70). If we add 9.41 to 5.30, we 
get 14.71 (we note that 14.71 is ``approximately'' equal to 14.70, the 
total cap determined for the entire family medicine program, with a 
slight difference due to rounding). Thus, we have ensured that, in 
assigning a cap of 9.41 to Hospital A on behalf of its family medicine 
program, the total allowable and accredited number of slots has not 
been exceeded).
    Now we will determine the cap adjustment that Hospital A will 
receive for training FTE residents in the new

[[Page 27980]]

surgery program that began in year 4 of the first new program. The 
following tables include the allowable FTE resident counts in the 
surgery program at Hospital A and Hospital B, respectively, during the 
hospital's 5-year window. Again, assume we have excluded nonallowable 
time, such as time residents spent training in didactic activities in a 
medical school lecture hall.

                                                   Hospital A
----------------------------------------------------------------------------------------------------------------
             Year 1                     Year 2              Year 3              Year 4              Year 5.
----------------------------------------------------------------------------------------------------------------
0.00 PGY 1......................  0.00 PGY 1........  0.00 PGY 1........  4.10 PGY 1........  4.20 PGY 1.
0.00 PGY 2......................  0.00 PGY 2........  0.00 PGY 2........  0.00 PGY 2........  2.70 PGY 2.
0.00 PGY 3......................  0.00 PGY 3........  0.00 PGY 3........  0.00 PGY 3........  0.00 PGY 3.
0.00 PGY 4......................  0.00 PGY 4........  0.00 PGY 4........  0.00 PGY 4........  0.00 PGY 4.
0.00 PGY 5......................  0.00 PGY 5........  0.00 PGY 5........  0.00 PGY 5........  0.00 PGY 5.
----------------------------------------------------------------------------------------------------------------
Total 0.00......................  Total 0.00........  Total 0.00........  Total 4.10........  Total 6.90.
----------------------------------------------------------------------------------------------------------------

    Hospital A's 5 year total = 11.00.

                                                   Hospital B
----------------------------------------------------------------------------------------------------------------
             Year 1                     Year 2              Year 3              Year 4              Year 5
----------------------------------------------------------------------------------------------------------------
0.00 PGY 1......................  0.00 PGY 1........  0.00 PGY 1........  1.70 PGY 1........  0.60 PGY 1.
0.00 PGY 2......................  0.00 PGY 2........  0.00 PGY 2........  0.00 PGY 2........  1.50 PGY 2.
0.00 PGY 3......................  0.00 PGY 3........  0.00 PGY 3........  0.00 PGY 3........  0.00 PGY 3.
0.00 PGY 4......................  0.00 PGY 4........  0.00 PGY 4........  0.00 PGY 4........  0.00 PGY 4.
0.00 PGY 5......................  0.00 PGY 5........  0.00 PGY 5........  0.00 PGY 5........  0.00 PGY 5.
----------------------------------------------------------------------------------------------------------------
Total 0.00......................  Total 0.00........  Total 0.00........  Total 1.70........  Total 2.10.
----------------------------------------------------------------------------------------------------------------

    Hospital B's 5 year total = 3.80.
    Total Hospital A and Hospital B over 5 years = 11.00 + 3.80 = 14.80 
FTEs.
    To calculate the cap adjustment for Hospital A with respect to the 
surgery program, we need to take the highest number of FTE residents 
training in the program (that is, FTE residents training at both 
Hospital A and Hospital B) in the fifth academic year of the first new 
program (which is the family medicine program). Because the surgery 
program only started in Year 4 of the family medicine program, there 
are only PGY 1s and PGY 2s training at both Hospitals A and B in year 
5. If we add the PGY 1s and the PGY 2s at both hospitals in year 5, we 
see that we would use the total number of PGY 1s to calculate the FTE 
cap adjustment for the surgery program, because the total number of PGY 
1s is 4.80 FTEs (4.20 + 0.60), whereas the total number of PGY 2s is 
only 4.20. We multiply 4.80 by the minimum accredited length of the 
surgery program to get the total possible cap adjustment for the 
surgery program (4.80 x 5 = 24.00). However, because the surgery 
program is only accredited for 20 positions, the overall FTE resident 
cap associated with the surgery program that is to be apportioned 
between Hospital A and Hospital B is limited to a maximum of 20. In 
this instance, because the surgery program started in Year 4 of the 
family medicine program, and it only ``grew'' for 2 years, we only have 
2 years of FTE resident counts to consider and not 5 years. 
Nevertheless, the cap adjustment that Hospital A receives for the 
surgery program will be some number less than 20 and is based on the 
ratio of the number of FTE residents in the new program training over 
the course of the 2-year period at Hospital A to the total number of 
FTEs training at both hospitals over the course of the 2-year period.
    To determine this ratio, note that Hospital A's total FTE residents 
in the new surgery program over the course of 2 years is the numerator, 
11.00. The total number of FTE residents at Hospitals A and B in the 
new surgery program over the course of 5 years is the denominator, 
14.80 (that is, 11.00 + 3.80). The ratio of training that occurred at 
Hospital A is 11.00/14.80 = 0.74. Hospital A's cap for its share of the 
surgery program is 0.74 x 20 = 14.80. (If Hospital B had been eligible 
to receive a cap adjustment, its share of the cap would have been 5.20 
((3.80/14.80) x 20) = 5.20. Thus, we have ensured that, in assigning a 
cap of 14.80 to Hospital A on behalf of its surgery program, the total 
allowable and accredited number of slots has not been exceeded).
    Adding together the cap adjustment Hospital A receives for the new 
family medicine program and the cap adjustment it receives for the new 
surgery program, Hospital A's total permanent cap is 24.21 (9.41 + 
14.80 = 24.21).
    In summary, we are proposing to revise the regulations at Sec.  
413.79(e)(1) for the purposes of direct GME and, by reference, Sec.  
412.105(f)(1)(vii) for purposes of IME to state that if a hospital 
begins training residents in a new program for the first time on or 
after October 1, 2012, that hospital's caps may be adjusted based on 
the product of the highest number of FTE residents training in any 
program year during the fifth academic year of the first program's 
existence for all new residency training programs and the number of 
years in which residents are expected to complete the program based on 
the minimum accredited length for the type of program. The cap would be 
applied beginning with the sixth academic year of the first new 
program. We also are proposing conforming changes throughout paragraph 
(e)(1) of Sec.  413.79 to correspond with the proposed change to 
increase the length of the cap-building period from 3 to 5 years. In 
addition, we are proposing to change the regulation text at Sec.  
413.79(e)(1)(i) to reflect a methodology to calculate a new teaching 
hospital's cap adjustment if the residents in the new training program 
are training at more than one hospital. We are proposing that these 
changes would be effective for a hospital that begins training 
residents for the first time on or

[[Page 27981]]

after October 1, 2012. Lastly, we are making a clarification to the 
existing regulation text at Sec.  413.79(e)(1)(i) to insert the missing 
phrase ``and the number of years in which residents are expected to 
complete the program based on the minimum accredited length for the 
type of program.'' This change is consistent with our past, current, 
and proposed policy.
3. Clarification Related to 5-Year Period Following Implementation of 
Reductions and Increases to Hospitals' FTE Resident Caps for GME 
Payment Purposes Under Section 5503 of the Affordable Care Act
    As previously discussed, in an attempt to end the implicit 
incentive for hospitals to increase the number of FTE residents, 
Congress instituted a cap on the number of allopathic and osteopathic 
residents a hospital is allowed to count for direct GME and IME 
purposes. Some hospitals have trained a number of allopathic and 
osteopathic residents in excess of their FTE resident caps, while other 
hospitals are training a number of allopathic and osteopathic residents 
at some level below their FTE resident caps. Section 5503 of the 
Affordable Care Act added a new section 1886(h)(8) to the Act to 
provide for reductions in the statutory FTE resident caps for direct 
GME payment purposes under Medicare for certain hospitals that are 
training allopathic and osteopathic residents at a level below their 
FTE resident caps, and to authorize a ``redistribution'' to certain 
hospitals of the estimated number of FTE resident slots resulting from 
the reductions. Section 5503 of the Affordable Care Act also amended 
section 1886(d)(5)(B)(v) of the Act to require application of the 
provisions of section 1886(h)(8) of the Act ``in the same manner'' to 
the FTE resident caps for IME payment purposes.
    Section 1886(h)(8)(A)(i) of the Act provides that, effective for 
portions of cost reporting periods occurring on or after July 1, 2011, 
a hospital's FTE resident cap will be reduced by 65 percent of the 
difference between the hospital's ``otherwise applicable resident 
limit'' and its ``reference resident level,'' if its ``reference 
resident level'' is less than its ``otherwise applicable resident 
limit'' (as defined at section 1886(h)(8)(H) of the Act). (We refer 
readers to the November 24, 2010 final rule with comment period (75 FR 
72155 through 72161) for a discussion of these terms.) Section 
1886(h)(8)(A)(ii) of the Act and the November 24, 2010 final rule with 
comment period (75 FR 72147) describe which hospitals are exempt from a 
cap reduction under section 5503 of the Affordable Care Act, including 
rural hospitals with fewer than 250 acute care inpatient beds.
    Under section 1886(h)(8)(B) of the Act, the Secretary is authorized 
to increase the FTE resident caps for certain categories of hospitals 
for portions of cost reporting periods occurring on or after July 1, 
2011, in the aggregate, by a number that does not exceed the estimated 
overall reduction in FTE resident caps for all hospitals under section 
1886(h)(8)(A) of the Act. In determining which hospitals will receive 
an increase in their FTE resident caps, sections 1886(h)(8)(C) through 
1886(h)(8)(E) of the Act direct us to do all of the following:
    <bullet> Take into account the demonstrated likelihood of the 
hospital filling the additional positions within the first three cost 
reporting periods beginning on or after July 1, 2011.
    <bullet> Take into account whether the hospital has an accredited 
rural training track program.
    <bullet> Distribute 70 percent of the resident slots to hospitals 
located in States with resident-to-population ratios in the lowest 
quartile.
    <bullet> Distribute 30 percent of the resident slots to hospitals 
located in a State, a territory of the United States, or the District 
of Columbia that are among the top 10 States, territories, or the 
District in terms of the ratio of the total population living in an 
area designated as a health professional shortage area (HSPA), as of 
March 23, 2010, to the total population, and/or to hospitals located in 
rural areas.
    A comprehensive description of the rules implementing the cap slot 
redistribution under section 1886(h)(8) of the Act can be found in the 
November 24, 2010 final rule with comment period (75 FR 72168). Section 
1886(h)(8)(B)(ii) of the Act, as added by section 5503(a)(4) of the 
Affordable Care Act, specifies that a hospital that receives an 
increase in its cap shall ensure, during the 5-year period beginning on 
the date of such increase (July 1, 2011), that certain requirements, 
referred to as the primary care average and the 75-percent threshold, 
are met in order to retain those slots. Otherwise, section 
1886(h)(8)(B)(iii)(I) of the Act authorizes the Secretary to reduce the 
FTE resident caps of the hospital by the same number of FTE residents 
by which the hospital's FTE resident caps were increased if the 
hospital fails to meet either requirement; and section 
1886(h)(8)(B)(iii)(II) of the Act authorizes the Secretary to 
redistribute those positions.
    Specifically, section 1886(h)(8)(B)(ii) of the Act states, ``* * * 
a hospital that receives an increase in the otherwise applicable 
resident limit under this subparagraph shall ensure, during the 5-year 
period beginning on the date of such increase, that--
    (I) The number of full-time equivalent primary care residents, as 
defined in paragraph (5)(H) (as determined by the Secretary), excluding 
any additional positions under subclause (II), is not less than the 
average number of fulltime equivalent primary care residents (as so 
determined) during the 3 most recent cost reporting periods ending 
prior to the date of enactment of this paragraph; and
    (II) Not less than 75 percent of the positions attributable to such 
increase are in a primary care or general surgery residency (as 
determined by the Secretary).
    The Secretary may determine whether a hospital has met the 
requirements under this clause during such 5-year period in such manner 
and at such time as the Secretary determines appropriate, including at 
the end of such 5-year period.''
    In a case where the Secretary determines that a hospital did not 
meet the requirements in a cost reporting year during the 5-year time 
period, section 1886(h)(8)(B)(iii) of the Act states that ``* * * the 
Secretary shall--
    (I) Reduce the otherwise applicable resident limit of the hospital 
by the amount by which such limit was increased under this paragraph; 
and
    (II) Provide for the distribution of positions attributable to such 
reduction in accordance with the requirements of this paragraph.''
    In the November 24, 2010 final rule with comment period (75 FR 
72195 through 72203), we stated that the ``5-year period beginning on 
the date of such increase'' is July 1, 2011 through June 30, 2016, and 
we provided a detailed discussion of what the two requirements under 
sections 1886(h)(8)(B)(ii)(I) and 1886(h)(8)(B)(ii)(II) of the Act 
entail. In that final rule, we noted that section 1886(h)(8)(B)(ii) of 
the Act allows the Secretary to ``determine whether a hospital has met 
the requirements * * * during such 5-year period in such manner and at 
such time as the Secretary determines appropriate, including at the end 
of such 5-year period,'' and section 1886(h)(8)(B)(iii) of the Act 
instructs the Secretary to ``reduce the otherwise applicable resident 
limit of the hospital by the amount by which such limit was increased * 
* *.'' We also explained that we believe the Secretary has the 
discretion to consider a hospital's performance over more than one year 
or

[[Page 27982]]

to review each year during the 5 years independently in determining 
whether or not a hospital is in compliance with the primary care 
average and the 75-percent threshold, as required (75 FR 72196 and 
72197 and 72200 and 72201). We emphasized that it is within CMS' and 
the Medicare contractors' authority to adjust a hospital's IME and 
direct GME payments as early as it is feasible within a cost report's 
submission and review cycle, and that we need not wait until final 
settlement to do so. We further stated in the November 24, 2010 final 
rule with comment period implementing section 5503 that ``We also 
understand that we should consider that hospitals might not immediately 
fill all the slots they receive, particularly because they are only 
required to demonstrate the likelihood of filling the slots within the 
first three cost reporting periods beginning on or after July 1, 2011'' 
(75 FR 72197). However, we gave an example that indicated that, of the 
section 5503 FTE slots that the hospital does begin to use, 75 percent 
of those slots must be in primary care or general surgery.
    Since we awarded the section 5503 slots pursuant to section 
1886(h)(8) of the Act, we have received questions from hospitals asking 
if and how CMS would enforce the primary care average and the 75-
percent threshold requirements under sections 1886(h)(8)(B)(ii)(I) and 
1886(h)(8)(B)(ii)(II) of the Act if a hospital does not use any of its 
section 5503 slots until year 4 or year 5 of the 5-year period, or if a 
hospital does not use any of the section 5503 slots until after 
expiration of the 5-year period. We have informed hospitals that the 
75-percent threshold requirement applies once the hospital starts using 
any of the section 5503 slots, and the 3-year primary care average 
requirement applies immediately on July 1, 2011, regardless of whether 
or not the hospital begins to use its additional section 5503 slots in 
year 1 of the 5-year period. This is because the 3-year primary care 
average test applies to the hospital's pre-section 5503 resident 
complement as well, and not exclusively to the additional FTE residents 
associated with slots awarded under section 5503.
    In determining which hospitals applying for slots under section 
5503 will receive slots, section 1886(h)(8)(C)(i) of the Act specifies 
that the Secretary shall take into account the demonstrated likelihood 
of the hospital filling the slots within the first three cost reporting 
periods beginning on or after July 1, 2011. Hospitals included evidence 
supporting the demonstrated likelihood stipulation in their 
applications and we took that into consideration in awarding slots 
under section 5503. We believe that it is inappropriate and in direct 
conflict with a base consideration in the awarding of slots under 
section 5503 for hospitals to refrain from using their section 5503 
slots until after the initial 3 years after the slots have been awarded 
in an attempt to circumvent the primary care average or the 75-percent 
threshold requirements, or both.
    As stated in the November 14, 2010 final rule, CMS reserves the 
right to assess as many times as necessary in the 5-year period whether 
a hospital is meeting the required criteria. The agency also may remove 
the slots awarded to a hospital at any point during the 5-year period 
(75 FR 72196 and 72197 and 72200 and 72201). Because a statutorily 
directed criterion for consideration in awarding slots under section 
5503 included the requirement that hospitals applying for slots 
demonstrate the likelihood of filling the slots within the first three 
cost reporting periods beginning on or after July 1, 2011, and we 
relied on that information in awarding slots, we believe it is 
reasonable to expect that hospitals that received slots under section 
5503 should begin to use their slots within the first three 12-month 
cost reporting periods beginning on or after July 1, 2011, of the 5-
year period in order to give full effect to the requirements under 
section 1886(h)(8)(B)(ii) of the Act. Therefore, we are proposing that 
a hospital must fill at least half of its section 5503 slots, IME and 
direct GME respectively, in at least one of the following timeframes, 
or lose its section 5503 slots: (A) in its first 12-month cost 
reporting period of the 5-year period; and/or (B) in its second 12-
month cost reporting period of the 5-year period; and/or (C) in its 
third 12-month cost reporting period of the 5-year period. For example, 
Hospital A and Hospital B both have June 30 fiscal year ends (FYEs), 
and they received 10 slots under section 5503. In its FYE June 30, 
2012, Hospital A filled 8 slots. In its FYE June 30, 2013, Hospital A 
filled 0 slots. In its FYE June 30, 2014, Hospital A filled 5 slots. 
However, Hospital B, in its FYEs June 30, 2012, 2013, and 2014, only 
filled 3 slots respectively in each of the 3 years. Hospital A would 
have complied with our proposed requirement, because it filled at least 
half of its section 5503 slots in either its first, and/or second, and/
or its third 12-month cost reporting period during the 5-year period. 
Hospital B would not have complied with our proposed requirement 
because in neither its first, second, or third 12-month cost reporting 
period had it filled at least 5 (half of 10) slots.
    We are proposing to interpret that a hospital's failure to use 
slots awarded under section 5503 in a timely manner to also be a 
failure to meet the 75-percent threshold. We believe that we have the 
authority to interpret section 1886(h)(8)(B)(ii) of the Act in such a 
manner and to propose this requirement because section 
1886(h)(8)(B)(ii) of the Act allows the Secretary to ``* * * determine 
whether a hospital has met the requirements under this clause during 
such 5-year period in such manner and at such time as the Secretary 
determines appropriate, including at the end of such 5-year period.'' 
We are reiterating that the 75-percent threshold applies in the 
instance where a hospital uses less than half, or any amount, of its 
slots prior to its third 12-month cost reporting period during the 5-
year period (75 FR 72197). In other words, the 75-percent threshold 
applies throughout the 5-year period, as long as the hospital is using 
some amount of its section 5503 slots in the respective cost reporting 
period. If a hospital is using some of its section 5503 slots in a cost 
reporting period, the 75-percent threshold would be enforced; if a 
hospital is not using any of its section 5503 slots in a cost reporting 
period, the 75-percent threshold would not be enforced. However, as 
stated earlier, we are proposing that a hospital must use its section 
5503 slots no later than the hospital's third 12-month cost reporting 
period (and that at least half of its section 5503 slots must be used 
in either the first, or second, or third 12-month cost reporting 
period).
    We note that we did not specify that a hospital must use at least 
half of its section 5503 slots in its third 12-month cost reporting 
period of the 5-year period in the November 24, 2010 final rule with 
comment period because the possibility that a hospital might not begin 
to use its section 5503 slots for several years only came to our 
attention after July 1, 2011, in response to questions raised by 
hospitals. Furthermore, given the huge demand for these slots (to the 
extent that we ran out of slots during the redistribution process and 
were unable to award any slots to hospitals in qualifying, but lower 
ranking, States), and that the slots were slated to be distributed in 
States where there was an acute need for additional residents (that is, 
as sections 1886(h)(8)(D) and 1886(h)(8)(E) of the Act specify, to 
States with resident-to-population ratios in the lowest quartile, and 
to States that are among the top 10 in terms of the HPSA population to 
total

[[Page 27983]]

population ratios), we did not expect that hospitals that received 
section 5503 slots would not be able to make almost immediate use of 
the slots. Consequently, given the presumed huge need for these slots 
in the States where Congress directed that they be awarded, we believe 
it is appropriate to use our authority to reasonably ensure that those 
slots awarded are used in compliance with section 5503 (hence, the 
proposals in this proposed rule), and, if not, are able to be 
redistributed to other hospitals in need of slots as Congress intended.
    Section 1886(h)(8)(B)(iii) of the Act states that if the Secretary 
determines that a hospital does not meet either the primary care 
average or the 75-percent threshold, ``the Secretary shall (I) reduce 
the otherwise applicable resident limit of the hospital by the amount 
by which such limit was increased under this paragraph; and (II) 
provide for the distribution of positions attributable to such 
reduction in accordance with the requirements of this paragraph.'' 
Accordingly, we are exercising the broad authority that the Secretary 
is given to determine whether the requirements at section 
1886(h)(8)(B)(ii) of the Act are met by proposing that if a hospital 
fails to fill at least half of its section 5503 slots, IME and direct 
GME respectively, in its first 12-month cost reporting period of the 5-
year period, and/or in its second 12-month cost reporting period, and/
or in its third 12-month cost reporting period of the 5-year period, 
this would mean failure to meet the 75-percent threshold. In the case 
of such failure, CMS would instruct the Medicare contractor after audit 
to permanently remove all of the hospital's section 5503 slots from the 
earliest cost reporting period that is subject to reopening and in 
which it would be determined that the hospital did not meet the 
requirements (in accordance with existing Sec.  413.79(n)(2)(iii), 
which is proposed to be redesignated as Sec.  413.79(n)(2)(iv) in this 
proposed rule), even if the hospital had used at least half of its 
section 5503 slots in its fourth or subsequent cost reporting year of 
the 5-year period. Thus, as part of the Medicare contractors' reviews 
of the hospitals that received section 5503 slots, we are proposing 
that the Medicare contractors would determine whether a hospital filled 
at least half of its section 5503 slots in its first 12-month cost 
reporting period of the 5-year period, and/or in its second 12-month 
cost reporting period, and/or in its third 12-month cost reporting 
period of the 5-year period. We believe it is appropriate to remove the 
slots from a hospital that has not filled at least half of its slots in 
any 12-month cost reporting year prior to and including the third 12-
month cost reporting period so that these slots may be redistributed to 
other hospitals that may have greater success in filling the slots and 
that are located in States that are described in sections 
1886(h)(8)((D) and 1886(h)(8)(E) of the Act.
    We note that, as explained in the November 24, 2010 final rule with 
comment period, the start and end of each year of the 5-year period 
depend on the fiscal year begin date of each hospital's cost reporting 
periods. Hospitals with fiscal year begin dates of July 1 will have 
five 12-month cost reporting periods starting on July 1, 2011, and 
ending on June 30, 2016, while hospitals with fiscal year begin dates 
of other than July 1 will have a partial cost reporting period that 
includes July 1, 2011, four 12-month cost reporting periods, and 
another partial cost reporting period that includes June 30, 2016 (75 
FR 72197). For example, if Hospital A has a June 30 fiscal year end, 
its third 12-month cost reporting period of the 5-year period would be 
July 1, 2013, to June 30, 2014, and Hospital A must fill at least half 
of its section 5503 slots, IME and direct GME respectively, in its 
first 12-month cost reporting period of the 5-year period, and/or in 
its second 12-month cost reporting period, and/or in its third 12-month 
cost reporting period of the 5-year period. If Hospital B has a 
September 30 fiscal year end, its cost reporting periods occurring 
during July 1, 2011 through June 30, 2016 are as follows:
    Year 1--July 1, 2011-September 30, 2011
    Year 2--October 1, 2011-September 30, 2012
    Year 3--October 1, 2012-September 30, 2013
    Year 4--October 1, 2013-September 30, 2014
    Year 5--October 1, 2014-September 30, 2015
    Year 6--October 1, 2015-June 30, 2016
    Hospital B's third 12-month cost reporting period would be October 
1, 2013, to September 30, 2014, and Hospital B must fill at least half 
of its section 5503 slots, IME and direct GME, respectively, in its 
first 12-month cost reporting period of the 5-year period, and/or in 
its second 12-month cost reporting period, and/or in its third 12-month 
cost reporting period of the 5-year period. As explained in the 
November 24, 2010 final rule with comment period (75 FR 72197), if 
hospitals have other than a June 30 fiscal year end, for their cost 
reports that include July 1, 2011 and June 30, 2016 respectively, we 
will consider whether the hospital meets the primary care average and 
the 75-percent threshold requirements based on an annualized FTE count. 
Also, if during the period of July 1, 2011 through June 30, 2016, 
hospitals, for whatever reason, actually have less than 12-month cost 
reports, we would consider on a case-by-case basis which cost reports 
we would evaluate for purposes of meeting the proposed requirement of 
filling at least half of the section 5503 slots in its first, second, 
and/or third cost reporting period. As under existing policy, if the 
hospital does begin to fill its section 5503 slots but fails to meet 
the 75-percent threshold, the Medicare contractor would also remove the 
section 5503 slots, effective with the earliest year that the 75-
percent threshold is not met.
    Lastly, considering again that hospitals that received section 5503 
slots had to demonstrate the likelihood of filling the slots within the 
first three cost reporting periods beginning on or after July 1, 2011, 
we are proposing to require that hospitals that received section 5503 
slots must fill all of the slots they received in their final cost 
reporting period beginning during the timeframe of July 1, 2011 through 
June 30, 2016 (IME and direct GME respectively), or lose all of their 
section 5503 slots after June 30, 2016. As stated above, we consider it 
to be appropriate to remove the slots from a hospital that has not 
filled at least half of its slots in any 12-month cost reporting period 
prior to and including the third 12-month cost reporting period, so 
that these slots may be redistributed to other hospitals that otherwise 
qualified to receive slots, but did not receive them because the 
available slots were granted to higher ranking hospitals. We also are 
interested in commenters' recommendations regarding alternative 
approaches to encouraging compliance with the 3-year primary care 
average requirement and the 75-percent threshold.
    In summary, we are proposing that a hospital must fill at least 
half of its section 5503 slots, IME and direct GME respectively, in at 
least one of the following timeframes or lose its section 5503 slots: 
(A) in its first 12-month cost reporting period of the 5-year period; 
and/or (B) in its second 12-month cost reporting period of the 5-year 
period; and/or (C) in its third 12-month cost reporting period of the 
5-year period. We are proposing to enforce the 75-percent threshold 
test once the hospital begins to use its section 5503 slots,

[[Page 27984]]

which we are proposing must be no later than the hospital's third 12-
month cost reporting period (and that at least half of its section 5503 
slots must be used in either the first, or second, or third 12-month 
cost reporting period). In addition, we are proposing that a hospital 
does not meet the 75-percent threshold if it fails to fill at least 
half of its section 5503 slots, IME and direct GME, respectively, in 
one or a combination of the first three 12-month cost reporting period 
of the 5-year period, and upon that basis, CMS would instruct the 
Medicare contractor, after audit, to permanently remove all of the 
hospital's section 5503 slots from the earliest cost reporting period 
that is subject to reopening and in which it would be determined that 
the hospital did not meet the requirements (in accordance with existing 
Sec.  413.79(n)(2)(iii), which is proposed to be redesignated as Sec.  
413.79(n)(2)(iv) in this proposed rule), even if the hospital had used 
at least half of its section 5503 slots in its fourth or subsequent 
cost reporting year of the 5-year period. Thus, as part of the Medicare 
contractors' reviews of the hospitals that received section 5503 slots, 
we are proposing that the Medicare contractors would determine whether 
a hospital filled at least half of its section 5503 slots in its first 
12-month cost reporting period of the 5-year period, and/or in its 
second 12-month cost reporting period, and/or in its third 12-month 
cost reporting period of the 5-year period. Lastly, we are proposing to 
require that a hospital that received section 5503 slots must fill all 
of the slots it received in their final cost reporting period beginning 
during the timeframe of July 1, 2011 through June 30, 2016 (IME and 
direct GME respectively), or lose all of its section 5503 slots after 
June 30, 2016.
    We are proposing that these requirements would be effective for a 
hospital's third 12-month cost reporting period occurring during the 5-
year period of July 1, 2011 through June 30, 2016. For example, for 
hospitals with a June 30 fiscal year end, this would be July 1, 2013 
through June 30, 2014. For hospitals with a September 30 fiscal year 
end, this would be October 1, 2013 through September 30, 2014. For 
hospitals with a December 31 fiscal year end, this would be January 1, 
2014 through December 31, 2014. We are proposing to make appropriate 
changes to the regulations text at Sec.  413.79(n)(2) to incorporate 
our proposals. The IME regulations regarding section 5503 slots that 
are at existing Sec.  412.105(f)(1)(iv)(C)(2) reference the direct GME 
regulations text at Sec.  413.79(n) and would not require amendments.
4. Preservation of Resident Cap Positions From Closed Hospitals 
(Section 5506 of the Affordable Care Act)
a. Background
    Under existing regulations at Sec.  413.79(h) for direct GME and 
Sec.  412.105(f)(1)(ix) for IME, a hospital that is training FTE 
residents at or in excess of its FTE resident caps and takes in 
residents displaced by the closure of another teaching hospital may 
receive a temporary increase to its FTE residents caps so that it may 
receive direct GME and IME payment associated with those displaced FTE 
residents. However, those temporary FTE resident caps are associated 
with those specific displaced FTE residents, and the temporary caps 
expire as those displaced residents complete their training program. 
Thus, in the past, if a teaching hospital closed, its direct GME and 
IME FTE resident cap slots would be ``lost,'' because those cap slots 
are associated with a specific hospital's Medicare provider agreement, 
which would be retired upon the hospital's closure. Section 5506 of the 
Affordable Care Act addressed that situation by amending section 
1886(h)(4)(H) of the Act to add a new clause (vi) that instructs the 
Secretary to establish a process by regulation under which, in the 
event a teaching hospital closes, the Secretary will permanently 
increase the FTE resident caps for hospitals that meet certain criteria 
up to the number of the closed hospital's FTE resident caps. The 
Secretary is directed to ensure that the total number of FTE resident 
cap slots distributed shall be equal to the amount of slots in the 
closed hospital's direct GME and IME FTE resident caps, respectively. 
Under existing regulations at Sec.  489.52 and Sec.  413.79(h), 
``closure of a hospital'' means the hospital terminates its Medicare 
provider agreement. As finalized in the November 24, 2010 final rule 
with comment period (75 FR 72213), we also specified that the FTE 
resident cap slots of the hospital that closed no longer exist as part 
of any other hospital's permanent FTE resident cap.
    Section 1886(h)(4)(H)(vi)(II) of the Act, as added by section 
5506(a) of the Affordable Care Act, specifies that the Secretary shall 
distribute the FTE cap increases in the following priority order, 
``with preference given within each category to hospitals that are 
members of the same affiliated group'' (as defined by the Secretary) as 
the closed hospital:
    <bullet> First, to hospitals located in the same core-based 
statistical area (CBSA) as, or in a CBSA contiguous to, the hospital 
that closed.
    <bullet> Second, to hospitals located in the same State as the 
closed hospital.
    <bullet> Third, to hospitals located in the same region of the 
country as the hospital that closed.
    <bullet> Fourth, only if the slots are not able to be fully 
distributed under the third priority group, to qualifying hospitals in 
accordance with the criteria established under section 5503 
(``Distribution of Additional Residency Positions'') of the Affordable 
Care Act.
    For a detailed discussion on these ranking categories, we refer 
readers to the November 24, 2010 final rule with comment period (75 FR 
72214 and 72215). In the November 24, 2010 final rule with comment 
period (75 FR 72212 through 72240), we also finalized the following 
Ranking Criteria:
    [square] Ranking Criterion One. The applying hospital is requesting 
the increase in its FTE resident cap(s) because it is assuming (or 
assumed) an entire program (or programs) from the hospital that closed, 
and the applying hospital is continuing to operate the program(s) 
exactly as it had been operated by the hospital that closed (that is, 
same residents, possibly the same program director, and possibly the 
same (or many of the same) teaching staff).
    [square] Ranking Criterion Two. The applying hospital was listed as 
a participant of a Medicare GME affiliated group on the most recent 
Medicare GME affiliation agreement of which the closed hospital was a 
member before the hospital closed, and under the terms of that Medicare 
GME affiliation agreement, the applying hospital received slots from 
the hospital that closed, and the applying hospital will use the 
additional slots to continue to train at least the number of FTE 
residents it had trained under the terms of the Medicare GME 
affiliation agreement. If the most recent Medicare GME affiliation 
agreement of which the closed hospital was a member before the hospital 
closed was with a hospital that itself has closed or is closing, 
preference would be given to an applying hospital that was listed as a 
participant in the next most recent Medicare GME affiliation agreement 
(but not one which was entered into more than 5 years prior to the 
hospital's closure) of which the first closed hospital was a member 
before the hospital closed, and that applying hospital received slots 
from the closed hospital under the terms of that affiliation agreement.

[[Page 27985]]

    [square] Ranking Criterion Three. The applying hospital took in 
residents displaced by the closure of the hospital, but is not assuming 
an entire program or programs, and will use the additional slots to 
continue training residents in the same programs as the displaced 
residents, even after those displaced residents complete their training 
(that is, the applying hospital is permanently expanding its own 
existing programs).
    [square] Ranking Criterion Four. The applying hospital does not fit 
into Ranking Criteria One, Two, or Three, and will use additional slots 
to establish a new or expand an existing geriatrics residency program.
    [square] Ranking Criterion Five: Applying hospital does not meet 
Ranking Criterion One, Two, or Three, is located in a HPSA, and will 
use all the additional slots to establish or expand a primary care or 
general surgery residency program.
    [square] Ranking Criterion Six: Applying hospital does not meet 
Ranking Criterion One, Two, or Three, is not located in a HPSA, and 
will use all the additional slots to establish or expand a primary care 
or general surgery residency program.
    [square] Ranking Criterion Seven: Applying hospital seeks the slots 
for purposes that do not fit into any of the above ranking criteria.
    In determining which hospitals should receive the slots associated 
with the closed hospital, in addition to considering the ranking 
categories and criteria listed above, section 1886(h)(4)(H)(vi) of the 
Act, as added by section 5506(a) of the Affordable Care Act, states 
that the Secretary may only award slots to an applying hospital ``if 
the Secretary determines that the hospital has demonstrated a 
likelihood of filling the positions made available under this clause 
within 3 years.'' ``Within 3 years'' means within the 3 academic years 
immediately following the application deadline to receive slots after a 
particular hospital closes (75 FR 72224). For example, where the 
application deadline is April 1, 2011, the immediately following 
academic year is July 1, 2011; therefore, hospitals must demonstrate 
the likelihood of filling their slots by June 30, 2014.
    Finally, section 5506(d) of the Affordable Care Act specifies that 
``the Secretary shall give consideration to the effect of the 
amendments made by this section on any temporary adjustment to a 
hospital's FTE cap under Sec.  413.79(h) * * * (as in effect on the 
date of enactment of this Act) in order to ensure that there is no 
duplication of FTE slots * * *.'' In distributing slots permanently 
under section 5506, we need to be cognizant of the number of FTE 
residents for whom a temporary FTE cap adjustment was provided under 
existing regulations at Sec.  413.79(h), and when those residents will 
complete their training, at which point the temporary slot associated 
with those displaced residents would be available for permanent 
redistribution.
b. Proposed Change in Amount of Time Provided for Submitting 
Applications Under Section 5506 of the Affordable Care Act
    In the August 3, 2010 proposed rule (75 FR 46422), we proposed to 
establish an application process for hospitals to apply to CMS to 
receive an increase in FTE caps based on slots from closed hospitals. 
Section 5506 of the Affordable Care Act did not specify an application 
deadline for hospitals to request an increase to their caps when a 
hospital closes. With respect to the first application process, which 
applied to all teaching hospital closures between March 23, 2008, and 
August 3, 2010, we established an application deadline of April 1, 
2011. For future teaching hospital closures, we finalized a policy 
whereby we would inform the public through an appropriate medium that 
increases to hospitals' FTE resident caps are available for 
distribution due to the closure of a teaching hospital, and the 
application deadline would be 4 months following the issuance of that 
notice to the public (75 FR 72215).
    Some representatives of the provider community have commented that 
providing hospitals with 4 months following the announcement of a 
teaching hospital closure to apply for slots under section 5506 is 
longer than necessary. They asserted that such a long application 
period unnecessarily delays CMS' review of applications and the 
resulting distribution of resident cap slots from closed hospitals to 
the applicants. The provider representatives suggested that perhaps a 
2-month application window is sufficient and is more practical.
    We have considered the suggestion of the provider representatives, 
and after our initial experience in implementing section 5506 of the 
Affordable Care Act, we agree that 4 months may be more time than is 
needed for hospitals to properly prepare and submit section 5506 
applications to CMS. Accordingly, as recommended, we are proposing to 
set the application deadline for future section 5506 applications to be 
60 days following CMS' public notice of a hospital's closure and the 
availability of resident cap slots increases. We believe that reducing 
the application submission timeframe from 4 months to 60 days will 
shorten the entire process for awarding FTE resident cap slots from 
closed hospitals considerably.
c. Proposed Change to the Ranking Criteria Under Section 5506
    In the November 24, 2010 final rule with comment period (75 FR 
72223), we finalized the Ranking Criteria within each of the three 
first statutory priority categories (that is, same or contiguous CBSAs, 
same State, and same region) to be used to rank applications. For each 
application, we assigned slots based on Ranking Criteria, with Ranking 
Criterion One being the highest ranking and Ranking Criterion Seven 
being the lowest. For a complete list of the Ranking Criteria, we refer 
readers to section IV.I.4.a. of this preamble, which discusses the 
background for preservation of resident cap positions from closed 
hospitals under section 5506 of the Affordable Care Act. For a detailed 
discussion of the ranking categories, we refer readers to the November 
24, 2010 final rule with comment period (75 FR 72212 through 72240).
    After reviewing applications from the first section 5506 
application process (those applications that were due to CMS on April 
1, 2011), we observed that the overwhelming majority of applications 
fell under Ranking Criterion Seven, that is, the applying hospital 
seeks the slots for purposes that do not fit into any of Ranking 
Criterion One through Ranking Criterion Six. These applications 
included applications from hospitals that applied for FTE cap slots for 
both primary care and/or general surgery and for nonprimary care 
specialties as well as applications for general cap relief. The sheer 
number of applications we received under Ranking Criterion Seven was 
indicative of a need to further prioritize among the applicants that 
would have qualified under Ranking Criterion Seven. Therefore, we are 
proposing to replace current Ranking Criterion Seven with the two 
separate proposed Ranking Criteria listed below. We note that we are 
not proposing to make any changes to Ranking Criteria One through Six. 
We are proposing the following two criteria to replace existing Ranking 
Criterion Seven:
    <bullet> Proposed Ranking Criterion Seven: The program does not 
meet Ranking Criterion One through Six, and the slots for which the 
hospital is applying are for a primary care or a general surgery 
program, but the hospital is also applying for slots under Ranking 
Criterion Eight.
    <bullet> Proposed Ranking Criterion Eight: Applying hospital seeks 
the slots for

[[Page 27986]]

purposes that do not fit into any of the above ranking criteria.
    Our proposal to modify Ranking Criterion Seven is consistent with 
current Medicare policy goals to increase residency training in primary 
care and general surgery, because we are proposing to give a higher 
ranking to those applications from hospitals applying for primary care 
and general surgery FTE cap slots, as well as nonprimary care programs. 
Under the current Ranking Criteria, when a hospital applies for 
additional FTE cap slots for primary care and/or general surgery as 
well as nonprimary care programs, we do not distinguish between the 
primary care/general surgery and nonprimary care applications. 
Therefore, because the hospital would be applying for nonprimary 
program(s), all the hospital's applications would fall under proposed 
Ranking Criterion Seven. Under this proposal, although the hospital's 
application that requests FTE cap slots for primary care/general 
surgery would qualify for proposed Ranking Criterion Seven, the 
application for nonprimary care/general surgery would be classified as 
proposed Ranking Criterion Eight.
    Following is an example of how the proposed Ranking Criteria Seven 
and Eight would be assigned:
    Hospital A applies for slots from closed Hospital B. Hospital A is 
seeking to expand its internal medicine and dermatology programs. Under 
the current ranking system, both of Hospital A's applications would 
receive consideration under Ranking Criterion Seven. That is, the 
internal medicine application is ranked equally with the dermatology 
application even though internal medicine is a primary care specialty. 
Under the proposed change to the Ranking Criteria, Hospital A's 
internal medicine program would receive consideration under proposed 
Ranking Criterion Seven while the dermatology program would receive 
consideration under proposed Ranking Criterion Eight.
d. Effective Dates of Slots Awarded Under Section 5506
    As stated previously, section 5506(d) of the Affordable Care Act 
instructs the Secretary, in pertinent part, ``* * * to ensure that 
there is no duplication of FTE slots. * * *'' Accordingly, in 
distributing slots permanently under section 5506, we need to be 
cognizant of the number of FTE residents for whom a temporary FTE cap 
adjustment was provided under existing regulations at Sec.  413.79(h), 
when those residents will complete their training, and at which point 
the temporary slots associated with those displaced residents would be 
available for permanent redistribution. With that in mind, in the first 
distribution of section 5506 cap slots from hospitals that closed 
between March 23, 2008, and August 3, 2010, we used the following 
several effective dates based on the ranking criterion under which a 
hospital applied:
    <bullet> Date of hospital closure. This effective date could have 
applied to Ranking Criterion Two. It also could have applied to Ranking 
Criteria One and Three if there were no temporary cap adjustments given 
for any displaced FTE residents.
    <bullet> Cost reporting period following date of hospital closure. 
This effective date could have been used for awarding slots to 
hospitals that were training displaced FTE residents and qualified for 
Ranking Criterion One or Ranking Criterion Three because they were 
taking over an entire program or part of a program from a closed 
hospital and had received a temporary cap adjustment to train those 
displaced residents under 42 CFR 413.79(h).
    <bullet> July 1 effective date. This effective date, which could 
have been retroactive, could have been used for awarding slots to 
hospitals that qualified under Ranking Criteria Four through Seven 
where there were temporary cap adjustments made for displaced FTE 
residents that completed training in a program on a specific June 30.
    <bullet> Date of award announcement (January 30, 2012). This 
effective date could have applied to hospitals that qualified under 
Ranking Criteria Four through Seven either where there were no 
temporary cap increases under 42 CFR 413.79(h), or where there were 
temporary cap increases but those slots associated with the temporary 
cap increases were already accounted for. That is, displaced FTE 
residents graduated prior to a specific July 1, and, therefore, the cap 
slots associated with these FTE residents had already been permanently 
assigned that specific July 1, but the closed hospital still had 
remaining cap slots available for permanent assignment.
    Based on comments we have received from hospitals that were 
involved in the initial phase of section 5506 implementation (hospitals 
that applied for cap slots from hospitals that closed between March 23, 
2008 and August 3, 2010), we believe we need to clarify certain 
existing policies and propose a change to the effective dates 
associated with several ranking criteria.
    First, we are clarifying the effective date of slots awarded under 
section 5506 with respect to Ranking Criterion Two. Ranking Criterion 
Two applies to hospitals that participated in a Medicare GME 
affiliation agreement with the closed hospital (but not one that was 
entered into more than 5 years prior to the hospital's closure), 
received slots from the closed hospital as part of the affiliation 
agreement, and will use any additional awarded slots to continue to 
train at least the same number of FTE resident slots it trained as part 
of the affiliation agreement. For hospitals that qualify for additional 
slots under Ranking Criterion Two, we award the 5506 slots effective on 
a permanent basis with the date of the hospital's closure. However, for 
hospitals that qualify under Ranking Criteria One and Three and are 
already receiving temporary cap adjustments for displaced FTE residents 
under 42 CFR 413.79(h), we award the 5506 slots effective on a 
permanent basis with the cost reporting period following the date of 
the hospital's closure. Because these hospitals are already receiving 
temporary cap adjustments for their portion of their cost reporting 
period following the closure, for administrative ease, slots became 
permanent due to the section 5506 award effective with the cost 
reporting period following the date of the hospital's closure. However, 
this policy, applicable to hospitals that qualify under Ranking 
Criterion One or Three, is not appropriate for hospitals that qualify 
under Ranking Criterion Two and that participated in a Medicare GME 
affiliation agreement with the closed hospital and received cap slots 
from the closed hospital as part of that affiliation agreement. This 
policy is not appropriate because, in this case, there were no 
displaced FTE residents from the Medicare GME affiliation agreement 
and, therefore, the hospital did not receive a temporary cap 
adjustment. For example, if Hospital A received slots from Hospital B 
as part of an affiliation agreement so that FTE residents could train 
at Hospital A and Hospital B closes, Hospital A lost the cap adjustment 
it received from Hospital B as part of the affiliation agreement as of 
the date of the hospital's closure, and a temporary cap adjustment 
under 42 CFR 413.79(h) is not available to Hospital A. In this case, no 
FTE residents are displaced.
    In this proposed rule, we are clarifying that, for hospitals 
qualifying under Ranking Criterion Two that are awarded cap slots from 
the closed hospital, the award is effective with the date of the 
hospital's closure. This effective date allows a hospital applying 
under Ranking Criterion Two to receive funding for training the 
additional FTE

[[Page 27987]]

residents it was training as part of the Medicare GME affiliation 
agreement with the closed hospital immediately after the closure, 
without having to wait until the following cost reporting period to 
receive that cap adjustment. We note that, under existing regulations 
at 42 CFR 413.79(d), additional FTEs that a hospital receives under the 
terms of a Medicare GME affiliation agreement are subject to the 3-year 
rolling average. Therefore, hospitals that receive permanent assignment 
of FTE resident cap slots under Ranking Criterion Two do not receive an 
exemption from the rolling average. With regard to the IME intern and 
resident-to-bed (IRB) ratio, the existing regulations at 42 CFR 
412.105(a)(1)(i) indicate that the numerator of the prior year IRB 
ratio may be adjusted to reflect FTEs added under a Medicare GME 
affiliation agreement. The affiliation agreement would terminate when 
the hospital closes. Thus, on the cost report of the hospital that 
receives slots under Ranking Criterion Two, the prior year numerator of 
the IRB ratio would only be adjusted to reflect the portion of the 
affiliated FTEs that the hospital received prior to the other 
hospital's closure and the termination of the affiliation agreement.
    We also are clarifying that when there are no temporary cap 
adjustments for displaced FTE residents from hospitals that closed, and 
an applying hospital qualifies under Ranking Criterion One or Ranking 
Criterion Three, the FTE resident cap slots are awarded effective with 
the date of the hospital's closure. This was indicated in the November 
24, 2010 final rule with comment period (75 FR 72225), but we 
understand, based on comments received after the initial phase of 
section 5506 slot awards, that this policy was not clearly understood. 
These slots are also immediately included in applying the rolling 
average and IRB ratio cap.
    We are proposing to change the effective date of an award of 
additional FTE caps for hospitals that qualify under Ranking Criterion 
Four through proposed Ranking Criterion Eight where temporary caps were 
given for displaced FTE residents (we refer readers to section 
IV.I.4.b. of this preamble for a discussion of proposed Ranking 
Criteria Seven and Eight). As a general matter, hospitals that apply 
under Ranking Criterion Four through proposed Ranking Criterion Eight 
are applying either to establish or expand a program or to seek cap 
relief. We do not believe that, when a hospital receives additional cap 
slots to establish or expand a residency training program, we need to 
award the cap slots retroactively to a previous July 1 effective date. 
Rather, the awarded cap slots are to be used on a prospective basis to 
allow hospitals to expand current programs or establish new ones. We 
understand that if a hospital is applying for cap relief under proposed 
Ranking Criterion Eight (current Ranking Criterion Seven), the hospital 
would want its cap slots awarded retroactively to the date of the 
hospital's closure or the July 1 after a specific displaced resident 
has graduated if that date is prior to the date of the award 
announcement. However, we do not believe such a policy is consistent 
with the spirit of the BBA caps. Furthermore, the purpose of section 
5506 is for hospitals to receive slots from the closed hospital to 
facilitate the continuity of the closed hospital's programs and to 
promote stability in the number of physicians in a community. The 
proposed Ranking Criterion Eight of section 5506 does not serve to 
encourage the continuity of the closed hospital's programs; it merely 
provides Medicare funding for a certain amount of slots in excess of 
the BBA caps. Accordingly, we believe that hospitals applying for cap 
relief under proposed Ranking Criterion Eight should only receive their 
permanent cap slots effective on a prospective basis. Therefore, while 
under the initial section 5506 application process, it was possible for 
an applying hospital that qualified under Ranking Criteria Four through 
Seven to receive slots retroactive to the July 1 after a specific 
displaced FTE resident's graduation date, we are proposing that, for 
hospitals that qualify under Ranking Criteria Four through Eight for 
cap slots from a closed hospital even where there were temporary caps 
given for displaced FTE residents, the applying hospitals would receive 
the permanent FTE cap slots effective no earlier than the date of the 
award announcement. That is, if an applying hospital that qualified 
under Ranking Criterion Four through proposed Ranking Criterion Eight 
receives cap slots associated with a displaced FTE resident and that 
resident graduated prior to the date of the award announcement, the 
earliest the applying hospital could receive the permanent cap 
adjustment would be the date of the award announcement. If a hospital 
qualified under Ranking Criterion Four through proposed Ranking 
Criterion Eight, and the only available cap slots are temporarily being 
used to train displaced FTE residents that are expected to graduate 
after the date of the award, the applying hospital will receive the 
permanent slots effective the July 1 after those displaced FTE 
residents complete their training. For example, if a hospital closed 
January 1, 2012, and the section 5506 slot awards were announced May 1, 
2013, but residents displaced from the closed hospital did not complete 
their training until June 30, 2013, the applying hospital will receive 
section 5506 slots for those displaced residents effective July 1, 
2013, following the completion of training of those displaced 
residents. We are not proposing to change the effective date of section 
5506 awards for applying hospitals that qualify under Ranking Criterion 
Four through proposed Ranking Criterion Eight where there were no 
temporary caps given for displaced residents; as described in the 
November 24, 2010 final rule with comment period (75 FR 72227), those 
applying hospitals will continue to receive their section 5506 cap 
slots effective with the date of the award announcement.
    Alternatively, another option to consider for the effective date of 
Ranking Criteria Four through proposed Ranking Criterion Seven, which 
are ranking criteria associated with either starting a program or 
expanding a program, would be to award the slots in accordance with 
when the hospital actually needs the slots, as asserted in the 
hospital's section 5506 application. (The proposed effective date for 
proposed Ranking Criterion Eight would still be no earlier than the 
date of the award announcement.) For example, assume a hospital applies 
under Ranking Criterion Five to expand an internal medicine program by 
nine positions. As described in its section 5506 application, the 
hospital plans that expansion to occur beginning on July 1, 2012, and 
at that time, the hospital would add three residents, and on July 1, 
2013, the hospital would add another three residents, and then on July 
1, 2014, the hospital would add the last three internal medicine 
residents. Therefore, the effective date of three slots could be July 
1, 2012, the effective date of three additional slots would be July 1, 
2013, and the effective date of the last three slots would be July 1, 
2014. We are interested in receiving public comments on this policy 
alternative. We would still propose that the effective date for 
proposed Ranking Criterion Eight would be no earlier than date of the 
award.
    Thus far, we have clarified when various effective dates have been 
used (that is, the date of closure, or the cost reporting period 
following the date of the closure, or a July 1 date), and we have 
proposed a change to the effective date of Ranking Criteria Four 
through proposed Ranking Criterion Eight when

[[Page 27988]]

temporary cap adjustments for displaced residents were given (to be no 
earlier than the date of the award announcement). However, due to 
concerns expressed by recipients of slots under the first round of 
section 5506, particularly regarding the interaction with the rolling 
average as the retroactive section 5506 slots become effective, we are 
soliciting public comments on alternative approaches to implementing 
section 5506. While bearing in mind that section 5506(d) of the 
Affordable Care Act instructs the Secretary ``* * * to ensure that 
there is no duplication of FTE slots * * *,'' we would be interested in 
public comments regarding whether to either make the effective dates 
prospective for all section 5506 slots awarded under all ranking 
criteria, or, in certain instances such as when slots are awarded under 
Ranking Criteria One or Three, make the effective dates of the section 
5506 slots seamless with the expiration of applicable temporary cap 
adjustments under Sec.  413.79(h). We also are soliciting public 
comments on whether the regulatory temporary cap adjustment for 
residents displaced from closed hospitals under Sec.  413.79(h) is 
still necessary and appropriate, now that there is a provision in the 
statute that addresses permanent reassignment of slots from closed 
teaching hospitals. Alternatively, we would be interested in comments 
regarding whether the regulatory temporary cap adjustment for displaced 
residents under Sec.  413.79(h) should be preserved, but the exemption 
from the rolling average for those displaced FTE residents should be 
eliminated. These options should be considered by commenters not only 
in the context of section 5506 slots that have already been assigned, 
but also in the context of future teaching hospital closures, and how 
previously awarded section 5506 slots that have not as yet been filled 
might interact with eligibility for temporary cap adjustments for 
additional displaced residents in the future.
e. Clarification of Relationship Between Ranking Criteria One, Two, and 
Three
    In the November 24, 2010 final rule with comment period, as part of 
the response to a comment we received requesting that the order of 
Ranking Criterion One (regarding an applicant hospital that assumes an 
entire program from a closed hospital) and Ranking Criterion Two 
(regarding an applicant hospital that received slots under the terms of 
a Medicare GME affiliation agreement from a closed hospital) be 
switched, we stated:

    Furthermore, the commenter need not be concerned that hospitals 
that would fit into Ranking Criterion Two would be at a disadvantage 
and deprived of their fair share of slots to hospitals that would 
fit under Ranking Criterion One. In fact, Ranking Criteria One and 
Two are not competing with each other, and hospitals fitting into 
each category would get their `fair' share of slots. For example, 
assume a hospital with an FTE resident cap of 100 closes. Hospital A 
assumes the entire programs in which 80 FTE residents were training 
when the hospital closed. Hospital B had been receiving 20 FTE slots 
from the closed hospital under the terms of a Medicare GME 
affiliation agreement. Hospital A applies for 80 slots under Ranking 
Criterion One and, all other things being equal, is awarded 80 
slots. Hospital A could apply for more than 80 slots, but it could 
only receive consideration under Ranking Criterion One for a maximum 
of 80 slots. Therefore, 20 slots would remain for Hospital B to 
apply for and receive under Ranking Criterion Two. Accordingly, we 
do not believe it is necessary to reorder Ranking Criteria One and 
Two (75 FR 72218).

    We have recently been made aware that it may not always be true 
that Ranking Criteria One, Two, and even Three are not competing with 
each other. For example, in the case where the closed hospital was 
training residents in excess of its FTE resident caps, it is possible 
for hospitals to apply under Ranking Criteria One, Two, and/or Three 
for more slots than are available. However, under the policy expressed 
in the response quoted above from the November 24, 2010 final rule with 
comment period, because a hospital that takes over an entire program 
from the closed hospital is ranked under Ranking Criterion One, and a 
hospital that received slots from a Medicare GME affiliation agreement 
from the closed hospital is ranked under Ranking Criterion Two, all the 
slots could be assigned to the hospital under Ranking Criterion One, 
leaving no slots for hospitals ranked under Ranking Criterion Two or 
Three. (We note that in the first round of section 5506 awards 
associated with hospitals that closed between March 23, 2008, and 
August 3, 2010, this turned out not to be a concern because even in the 
case where a closed hospital was training residents in excess of its 
FTE caps at the time of closure, there were no applicants for the slots 
that simultaneously qualified under Ranking Criteria One, Two, and/or 
Three). For example, a hospital that closed has an FTE resident cap of 
10, but when it closed, it was training 15 FTEs in an internal medicine 
program. Hospital A assumes at least 90 percent of the internal 
medicine program; that is, the ``entire'' program (a hospital that 
takes on 90 percent of the residents training in a particular program 
at the closed hospital within 5 years prior to the hospital's closure 
or at the time of the hospital's closure would be deemed to have 
assumed an ``entire'' program (75 FR 72218)). Ninety percent of the 
internal medicine program is 13.5 FTEs. Because Hospital A took over 
the ``entire'' internal medicine program, it applies for slots under 
Ranking Criterion One. Hospital B applies under Ranking Criterion Three 
because it assumes the other 10 percent of the program, or 1.5 FTEs. 
However, because the closed hospital's FTE resident cap was limited to 
10, it would seem that all 10 slots would be assigned to Hospital A 
under Ranking Criterion One, leaving no slots for Hospital B under 
Ranking Criterion Three. Conversely, if Ranking Criteria One and Three 
were ranked as equals, the 10 slots could be prorated so that both 
Hospital A and Hospital B each receive a ``fair'' share.
    Another example might be one in which a closed hospital that was 
training residents in excess of its FTE resident cap of 10 ``lent'' 2 
of those 10 cap slots to Hospital C under the terms of a Medicare GME 
affiliation agreement. Although under the terms of the Medicare GME 
affiliation agreement, the hospital's FTE resident cap was reduced from 
10 to 8, the hospital actually trained 9 FTEs, and continued to do so 
until it closed. Hospital D then assumes the 9 FTEs, or the entirety of 
the program that remained at the closed hospital when it closed. Again, 
one policy approach would be to rank the ranking criteria in descending 
order, and assign all 10 slots to Hospital D since Hospital D qualifies 
under Ranking Criterion One. Alternatively, another policy approach 
would be to treat Ranking Criteria One and Two as equals, and then a 
prorata share of the 10 slots could be given each to Hospital C and 
Hospital D.
    After consideration of these scenarios, we believe that in the case 
where the closed hospital was training residents in excess of its FTE 
resident caps, prorating among hospitals that qualify under Ranking 
Criteria One, Two, and Three is not warranted. This is because we 
believe that a hospital that assumes an entire program from the closed 
hospital should be ranked highest, as it has taken the boldest step to 
ensuring the continuity of the closed hospital's program. As we 
explained first in the August 3, 2010 proposed rule (75 FR 46423) and 
again in the November 24, 2010 final rule with comment period (75 FR 
72218), ``We note that we are proposing this ranking criterion 
regarding affiliated hospitals as second, after the first ranking 
criterion regarding applying hospitals that assume an entire

[[Page 27989]]

program or programs from the closed hospital because, even though 
section 5506 of the Affordable Care Act directs the Secretary to give 
preference to members of the same affiliated group, we believe that a 
hospital that assumes the responsibility for an entire program or 
programs demonstrates a commitment to maintain the programs to an even 
greater degree than does a hospital that was affiliated with the 
hospital that closed and may only be maintaining a portion of the 
residency program or programs.'' Similarly, we believe that because 
section 5506 of the Affordable Care Act does give preference to members 
of the same affiliated group as the closed hospital, hospitals 
qualifying for Ranking Criterion Two should receive slots first before 
hospitals qualifying for slots under Ranking Criterion Three. While we 
would encourage a hospital to assume a part of a closed hospital's 
program if it does not have the capacity to assume the entire program, 
such a hospital would be ranked under Ranking Criterion Three, still 
receiving preference before all hospitals that did not necessarily have 
any relationship with the closed hospital and that qualify under 
Ranking Criteria Four and below. As we stated in the November 24, 2010 
final rule with comment period (75 FR 72226), ``we would still assign 
the slots to hospitals qualifying under Ranking Criteria One, Two, and 
Three in descending order.'' Therefore, in the instance where a closed 
hospital is training residents in excess of its FTE resident caps when 
it closes, we are clarifying that we would not prorate a closed 
hospital's FTE resident caps among applicant hospitals that qualify 
under Ranking Criteria One, Two, and Three.
f. Proposed Modifications to the Section 5506 CMS Evaluation Form
    We are proposing to make numerous changes to the Section 5506 CMS 
Evaluation Form. Most of the changes are not substantive, but are 
intended to clarify the requirements on the form, and therefore, we 
will not list them each individually. There are several proposed 
changes that are more substantive, and we will enumerate those. First, 
we are proposing to change the name of the CMS Evaluation Form to the 
CMS Application Form. We believe this is a more appropriate name, as it 
is the form used by hospitals to apply for slots under section 5506. 
Second, there are several instances on the proposed CMS Application 
Form where we prompt the applicant to specify whether the application 
is for a particular program, or for general cap relief, or for slots 
associated with a Medicare GME affiliation agreement with the closed 
hospital (which we did not do on the preceding form). Third, we are 
clarifying the titles of the Demonstrated Likelihood Criteria (DLC). 
Specifically, the proposed title for Demonstrated Likelihood Criterion 
1 is ``Establishing a New Residency Program'', the proposed title for 
Demonstrated Likelihood Criterion 2 is ``Taking Over All or Part of an 
Existing Residency Program from the Closed Hospital, or Expanding an 
Existing Residency Program,'' the proposed title for Demonstrated 
Likelihood Criterion 3 is ``Receiving Slots for General Cap Relief,'' 
and the proposed title for Demonstrated Likelihood Criterion 4 is 
``Receiving Slots by Virtue of Medicare GME Affiliated Group Agreement 
with Closed Hospital.'' Fourth, we are proposing to add a category 
under Demonstrated Likelihood Criterion 2 stating that if the hospital 
currently has unfilled positions in a residency program that have 
previously been approved by the ACGME, AOA, or the ABMS, and the 
hospital is now seeking to fill those positions, the hospital must 
attach documentation clearly showing its current number of approved 
positions, and its current number of filled positions (as proof of the 
unfilled positions). Fifth, we are proposing to change the wording in 
Ranking Criteria 4, 5, and 6, respectively, from ``The applying 
hospital does not meet ranking criteria 1, 2, or 3'' to ``The program 
does not meet ranking criterion 1, 2, or 3'' because the latter is more 
accurate. That is, it is possible for a hospital to qualify under 
Ranking Criterion 1, 2, or 3 for a particular program, and also to 
apply for slots separately under Ranking Criterion 4, 5, or 6 for a 
different program. Sixth, we are proposing to add a new Ranking 
Criterion 7: The program does not meet ranking criteria 1 through 6, 
and the slots for which the hospital is applying are for a primary care 
or a general surgery program, but the hospital is also applying for 
slots under Ranking Criterion Eight. We also are renumbering what had 
been the previous Ranking Criterion 7 to be the proposed Ranking 
Criterion 8.
    Following is the proposed revised section 5506 CMS Application 
Form:

CMS Application Form

As Part of the Application for the Increase in a Hospital's FTE Cap(s) 
under Section 5506 of the Affordable Care Act: Preservation of FTE Cap 
Slots from Teaching Hospitals that Close

    Directions: Please fill out the information below for each 
residency program for which the applicant hospital intends to use the 
increase in its FTE cap(s). If the hospital is applying for general FTE 
cap relief (an increase in the hospital's FTE cap(s) in recognition of 
already training residents in excess of the hospital's cap(s)), that 
application must be submitted separately from an individual program 
request. If the hospital is applying for slots associated with a 
Medicare GME affiliation agreement with a hospital that closed, that 
application must also be submitted separately from an individual 
program request.
NAME OF HOSPITAL:
-----------------------------------------------------------------------
MEDICARE PROVIDER NUMBER:
-----------------------------------------------------------------------
NAME OF MEDICARE CONTRACTOR:
-----------------------------------------------------------------------
CORE-BASED STATISTICAL AREA (CBSA in which the hospital is physically 
located--write the 5 digit code here):
-----------------------------------------------------------------------
COUNTY NAME (in which the hospital is physically located):
-----------------------------------------------------------------------

    Complete the following, as applicable:

1. Name of Specialty Training Program:
-----------------------------------------------------------------------
2. General FTE Cap Relief:
-----------------------------------------------------------------------
3. Medicare GME Affiliated Group:
-----------------------------------------------------------------------

(Check one):
    [squ] Allopathic Program
    [squ] Osteopathic Program

NUMBER OF FTE SLOTS REQUESTED FOR SPECIFIC PROGRAM (OR HOSPITAL OVERALL 
IF SEEKING GENERAL CAP RELIEF OR SLOTS ASSOCIATED WITH A MEDICATE GME 
AFFILIATED GROUP) AT YOUR HOSPITAL:

Direct GME: ----------IME:----------

Section A: Demonstrated Likelihood Criteria (DLC) of Filling the FTE 
Slots

    The applicant hospital must provide documentation to demonstrate 
the likelihood of filling requested slots under section 5506 within the 
3 academic years immediately following the application deadline to 
receive slots after a particular hospital closes. Please indicate the 
specific use for which you are requesting an increase in your 
hospital's FTE cap(s). If you are requesting an increase in the 
hospital's FTE cap(s) for a combination of DLC1, DLC2, or DLC3, you 
must complete a separate CMS Application Form for each DLC and specify 
the distinct

[[Page 27990]]

criterion from the list below within each Form.

Demonstrated Likelihood Criterion 1: Establishing a New Residency 
Program

    The hospital does not have sufficient room under its direct GME FTE 
cap or IME FTE cap, or both, and will establish a new residency program 
in the specialty. (The hospital must check at least one of the 
following.)
    [squ] Application for approval of the new residency program has 
been submitted to the ACGME, AOA or the ABMS (The hospital must attach 
a copy.)
    [squ] The hospital has submitted an institutional review document 
or program information form concerning the new program in an 
application for approval of the new program. (The hospital must attach 
a copy.)
    [square] The hospital has received written correspondence from the 
ACGME, AOA or ABMS acknowledging receipt of the application for the new 
program, or other types of communication from the accrediting bodies 
concerning the new program approval process (such as notification of 
site visit). (The hospital must attach a copy.)
    [square] The hospital has other documentation demonstrating that it 
has made a commitment to start a new program (The hospital must attach 
a copy.)

Demonstrated Likelihood Criterion 2: Taking Over All or Part of an 
Existing Residency Program From the Closed Hospital, or Expanding an 
Existing Residency Program

    The hospital does not have sufficient room under its direct GME FTE 
cap or IME FTE cap, or both, and a) has permanently taken over the 
closed hospital's entire residency program, or b) is permanently 
expanding its own previously established and approved residency program 
resulting from taking over part of a residency program from the closed 
hospital, or c) is permanently expanding its own existing residency 
program. (The hospital must check at least one of the following.)
    [square] Application for approval to take over the closed 
hospital's residency program has been submitted to the ACGME, AOA, or 
the ABMS, or approval has been received from the ACGME, AOA, or the 
ABMS. (The hospital must attach a copy.)
    [square] Application for approval of an expansion of the number of 
approved positions in its residency program resulting from taking over 
part of a residency program from the closed hospital has been submitted 
to the ACGME, AOA or the ABMS, or approval has been received from the 
ACGME, AOA, or the ABMS. (The hospital must attach a copy.)
    [square] Application for approval of an expansion of the number of 
approved positions in its residency program has been submitted to the 
ACGME, AOA or the ABMS, or approval has been received from the ACGME, 
AOA, or the ABMS. (The hospital must attach a copy.)
    [square] The hospital currently has unfilled positions in its 
residency program that have previously been approved by the ACGME, AOA, 
or the ABMS, and is now seeking to fill those positions. (The hospital 
must attach documentation clearly showing its current number of 
approved positions, and its current number of filled positions).
    [square] The hospital has submitted an institutional review 
document or program information form concerning the program in an 
application for approval of an expansion to the program (The hospital 
must attach a copy).

Demonstrated Likelihood Criterion 3: Receiving Slots for General Cap 
Relief

    [square] The hospital does not have sufficient room under its 
direct GME FTE cap or IME cap, or both, and is seeking an increase in 
its FTE cap(s) for general cap relief for residents that it is already 
training.

Demonstrated Likelihood Criterion 4: Receiving Slots by Virtue of 
Medicare GME Affiliated Group Agreement with Closed Hospital

    [square] The hospital was listed as a participant of a Medicare GME 
affiliated group on the most recent Medicare GME affiliation agreement 
of which the closed hospital was a member before the hospital closed, 
and under the terms of that Medicare GME affiliation agreement, the 
applying hospital received slots from the hospital that closed, and the 
applying hospital will use the additional slots to continue to train at 
least the number of FTE residents it had trained under the terms of the 
Medicare GME affiliation agreement. If the most recent Medicare GME 
affiliation agreement of which the closed hospital was a member before 
the hospital closed was with a hospital that itself has closed or is 
closing, the applying hospital was listed as a participant in the next 
most recent Medicare GME affiliation agreement (but not one which was 
entered into more than 5 years prior to the hospital's closure) of 
which the first closed hospital was a member before the hospital 
closed, and that applying hospital received slots from the closed 
hospital under the terms of that affiliation agreement. (Copies of EACH 
of the following must be attached.)
    [ssquf] Copies of the recent Medicare GME affiliation agreement of 
which the applying hospital and the closed hospital were a member of 
before the hospital closed.
    [ssquf] Copies of the most recent accreditation letters for all of 
the hospital's training programs in which the hospital had a shared 
rotational arrangement (as defined at Sec.  413.75(b)) with the closed 
hospital.

Section B. Level Priority Category

    (Place an ``X'' in the appropriate box that is applicable to the 
level priority category that describes the applicant hospital.)
    [square] First, to hospitals located in the same core-based 
statistical area (CBSA) as, or in a CBSA contiguous to, the hospital 
that closed.
    [square] Second, to hospitals located in the same State as the 
closed hospital.
    [square] Third, to hospitals located in the same region as the 
hospital that closed.
    [square] Fourth, if the slots have not yet been fully distributed, 
to qualifying hospitals in accordance with the criteria established 
under section 5503, ``Distribution of Additional Residency Positions''

Section C. Evaluation Criteria

    (Place an ``X'' in the box for each criterion that is appropriate 
for the applicant hospital and for the program for which the increase 
in the FTE cap is requested.)
    [square] Ranking Criterion One. The applying hospital is requesting 
the increase in its FTE resident cap(s) because it is assuming (or 
assumed) an entire program (or programs) from the hospital that closed, 
and the applying hospital is continuing to operate the program (s) 
exactly as it had been operated by the hospital that closed (that is, 
same residents, possibly the same program director, and possibly the 
same (or many of the same) teaching staff).
    [square] Ranking Criterion Two. The applying hospital was listed as 
a participant of a Medicare GME affiliated group on the most recent 
Medicare GME affiliation agreement of which the closed hospital was a 
member before the hospital closed, and under the terms of that Medicare 
GME affiliation agreement, the applying hospital received slots from 
the hospital that closed, and the applying hospital will use the 
additional slots to continue to train at least the number of FTE 
residents it had trained under the terms of the Medicare GME 
affiliation agreement. If the most recent Medicare

[[Page 27991]]

GME affiliation agreement of which the closed hospital was a member 
before the hospital closed was with a hospital that itself has closed 
or is closing, preference would be given to an applying hospital that 
was listed as a participant in the next most recent Medicare GME 
affiliation agreement (but not one which was entered into more than 5 
years prior to the hospital's closure) of which the first closed 
hospital was a member before the hospital closed, and that applying 
hospital received slots from the closed hospital under the terms of 
that affiliation agreement.
    [square] Ranking Criterion Three. The applying hospital took in 
residents displaced by the closure of the hospital, but is not assuming 
an entire program or programs, and will use the additional slots to 
continue training residents in the same programs as the displaced 
residents, even after those displaced residents complete their training 
(that is, the applying hospital is permanently expanding its own 
existing programs).
    [square] Ranking Criterion Four. The program does not meet Ranking 
Criteria 1, 2, or 3, and the applying hospital will use additional 
slots to establish a new or expand an existing geriatrics residency 
program.
    [square] Ranking Criterion Five: The program does not meet Ranking 
Criteria 1 through 4, the applying hospital is located in a HPSA, and 
will use all the additional slots to establish or expand a primary care 
or general surgery residency program.
    [square] Ranking Criterion Six: The program does not meet Ranking 
Criteria 1 through 5, and the applying hospital is not located in a 
HPSA, and will use all the additional slots to establish or expand a 
primary care or general surgery residency program.
    [square] Ranking Criterion Seven: The program does not meet Ranking 
Criteria 1 through 6, and the slots for which the hospital is applying 
are for a primary care or a general surgery program, but the hospital 
is also applying for slots under Ranking Criterion Eight.
    [square] Ranking Criterion Eight: The applying hospital seeks the 
slots for purposes that do not fit into any of the above ranking 
criteria.

Application Process and CMS Central Office and Regional Office Mailing 
Addresses for Receiving Increases in FTE Resident Caps

    In order for hospitals to be considered for increases in their FTE 
resident caps, each qualifying hospital must submit a timely 
application. The following information must be submitted on 
applications to receive an increase in FTE resident caps:
    [ssquf] The name and Medicare provider number, and Medicare 
contractor (to which the hospital submits its cost report) of the 
hospital.
    [ssquf] The total number of requested FTE resident slots for direct 
GME or IME, or both.
    [ssquf] A completed copy of the CMS Application Form for each 
residency program for which the hospital intends to use the requested 
increase in FTE residents.
    [ssquf] Source documentation to support the assertions made by the 
hospital on the CMS Application Form.
    [ssquf] FTE resident counts for direct GME and IME and FTE resident 
caps for direct GME and IME reported by the hospital in the most recent 
as-filed cost report. (If the CMS Form 2552-96 is applicable, include 
copies of Worksheets E, Part A, E-3, Part IV, and if a hospital 
received an increase to its FTE cap(s) under section 422 of the MMA, a 
copy of E-3, Part VI. If the CMS Form 2552-10 is applicable, include 
copies of Worksheets E, Part A, and E-4).
    [ssquf] An attestation, signed and dated by an officer or 
administrator of the hospital who signs the hospital's Medicare cost 
report, of the following information:
    ``I hereby certify that I understand that misrepresentation or 
falsification of any information contained in this application may be 
punishable by criminal, civil, and administrative action, fine and/or 
imprisonment under federal law. Furthermore, I understand that if 
services identified in this application were provided or procured 
through payment directly or indirectly of a kickback or were otherwise 
illegal, criminal, civil, and administrative action, fines and/or 
imprisonment may result. I also certify that, to the best of my 
knowledge and belief, it is a true, correct, and complete application 
prepared from the books and records of the hospital in accordance with 
applicable instructions, except as noted. I further certify that I am 
familiar with the laws and regulations regarding Medicare payment to 
hospitals for the training of interns and residents.''

J. Proposed Changes to the Reporting Requirements for Pension Costs for 
Medicare Cost-Finding Purposes

    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51693 through 
51697), we finalized our policy for reporting costs of qualified 
defined benefit pension plans for Medicare cost-finding purposes. 
Specifically, beginning with cost reporting periods on or after October 
1, 2011, a provider's pension cost for cost-finding purposes equals the 
cash basis contribution deposits plus any carry forward contributions, 
subject to a limitation. Providers with current contributions and carry 
forward contributions in excess of the limit may request approval of 
excess contributions, which will be reviewed on a case-by-case basis. 
Some or all of the excess contributions will be approved, as 
applicable, if it is determined that all or a portion of the excess 
contribution(s) are reasonable and necessary. To the extent that 
approval is granted, that portion of the excess is allowable as current 
period pension costs. We refer readers to the FY 2012 IPPS/LTCH PPS 
final rule for full details on this policy.
    In addition to finalizing this new policy in the FY 2012 IPPS/LTCH 
PPS final rule, we stated that we intended to make future amendments to 
conform existing regulations to this final policy (76 FR 51693). The 
existing regulations at 42 CFR 413.24 and 413.100 specify that pension 
costs of qualified defined benefit plans are reported on an accrual 
basis of accounting method. Sections 413.24 and 413.100 provide that 
revenue is reported in the period in which it is earned, regardless of 
when it is collected and expenses are reported in the period in which 
they are incurred, regardless of when it is paid. For Medicare payment 
purposes, the costs are generally allowable in the year in which the 
costs are accrued and claimed, subject to specific exceptions. 
Furthermore, for accrued costs to be recognized for Medicare payment in 
the year of the accrual, the requirements must be met with respect to 
the liquidation of related liabilities. Therefore, to conform these two 
existing regulations to the final policy we adopted in the FY 2012 
IPPS/LTCH PPS final rule with regard to pension costs for Medicare 
cost-finding purposes, we are proposing to amend the general cost 
reporting rules under Sec. Sec.  413.24 and 413.100 to note the 
exception for recognizing actual pension contributions funded during 
the cost reporting period on a cash basis. We also plan to revise 
section 2305.2 of the Provider Reimbursement Manual to reflect this 
policy change.

K. Rural Community Hospital Demonstration Program

1. Background
    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

[[Page 27992]]

beneficiaries. The demonstration pays rural community hospitals under a 
reasonable 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--
    <bullet> 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;
    <bullet> Has fewer than 51 beds (excluding beds in a distinct part 
psychiatric or rehabilitation unit) as reported in its most recent cost 
report;
    <bullet> Provides 24-hour emergency care services; and
    <bullet> 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 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. In 2005, 4 of these 13 hospitals withdrew 
from the program and converted to CAH status. This left nine hospitals 
participating at that time. In 2008, we announced a solicitation for up 
to six additional hospitals to participate in the demonstration 
program. Four additional hospitals were selected to participate under 
this solicitation. These four additional hospitals began under the 
demonstration payment methodology with the hospital's first cost 
reporting period starting on or after July 1, 2008. At that time, 13 
hospitals were participating in the demonstration.
    Five hospitals (3 of the hospitals were among the 13 hospitals that 
were original participants in the demonstration program and 2 of the 
hospitals were among the 4 hospitals that began the demonstration 
program in 2008) withdrew from the demonstration program during CYs 
2009 and 2010. (Three of these hospitals indicated that they would be 
paid more for Medicare inpatient services under the rebasing option 
allowed under the SCH methodology provided for under section 122 of the 
Medicare Improvements for Patients and Providers Act of 2008 (Pub. L. 
110-275). One hospital restructured to become a CAH, and one hospital 
closed.) In CY 2011, one hospital that was among the original set of 
hospitals that participated in the demonstration withdrew from the 
demonstration. These actions left 7 of the originally participating 
hospitals (that is, hospitals that were selected to participate in 
either 2004 or 2008), participating in the demonstration program as of 
June 1, 2011.
    Sections 3123 and 10313 of the Affordable Care Act (Pub. L. 111-
148) amended section 410A of Public Law 108-173, which established the 
rural community hospital demonstration program. Sections 3123 and 10313 
of the Affordable Care Act changed the rural community hospital 
demonstration program in several ways. First, the Secretary is required 
to conduct the demonstration program for an additional 5-year period 
that begins on the date immediately following the last day of the 
initial 5-year period. Further, the Affordable Care Act requires, in 
the case of a rural community hospital that is participating in the 
demonstration program as of the last day of the initial 5-year period, 
the Secretary to provide for the continued participation of such rural 
hospital in the demonstration program during the 5-year extension, 
unless the hospital makes an election, in such form and manner as the 
Secretary may specify, to discontinue participation (section 
410A(g)(4)(A) of Pub. L. 108-173, as added by section 3123(a) of the 
Affordable Care Act and further amended by section 10313 of such Act). 
In addition, the Affordable Care Act provides that, during the 5-year 
extension period, the Secretary shall expand the number of States with 
low population densities determined by the Secretary to 20 (section 
410A(g)(2) of Public Law 108-173, as added by section 3123(a) and 
amended by section 10313 of the Affordable Care Act). Further, the 
Secretary is required to use the same criteria and data that the 
Secretary used to determine the States under section 410A(a)(2) of 
Public Law 108-173 for purposes of the initial 5-year period. The 
Affordable Care Act also allows not more than 30 rural community 
hospitals in such States to participate in the demonstration program 
during the 5-year extension period (section 410A(g)(3) of Pub. L. 108-
173, as added by section 3123(a) of the Affordable Care Act and as 
further amended by section 10313 of such Act).
    We published a solicitation for applications for additional 
participants in the rural community hospital demonstration program in 
the Federal Register on August 30, 2010 (75 FR 52960). Applications 
were due on October 14, 2010. The 20 States with the lowest population 
density that are eligible for the demonstration program are: Alaska, 
Arizona, Arkansas, Colorado, Idaho, Iowa, Kansas, Maine, Minnesota, 
Mississippi, Montana, Nebraska, Nevada, New Mexico, North Dakota, 
Oklahoma, Oregon, South Dakota, Utah, and Wyoming (Source: U.S. Census 
Bureau, Statistical Abstract of the United States: 2003). We approved 
19 new hospitals for participation in the demonstration program. We 
determined that each of these new hospitals would begin participating 
in the demonstration with its first cost reporting period beginning on 
or after April 1, 2011.
    Three of these 19 hospitals declined participation prior to the 
start of the cost report periods for which they would have begun the 
demonstration. In addition to the 7 hospitals that were selected in 
either 2004 or 2008 and that are still participating, the new selection 
led to a total of 23 hospitals in the demonstration.
    In addition, section 410A(c)(2) of Public Law 108-173 required 
that, ``[i]n conducting the demonstration program under this section, 
the Secretary shall ensure that the aggregate payments made by the 
Secretary do not exceed the amount which the Secretary would have paid 
if the demonstration program under this section was not implemented.'' 
This requirement is commonly referred to as ``budget neutrality.'' 
Generally, when we implement a demonstration program on a budget 
neutral basis, the demonstration program is budget neutral in its own 
terms; in other words, the aggregate payments to the participating 
hospitals do not exceed the amount that would be paid to those same 
hospitals in the absence of the demonstration program. Typically, this 
form of budget 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

[[Page 27993]]

yields savings. However, the small scale of this demonstration program, 
in conjunction with the payment methodology, makes it extremely 
unlikely that this demonstration program could be viable under the 
usual form of budget neutrality. Specifically, cost-based payments to 
participating small rural hospitals are likely to increase Medicare 
outlays without producing any offsetting reduction in Medicare 
expenditures elsewhere. Therefore, a rural community hospital's 
participation in this demonstration program is unlikely to yield 
benefits to the participant if budget neutrality were to be implemented 
by reducing other payments for these same hospitals.
    In the past eight IPPS final regulations, spanning the period for 
which the demonstration program has been implemented, we have adjusted 
the national inpatient PPS rates by an amount sufficient to account for 
the added costs of this demonstration program, thus applying budget 
neutrality across the payment system as a whole rather than merely 
across the participants in the demonstration program. As we discussed 
in the FYs 2005 through 2012 IPPS final rules (69 FR 49183; 70 FR 
47462; 71 FR 48100; 72 FR 47392; 73 FR 48670; 74 FR 43922, 75 FR 50343, 
and 76 FR 51698, respectively), we believe that the language of the 
statutory budget neutrality requirements permits the agency to 
implement the budget neutrality provision in this manner. In light of 
the statute's budget neutrality requirement, we are proposing a 
methodology to calculate a budget neutrality adjustment factor to the 
FY 2013 national IPPS rates.
    In general terms, in each of these previous years, we used 
available cost reports for the participating hospitals to derive an 
estimate of the additional costs attributable for the demonstration. We 
used finalized, or settled, cost reports, as available, and ``as 
submitted'' cost reports for hospitals for which finalized cost reports 
were not available. Annual market basket percentage increase amounts 
provided by the CMS Office of the Actuary reflecting the growth in the 
prices of inputs for inpatient hospitals were applied to these cost 
amounts. An annual update factor provided by the CMS Office of the 
Actuary reflecting growth in the volume of inpatient operating services 
was also applied. For the budget neutrality calculations in the IPPS 
final rules for FYs 2005 through 2011, the annual volume adjustment 
applied was 2 percent; for the IPPS final rule for FY 2012, it was 3 
percent. For a detailed discussion of our budget neutrality offset 
calculations, we refer readers to the IPPS final rule applicable to the 
fiscal year involved.
    In general, for FYs 2005 through 2009, we based the budget 
neutrality offset estimate on the estimated cost of the demonstration 
in an earlier given year. For these periods, we derived that estimated 
cost by subtracting the estimated amount that would otherwise be paid 
without the demonstration in an earlier given year from the estimated 
amount for the same year that would be paid under the demonstration 
under the reasonable cost-based methodology authorized by section 410A 
of Public Law 108-173. (The reasonable cost-based methodology 
authorized by section 410A of Pub. L. 108-173, and as later amended by 
Pub. L. 111-148, as applicable to the year, is hereafter referred to as 
the ``reasonable cost methodology.'' We refer readers to section 
410A(b) and (g)(4) of Pub. L. 108-173 and Pub. L. 111-148.) (We 
ascertained the estimated amount that would be paid in an earlier given 
year under the reasonable cost methodology and the estimated amount 
that would otherwise be paid without the demonstration in an earlier 
given year from ``as submitted'' cost reports that were submitted by 
the hospitals prior to the inception of the demonstration.) We then 
updated the estimated cost described above to the current year by 
multiplying it by the market basket percentage increases applicable to 
the years involved and the applicable annual volume adjustments. For 
the FY 2010 IPPS final rule, data from finalized cost reports 
reflecting the participating hospitals' experience under the 
demonstration were available. Specifically, the finalized cost reports 
for the first 2 years of the demonstration, that is, cost reports for 
cost reporting years beginning in FYs 2005 and 2006 (CYs 2004, 2005, 
and 2006) were available. These data showed that the actual costs of 
the demonstration for these years exceeded the amounts originally 
estimated in the respective final rules for the budget neutrality 
adjustment. In the FY 2010 IPPS/LTCH PPS final rule, we included in the 
budget neutrality offset amount an amount in addition to the estimate 
of the demonstration costs in that fiscal year. This additional amount 
was based on the amount that the costs of the demonstration for FYs 
2005 and 2006 exceeded the budget neutrality offset amounts finalized 
in the IPPS rules applicable for those years.
    Following upon the FY 2010 IPPS/LTCH PPS final rule, we have 
continued to propose a methodology for calculating the budget 
neutrality offset amount to account for both the estimated 
demonstration costs in the upcoming fiscal year and an amount by which 
the actual demonstration costs corresponding to an earlier, given year 
(which would be known once we have finalized cost reports for that 
year) exceeded the budget neutrality offset amount finalized in the 
corresponding year's IPPS final rule. However, we note that on account 
of a delay affecting the settlement process for cost reports for IPPS 
hospitals occurring on a larger scale than merely for the 
demonstration, we have been unable to finalize this component of the 
budget neutrality offset amount accounting for the amount by which the 
actual demonstration costs in a given year exceeded the budget 
neutrality offset amount finalized in the corresponding year's IPPS 
final rule for cost reports of demonstration hospitals dating to those 
beginning in FY 2007. (For only a small fraction of the hospitals that 
have participated in the demonstration from FY 2007 to FY 2010 have 
cost reports been finalized in any year, making the overall calculation 
of this component of the budget neutrality impossible at this time for 
any given year.)
2. Proposed FY 2013 Budget Neutrality Offset Amount
    We revisited the issue of which cost reports to propose to use for 
calculating the FY 2013 budget neutrality offset amount. Although we 
used finalized cost reports where available for the FYs 2010, 2011, and 
2012 IPPS/LTCH PPS final rules, for FY 2013, we are proposing to use 
the ``as submitted'' cost report for each hospital participating in the 
demonstration for the cost report period ending in CY 2010 in 
estimating the costs of the demonstration. We believe a way to 
streamline our methodology for calculating the budget neutrality offset 
amount would be to use cost reports all with the same status (that is, 
only ``as submitted'' cost reports as opposed to a mix of ``as 
submitted'' and ``settled'' cost reports) from the same time period for 
all hospitals participating in the demonstration (as opposed to varying 
cost reports of statuses from varying years for the various hospitals 
as has been done previously). Therefore, because ``as submitted'' cost 
reports ending in CY 2010 are the most recent complete set of cost 
reports for all demonstration hospitals, we are proposing to use these 
cost reports for our budget neutrality offset estimate. Further, 
because ``as submitted'' cost reports ending in CY 2010 are recent 
available cost reports, we believe they would be an accurate predictor 
of the costs of the

[[Page 27994]]

demonstration in FY 2013 because they give us a recent picture of the 
participating hospitals' costs.
    In revisiting the issue of which data sets to propose to use in the 
budget neutrality offset amount calculation, we also revisited the 
methodology for calculating the budget neutrality offset amount. In 
this proposed rule, we are proposing changes to that methodology in an 
effort to further improve and refine it. We note that the proposed 
methodology varies, in part, from that finalized in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51698 through 51707). Specifically, in 
proposing refinements to the methodology, we would simplify the 
calculation so that it includes only a few steps. In addition, we are 
proposing to incorporate different update factors (the market basket 
percentage increase and the applicable percentage increase, as 
applicable, to several years of data as opposed to solely using the 
market basket percentage increase) for the calculation of the budget 
neutrality offset amount. As explained in greater detail below, we 
believe this approach would maximize the precision of our calculation 
because we believe it would more closely replicate payments made with 
and without the demonstration.
    We note that, although we are proposing changes to certain aspects 
of the budget neutrality offset amount calculation, several core 
components of the methodology would remain unchanged. For example, we 
are continuing to propose to include in the budget neutrality offset 
amount the estimate of the demonstration costs for the upcoming fiscal 
year and the amount by which the actual demonstration costs 
corresponding to an earlier given year (which would be known once we 
have finalized cost reports for that year) exceeded the budget 
neutrality offset amount finalized in the corresponding year's IPPS 
final rule).
    The proposed methodology for calculating the estimated FY 2013 
demonstration cost for the 23 currently participating hospitals is as 
follows:
    Step 1: For each of the 23 participating hospitals, we are 
proposing to identify the general reasonable cost amount calculated 
under the reasonable cost methodology for covered inpatient hospital 
services (as indicated on the ``as submitted'' cost report for the 
hospital's cost reporting period ending in CY 2010) in FY 2010. The 
general reasonable cost amount calculated under the reasonable cost 
methodology for any applicable year is hereafter referred to as the 
``reasonable cost amount.''
    Because section 410A of Public Law 108-173 stipulates swing-bed 
services are to be included among the covered inpatient hospital 
services for which the demonstration payment methodology applies, we 
also are proposing to include the cost of these services, as reported 
on the cost reports for the hospitals that provide swing-bed services, 
within the general total estimated FY 2010 reasonable cost amount for 
covered inpatient hospitals services under the demonstration. As 
indicated above, we are proposing to use ``as submitted'' cost reports 
for the hospital's cost reporting period ending in CY 2010 for this 
calculation.
    We are proposing to sum the two above-referenced amounts to 
calculate the general total estimated FY 2010 reasonable cost amount 
for covered inpatient hospital services for all 23 hospitals.
    We are proposing to multiply this sum (that is, the general total 
estimated FY 2010 reasonable cost amount for covered inpatient hospital 
services for all 23 hospitals) by the FYs 2011 through 2013 IPPS market 
basket percentage increases, which were formulated by the CMS Office of 
the Actuary. In this proposed rule, the current estimate of the FY 2013 
IPPS market basket percentage increase provided by the CMS Office of 
the Actuary is indicated in section IV.H.1. of this preamble.) We also 
are proposing to then multiply the product of the general total 
estimated FY 2010 reasonable cost amount for all 23 hospitals and the 
market basket percentage increases applicable to the years involved by 
a 3-percent annual volume adjustment for the years 2011 through 2013--
the result would be the general total estimated FY 2013 reasonable cost 
amount for covered inpatient hospital services for all 23 hospitals.
    We are proposing to apply the IPPS market basket percentage 
increases applicable for FYs 2011 through 2013 to the FY 2010 
reasonable cost amount described above to model the estimated FY 2013 
reasonable cost amount under the demonstration. We are proposing to use 
the IPPS market basket percentage increases because we believe that 
these update factors appropriately indicate the trend of increase in 
inpatient hospital operating costs under the reasonable cost 
methodology for the years involved. The 3-percent annual volume 
adjustment was stipulated last year by the CMS Office of the Actuary 
and is proposed because it is intended to accurately reflect the 
tendency of hospitals' inpatient caseloads to increase. We acknowledge 
the possibility that inpatient caseloads for small hospitals may 
fluctuate, and are proposing to incorporate into the estimate of 
demonstration costs a factor to allow for a potential increase in 
inpatient hospital services.
    Step 2: For each of the 23 hospitals, we are proposing to identify 
the general estimated amount that would otherwise be paid in FY 2010 
under applicable Medicare payment methodologies for covered inpatient 
hospital services (as indicated on the ``as submitted'' cost report for 
cost reporting periods ending in CY 2010) if the demonstration was not 
implemented. Similarly, as in Step 1, for the hospitals that provide 
swing-bed services, we are proposing to identify the estimated amount 
that generally would otherwise be paid for these services (as indicated 
on the ``as submitted'' cost report for cost reporting periods ending 
in CY 2010) and include it in the total FY 2010 general estimated 
amount that would otherwise be paid for covered inpatient hospital 
services without the demonstration. We are proposing to sum these two 
amounts in order to calculate the estimated FY 2010 total payments that 
generally would otherwise be paid for covered inpatient hospital 
services for all 23 hospitals without the demonstration.
    We are proposing to multiply the above amount (that is, the 
estimated FY 2010 total payments that generally would otherwise be paid 
for covered inpatient hospital services for all 23 hospitals without 
the demonstration) by the FYs 2011 through 2013 IPPS applicable 
percentage increases and the proposed 3 percent annual volume 
adjustment for FYs 2011 through 2013--the result would be the general 
total estimated FY 2013 costs that would be paid without the 
demonstration for covered inpatient hospital services to the 23 
participating hospitals. In this proposed rule, the current estimate of 
the FY 2013 IPPS applicable percentage increase is 2.1 percent. This 
methodology differs from Step 1, in which we are proposing to apply the 
market basket percentage increases to the sum of the hospitals' general 
total FY 2010 estimated reasonable cost amount for covered inpatient 
hospital services. We believe that the IPPS applicable percentage 
increases are appropriate factors to update the estimated amounts that 
generally would otherwise be paid without the demonstration. This is 
because IPPS payments would constitute the majority of payments that 
would otherwise be made without the demonstration and the applicable 
percentage increase is the factor used under the IPPS to update the 
inpatient hospital payment rates.

[[Page 27995]]

Hospitals participating in the demonstration would be participating 
under the IPPS payment methodology if they were not in the 
demonstration. We note that such use of the applicable percentage 
increase would represent a shift from formulations in previous years of 
the budget neutrality offset amount. In this FY 2013 proposed rule, we 
are trying to increase the precision of the different nature of the 
projections that we are proposing for estimating the reasonable cost 
amounts and the estimated payments that would otherwise be paid without 
the demonstration.
    Step 3: We are proposing to subtract the amount derived in Step 2 
(representing the sum of estimated amounts that generally would 
otherwise be paid to the 23 hospitals for covered inpatient hospital 
services for FY 2013 if the demonstration was not implemented) from the 
amount derived in Step 1 (representing the sum of the estimated 
reasonable cost amount that generally would be paid under the 
demonstration to all 23 hospitals for covered inpatient hospital 
services for FY 2013). We are proposing that the resulting difference 
would be the amount for which an adjustment to the national IPPS rates 
would be calculated.
    For this proposed rule, the resulting difference is $35,077,708. 
For this FY 2013 IPPS/LTCH PPS proposed rule, this amount is the 
estimated amount for which an adjustment to the national IPPS rates is 
being calculated. This estimated amount is based on the specific 
assumptions identified regarding the data sources that are used, that 
is, ``as submitted'' recently available cost reports. We note that if 
updated data become available prior to the FY 2013 final rule, we are 
proposing to use them to the extent appropriate to estimate the costs 
of the demonstration program in FY 2013. Therefore, this estimated 
budget neutrality offset amount may change in the final rule depending 
on the availability of updated data. Similar to previous years, we are 
proposing that if settled cost reports for all of the demonstration 
hospitals that participated in the applicable fiscal year (FY 2007, 
2008, 2009, or 2010) are available prior to the FY 2013 IPPS/LTCH PPS 
final rule, we will include in the budget neutrality offset amount any 
additional amounts by which the final settled costs of the 
demonstration for the year (FY 2007, 2008, 2009, or 2010) exceeded the 
budget neutrality offset amount applicable to such year as finalized in 
the respective year's IPPS final rule. (The final settled costs of the 
demonstration for a year would be calculated by subtracting the total 
amount that would otherwise be paid under the applicable Medicare 
payment systems without the demonstration for the year from the amount 
paid to those hospitals under the reasonable cost methodology for such 
year.)

L. Hospital Routine Services Furnished Under Arrangements

    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51711 through 
51714), we included a provision that limits the circumstances under 
which a hospital may furnish services to Medicare beneficiaries ``under 
arrangement.'' Under the revised policy, therapeutic and diagnostic 
services are the only services that may be furnished under arrangements 
outside of the hospital to Medicare beneficiaries. ``Routine services'' 
(that is, bed, board, and nursing and other related services) must be 
furnished by the hospital. Under this revised policy, routine services 
furnished to Medicare beneficiaries as inpatients of the hospital are 
considered services furnished by the hospital. If these services are 
furnished outside of the hospital, the services are considered to be 
furnished ``under arrangement.''
    We have become aware that a number of affected hospitals need 
additional time to restructure existing arrangements and establish 
necessary operational protocols to comply with the requirement that 
therapeutic and diagnostic services are the only services that may be 
furnished outside of the hospital to Medicare beneficiaries ``under 
arrangement,'' and that ``routine services'' must be furnished by the 
hospital. While we still believe that our policy is correct and 
consistent with the statutory language, we also believe that because a 
number of hospitals are actively pursuing compliance (often building 
construction or restructuring is involved), it is appropriate to 
postpone the effective date of this requirement to give hospitals 
additional time to comply with the provision.
    Therefore, we are proposing to change the implementation date of 
this requirement to be effective for cost reporting periods beginning 
on or after October 1, 2013. We expect that, during FY 2013, hospitals 
will complete the work needed to ensure compliance with the new 
requirement. Beginning with a hospital's FY 2014 cost reporting period, 
we expect that all hospitals would be in full compliance with the 
revised policy for services furnished under arrangement. We will 
continue to work with affected hospitals to communicate the requirement 
established by this provision, and to provide continued guidance 
regarding compliance with the provision.

M. Proposed Technical Change

    In an interim final rule that appeared in the November 27, 2007 
Federal Register (72 FR 66895 through 66897), we made changes to the 
regulations governing the application of the emergency Medicare GME 
affiliation agreement rules in order to address the needs of hospitals 
located in the section 1135 emergency area in the aftermath of 
Hurricane Katrina and Rita. In that rule, we changed the length of 
emergency affiliation agreements from 3 years to 5 years under 42 CFR 
413.79(f)(7) (then Sec.  413.79(f)(6)); that is, we specified that the 
emergency Medicare GME affiliation agreement must terminate no later 
than the conclusion of 4 academic years following the academic year 
during which the section 1135 emergency period began. However, we 
inadvertently did not make a conforming change to 42 CFR 
413.79(f)(7)(i)(B). We are proposing to change the regulatory text 
specified Sec.  413.79(f)(7)(i)(B) to make it consistent with the 
regulatory text under Sec.  413.79(f)(7).

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

A. Overview

    Section 1886(g) of the Act requires the Secretary to pay for the 
capital-related costs of inpatient acute hospital services ``in 
accordance with a prospective payment system established by the 
Secretary.'' Under the statute, the Secretary has broad authority in 
establishing and implementing the IPPS for acute care hospital 
inpatient capital-related costs. The IPPS for capital-related costs was 
initially implemented in the Federal fiscal year (FY) 1992 IPPS final 
rule (56 FR 43358), in which we established a 10-year transition period 
to change the payment methodology for Medicare hospital inpatient 
capital-related costs from a reasonable cost-based methodology to a 
prospective methodology (based fully on the Federal rate).
    FY 2001 was the last year of the 10-year transition period 
established to phase in the IPPS for hospital inpatient capital-related 
costs. For cost reporting periods beginning in FY 2002, capital IPPS 
payments are based solely on the Federal rate for almost all acute care 
hospitals (other than hospitals receiving certain exception payments 
and certain new hospitals). (We refer readers to the FY 2002 IPPS final 
rule (66 FR 39910 through 39914) for additional information on the 
methodology used to

[[Page 27996]]

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 capital payments for each 
discharge, 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).

    In addition, under Sec.  412.312(c), hospitals also may receive 
outlier payments under the capital IPPS for extraordinarily high-cost 
cases that qualify under the thresholds established for each fiscal 
year.

B. Additional Provisions

1. Exception Payments
    The regulations at Sec.  412.348 provide for certain exception 
payments under the capital IPPS. The regular exception payments 
provided under Sec. Sec.  412.348(b) through (e) were available only 
during the 10-year transition period. For a certain period after the 
transition period, eligible hospitals may have received additional 
payments under the special exceptions provisions at Sec.  412.348(g). 
However, as noted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51725 
and 51804), FY 2012 was the final year hospitals could receive special 
exceptions payments. For additional details regarding these exceptions 
policies, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51725).
    Finally, under Sec.  412.348(f), a hospital may request an 
additional payment if the hospital incurs unanticipated capital 
expenditures in excess of $5 million due to extraordinary circumstances 
beyond the hospital's control. Additional information on the exception 
payment for extraordinary circumstances in Sec.  412.348(f) can be 
found in the FY 2005 IPPS final rule (69 FR 49185 and 49186).
2. New Hospitals
    Under the capital IPPS, Sec.  412.300(b) of the regulations defines 
a new hospital as a hospital that has operated (under previous or 
current ownership) for less than 2 years and lists examples of 
hospitals that are not considered new hospitals. In accordance with 
Sec.  412.304(c)(2), under the capital IPPS a new hospital 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 2012 IPPS/LTCH PPS final rule (76 FR 51725) for 
additional information on payments to new hospitals under the capital 
IPPS.
3. Hospitals Located in Puerto Rico
    Section 412.374 of the regulations provides for the use of a 
blended payment amount for prospective payments for capital-related 
costs to hospitals located in Puerto Rico. Accordingly, under the 
capital IPPS, we compute a separate payment rate specific to Puerto 
Rico hospitals using the same methodology used to compute the national 
Federal rate for capital-related costs. In general, hospitals located 
in Puerto Rico are paid a blend of the applicable capital IPPS Puerto 
Rico rate and the applicable capital IPPS Federal rate. Capital IPPS 
payments to hospitals located in Puerto Rico are computed based on a 
blend of 25 percent of the capital IPPS Puerto Rico rate and 75 percent 
of the capital IPPS Federal rate. For additional details on capital 
IPPS payments to hospitals located in Puerto Rico, we refer readers to 
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51725).

C. Proposed Changes in the Documentation and Coding Adjustment for FY 
2013

1. Background
    In the FY 2008 IPPS final rule with comment period (72 FR 47175 
through 47186), we established adjustments to both the national 
operating standardized amount and the national capital Federal rate to 
eliminate the estimated effect of changes in documentation and coding 
resulting from the adoption of the MS-DRGs that do not reflect real 
changes in case-mix. Specifically, we established prospective 
documentation and coding adjustments of -1.2 percent for FY 2008, -1.8 
percent for FY 2009, and -1.8 percent for FY 2010. However, to comply 
with section 7(a) of Public Law 110-90, enacted on September 29, 2007, 
in a final rule published in the Federal Register on November 27, 2007 
(72 FR 66886 through 66888), we modified the documentation and coding 
adjustment for FY 2008 to -0.6 percent, and consequently revised the FY 
2008 IPPS operating and capital payment rates, factors, and thresholds 
accordingly, with these revisions effective October 1, 2007.
    For FY 2009, section 7(a) of Public Law 110-90 required a 
documentation and coding adjustment of -0.9 percent instead of the -1.8 
percent adjustment established in the FY 2008 IPPS final rule with 
comment period. As discussed in the FY 2009 IPPS final rule with 
comment period (73 FR 48447 and 48733 through 48774), we applied an 
additional documentation and coding adjustment of -0.9 percent to the 
FY 2009 IPPS national standardized amounts and the national 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).)
    For the FY 2011 IPPS/LTCH PPS proposed and final rules, 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 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. In the FY 
2011 IPPS/LTCH PPS final rule (75 FR 50355), we implemented an 
additional adjustment to the FY 2011 national capital Federal rate of -
2.9 percent to account for part of the effect of the estimated changes 
in documentation and coding changes under the MS-DRG system that 
occurred in FYs 2008 and 2009 that did not reflect real changes in 
case-mix. Consistent with past practice, this -2.9 percent adjustment 
was applied in a cumulative manner, which yielded a combined effect of 
-4.4 percent. (For additional information on our estimate of the 5.4 
percent cumulative documentation effect under the MS-DRG system for FYs 
2008 and 2009 and the additional -2.9 percent documentation and coding 
adjustment applied to the national capital Federal rate in FY 2011, we 
refer readers to the

[[Page 27997]]

FY 2011 IPPS/LTCH PPS proposed rule (75 FR 24014) and the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50355)).
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51727), we made an 
additional -1.0 percent adjustment to the national capital Federal rate 
to account for the remainder of the 5.4 percent estimate of the 
cumulative effect of documentation and coding changes under the MS-DRG 
system that occurred during FYs 2008 and 2009. Consistent with past 
practice, this -1.0 percent adjustment was applied in a cumulative 
manner, which yielded a combined effect of -5.4 percent.
2. Prospective Documentation and Coding Adjustment to the National 
Capital Federal Rate for FY 2013 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 in those years absent the change to the MS-DRGs. Under section 
1886(g) of the Act, the Secretary has broad authority in establishing 
and implementing the IPPS for acute-care hospital inpatient capital-
related costs (that is, the capital IPPS). We have consistently stated 
since the initial implementation of the MS-DRG system that we do not 
believe it is appropriate for Medicare expenditures under the capital 
IPPS to increase due to MS-DRG related changes in documentation and 
coding. Accordingly, we believe that it is appropriate under the 
Secretary's broad authority under section 1886(g) of the Act, in 
conjunction with section 1886(d)(3)(A)(vi) of the Act and section 7(b) 
of Public Law 110-90, to make adjustments to the national 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 noted above, based on our retrospective evaluation of the FY 
2009 claims, our actuaries determined 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. To date, we have made 
adjustments to the national capital Federal rate to account for the 
estimated 5.4 percent documentation and coding effect of documentation 
and coding changes under the MS-DRG system for FYs 2008 and 2009 (that 
is, -0.6 percent in FY 2008, -0.9 percent in FY 2009, -2.9 percent in 
FY 2011, and -1.0 in FY 2012).
    As discussed in greater detail in section II.D.10. of this 
preamble, we believe it is appropriate to analyze claims data from FY 
2010 to determine whether any additional adjustment would be required 
to ensure that the adoption of MS-DRGs was implemented in a budget 
neutral manner. Specifically, for this proposed rule, we analyzed FY 
2010 data on claims paid through December 2011 using our existing 
methodology (as described in section II.D.4. of this preamble). Based 
on this analysis, our actuaries determined that implementation of the 
MS-DRG system resulted in a 6.2 percent change in case-mix due to 
documentation and coding that did not reflect real changes in case-mix 
for discharges occurring during FY 2010. This is an estimated 
additional 0.8 percentage point increase over the 5.4 percent reduction 
currently applied to the national capital Federal rate.
    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 consistent with our proposal for the 
operating IPPS standardized amounts (discussed in section II.D.5. of 
this preamble), we are proposing to reduce the national capital Federal 
rate in FY 2013 by an additional 0.8 percent to account for the 
remainder of the cumulative effect of the estimated changes in 
documentation and coding under the MS-DRG system that did not reflect 
an increase in case-mix severity in FY 2010. Furthermore, consistent 
with the documentation and coding adjustments we have made in the past, 
we are proposing to leave the proposed -0.8 percent adjustment in place 
for FY 2013 and subsequent fiscal years to account for the effect those 
years. As explained above, this proposed -0.8 percent adjustment 
accounts for the remainder of our current estimate of the cumulative 
effect of documentation and coding changes under the MS-DRG system that 
occurred during FYs 2008, 2009, and 2010 of 6.2 percent minus the 
existing cumulative adjustment already applied to the national capital 
Federal rate of -5.4 percent. We note that this proposed adjustment 
only adjusts the national capital Federal rate prospectively. It does 
not attempt to recoup any excess payments that have resulted in FYs 
2010, 2011, and 2012 as a result of this additional effect of 
documentation and coding in those years.
3. 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 2011 IPPS/LTCH PPS 
final rule (75 FR 50358 through 50359), we discussed the retrospective 
evaluation of the FY 2009 claims data from the March 2010 update of the 
MedPAR file of hospitals located in Puerto Rico using the same 
methodology used to estimate documentation and coding changes under 
IPPS for non-Puerto Rico hospitals. This analysis shows that the change 
in case-mix due to documentation and coding that did not reflect real 
changes in case-mix for discharges occurring during FYs 2008 and 2009 
from hospitals located in Puerto Rico was approximately 2.6 percent. We 
also explained that we continue to believe that an adjustment for such 
increases is appropriate because all hospitals have the same financial 
incentives for documentation and coding improvements, and the same 
ability to benefit from the resulting increase in aggregate payments 
that do not reflect real changes in case-mix.
    Given this case-mix increase due to changes in documentation and 
coding under the MS-DRGs, under the Secretary's broad authority under 
section 1886(g) of the Act, we established an adjustment to the Puerto 
Rico-specific capital rate of -2.6 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 implementation of other prospective MS-DRG documentation and 
coding adjustments to the capital Federal rate and operating IPPS 
standardized amounts, we established that the -2.6 percent adjustment 
will remain 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 in subsequent years. 
Therefore, the -2.6 percent adjustment to the capital

[[Page 27998]]

Puerto Rico-specific rate made in FY 2011 reflects the entire amount of 
our estimate at that time of the effects of documentation and coding 
that did not reflect real changes in case-mix for discharges occurring 
during FYs 2008 and 2009 from hospitals located in Puerto Rico.
    As discussed above, for this proposed rule, we analyzed FY 2010 
data on claims paid through December 2011 using our existing 
methodology to determine if any additional adjustment for the effects 
of documentation and coding that did not reflect real changes in case-
mix is warranted. Based on this analysis (which is described in greater 
detail in section II.D.10. of this preamble), we found no significant 
additional effect of documentation and coding that would warrant any 
additional adjustment. Therefore, we are not proposing any additional 
adjustment to the capital Puerto Rico-specific rate for FY 2013 for the 
effect of documentation and coding that did not reflect real changes in 
case-mix.

D. Proposed Changes for Annual Update for FY 2013

    The annual update to the capital IPPS Federal and Puerto Rico-
specific rates, as provided for at Sec.  412.308(c), proposed for FY 
2013 is discussed in section III. of the Addendum to this proposed 
rule.

VI. Proposed Changes for Hospitals Excluded From the IPPS

    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 IPPS-excluded 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.)
    We are proposing that the FY 2013 rate-of-increase percentage to be 
applied to the target amount for cancer and children's hospitals and 
RNHCIs would be the FY 2013 percentage increase in the IPPS operating 
market basket. For this proposed rule, the FY 2013 percentage increase 
in the IPPS operating market basket is currently estimated to be 3.0 
percent. 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 hospitals, 
11 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. For FY 2013, we are proposing to continue to use the IPPS 
operating 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 FY 2006-based IPPS operating market 
basket to update the target amounts for children's and cancer hospitals 
and RNHCIs for FY 2013. Therefore, based on IHS Global Insight, Inc.'s 
2012 first quarter forecast, with historical data through the 2011 
fourth quarter, the current estimate of the IPPS operating market 
basket update for FY 2013 is 3.0 percent (that is, the estimate of the 
market basket rate-of-increase). We are proposing that if more recent 
data become available for the final rule, we would use them to 
calculate the IPPS operating market basket update for FY 2013.
    We note that IRFs, IPFs, and LTCHs, which were paid previously 
under the reasonable cost methodology, now receive payment under their 
own prospective payment systems, in accordance with changes made to the 
statute. In general, the prospective payment systems for IRFs, IPFs, 
and LTCHs provided transition periods of varying lengths during which 
time a portion of the prospective payment was based on cost-based 
reimbursement rules under Part 413. (However, certain providers do not 
receive a transition period or may elect to bypass the transition 
period as applicable under 42 CFR Part 412, Subparts N, O, and P.) We 
note that the various transition periods provided for under the IRF 
PPS, the IPF PPS, and the LTCH PPS have ended.
    The IRF PPS, the IPF PPS, and the LTCH PPS are updated annually. We 
refer readers to section IV. of the Addendum to this proposed rule for 
the specific proposed update changes to the Federal payment rates for 
LTCHs under the LTCH PPS for FY 2013. The annual updates for the IRF 
PPS and the IPF PPS are issued by the agency in separate Federal 
Register documents.

VII. Proposed Changes to the Long-Term Care Hospital Prospective 
Payment System (LTCH PPS) for FY 2013

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.

[[Page 27999]]

    Section 307(b)(1) of the BIPA, among other things, mandates that 
the Secretary shall examine, and may provide for, adjustments to 
payments under the LTCH PPS, including adjustments to DRG weights, area 
wage adjustments, geographic reclassification, outliers, updates, and a 
disproportionate share adjustment.
    In the August 30, 2002 Federal Register, we issued a final rule 
that implemented the LTCH PPS authorized under the BBRA and BIPA (67 FR 
55954). For the initial implementation of the LTCH PPS (FYs 2003 
through FY 2007), the system used information from LTCH patient records 
to classify patients into distinct long-term care diagnosis-related 
groups (LTC-DRGs) based on clinical characteristics and expected 
resource needs. Beginning in FY 2008, we adopted the Medicare severity 
long-term care diagnosis-related groups (MS-LTC-DRGs) as the patient 
classification system used under the LTCH PPS. Payments are calculated 
for each MS-LTC-DRG and provisions are made for appropriate payment 
adjustments. Payment rates under the LTCH PPS are updated annually and 
published in the Federal Register.
    The LTCH PPS replaced the reasonable cost-based payment system 
under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) 
(Pub. L. 97-248) for payments for inpatient services provided by a LTCH 
with a cost reporting period beginning on or after October 1, 2002. 
(The regulations implementing the TEFRA reasonable cost-based payment 
provisions are located at 42 CFR Part 413.) With the implementation of 
the PPS 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 from payments under the TEFRA System to payments 
under the LTCH PPS. During this 5-year transition period, a LTCH's 
total payment under the PPS was based on an increasing percentage of 
the Federal rate with a corresponding decrease in the percentage of the 
LTCH PPS payment that is based on reasonable cost concepts. 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).
    We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51733 through 51743) for a chronological summary of the main 
legislative and regulatory developments affecting the LTCH PPS through 
the annual update cycles prior to this FY 2013 rulemaking cycle.
2. Criteria for Classification as a LTCH
a. Classification as a LTCH
    Under the existing regulations at Sec. 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 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:
    <bullet> Veterans Administration hospitals.
    <bullet> Hospitals that are reimbursed under State cost control 
systems approved under 42 CFR part 403.
    <bullet> 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).
    <bullet> 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. Sec.  409.82, 409.83, 
and 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 short-stay outlier 
(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

[[Page 28000]]

Insurance Portability and Accountability Act of 1996 (HIPAA) (Pub. L. 
104-191). Section 3 of the ASCA requires that the Medicare Program deny 
payment under Part A or Part B for any expenses incurred for items or 
services ``for which a claim is submitted other than in an electronic 
form specified by the Secretary.'' Section 1862(h) of the Act (as added 
by section 3(a) of the ASCA) provides that the Secretary shall waive 
such denial in two specific types of cases and may also waive such 
denial ``in such unusual cases as the Secretary finds appropriate'' (68 
FR 48805). Section 3 of the ASCA operates in the context of the HIPAA 
regulations, which include, among other provisions, the transactions 
and code sets standards requirements codified as 45 CFR parts 160 and 
162, Subparts A and I through R (generally known as the Transactions 
Rule). The Transactions Rule requires covered entities, including 
covered health care providers, to conduct certain electronic health 
care 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 for FY 2013

1. Background
    Section 123 of the BBRA requires that the Secretary implement a PPS 
for LTCHs (that is, a per discharge system with a diagnosis-related 
group (DRG)-based patient classification system reflecting the 
differences in patient resources and costs). Section 307(b)(1) of the 
BIPA modified the requirements of section 123 of the BBRA by requiring 
that the Secretary examine ``the feasibility and the impact of basing 
payment under such a system [the long-term care hospital (LTCH) PPS] on 
the use of existing (or refined) hospital DRGs that have been modified 
to account for different resource use of LTCH patients, as well as the 
use of the most recently available hospital discharge data.''
    When the LTCH PPS was implemented for cost reporting periods 
beginning on or after October 1, 2002, we adopted the same DRG patient 
classification system (that is, the CMS DRGs) that was utilized at that 
time under the IPPS. As a component of the LTCH PPS, we refer to this 
patient classification system as the ``long-term care diagnosis-related 
groups (LTC-DRGs).'' Although the patient classification system used 
under both the LTCH PPS and the IPPS are the same, the relative weights 
are different. The established relative weight methodology and data 
used under the LTCH PPS result in relative weights under the LTCH PPS 
that reflect ``the differences in patient resource use * * *.'' of LTCH 
patients (section 123(a)(1) of the BBRA (Pub. L. 106-113)).
    As part of our efforts to better recognize severity of illness 
among patients, in the FY 2008 IPPS final rule with comment period (72 
FR 47130), the MS-DRGs and the Medicare severity long-term care 
diagnosis-related groups (MS-LTC-DRGs) were adopted under the IPPS and 
the LTCH PPS, respectively, effective beginning 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.)
    The MS-DRGs adopted in FY 2008 represent an increase in the number 
of DRGs by 207 (that is, from 538 to 745) (72 FR 47171). The MS-DRG 
classifications are updated annually. As described in section II.G. of 
this preamble, for FY 2013, we are not proposing to create or delete 
any MS-DRGs, and as such we would continue to have a total of 751 MS-
DRG groupings for FY 2013. Consistent with section 123 of the BBRA, as 
amended by section 307(b)(1) of the BIPA, and Sec.  412.515 of the 
regulations, we use information derived from LTCH PPS patient records 
to classify LTCH discharges into distinct MS-LTC-DRGs based on clinical 
characteristics and estimated resource needs. We then assign an 
appropriate weight to the MS-LTC-DRGs to account for the difference in 
resource use by patients exhibiting the case complexity and multiple 
medical problems characteristic of LTCHs.
    In a departure from the IPPS, and as discussed in greater detail 
below in section VII.B.3.f. of this preamble, we are proposing to 
continue to use 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 are proposing to 
group all of the low-volume MS-LTC-DRGs into five quintiles based on 
average charge per discharge. (A detailed discussion of the initial 
development and application of the quintile methodology appears in the 
August 30, 2002 LTCH PPS final rule (67 FR 55978).) Consistent with our 
existing methodology, we also are proposing to account for adjustments 
to payments for SSO cases (that is, cases where the covered length of 
stay at the LTCH is less than or equal to five-sixths of the geometric 
average length of stay for the MS-LTC-DRG). Furthermore, we are 
proposing to continue to make adjustments to account for 
nonmonotonically increasing weights, when necessary. That is, 
theoretically, cases under the MS-LTC-DRG system that are more severe 
require greater expenditure of medical care resources and will result 
in higher average charges such that, in the severity levels within a 
base MS-LTC-DRG, the 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 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

[[Page 28001]]

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:
    <bullet> Principal diagnosis;
    <bullet> Additional or secondary diagnoses;
    <bullet> Surgical procedures;
    <bullet> Age;
    <bullet> Sex; and
    <bullet> 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 nine and six, respectively. However, for claims 
submitted on the 5010 format beginning January 1, 2011, we increased 
the capacity to process diagnosis and procedure codes up to 25 
diagnoses and 25 procedures. This includes one principal diagnosis and 
up to 24 secondary diagnoses for severity of illness determinations. We 
refer readers to section II.G.11.c. of the preamble of the FY 2011 
IPPS/LTCH PPS final rule for a complete discussion of this change (75 
FR 50127).
    Upon the discharge of the patient from a LTCH, the LTCH must assign 
appropriate diagnosis and procedure codes from the most current version 
of the International Classification of Diseases, Ninth Revision, 
Clinical Modification (ICD-9-CM). HIPAA Transactions and Code Sets 
Standards regulations at 45 CFR parts 160 and 162 require that no later 
than October 16, 2003, all covered entities must comply with the 
applicable requirements of Subparts A and I through R of Part 162. 
Among other requirements, those provisions direct covered entities to 
use the ASC X12N 837 Health Care Claim: Institutional, Volumes 1 and 2, 
Version 4010, and the applicable standard medical data code sets for 
the institutional health care claim or 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.13. 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. In prior rules published in the Federal Register (for 
example, section II.G.11. of the FY 2011 IPPS/LTCH PPS final rule (75 
FR 50122 through 50128)), we discussed the implementation date for the 
conversion to the ICD-10-CM and ICD-10-PCS coding systems. We refer 
readers to section II.G.9. of this preamble for additional information 
on the adoption of the ICD-10-CM and ICD-10-PCS systems.
    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 one, two, or three levels of severity, depending on the impact of 
the CCs on resources used for those cases. Specifically, there are sets 
of MS-DRGs that are split into 2 or 3 subgroups based on the presence 
or absence of a CC 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 2013
    As specified by our regulations at Sec.  412.517(a), which requires 
that the MS-LTC-DRG classifications and relative weights be updated 
annually and consistent with our historical practice of using the same 
patient classification system under the LTCH PPS as is used under the 
IPPS, we are proposing to update the MS-LTC-DRG classifications 
effective October 1, 2012, through September 30, 2013 (FY 2013) 
consistent with the changes to specific MS-DRG classifications 
presented in section II.G. of this preamble (that is, proposed GROUPER 
Version 30.0). Therefore, the proposed MS-LTC-DRGs for FY 2013 
presented in this proposed rule are the same as the proposed MS-DRGs 
that are being proposed for use under the IPPS for FY 2013. In 
addition, because the proposed MS-LTC-DRGs for FY 2013 are the same as 
the proposed MS-DRGs for FY 2013, the other changes that affect MS-DRG 
(and by extension MS-LTC-DRG) assignments under proposed Version 30.0 
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, also would be 
applicable under the LTCH PPS for FY 2013.

[[Page 28002]]

3. Development of the Proposed FY 2013 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 our historical procedures for assigning relative 
weights in cases of zero volume and/or nonmonotonicity, the basic 
methodology for developing the proposed FY 2013 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). (For additional details on 
the modifications to our historical procedures for assigning relative 
weights in cases of zero volume and/or nonmonotonicity, we refer 
readers to the FY 2008 IPPS final rule with comment period (72 FR 47289 
through 47295) and the FY 2009 IPPS final rule (73 FR 48542 through 
48550).) Under the LTCH PPS, relative weights for each MS-LTC-DRG are a 
primary element used to account for the variations in cost per 
discharge and resource utilization among the payment groups (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 calculated a relative weight for each MS-LTC-DRG that 
represents the resources needed by an average inpatient LTCH case in 
that MS-LTC-DRG. For example, cases in a MS-LTC-DRG with a relative 
weight of 2 will, on average, cost twice as much to treat as cases in a 
MS-LTC-DRG with a relative weight of 1.
b. Development of the Proposed MS-LTC-DRG Relative Weights for FY 2013
    Beginning with the FY 2008 update, we established a budget 
neutrality requirement for the annual update to the MS-LTC-DRG 
classifications and relative weights at Sec.  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 (72 FR 
26882 through 26884). Consistent with Sec.  412.517(b), we are 
proposing to continue to apply our established two-step budget 
neutrality methodology, which is based on the current year MS-LTC-DRG 
classifications and relative weights. (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, for this proposed rule, the proposed annual update to the MS-LTC-
DRG classifications and relative weights for FY 2013 are based on the 
FY 2012 MS-LTC-DRG classifications and relative weights established in 
Table 11 listed in section VI. of the Addendum to the FY 2012 IPPS/LTCH 
PPS final rule (76 FR 51813).
c. Data
    In this proposed rule, to calculate the proposed MS-LTC-DRG 
relative weights for FY 2013, we are proposing to obtain total charges 
from FY 2011 Medicare LTCH bill data from the December 2011 update of 
the FY 2011 MedPAR file, which are the best available data at this 
time, and to use the proposed Version 30.0 of the GROUPER to classify 
LTCH cases. Consistent with our existing methodology, we also are 
proposing that if more recent data become available, we would use those 
data and the finalized Version 30.0 of the GROUPER in establishing the 
FY 2013 MS-LTC-DRG relative weights in the final rule.
    Consistent with our historical methodology, we are proposing to 
exclude 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. Furthermore, consistent with our historical 
practice, we are proposing to continue to exclude Medicare Advantage 
(Part C) claims, which are now included in the MedPAR files, in the 
calculations for the relative weights under the LTCH PPS that are used 
to determine payments for Medicare fee-for-service claims. 
Specifically, under this proposal, we are not using 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 2013 MS-LTC-DRG relative weights in this proposed rule, we 
are proposing to exclude the data of 14 all-inclusive rate providers 
and the 2 LTCHs that are paid in accordance with demonstration projects 
that had claims in the December 2011 update of the FY 2011 MedPAR file, 
as well as any Medicare Advantage claims.
d. Hospital-Specific Relative Value (HSRV) Methodology
    By nature, LTCHs often specialize in certain areas, such as 
ventilator-dependent patients and treatment of infections and wound 
care. Some case types (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 for FY 2013. We believe this method removes 
this hospital-specific source of bias in measuring LTCH average charges 
(67 FR 55985). Specifically, under this proposed methodology, we reduce 
the impact of the variation in charges across providers on any 
particular proposed MS-LTC-DRG relative weight by converting each 
LTCH's charge for a case to a relative value based on that LTCH's 
average charge.
    Under the HSRV methodology, we standardize charges for each LTCH by 
converting its charges for each case to hospital-specific relative 
charge values and then 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).

[[Page 28003]]

    In accordance with our established methodology, under this 
proposal, we would 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 this 
preamble) by the average adjusted charge for all cases at the LTCH in 
which the case was treated. SSO cases are cases with a length of stay 
that is less than or equal to five-sixths the average length of stay of 
the MS-LTC-DRG (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 the resulting ratio by the LTCH's case-mix index 
accounts for the fact that the same relative charges are given greater 
weight at a LTCH with higher average costs than they would at a LTCH 
with low average costs, which is needed to adjust each LTCH's relative 
charge value to reflect its case-mix relative to the average case-mix 
for all LTCHs. Because we standardize charges in this manner, we count 
charges for a Medicare patient at a LTCH with high average charges as 
less resource intensive than they would be at a LTCH with low average 
charges. For example, a $10,000 charge for a case at a LTCH with an 
average adjusted charge of $17,500 reflects a higher level of relative 
resource use than a $10,000 charge for a case at a LTCH with the same 
case-mix, but an average adjusted charge of $35,000. We believe that 
the adjusted charge of an individual case more accurately reflects 
actual resource use for an individual LTCH because the variation in 
charges due to systematic differences in the markup of charges among 
LTCHs is taken into account.
e. Proposed Treatment of Severity Levels in Developing the MS-LTC-DRG 
Relative Weights
    For purposes of determining the MS-LTC-DRG relative weights, under 
our historical methodology, there are three different categories of 
DRGs based on volume of cases within specific MS-LTC-DRGs. MS-LTC-DRGs 
with at least 25 cases are each assigned a unique relative weight; low-
volume MS-LTC-DRGs (that is, MS-LTC-DRGs that contain between 1 and 24 
cases based on a given year's claims data) are grouped into quintiles 
(as described below) and assigned the relative weight of the quintile. 
No-volume MS-LTC-DRGs (that is, no cases in the given year's claims 
data are assigned to those MS-LTC-DRGs) are cross-walked to other MS-
LTC-DRGs based on the clinical similarities and assigned the relative 
weight of the cross-walked MS-LTC-DRG (as described in greater detail 
below). In this proposed rule, we are proposing to continue to utilize 
these same three categories of MS-LTC-DRGs for purposes of the 
treatment of severity levels in determining the proposed MS-LTC-DRG 
relative weights for FY 2013. (We provide in-depth discussions of our 
policy regarding weight-setting for proposed low-volume MS-LTC-DRGs in 
section VII.B.3.f. of the preamble of this proposed rule and for 
proposed no-volume MS-LTC-DRGs, under Step 5 in section VII.B.3.g. of 
this preamble.)
    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 use the following steps to determine the proposed FY 2013 MS-LTC-DRG 
relative weights: (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 cross-walked 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 2013 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. Proposed Low-Volume MS-LTC-DRGs
    In order to account for proposed MS-LTC-DRGs with low volume (that 
is, with fewer than 25 LTCH cases), consistent with our existing 
methodology, for purposes of determining the proposed FY 2013 MS-LTC-
DRG relative weights, we are proposing to continue to employ the 
quintile methodology for proposed low-volume MS-LTC-DRGs, such that we 
group the proposed ``low-volume MS-LTC-DRGs'' (that is, proposed MS-
LTC-DRGs that contained between 1 and 24 cases annually) into one of 
five categories (quintiles) based on average charges (67 FR 55984 
through 55995 and 72 FR 47283 through 47288). In determining the 
proposed FY 2013 MS-LTC-DRG relative weights in this proposed rule, in 
cases where the initial assignment of a proposed low-volume MS-LTC-DRG 
to quintiles resulted in nonmonotonicity within a base-DRG, in order to 
ensure appropriate Medicare payments, consistent with our historical 
methodology, we are proposing to make adjustments to the treatment of 
proposed low-volume MS-LTC-DRGs to preserve monotonicity, as discussed 
in detail below in section VII.B.3.g. (Step 6) in this preamble.
    In this proposed rule, using LTCH cases from the December 2011 
update of the FY 2011 MedPAR file, we identified 307 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 61 proposed MS-LTC-DRGs (307/5 = 61 with 2 proposed MS-LTC-
DRG as the remainder). We assigned a proposed low-volume MS-LTC-DRG to 
a specific low-volume quintile by sorting the proposed low-volume MS-
LTC-DRGs in ascending order by average charge in accordance with our 
established methodology. Furthermore, because the number of MS-LTC-DRGs 
with less than 25 cases is not evenly divisible by 5, the average 
charge of the low-volume quintile was used to determine which of the 
proposed low-volume quintiles would contain the 2 additional proposed 
low-volume MS-LTC-DRGs. Specifically, after organizing the MS-LTC-DRGs 
by ascending order by average charge, we assigned the first fifth (1st 
through 55th) of proposed low-volume 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 184th proposed low-volume MS-LTC-DRG in the 
sorted list is closer to the average charge of the 185th proposed low-
volume MS-LTC-DRG (assigned to Quintile 4) than to the average charge 
of the 183rd proposed low-volume MS-LTC-DRG (assigned to Quintile 3), 
we are proposing to assign it to Quintile 4 (such that Quintile 4 
contains 62 proposed low-volume MS-LTC-DRGs before any adjustments for 
nonmonotonicity, as discussed below).

[[Page 28004]]

This process was repeated through the remaining proposed low-volume MS-
LTC-DRGs so that 3 of the 5 low-volume quintiles contain 61 MS-LTC-DRGs 
(Quintiles 1, 2, and 3) and the other 2 low-volume quintiles contain 62 
MS-LTC-DRGs (Quintiles 4 and 5). Table 13A, which is listed in section 
VI. of the Addendum to this proposed rule and is available via the 
Internet, lists the composition of the proposed low-volume quintiles 
for MS-LTC-DRGs for FY 2013.
    Accordingly, in order to determine the proposed FY 2013 relative 
weights for the proposed MS-LTC-DRGs with low volume, we are proposing 
to use the 5 low-volume quintiles described above. The proposed 
composition of each of the 5 low-volume quintiles shown in Table 13A 
(listed in section VI. of the Addendum to this proposed rule and 
available via the Internet) was used in determining the proposed FY 
2013 MS-LTC-DRG relative weights (as shown in Table 11 listed in 
section VI. of the Addendum to this proposed rule and available via the 
Internet). 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 are proposing to apply to the proposed MS-LTC-DRGs 
(25 or more cases), as described in section VII.B.3.g. of this 
preamble. We are proposing to assign the same relative weight and 
average length of stay to each of the proposed low-volume MS-LTC-DRGs 
that made 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 proposed low volume of LTCH cases will vary in the 
future. We are proposing to use the most recent available claims data 
in the MedPAR file to identify proposed low-volume MS-LTC-DRGs and to 
calculate the proposed relative weights based on our methodology.
    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 2013 MS-LTC-DRG Relative 
Weights
    In this proposed rule, we are proposing to determine the FY 2013 
MS-LTC-DRG relative weights based on our existing methodology. (For 
additional information on the original development of this methodology, 
and modifications to it since the adoption of the MS-LTC-DRGs, we refer 
readers to the August 30, 2002 LTCH PPS final rule (67 FR 55989 through 
55995) and the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43951 
through 43966).) In summary, to determine the proposed FY 2013 MS-LTC-
DRG relative weights, we are proposing to group LTCH cases to the 
appropriate proposed MS-LTC-DRG, while taking into account the proposed 
low-volume quintile (as described above). After grouping the cases to 
the appropriate MS-LTC-DRG (or low-volume quintile), we are proposing 
to calculate the proposed FY 2013 relative weights by first removing 
statistical outliers and cases with a length of stay of 7 days or less 
(Steps 1 and 2 below). Next, we are proposing to adjust the number of 
cases in each 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 7 days or less (Step 2 
below), the SSO adjusted discharges and corresponding charges were then 
used to calculate proposed ``relative adjusted weights'' for each 
proposed MS-LTC-DRG (or proposed low-volume quintile) using the HSRV 
method.
    Below we discuss in detail the steps for calculating the proposed 
FY 2013 MS-LTC-DRG relative weights. We note that, as we discussed 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 
December 2011 update of the FY 2011 MedPAR file.
    Step 1--Remove statistical outliers.
    The first step in the calculation of the proposed FY 2013 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 relative weight that does not truly 
reflect relative resource use among the proposed MS-LTC-DRGs. (For 
additional information on this step of the relative weight methodology, 
we refer readers to 67 FR 55989 and 74 FR 43959.)
    Step 2--Remove cases with a length of stay of 7 days or less.
    The proposed MS-LTC-DRG relative weights reflect the average of 
resources used on representative cases of a specific type. Generally, 
cases with a length of stay of 7 days or less do not belong in a LTCH 
because these stays do not fully receive or benefit from treatment that 
is typical in a LTCH stay, and full resources are often not used in the 
earlier stages of admission to a LTCH. If we were to include stays of 7 
days or less in the computation of the proposed FY 2013 MS-LTC-DRG 
relative weights, the value of many relative weights would decrease 
and, therefore, payments would decrease to a level that may no longer 
be appropriate. We do not believe that it would be appropriate to 
compromise the integrity of the payment determination for those LTCH 
cases that actually benefit from and receive a full course of treatment 
at a LTCH by including data from these very short stays. Therefore, 
consistent with our historical relative weight methodology, in 
determining the proposed FY 2013 MS-LTC-DRG relative weights, we 
removed 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 2013 
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 are proposing to make this adjustment by counting an SSO case as 
a fraction of a discharge based on the ratio of the length of stay of 
the case to the average length of stay for the proposed MS-LTC-DRG for 
non-SSO cases. This has the effect of proportionately reducing the 
impact of the lower charges for the SSO cases in calculating the 
average charge for the proposed MS-LTC-DRG. This process produces the 
same result as if the actual charges per discharge of an SSO case were 
adjusted to what they would have been had the patient's length of stay

[[Page 28005]]

been equal to the average length of stay of the proposed MS-LTC-DRG.
    Counting SSO cases as full discharges with no adjustment in 
determining the proposed FY 2013 MS-LTC-DRG relative weights would 
lower the proposed FY 2013 MS-LTC-DRG relative weight for affected 
proposed MS-LTC-DRGs because the relatively lower charges of the SSO 
cases would bring down the average charge for all cases within a 
proposed MS-LTC-DRG. This would result in an ``underpayment'' for non-
SSO cases and an ``overpayment'' for SSO cases. Therefore, we are 
proposing to adjust for SSO cases under 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 2013 MS-LTC-DRG relative weights 
on an iterative basis.
    Consistent with our historical relative weight methodology, we are 
proposing to calculate the FY 2013 MS-LTC-DRG relative weights using 
the HSRV methodology, which is an iterative process. First, for each 
LTCH case, we are proposing to calculate a hospital-specific relative 
charge value by dividing the SSO adjusted charge per discharge (see 
Step 3) of the LTCH case (after removing the statistical outliers (see 
Step 1) and LTCH cases with a length of stay of 7 days or less (see 
Step 2)) by the average charge per discharge for the LTCH in which the 
case occurred. The resulting ratio is then multiplied by the LTCH's 
case-mix index to produce a proposed 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, we are proposing to calculate the 
proposed FY 2013 relative weight by dividing the average of the 
adjusted hospital-specific relative charge values (from above) for the 
proposed MS-LTC-DRG by the overall average hospital-specific relative 
charge value across all cases for all LTCHs. Using these recalculated 
proposed MS-LTC-DRG relative weights, each LTCH's average relative 
weight for all of its cases (that is, its case-mix) is calculated by 
dividing the sum of all the LTCH's proposed MS-LTC-DRG relative weights 
by its total number of cases. These LTCHs' hospital-specific relative 
charge values (from above) are then 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 is 
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 2013 relative weight for MS-LTC-
DRGs with no LTCH cases.
    As we stated above, we are proposing to determine the proposed FY 
2013 relative weight for each proposed MS-LTC-DRG using total Medicare 
allowable total charges reported in the best available LTCH claims data 
(that is, the December 2011 update of the FY 2011 MedPAR file for this 
proposed rule). Using these data, we identified the proposed MS-LTC-
DRGs for which there are 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 2011 and, therefore, no charge data are 
available for these proposed MS-LTC-DRGs. Thus, in the process of 
determining the proposed MS-LTC-DRG relative weights, we are unable to 
calculate proposed relative weights for the proposed MS-LTC-DRGs with 
no LTCH cases using the methodology described in Steps 1 through 4 
above. However, because patients with a number of the diagnoses under 
these proposed MS-LTC-DRGs may be treated at LTCHs, consistent with our 
historical methodology, we are proposing to assign a proposed relative 
weight to each of the proposed no-volume MS-LTC-DRGs based on clinical 
similarity and relative costliness (with the exception of 
``transplant'' MS-LTC-DRGs and ``error'' 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 are proposing to determine proposed FY 2013 relative 
weights for the proposed MS-LTC-DRGs with no LTCH cases in the December 
2011 update of the FY 2011 MedPAR file used in this proposed rule (that 
is, proposed ``no-volume'' MS-LTC-DRGs) by cross-walking each no-volume 
proposed MS-LTC-DRG to another proposed MS-LTC-DRG with a calculated 
proposed relative weight (determined in accordance with the proposed 
methodology described above). Then, the proposed ``no-volume'' MS-LTC-
DRG is assigned the same relative weight (and average length of stay) 
of the proposed MS-LTC-DRG to which it is cross-walked (as described in 
greater detail below).
    Of the 751 proposed MS-LTC-DRGs for FY 2013, we identified 213 
proposed MS-LTC-DRGs for which there are no LTCH cases in the database 
(including the 8 ``transplant'' proposed MS-LTC-DRGs and 2 ``error'' 
proposed MS-LTC-DRGs). As stated above, we are proposing to assign 
relative weights for each of the 213 proposed no-volume 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 
538 (751 - 213 = 538) proposed MS-LTC-DRGs for which we are able to 
determine proposed relative weights based on FY 2011 LTCH claims data 
using the steps described above. (For the remainder of this discussion, 
we refer to the proposed ``cross-walked'' MS-LTC-DRGs as the proposed 
MS-LTC-DRGs to which we crosswalk one of the 213 proposed ``no volume'' 
MS-LTC-DRGs for purposes of determining a proposed relative weight.) 
Then, we assigned the proposed no-volume MS-LTC-DRG the proposed 
relative weight of the proposed cross-walked MS-LTC-DRG. (As explained 
below in Step 6, when necessary, we made adjustments to account for 
nonmonotonicity.)
    For this proposed rule, we are proposing to crosswalk the proposed 
no-volume MS-LTC-DRG to a proposed MS-LTC-DRG for which there are LTCH 
cases in the December 2011 update of the FY 2011 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 evaluated the relative costliness in determining 
the applicable proposed MS-LTC-DRG to which a proposed no-volume MS-
LTC-DRG is cross-walked in order to assign an appropriate proposed 
relative weight for the proposed no-volume MS-LTC-DRGs in FY 2013. (For 
more details on our process for evaluating relative costliness, we 
refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule (73 FR 
48543).) We believe in the rare event that there would be a few LTCH 
cases grouped to one of the proposed no-volume MS-LTC-DRGs in FY 2013, 
the proposed relative weights assigned based on the proposed cross-
walked MS-LTC-DRGs would result in an appropriate LTCH PPS payment 
because the crosswalks, which are based on similar clinical similarity 
and

[[Page 28006]]

relative costliness, generally require equivalent relative resource 
use.
    We are proposing to then assign the proposed relative weight of the 
proposed cross-walked MS-LTC-DRG as the proposed relative weight for 
the proposed no-volume MS-LTC-DRG such that both of these proposed MS-
LTC-DRGs (that is, the proposed no-volume MS-LTC-DRG and the proposed 
cross-walked MS-LTC-DRG) have the same proposed relative weight for FY 
2013. We note that if the proposed cross-walked MS-LTC-DRG had 25 cases 
or more, its proposed relative weight, which is calculated using the 
proposed methodology described in Steps 1 through 4 above, is assigned 
to the proposed no-volume MS-LTC-DRG as well. Similarly, if the 
proposed MS-LTC-DRG to which the no-volume MS-LTC-DRG is cross-walked 
had 24 or less cases and, therefore, is designated to one of the low-
volume quintiles for purposes of determining the proposed relative 
weights, we assigned the proposed relative weight of the applicable 
low-volume quintile to the proposed no-volume MS-LTC-DRG such that both 
of these proposed MS-LTC-DRGs (that is, the proposed no-volume MS-LTC-
DRG and the proposed cross-walked MS-LTC-DRG) have the same proposed 
relative weight for FY 2013. (As we noted above, in the infrequent case 
where nonmonotonicity involving a proposed no-volume MS-LTC-DRG 
results, additional adjustments as described in Step 6 are required in 
order to maintain monotonically increasing relative weights.)
    For this proposed rule, a list of the proposed no-volume MS-LTC-
DRGs and the proposed MS-LTC-DRG to which it is cross-walked (that is, 
the proposed cross-walked MS-LTC-DRG) for FY 2013 is shown in Table 
13B, which is listed in section VI. of the Addendum to this proposed 
rule and is available via the Internet.
    To illustrate this methodology for determining the proposed 
relative weights for the FY 2013 MS-LTC-DRGs with no LTCH cases, we are 
providing the following example, which refers to the proposed no-volume 
MS-LTC-DRGs crosswalk information for FY 2013 provided in Table 13B.
    Example: There are no cases in the FY 2011 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 MS-LTC-DRG 70 
(Nonspecific Cerebrovascular Disorders with MCC) is 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 0.8135 for FY 2013 to 
MS-LTC-DRG 61 (Table 11, which is listed in section VI. of the Addendum 
to this proposed rule and is available via the Internet).
    Again, we note that, as this system is dynamic, it is entirely 
possible that the number of MS-LTC-DRGs with no volume of LTCH cases 
based on the system will vary in the future. We used the most recent 
available claims data in the MedPAR file to identify proposed no-volume 
MS-LTC-DRGs and to determine the proposed relative weights in this 
proposed rule.
    Furthermore, for FY 2013, consistent with our historical relative 
weight methodology, we are proposing to establish proposed 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 include these proposed 
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 proposed MS-LTC-DRGs would be 
administratively burdensome. (For additional information regarding our 
treatment of transplant MS-LTC-DRGs, we refer readers to the RY 2010 
LTCH PPS final rule (74 FR 43964).)
    Step 6--Adjust the proposed FY 2013 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 DRG with CC/MCC and the DRG without CC/MCC. 
Alternatively, the other type of two-level subdivision may consist of 
the DRG with MCC and the DRG without MCC.
    In those base MS-LTC-DRGs that are split into either two or three 
severity levels, cases classified into the ``without CC/MCC'' MS-LTC-
DRG are expected to have a lower resource use (and lower costs) than 
the ``with CC/MCC'' MS-LTC-DRG (in the case of a two-level split) or 
both the ``with CC'' and the ``with MCC'' MS-LTC-DRGs (in the case of a 
three-level split). That is, theoretically, cases that are more severe 
typically require greater expenditure of medical care resources and 
will result in higher average charges. Therefore, in the three severity 
levels, proposed relative weights should increase by severity, from 
lowest to highest. If the proposed relative weights decrease as 
severity increases (that is, if within a base proposed MS-LTC-DRG, a 
proposed MS-LTC-DRG with CC has a higher proposed relative weight than 
one with MCC, or the proposed MS-LTC-DRG ``without CC/MCC'' has a 
higher proposed relative weight than either of the others), they are 
nonmonotonic. We continue to believe that utilizing nonmonotonic 
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 2013 MS-LTC-DRG relative 
weights in this proposed rule, consistent with our historical 
methodology, we are proposing to combine proposed MS-LTC-DRG severity 
levels within a base proposed MS-LTC-DRG for the purpose of computing a 
proposed relative weight when necessary to ensure that monotonicity 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

[[Page 28007]]

that were made in determining the proposed FY 2013 MS-LTC-DRG relative 
weights in this proposed rule by applying this methodology are denoted 
in Table 11, which is listed in section VI. of the Addendum to this 
proposed rule and is available via the Internet.
    Step 7-- Calculate the proposed FY 2013 budget neutrality factor.
    In accordance with the regulations at Sec.  412.517(b) (in 
conjunction with Sec.  412.503), the annual update to the MS-LTC-DRG 
classifications and relative weights is done in a budget neutral manner 
such that estimated aggregate LTCH PPS payments would be unaffected, 
that is, would be neither greater than nor less than the estimated 
aggregate LTCH PPS payments that would have been made without the MS-
LTC-DRG classification and relative weight changes. (For a detailed 
discussion on the establishment of the budget neutrality requirement 
for the annual update of the MS-LTC-DRG classifications and relative 
weights, we refer readers to the RY 2008 LTCH PPS final rule (72 FR 
26881 and 26882).)
    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 conjunction 
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 MS-LTC-
DRG classifications and relative weights for FY 2013 based on the most 
recent available LTCH data, and to apply a budget neutrality adjustment 
in determining the proposed FY 2013 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. In this proposed rule, in the first step of our proposed 
MS-LTC-DRG budget neutrality methodology, for FY 2013, we are proposing 
to calculate and apply a proposed normalization factor to the 
recalibrated proposed 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 proposed normalization adjustment is intended to 
ensure that the recalibration of the proposed MS-LTC-DRG relative 
weights (that is, the process itself) neither increases nor decreases 
the average CMI.
    To calculate the proposed normalization factor for FY 2013 (the 
first step of our budget neutrality methodology), we are proposing to 
use the following three steps: (1.a.) we used the most recent available 
LTCH claims data (FY 2011) and grouped them using the proposed FY 2013 
GROUPER (Version 30.0) and the proposed recalibrated FY 2013 MS-LTC-DRG 
relative weights (determined in steps 1 through 6 of the Steps for 
Determining the Proposed FY 2013 MS-LTC-DRG Relative Weights above) to 
calculate the average CMI; (1.b.) we grouped the same LTCH claims data 
(FY 2011) using the FY 2012 GROUPER (Version 29.0) and FY 2012 MS-LTC-
DRG relative weights and calculated the average CMI; and (1.c.) we 
computed the ratio of these average CMIs by dividing the average CMI 
for FY 2012 (determined in Step 1.b.) by the average proposed CMI for 
FY 2013 (determined in Step 1.a.). In determining the proposed MS-LTC-
DRG relative weights for FY 2013, each proposed recalibrated MS-LTC-DRG 
relative weight was multiplied by 1.12393 (determined in Step 1.c.) in 
the first step of the budget neutrality methodology, which produced 
proposed ``normalized relative weights.''
    In the second step of our proposed MS-LTC-DRG budget neutrality 
methodology, we are proposing to determine a budget neutrality factor 
to ensure that estimated aggregate LTCH PPS payments (based on the most 
recent available LTCH claims data) after reclassification and 
recalibration (that is, the proposed FY 2013 MS-LTC-DRG classifications 
and relative weights) are equal to estimated aggregate LTCH PPS 
payments before reclassification and recalibration (that is, the FY 
2012 MS-LTC-DRG classifications and relative weights). Accordingly, 
consistent with our existing methodology, we are proposing to use FY 
2011 discharge data to simulate payments and compare estimated 
aggregate LTCH PPS payments using the FY 2012 MS-LTC-DRGs and relative 
weights to estimate aggregate LTCH PPS payments using the proposed FY 
2013 MS-LTC-DRGs and relative weights. Furthermore, consistent with our 
historical policy of using the best available data, we also are 
proposing that if more recent data become available, we would use such 
data to determine the budget neutrality adjustment factor for FY 2013 
in the final rule.
    For this proposed rule, we are proposing to determine the proposed 
FY 2013 budget neutrality adjustment factor using the following three 
steps: (2.a.) we simulated estimated total LTCH PPS payments using the 
proposed normalized relative weights for FY 2013 and proposed GROUPER 
Version 30.0 (as described above); (2.b.) we simulated estimated total 
LTCH PPS payments using the FY 2012 GROUPER (Version 29.0) and the FY 
2012 MS-LTC-DRG relative weights in Table 11 of the Addendum to the FY 
2012 IPPS/LTCH PPS final rule available on the Internet (76 FR 51813); 
and (2.c.) we calculated the ratio of these estimated total LTCH PPS 
payments by dividing the estimated total LTCH PPS payments using the FY 
2012 GROUPER (Version 29.0) and the FY 2012 MS-LTC-DRG relative weights 
(determined in Step 2.b.) by the estimated total LTCH PPS payments 
using the proposed FY 2013 GROUPER (Version 30.0) and the proposed 
normalized MS-LTC-DRG relative weights for FY 2013 (determined in Step 
2.a.). In determining the proposed FY 2013 MS-LTC-DRG relative weights, 
each proposed normalized relative weight was multiplied by a budget 
neutrality factor of 0.9881603 (determined in Step 2.c.) in the second 
step of the proposed budget neutrality methodology to determine the 
proposed budget neutral FY 2013 relative weight for each proposed MS-
LTC-DRG.
    Accordingly, in determining the proposed FY 2013 MS-LTC-DRG 
relative weights in this proposed rule, consistent with our existing 
methodology, we are proposing to apply a normalization factor of 
1.12393 and a budget neutrality factor of 0.9881603 (computed as 
described above). Table 11, which is listed in section VI. of the 
Addendum to this proposed rule and is available via the Internet, lists 
the proposed MS-LTC-DRGs and their respective proposed relative 
weights, geometric mean length of stay, five-sixths of the geometric 
mean length of stay (used to identify SSO cases under Sec.  
412.529(a)), and the proposed ``IPPS Comparable Thresholds'' (used in 
determining SSO payments under Sec.  412.529(c)(3)), for FY 2013. The 
proposed FY 2013 MS-LTC-DRG relative weights in Table 11, which is 
listed in section VI. of the Addendum to this proposed rule and 
available via the Internet, reflect both the proposed normalization 
factor of 1.12393 and the proposed budget neutrality factor of 
0.9881603.

C. Proposed Use of a LTCH-Specific Market Basket Under the LTCH PPS

1. Background
    The input price index (that is, the market basket) that was used to 
develop the LTCH PPS for FY 2003 was the

[[Page 28008]]

``excluded hospital with capital'' market basket. That market basket 
was based on 1997 Medicare cost report data and included data for 
Medicare-participating IRFs, IPFs, LTCHs, cancer hospitals, and 
children's hospitals. Although the term ``market basket'' technically 
describes the mix of goods and services used in providing hospital 
care, this term is also commonly used to denote the input price index 
(that is, cost category weights and price proxies combined) derived 
from that market basket. Accordingly, the term ``market basket,'' as 
used in this section, refers to an input price index.
    Beginning with RY 2007, LTCH PPS payments were updated using a FY 
2002-based market basket reflecting the operating and capital cost 
structures for IRFs, IPFs, and LTCHs (hereafter referred to as the 
rehabilitation, psychiatric, and long-term care (RPL) market basket). 
We excluded cancer and children's hospitals from the RPL market basket 
because their payments are based entirely on reasonable costs subject 
to rate-of-increase limits established under the authority of section 
1886(b) of the Act, which are implemented in regulations at Sec.  
413.40. Those types of hospitals are not paid under a PPS. Also, the FY 
2002 cost structures for cancer and children's hospitals are noticeably 
different from the cost structures for freestanding IRFs, freestanding 
IPFs, and LTCHs. A complete discussion of the FY 2002-based RPL market 
basket appears in the RY 2007 LTCH PPS final rule (71 FR 27810 through 
27817).
    In the FY 2010 IPPS/RY 2010 LTCH PPS proposed rule (74 FR 21062), 
we expressed our interest in exploring the possibility of creating a 
stand-alone LTCH market basket that only reflects the cost structures 
for LTCHs. However, as we discussed in the FY 2010 IPPS/RY 2010 LTCH 
PPS final rule (74 FR 43967 through 43968), we were in the process of 
conducting further research to assist us in understanding the 
underlying reasons for the variations in costs and cost structures 
between freestanding IRFs and hospital-based IRFs, as well as between 
freestanding IPFs and hospital-based IPFs. At this time, we remain 
unable to sufficiently explain the observed differences in costs and 
cost structures between hospital-based IRFs and freestanding IRFs and 
between hospital-based IPFs and freestanding IPFs.
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51756), we finalized 
the rebasing and revising of the FY 2002-based RPL market basket by 
creating and implementing an FY 2008-based RPL market basket. We also 
discussed that we were exploring the viability of creating two separate 
market baskets from the current RPL market basket: One market basket 
would include freestanding IRFs and freestanding IPFs and could be used 
to update payments under both the IPF and IRF payment systems. We 
continue our research in this area. The other market basket would be a 
stand-alone LTCH market basket. We stated that, depending on the 
outcome of our research, we may propose a stand-alone LTCH market 
basket in the next LTCH PPS update cycle. We received several public 
comments in response to the FY 2012 proposed rule, all of which 
supported deriving a stand-alone LTCH market basket (76 FR 51756 
through 51757).
    As we routinely do, we have revisited the issue of the market 
basket used in the LTCH PPS. We previously did not estimate stand-alone 
market baskets for IRFs, IPFs, and LTCHs because of small sample sizes 
for freestanding facilities and the data concerns associated with the 
hospital-based facilities. Although we continue to do research in this 
area, at this time, we believe it is appropriate to move forward with a 
proposal to create a LTCH-specific market basket. This is because we 
believe we have sufficiently robust data to create such a market 
basket, and no longer need to rely on the cost report data from IPPS 
hospitals or from IRFs, IPFs, and LTCHs combined. Specifically, over 
the last several years, the number of LTCH facilities submitting a 
Medicare cost report has increased, helping to address concerns 
regarding the size of the available pool of facilities. The 
completeness and quality of the Medicare cost reports that we have been 
evaluating over the last several years have improved as well. 
Therefore, consistent with our intention to use the latest available 
and complete cost report data, we believe that it would be appropriate 
to create a market basket that would specifically reflect the cost 
structures of LTCHs based on Medicare cost report data for FY 2009, 
which are for cost reporting periods beginning on and after October 1, 
2008, and before October 1, 2009. We are proposing to use data from 
cost reports beginning in FY 2009 because these data are the latest 
available complete data and, therefore, we believe it will enable us to 
accurately calculate cost weights that specifically reflect the cost 
structures of LTCHs. As a result, in this FY 2013 proposed rule, we are 
proposing to create a LTCH-specific market basket based solely on 
Medicare cost report data from LTCHs of which the majority of the 
reports are settled. In the following discussion, we provide an 
overview of the proposed market basket and describe the methodologies 
we are proposing to use for determining the operating and capital 
portions of the proposed FY 2009-based LTCH-specific market basket.
2. Overview of the Proposed FY 2009-Based LTCH-Specific Market Basket
    The proposed FY 2009-based LTCH-specific market basket is a fixed-
weight, Laspeyres-type price index. A Laspeyres price index measures 
the change in price, over time, of the same mix of goods and services 
purchased in the base period. Any changes in the quantity or mix (that 
is, intensity) of goods and services purchased over time are not 
measured.
    The index itself is constructed in three steps. First, a base 
period is selected (in this proposed rule, we are proposing to use FY 
2009 as the base period) and total base period expenditures are 
estimated for a set of mutually exclusive and exhaustive spending 
categories, with the proportion of total costs that each category 
represents being calculated. These proportions are called ``cost 
weights'' or ``expenditure weights.'' Second, each expenditure category 
is matched to an appropriate price or wage variable, referred to as a 
``price proxy.'' In almost every instance, these price proxies are 
derived from publicly available statistical series that are published 
on a consistent schedule (preferably at least on a quarterly basis). 
Finally, the expenditure weight for each cost category is multiplied by 
the level of its respective price proxy. The sum of these products 
(that is, the expenditure weights multiplied by their price levels) for 
all cost categories yields the composite index level of the market 
basket in a given period. Repeating this step for other periods 
produces a series of market basket levels over time. Dividing an index 
level for a given period by an index level for an earlier period 
produces a rate of growth in the input price index over that timeframe.
    As noted above, the market basket is described as a fixed-weight 
index because it represents the change in price over time of a constant 
mix (quantity and intensity) of goods and services needed to furnish 
hospital services. The effects on total expenditures resulting from 
changes in the mix of goods and services purchased subsequent to the 
base period are not measured. For example, a hospital hiring more 
nurses to accommodate the needs of patients would increase the volume 
of goods and services purchased by the hospital, but would not be 
factored into the price

[[Page 28009]]

change measured by a fixed-weight hospital market basket. Only when the 
index is rebased would changes in the quantity and intensity be 
captured, with those changes being reflected in the cost weights. 
Therefore, we rebase the market basket periodically so that the cost 
weights reflect recent changes in the mix of goods and services that 
hospitals purchase (hospital inputs) to furnish inpatient care between 
base periods.
3. Proposed Development of a LTCH-Specific Market Basket
    We are inviting public comments on our proposed methodology, 
discussed below, for deriving a LTCH-specific market basket.
a. Development of Cost Categories
(1) Medicare Cost Reports
    The proposed FY 2009-based LTCH-specific market basket consists of 
several major cost categories derived from the FY 2009 LTCH Medicare 
cost reports as described previously, including wages and salaries, 
employee benefits, contract labor, pharmaceuticals, professional 
liability insurance, capital, and a residual. These FY 2009 Medicare 
cost reports are for cost reporting periods beginning on and after 
October 1, 2008, and before October 1, 2009. We are proposing to use FY 
2009 as the base year because we believe that the FY 2009 Medicare cost 
reports represent the most recent, complete set of Medicare cost report 
data available for LTCHs.
    Medicare cost report data include costs for all patients, including 
Medicare, Medicaid, and private payer. Because our goal is to measure 
cost shares for facilities that serve Medicare beneficiaries, and are 
reflective of case-mix and practice patterns associated with providing 
services to Medicare beneficiaries in LTCHs, we are proposing to limit 
our selection of Medicare cost reports to those from LTCHs that have a 
Medicare average length of stay that is within a comparable range of 
their total facility average length of stay. We believe this provides a 
more accurate reflection of the structure of costs for Medicare covered 
days. Similar to our methodology for the FY 2008-based RPL market 
basket, we are proposing to use the cost reports submitted by LTCHs 
with Medicare average lengths of stay within 15 percent (that is, 15 
percent higher or lower) of the total facility average length of stay 
for the hospital. This is the same edit we applied to derive the FY 
2008-based RPL market basket and generally includes those LTCHs with 
Medicare average length of stay within approximately 5 days of the 
facility average length of stay of the hospital.
    Using this set of Medicare cost reports, we then calculated cost 
weights for six cost categories, and a residual category as represented 
by all other costs, directly from the FY 2009 Medicare cost reports 
submitted by LTCHs (found in Table VII.C-1 below). These Medicare cost 
report cost weights were then supplemented with information obtained 
from other data sources (explained in more detail below) to derive the 
proposed FY 2009-based LTCH-specific market basket cost weights.
    The methodology used to develop the proposed FY 2009-based LTCH-
specific market basket cost weights is generally the same methodology 
used to develop the FY 2008-based RPL market basket cost weights, with 
the exception of the employee benefits and contract labor cost weights. 
For the FY 2008-based RPL market basket, there was an issue with 
obtaining data specifically for employee benefits and contract labor 
from the set of FY 2008 Medicare cost reports, as IRFs, IPFs, and LTCHs 
were not required to complete the Medicare cost report worksheet from 
which these data were collected (Worksheet S3, Parts II and III). As a 
result, only a proportion of the total number of IRFs, IPFs, and LTCHs 
reported data for employee benefits and contract labor; therefore, we 
developed these cost weights for the FY 2008-based RPL market basket 
using data obtained from IPPS Medicare cost reports. However, when we 
reviewed LTCH Medicare cost reports for FY 2009, we found that a 
greater proportion of LTCHs submitted data for employee benefits and 
contract labor (approximately 40 percent of LTCHs, whose total costs 
account for approximately 50 percent of total costs for all LTCHs, 
submitted a cost report) compared to the proportion of IRFs and IPFs 
that submitted these data. We believe that it is better to use the 
LTCH-specific cost report data whenever possible to further our goal to 
create a market basket that represents the cost structures of LTCHs 
serving Medicare beneficiaries. Therefore, we are proposing to use the 
LTCH-specific cost reports to derive the employee benefits and contract 
labor cost weights for the proposed FY 2009-based LTCH-specific market 
basket, as opposed to using the IPPS Medicare cost reports as a proxy, 
as was done for the FY 2008-based RPL market basket.

 Table VII.C-1--Proposed Major Cost Categories and Their Respective Cost
    Weights as Calculated Directly From FY 2009 Medicare Cost Reports
------------------------------------------------------------------------
                                   Proposed FY 2009-based LTCH- specific
      Major cost categories         market basket cost weights  obtained
                                   from Medicare cost reports  (percent)
------------------------------------------------------------------------
Wages and Salaries...............                                 40.407
Employee Benefits................                                  6.984
Contract Labor...................                                  6.947
Professional Liability Insurance                                   0.830
 (Malpractice)...................
Pharmaceuticals..................                                  8.877
Capital..........................                                  9.829
All Other (Residual).............                                 26.126
------------------------------------------------------------------------

 (2) Other Data Sources
    In addition to the data from Medicare cost reports submitted by 
LTCHs, the other data source we are proposing to use to develop the 
proposed FY 2009-based LTCH-specific market basket cost weights is the 
2002 Benchmark Input-Output (I-O) Tables created by the Bureau of 
Economic Analysis (BEA), U.S. Department of Commerce. We are proposing 
to use the 2002 BEA Benchmark I-O data to disaggregate the ``All Other 
(Residual)'' cost category (26.126 percent) into more detailed hospital 
expenditure category shares. We note that we use these data to derive 
most of the CMS market baskets, including the FY 2008-based RPL and

[[Page 28010]]

FY 2006-based IPPS market baskets. The BEA Benchmark I-O accounts 
provide the most detailed information on the goods and services 
purchased by an industry, which allows for a more detailed 
disaggregation of expenses in the market basket for which we can then 
proxy the appropriate price inflation.
    The BEA Benchmark I-O data are generally scheduled for publication 
every 5 years. The most recent data available are for 2002. BEA also 
produces Annual I-O estimates; however, the 2002 Benchmark I-O data 
represent a much more comprehensive and detailed set of data that are 
derived from the 2002 Economic Census. We used the 2002 BEA Benchmark 
I-O data for the FY 2008-based RPL market basket. Because BEA has not 
released new Benchmark I-O data, and we believe the data to be 
comprehensive and complete as indicated above, we are proposing to use 
the 2002 Benchmark I-O data in the proposed FY 2009-based LTCH-specific 
market basket.
    Instead of using the less detailed Annual I-O data, we aged the 
2002 Benchmark I-O data forward to 2009. The methodology we used to age 
the data forward involves applying the annual price changes from the 
respective price proxies to the appropriate cost categories. We repeat 
this practice for each year.
    The ``All Other'' cost category expenditure shares are determined 
as being equal to each category's proportion to total ``All Other'' 
expenditures based on the aged 2002 Benchmark I-O data. For instance, 
if the cost for telephone services represented 10 percent of the sum of 
the ``All Other'' Benchmark I-O hospital expenditures, telephone 
services would represent 10 percent of the ``All Other'' cost category 
of the LTCH-specific market basket.
b. Cost Category Computation
    As stated previously, for the proposed FY 2009-based LTCH-specific 
market basket, we are proposing to use data from the Medicare cost 
reports submitted by LTCHs to derive six major cost categories. The six 
major categories are: Wages and Salaries, Employee Benefits, Contract 
Labor, Professional Liability Insurance, Pharmaceuticals, and Capital, 
as shown above in Table VII.C-1. These represent the most detailed cost 
categories available from the Medicare cost reports, and, as stated 
above, in order to further disaggregate expenses, we then utilize the 
Benchmark I-O data. This is the same methodology used to derive most of 
the CMS market baskets, including the FY 2008-based RPL and FY 2006-
based IPPS market baskets. The proposed FY 2009-based LTCH market 
basket includes the same major cost categories that were included in 
the FY 2008-based RPL market basket (76 FR 51758), and two additional 
categories, Employee Benefits and Contract Labor.
c. Selection of Price Proxies
    After computing the FY 2009 cost weights for the proposed LTCH 
market basket, it was necessary to select appropriate wage and price 
proxies to reflect the rate of price change for each expenditure 
category. With the exception of the proxy for Professional Liability 
Insurance, all of the proxies for the operating portion of the proposed 
FY 2009-based LTCH market basket are based on Bureau of Labor 
Statistics (BLS) data and are grouped into one of the following BLS 
categories:
    Producer Price Indexes--Producer Price Indexes (PPIs) measure price 
changes for goods sold in markets other than the retail market. PPIs 
are preferable price proxies for goods and services that hospitals 
purchase as inputs because PPIs better reflect the actual price changes 
encountered by hospitals. For example, we are proposing to use a PPI 
for prescription drugs, rather than the Consumer Price Index (CPI) for 
prescription drugs, because hospitals generally purchase drugs directly 
from a wholesaler. The PPIs that we are proposing to use measure price 
changes at the final stage of production.
    Consumer Price Indexes--Consumer Price Indexes (CPIs) measure 
change in the prices of final goods and services bought by the typical 
consumer. Because they may not represent the price encountered by a 
producer, we are proposing to use CPIs only if an appropriate PPI is 
not available, or if the expenditures are more like those faced by 
retail consumers in general rather than by purchasers of goods at the 
wholesale level. For example, the CPI for food purchased away from home 
is proposed to be used as a proxy for contracted food services.
    Employment Cost Indexes--Employment Cost Indexes (ECIs) measure the 
rate of change in employee wage rates and employer costs for employee 
benefits per hour worked. These indexes are fixed-weight indexes and 
strictly measure the change in wage rates and employee benefits per 
hour. Appropriately, they are not affected by shifts in employment mix.
    We evaluated the price proxies using the criteria of reliability, 
timeliness, availability, and relevance. Reliability indicates that the 
index is based on valid statistical methods and has low sampling 
variability. Timeliness implies that the proxy is published regularly, 
preferably at least once a quarter. Availability means that the proxy 
is publicly available. Finally, relevance means that the proxy is 
applicable and representative of the cost category weight to which it 
is applied. We believe the proposed PPIs, CPIs, and ECIs selected meet 
these criteria.
    Table VII.C-2 below sets forth the proposed FY 2009-based LTCH-
specific market basket, including the cost categories and their 
respective weights and price proxies. For comparison purposes, the 
corresponding FY 2008-based RPL market basket cost weights also are 
listed. For example, ``Wages and Salaries'' are 46.330 percent of total 
costs in the proposed FY 2009-based LTCH-specific market basket 
compared to 49.447 percent for the FY 2008-based RPL market basket. 
``Employee Benefits'' are 8.008 percent in the proposed FY 2009-based 
LTCH-specific market basket compared to 12.831 percent for the FY 2008-
based RPL market basket. As a result, compensation costs (wages and 
salaries plus employee benefits) for the proposed FY 2009-based LTCH 
market basket are 54.338 percent of total costs compared to 62.278 
percent for the FY 2008-based RPL market basket. We note that the 
``Wages and Salaries'' cost weight contained in Table VII.C-2 (46.330 
percent) differs from that contained in Table VII.C-1 (40.407 percent). 
We attribute this difference to our allocation of the ``Contract 
Labor'' cost weight obtained from the Medicare cost reports (6.947 
percent) proportionately across the ``Wages and Salaries'' and 
``Employee Benefits'' cost weights obtained from the Medicare cost 
reports.
    Following Table VII.C-2 is a summary of the proxies we are 
proposing to use for the operating portion of the proposed FY 2009-
based LTCH-specific market basket. We note that the proxies we are 
proposing for the operating portion of the proposed FY 2009-based LTCH-
specific market basket are the same as those used for the FY 2008-based 
RPL market basket. Because these proposed proxies meet our criteria of 
reliability, timeliness, availability, and relevance, we believe they 
are the best measures of price changes for the cost categories. For 
further discussion on the FY 2008-based RPL market basket, we refer 
readers to the discussion in the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51759). The price proxies proposed for the capital portion of the 
proposed FY 2009-based LTCH market basket are the same as those used 
for the FY 2008-based RPL market basket (prior to any vintage 
weighting), as described in the

[[Page 28011]]

FY 2012 IPPS/LTCH PPS final rule (75 FR 51765), and as described in 
more detail in the capital methodology section in section VII.C.3.d. of 
the preamble of this proposed rule.

   Table VII.C-2--Proposed FY 2009-Based LTCH-Specific Market Basket Cost Categories, Cost Weights, and Price
                        Proxies Compared to FY 2008-Based RPL Market Basket Cost Weights
----------------------------------------------------------------------------------------------------------------
                                               Proposed FY          FY
                                               2009-based    2008[dash]based
              Cost categories                 LTCH-specific     RPL market    Proposed FY 2009-based LTCH market
                                              market basket    basket cost           basket price proxies
                                              cost weights       weights
----------------------------------------------------------------------------------------------------------------
1. Compensation............................          54.338           62.278  ..................................
A. Wages and Salaries \1\..................          46.330           49.447  ECI for Wages and Salaries,
                                                                               Civilian Hospital Workers.
B. Employee Benefits \1\...................           8.008           12.831  ECI for Benefits, Civilian
                                                                               Hospital Workers.
2. Utilities...............................           1.751            1.578  ..................................
A. Electricity.............................           1.367            1.125  PPI for Commercial Electric Power.
B. Fuel, Oil, and Gasoline.................           0.281            0.371  PPI for Petroleum Refineries.
C. Water and Sewage........................           0.103            0.082  CPI-U for Water and Sewerage
                                                                               Maintenance.
3. Professional Liability Insurance........           0.830            0.764  CMS Hospital Professional
                                                                               Liability Insurance Premium
                                                                               Index.
4. All Other Products and Services.........          33.252           26.988  ..................................
A. All Other Products......................          19.531           15.574  ..................................
(1.) Pharmaceuticals.......................           8.877            6.514  PPI for Pharmaceutical
                                                                               Preparations for Human Use
                                                                               (Prescriptions).
(2.) Food: Direct Purchases................           3.409            2.959  PPI for Processed Foods and Feeds.
(3.) Food: Contract Services...............           0.478            0.392  CPI-U for Food Away From Home.
(4.) Chemicals \2\.........................           1.275            1.100  Blend of Chemical PPIs.
(5.) Medical Instruments...................           2.141            1.795  PPI for Medical, Surgical, and
                                                                               Personal Aid Devices.
(6.) Rubber and Plastics...................           1.329            1.131  PPI for Rubber and Plastic
                                                                               Products.
(7.) Paper and Printing Products...........           1.226            1.021  PPI for Converted Paper and
                                                                               Paperboard Products.
(8.) Apparel...............................           0.250            0.210  PPI for Apparel.
(9.) Machinery and Equipment...............           0.127            0.106  PPI for Machinery and Equipment.
(10.) Miscellaneous Products...............           0.419            0.346  PPI for Finished Goods less Food
                                                                               and Energy.
B. All Other Services......................          13.721           11.414  ..................................
(1.) Labor-Related Services................           5.349            4.681  ..................................
(a.) Professional Fees: Labor-Related......           2.256            2.114  ECI for Compensation for
                                                                               Professional and Related
                                                                               Occupations.
(b.) Administrative and Business Support              0.508            0.422  ECI for Compensation for Office
 Services.                                                                     and Administrative Services.
(c.) All Other: Labor-Related Services.....           2.585            2.145  ECI for Compensation for Private
                                                                               Service Occupations.
(2.) Nonlabor-Related Services.............           8.372            6.733  ..................................
(a.) Professional Fees: Nonlabor-Related...           5.332            4.211  ECI for Compensation for
                                                                               Professional and Related
                                                                               Occupations.
(b.) Financial Services....................           1.013            0.853  ECI for Compensation for Financial
                                                                               Activities.
(c.) Telephone Services....................           0.501            0.416  CPI-U for Telephone Services.
(d.) Postage...............................           0.779            0.630  CPI-U for Postage.
(e.) All Other: Nonlabor[dash]Related                 0.747            0.623  CPI-U for All Items less Food and
 Services.                                                                     Energy.
5. Capital-Related Costs...................           9.829            8.392  ..................................
A. Depreciation............................           5.707            5.519  ..................................
(1.) Building and Fixed Equipment..........           3.838            3.286  BEA chained price index for
                                                                               Nonresidential Construction for
                                                                               Hospitals and Special Care
                                                                               Facilities--vintage weighted (20
                                                                               years).
(2.) Movable Equipment.....................           1.869            2.233  PPI for Machinery and Equipment--
                                                                               vintage weighted (8 years).
B. Interest Costs..........................           2.434            1.954  ..................................
(1.) Government/Nonprofit..................           0.702            0.653  Average yield on Domestic
                                                                               Municipal Bonds (Bond Buyer 20
                                                                               bonds)--vintage-weighted (20
                                                                               years).
(2.) For Profit............................           1.732            1.301  Average yield on Moody's Aaa
                                                                               Bonds--vintage-weighted (20
                                                                               years).
C. Other Capital-Related Costs.............           1.688            0.919  CPI-U for Residential Rent.
                                            ---------------------------------
    Total..................................         100.000          100.000  ..................................
----------------------------------------------------------------------------------------------------------------
Note: Detail may not add to total due to rounding.
\1\ Contract Labor is distributed to Wages and Salaries and Employee Benefits based on the share of total
  compensation that each category represents.
\2\ To proxy the Chemicals cost category, we used a blended PPI composed of the PPI for Industrial Gas
  Manufacturing, the PPI for Other Basic Inorganic Chemical Manufacturing, the PPI for Other Basic Organic
  Chemical Manufacturing, and the PPI for Soap and Cleaning Compound Manufacturing. For more detail about this
  proxy, we refer readers to the FY 2012 IPPS/LTCH final rule (76 FR 51761).


[[Page 28012]]

(1) Wages and Salaries
    We are proposing to use the ECI for Wages and Salaries for Hospital 
Workers (All Civilian) (BLS series code CIU1026220000000I) to measure 
the price growth of this cost category.
(2) Employee Benefits
    We are proposing to use the ECI for Employee Benefits for Hospital 
Workers (All Civilian) to measure the price growth of this cost 
category.
(3) Electricity
    We are proposing to use the PPI for Commercial Electric Power (BLS 
series code WPU0542) to measure the price growth of this cost category.
(4) Fuel, Oil, and Gasoline
    We are proposing to use the PPI for Petroleum Refineries (BLS 
series code PCU324110324110) to measure the price growth of this cost 
category. We are proposing this proxy based on the same reasons set 
forth in the FY 2012 IPPS/LTCH final rule when this proxy was adopted 
for use in the FY 2008-based RPL market basket (76 FR 51761).
(5) Water and Sewage
    We are proposing to use the CPI for Water and Sewerage Maintenance 
(All Urban Consumers) (BLS series code CUUR0000SEHG01) to measure the 
price growth of this cost category.
(6) Professional Liability Insurance
    We are proposing to proxy price changes in hospital professional 
liability insurance premiums (PLI) using percentage changes as 
estimated by the CMS Hospital Professional Liability Index. To generate 
these estimates, we collect commercial insurance premiums for a fixed 
level of coverage while holding nonprice factors constant (such as a 
change in the level of coverage). This method is also used to proxy PLI 
price changes in the Medicare Economic Index (75 FR 73268).
(7) Pharmaceuticals
    We are proposing to use the PPI for Pharmaceuticals for Human Use, 
Prescription (BLS series code WPUSI07003) to measure the price growth 
of this cost category.
(8) Food: Direct Purchases
    We are proposing to use the PPI for Processed Foods and Feeds (BLS 
series code WPU02) to measure the price growth of this cost category.
(9) Food: Contract Services
    We are proposing to use the CPI for Food Away From Home (All Urban 
Consumers) (BLS series code CUUR0000SEFV) to measure the price growth 
of this cost category.
(10) Chemicals
    We are proposing to use a blended PPI composed of the PPI for 
Industrial Gas Manufacturing (NAICS 325120) (BLS series code 
PCU325120325120P), the PPI for Other Basic Inorganic Chemical 
Manufacturing (NAICS 325180) (BLS series code PCU32518-32518-), the PPI 
for Other Basic Organic Chemical Manufacturing (NAICS 325190) (BLS 
series code PCU32519-32519), and the PPI for Soap and Cleaning Compound 
Manufacturing (NAICS 325610) (BLS series code PCU32561-32561). We are 
proposing to use this blended index based on the reasons as set forth 
in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51761) when this proxy 
was adopted for use in the FY 2008-based RPL market basket.
(11) Medical Instruments
    We are proposing to use the PPI for Medical, Surgical, and Personal 
Aid Devices (BLS series code WPU156) to measure the price growth of 
this cost category. We are proposing to use this index based on the 
reasons as set forth in the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51761 through 51762) when this proxy was adopted for use in the FY 
2008-based RPL market basket.
(12) Rubber and Plastics
    We are proposing to use the PPI for Rubber and Plastic Products 
(BLS series code WPU07) to measure the price growth of this cost 
category.
(13) Paper and Printing Products
    We are proposing to use the PPI for Converted Paper and Paperboard 
Products (BLS series code WPU0915) to measure the price growth of this 
cost category.
(14) Apparel
    We are proposing to use the PPI for Apparel (BLS series code 
WPU0381) to measure the price growth of this cost category.
(15) Machinery and Equipment
    We are proposing to use the PPI for Machinery and Equipment (BLS 
series code WPU11) to measure the price growth of this cost category.
(16) Miscellaneous Products
    We are proposing to use the PPI for Finished Goods Less Food and 
Energy (BLS series code WPUSOP3500) to measure the price growth of this 
cost category.
(17) Professional Fees: Labor-Related
    We are proposing to use the ECI for Compensation for Professional 
and Related Occupations (Private Industry) (BLS series code 
CIS2020000120000I) to measure the price growth of this category. It 
includes occupations such as legal, accounting, and engineering 
services.
(18) Administrative and Business Support Services
    We are proposing to use the ECI for Compensation for Office and 
Administrative Support Services (Private Industry) (BLS series code 
CIU2010000220000I) to measure the price growth of this category. We 
believe this compensation index appropriately reflects the changing 
price of labor associated with the provision of Administrative and 
Business Support Services.
(19) All Other: Labor-Related Services
    We are proposing to use the ECI for Compensation for Service 
Occupations (Private Industry) (BLS series code CIU2010000300000I) to 
measure the price growth of this cost category.
(20) Professional Fees: Nonlabor-Related
    We are proposing to use the ECI for Compensation for Professional 
and Related Occupations (Private Industry) (BLS series code 
CIS2020000120000I) to measure the price growth of this category. This 
is the same price proxy that we are proposing to use for the 
Professional Fees: Labor-related cost category.
(21) Financial Services
    We are proposing to use the ECI for Compensation for Financial 
Activities (Private Industry) (BLS series code CIU201520A000000I) to 
measure the price growth of this cost category. We believe that this 
compensation index appropriately reflects the changing price of labor 
associated with the provision of Financial Services.
(22) Telephone Services
    We are proposing to use the CPI for Telephone Services (BLS series 
code CUUR0000SEED) to measure the price growth of this cost category.
(23) Postage
    We are proposing to use the CPI for Postage (BLS series code 
CUUR0000SEEC01) to measure the price growth of this cost category.
(24) All Other: Nonlabor-Related Services
    We are proposing to use the CPI for All Items Less Food and Energy 
(BLS

[[Page 28013]]

series code CUUR0000SA0L1E) to measure the price growth of this cost 
category. We believe that using the CPI for All Items Less Food and 
Energy avoids double counting of changes in food and energy prices as 
they are already captured elsewhere in the market basket.
d. Proposed Methodology for the Capital Portion of the Proposed FY 
2009-Based LTCH-Specific Market Basket
    In order to ensure consistency in the proposed FY 2009-based LTCH-
specific market basket, we are proposing to calculate the capital-
related cost weights using the same set of FY 2009 Medicare cost 
reports used to develop the operating cost weights with the same 
length-of-stay edit as applied when calculating the operating cost 
weights as described in section VII.C.3.a. of this preamble. The 
resulting proposed capital weight for the FY 2009 base year is 9.829 
percent. We then separated the total capital cost weight into more 
detailed cost categories.
    From the Medicare cost reports, we are able to derive cost weights 
for depreciation, interest, lease, and other capital-related expenses. 
Lease expenses are unique in that they are not broken out as a separate 
cost category in the proposed LTCH-specific market basket, but rather 
are proportionally distributed among the cost categories of 
Depreciation, Interest, and Other Capital-Related, reflecting the 
assumption that the underlying cost structure of leases is similar to 
that of capital costs in general. As was done in the FY 2008-based RPL 
market basket, we first assumed 10 percent of lease expenses represents 
overhead and assigned those costs to the Other Capital-Related Costs 
category accordingly. The remaining lease expenses were distributed 
across the three cost categories based on the respective weights of 
depreciation, interest, and other capital-related, not including lease 
expenses. This is the same method that was applied in the FY 2008-based 
RPL market basket.
    Depreciation contains two subcategories: (1) Building and Fixed 
Equipment (or Fixed Assets); and (2) Movable Equipment. In the FY 2008-
based RPL market basket, we disaggregated total depreciation expenses 
into Building and Fixed Equipment and Movable Equipment, using 
depreciation data from the FY 2008 Medicare cost reports for 
freestanding IRFs, freestanding IPFs, and LTCHs. Based on FY 2009 LTCH 
Medicare cost report data, we have determined that depreciation costs 
for building and fixed equipment account for 42 percent of total 
depreciation costs, while depreciation costs for movable equipment 
account for 58 percent of total depreciation costs. As mentioned above, 
we are proposing to allocate lease expenses among the ``Depreciation,'' 
``Interest,'' and ``Other Capital'' cost categories. We determined that 
leasing building and fixed equipment expenses account for 80 percent of 
total leasing expenses, while leasing movable equipment expenses 
account for 20 percent of total leasing expenses. We are proposing to 
sum the depreciation and leasing expenses for building and fixed 
equipment together, as well as sum the depreciation and leasing 
expenses for movable equipment. This results in the final building and 
fixed equipment depreciation cost weight (after leasing costs are 
included) being 67 percent of total depreciation costs and the movable 
equipment depreciation cost weight (after leasing costs are included) 
being 33 percent of total depreciation costs. We note that total 
leasing costs account for approximately one-half of total capital 
expenses.
    The total ``Interest'' cost category is split between government/
nonprofit interest and for-profit interest. The FY 2008-based RPL 
market basket allocated 33 percent of the total ``Interest'' cost 
weight to government/nonprofit interest and proxied that category by 
the average yield on domestic municipal bonds. The remaining 67 percent 
of the ``Interest'' cost weight was allocated to for-profit interest 
and was proxied by the average yield on Moody's Aaa bonds (76 FR 
51760). This was based on the FY 2008 Medicare cost report data on 
interest expenses for government/nonprofit and for-profit freestanding 
IRFs, freestanding IPFs, and LTCHs. For the proposed FY 2009-based 
LTCH-specific market basket, we are proposing to use the FY 2009 
Medicare cost report data on interest expenses for government/nonprofit 
and for-profit LTCHs. Based on these data, we calculated a proposed 29/
71 split between government/nonprofit and for-profit interest. We 
believe it is important that this split reflects the latest relative 
cost structure of interest expenses for LTCHs.
    Because capital is acquired and paid for over time, capital 
expenses in any given year are determined by both past and present 
purchases of physical and financial capital. The vintage-weighted 
capital portion of the proposed FY 2009-based LTCH-specific market 
basket is intended to capture the long-term consumption of capital, 
using vintage weights for depreciation (physical capital) and interest 
(financial capital). These vintage weights reflect the proportion of 
capital purchases attributable to each year of the expected life of 
building and fixed equipment, movable equipment, and interest. We are 
proposing to use vintage weights to compute vintage-weighted price 
changes associated with depreciation and interest expense.
    Vintage weights are an integral part of the proposed FY 2009-based 
LTCH-specific market basket. Capital costs are inherently complicated 
and are determined by complex capital purchasing decisions, over time, 
based on such factors as interest rates and debt financing. In 
addition, capital is depreciated over time instead of being consumed in 
the same period it is purchased. By accounting for the vintage nature 
of capital, we are able to provide an accurate and stable annual 
measure of price changes. Annual nonvintage price changes for capital 
are unstable due to the volatility of interest rate changes and, 
therefore, do not reflect the actual annual price changes for Medicare 
capital-related costs. The capital component of the proposed FY 2009-
based LTCH market basket would reflect the underlying stability of the 
capital acquisition process and provides hospitals with the ability to 
plan for changes in capital payments.
    To calculate the vintage weights for depreciation and interest 
expenses, we needed a time series of capital purchases for building and 
fixed equipment and movable equipment. We found no single source that 
provides an appropriate time series of capital purchases by hospitals 
for all of the above components of capital purchases. The early 
Medicare cost reports did not have sufficient capital data to meet this 
need. Data we obtained from the American Hospital Association (AHA) do 
not include annual capital purchases. However, the AHA does provide a 
consistent database of total expenses back to 1963. Consequently, we 
used data from the AHA Panel Survey and the AHA Annual Survey to obtain 
a time series of total expenses for hospitals. We then used data from 
the AHA Panel Survey supplemented with the ratio of depreciation to 
total hospital expenses obtained from the Medicare cost reports to 
derive a trend of annual depreciation expenses for 1963 through 2009.
    In order to estimate capital purchases using data on depreciation 
expenses, the expected life for each cost category (Building and Fixed 
Equipment, Movable Equipment, and Interest) is needed to calculate 
vintage weights. For the FY 2008-based RPL market basket, we used FY 
2008 Medicare cost reports for IPPS hospitals to determine the

[[Page 28014]]

expected life of building and fixed equipment and movable equipment (76 
FR 51763). The FY 2008-based RPL market basket was based on an expected 
average life of building and fixed equipment of 26 years and an 
expected average life of movable equipment of 11 years, which were both 
calculated using data for IPPS hospitals. We believed that this data 
source reflected the latest relative cost structure of depreciation 
expenses for hospitals at the time and was analogous to freestanding 
IRFs, freestanding IPFs, and LTCHs.
    The expected life of any asset can be determined by dividing the 
value of the asset (excluding fully depreciated assets) by its current 
year depreciation amount. This calculation yields the estimated useful 
life of an asset if the rates of depreciation were to continue at 
current year levels, assuming straight-line depreciation. Following a 
similar method to what was applied for the FY 2008-based RPL market 
basket, we are proposing to use the average expected life of building 
and fixed equipment to be equal to 20 years, and the average expected 
life of movable equipment to be 8 years. These expected lives are 
calculated using a 3-year average of data from Medicare cost reports 
for LTCHs for FY 2007 through FY 2009. We believe that using LTCH-
specific data to calculate the expected lives of assets best reflects 
the cost structures of LTCH facilities.
    We also are proposing to use the ``Building and Fixed Equipment'' 
and ``Movable Equipment'' cost weights derived from FY 2009 Medicare 
cost reports for LTCHs to separate the depreciation expenses into 
annual amounts of building and fixed equipment depreciation and movable 
equipment depreciation. Year-end asset costs for building and fixed 
equipment and movable equipment were determined by multiplying the 
annual depreciation amounts by the expected life calculations. We then 
calculated a time series, back to 1963, of annual capital purchases by 
subtracting the previous year's asset costs from the current year's 
asset costs. From this capital purchase time series, we were able to 
calculate the vintage weights for building and fixed equipment and for 
movable equipment. Each of these sets of vintage weights is explained 
in more detail below.
    For the proposed building and fixed equipment vintage weights, we 
used the real annual capital purchase amounts for building and fixed 
equipment to capture the actual amount of the physical acquisition, net 
of the effect of price inflation. This real annual purchase amount for 
building and fixed equipment was produced by deflating the nominal 
annual purchase amount by the building and fixed equipment price proxy, 
BEA's Chained Price Index for Nonresidential Construction for Hospitals 
and Special Care Facilities. This is the same proxy used for the FY 
2008-based RPL market basket. Because building and fixed equipment have 
an expected average life of 20 years, the vintage weights for building 
and fixed equipment are deemed to represent the average purchase 
pattern of building and fixed equipment over 20-year periods. With real 
building and fixed equipment purchase estimates available from 2009 
back to 1963, we averaged twenty-seven 20-year periods to determine the 
average vintage weights for building and fixed equipment that are 
representative of average building and fixed equipment purchase 
patterns over time. Vintage weights for each 20-year period are 
calculated by dividing the real building and fixed capital purchase 
amount in any given year by the total amount of purchases in the 20-
year period. This calculation is done for each year in the 20-year 
period, and for each of the twenty-seven 20-year periods. We used the 
average of each year across the twenty-seven 20-year periods to 
determine the average building and fixed equipment vintage weights for 
the proposed FY 2009-based LTCH-specific market basket.
    For the proposed movable equipment vintage weights, the real annual 
capital purchase amounts for movable equipment were used to capture the 
actual amount of the physical acquisition, net of price inflation. This 
real annual purchase amount for movable equipment was calculated by 
deflating the nominal annual purchase amounts by the movable equipment 
price proxy, the PPI for Machinery and Equipment. This is the same 
proxy used for the FY 2008-based RPL market basket. Based on our 
determination that movable equipment has an expected average life of 8 
years, the vintage weights for movable equipment represent the average 
expenditure for movable equipment over an 8-year period. With real 
movable equipment purchase estimates available from 2009 back to 1963, 
thirty-nine 8-year periods were averaged to determine the average 
vintage weights for movable equipment that are representative of 
average movable equipment purchase patterns over time. Vintage weights 
for each 8-year period are calculated by dividing the real movable 
capital purchase amount for any given year by the total amount of 
purchases in the 8-year period. This calculation was done for each year 
in the 8-year period and for each of the thirty-nine 8-year periods. We 
used the average of each year across the thirty-nine 8-year periods to 
determine the average movable equipment vintage weights for the 
proposed FY 2009-based LTCH-specific market basket.
    For the proposed interest vintage weights, the nominal annual 
capital purchase amounts for total equipment (building and fixed, and 
movable) were used to capture the value of the debt instrument 
(including, but not limited to, mortgages and bonds). We are proposing 
that the vintage weights for interest should represent the average 
purchase pattern of total equipment over 20-year periods, which is the 
average useful life of building and fixed equipment as calculated using 
the LTCH Medicare cost report data. We believe vintage weights for 
interest should represent the average useful life of buildings and 
fixed equipment because, based on previous research described in the FY 
1997 IPPS final rule (61 FR 46198), the expected life of hospital debt 
instruments and the expected life of buildings and fixed equipment are 
similar. With nominal total equipment purchase estimates available from 
2009 back to 1963, twenty-seven 20-year periods were averaged to 
determine the average vintage weights for interest that are 
representative of average capital purchase patterns over time. Vintage 
weights for each 20-year period are calculated by dividing the nominal 
total capital purchase amount for any given year by the total amount of 
purchases in the 20-year period. This calculation is done for each year 
in the 20-year period and for each of the twenty-seven 20-year periods. 
We used the average of each year across the twenty-seven 20-year 
periods to determine the average interest vintage weights for the 
proposed FY 2009-based LTCH-specific market basket. The vintage weights 
for the capital portion of the FY 2008-based RPL market basket and the 
proposed FY 2009-based LTCH-specific market basket are presented in 
Table VII.C-4 below.

[[Page 28015]]



     Table VII.C-4--FY 2008 RPL and Proposed FY 2009 LTCH Vintage Weights for Capital-Related Price Proxies
----------------------------------------------------------------------------------------------------------------
                                       Building and fixed         Movable equipment             Interest
                                            equipment        ---------------------------------------------------
               Year                --------------------------
                                    FY 2008  26  FY 2009  20  FY 2008  11   FY 2009  8  FY 2008  26  FY 2009  20
                                       years        years        years        years        years        years
----------------------------------------------------------------------------------------------------------------
1.................................        0.021        0.034        0.071        0.102        0.010        0.021
2.................................        0.023        0.037        0.075        0.108        0.012        0.024
3.................................        0.025        0.039        0.080        0.114        0.014        0.026
4.................................        0.027        0.042        0.083        0.123        0.016        0.029
5.................................        0.028        0.043        0.085        0.129        0.018        0.032
6.................................        0.030        0.045        0.089        0.134        0.020        0.035
7.................................        0.031        0.046        0.092        0.142        0.021        0.037
8.................................        0.033        0.047        0.098        0.149        0.024        0.040
9.................................        0.035        0.049        0.103  ...........        0.026        0.043
10................................        0.037        0.051        0.109  ...........        0.029        0.047
11................................        0.039        0.053        0.116  ...........        0.033        0.050
12................................        0.041        0.053  ...........  ...........        0.035        0.053
13................................        0.042        0.053  ...........  ...........        0.038        0.055
14................................        0.043        0.054  ...........  ...........        0.041        0.059
15................................        0.044        0.055  ...........  ...........        0.043        0.062
16................................        0.045        0.057  ...........  ...........        0.046        0.068
17................................        0.046        0.059  ...........  ...........        0.049        0.073
18................................        0.047        0.059  ...........  ...........        0.052        0.077
19................................        0.047        0.061  ...........  ...........        0.053        0.082
20................................        0.045        0.062  ...........  ...........        0.053        0.086
21................................        0.045  ...........  ...........  ...........        0.055  ...........
22................................        0.045  ...........  ...........  ...........        0.056  ...........
23................................        0.046  ...........  ...........  ...........        0.060  ...........
24................................        0.046  ...........  ...........  ...........        0.063  ...........
25................................        0.045  ...........  ...........  ...........        0.064  ...........
26................................        0.046  ...........  ...........  ...........        0.068  ...........
                                   -----------------------------------------------------------------------------
    Total.........................        1.000        1.000        1.000        1.000        1.000        1.000
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not add to total due to rounding.

    After the capital cost category weights were computed, it was 
necessary to select appropriate price proxies to reflect the rate-of-
increase for each expenditure category. We are proposing to use the 
same price proxies (prior to any vintage weighting) for the capital 
portion of the proposed FY 2009-based LTCH market basket that were used 
in the FY 2008-based RPL market. We believe these are the most 
appropriate proxies for hospital capital costs that meet our selection 
criteria of relevance, timeliness, availability, and reliability.
    The price proxies (prior to any vintage weighting) for each of the 
capital cost categories, as shown in Table VII.C-2 above, are the same 
as those used for the FY 2008-based RPL market basket, as described in 
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51765), as well as the FY 
2006-based Capital Input Price Index (CIPI) as described in the FY 2010 
IPPS/RY 2010 LTCH PPS final rule (74 FR 43857). The process of creating 
vintage-weighted price proxies requires applying the vintage weights to 
the price proxy index where the last applied vintage weight in Table 
VII.C-4 is applied to the most recent data point. We have provided on 
the CMS Web site an example of how the vintage weighting price proxies 
are calculated, using example vintage weights and example price 
indices. The example can be found at the following link: http://www.cms.gov/MedicareProgramRatesStats/05_MarketBasketResearch.asp#TopOfPage in the zip file titled ``Weight 
Calculations as described in the IPPS FY 2010 Proposed Rule''.
e. Proposed FY 2013 Market Basket Update for LTCHs
    For FY 2013 (that is, October 1, 2012, through September 30, 2013), 
we are proposing to use an estimate of the proposed FY 2009-based LTCH-
specific market basket to update payments to LTCHs based on the best 
available data. Consistent with historical practice, we estimate the 
LTCH market basket update for the LTCH PPS based on IHS Global Insight, 
Inc.'s (IGI's) forecast using the most recent available data. IGI is a 
nationally recognized economic and financial forecasting firm that 
contracts with CMS to forecast the components of the market baskets.
    Based on IGI's first quarter 2012 forecast with history through the 
fourth quarter of 2011, the projected market basket update for FY 2013 
is 3.0 percent. Therefore, consistent with our historical practice of 
estimating market basket increases based on the best available data, we 
are proposing a market basket update of 3.0 percent for FY 2013. 
Furthermore, because the proposed FY 2013 annual update is based on the 
most recent market basket estimate for the 12-month period (currently 
3.0 percent), we also are proposing that if more recent data are 
subsequently available (for example, a more recent estimate of the 
market basket), we would use such data, if appropriate, to determine 
the FY 2013 annual update in the final rule. (As discussed in greater 
detail in section V.A.2. of the Addendum to this proposed rule, we are 
proposing an annual update of 2.1 percent to the LTCH PPS standard 
Federal rate for FY 2013 under proposed Sec.  412.523(c)(3)(viii) of 
the regulations.)
    Using the current FY 2008-based RPL market basket and IGI's first 
quarter 2012 forecast for the market basket components, the FY 2013 
market basket update would be 3.0 percent (before taking into account 
any statutory adjustment). Table VII.C-5 below compares the FY 2008-
based RPL market basket and the proposed FY

[[Page 28016]]

2009-based LTCH-specific market basket percent changes.

  Table VII.C-5--FY 2008-Based RPL Market Basket and Proposed FY 2009-
    Based LTCH Market Basket Percent Changes; FY 2008 Through FY 2015
------------------------------------------------------------------------
                                                        Proposed FY 2009-
                                        FY 2008-based      based LTCH
          Fiscal year (FY)               RPL market       market basket
                                        basket index     index  percent
                                       percent change        change
------------------------------------------------------------------------
Historical data:
    FY 2008.........................               3.7               3.9
    FY 2009.........................               2.7               2.8
    FY 2010.........................               2.2               2.2
    FY 2011.........................               2.5               2.6
    Average 2008-2011...............               2.8               2.9
Forecast:
    FY 2012.........................               2.4               2.5
    FY 2013.........................               3.0               3.0
    FY 2014.........................               3.1               3.1
    FY 2015.........................               3.2               3.1
    Average 2012-2015...............               2.9               2.9
------------------------------------------------------------------------
Note that these market basket percent changes do not include any further
  adjustments as may be statutorily required.
Source: IHS Global Insight, Inc. first quarter 2012 forecast.

    For FY 2013, the proposed FY 2009-based LTCH-specific market basket 
update (as measured by percentage increase) is currently forecasted to 
be the same as the market basket update based on the FY 2008-based RPL 
market basket at 3.0 percent. The lower total compensation weight in 
the proposed FY 2009-based LTCH-specific market basket (54.338 percent) 
relative to the FY 2008-based RPL market basket (62.278 percent), 
absent other factors, would have resulted in a slightly lower market 
basket update for FY 2013 using the proposed FY 2009-based LTCH market 
basket. However, this impact is partially offset by the impact of the 
larger cost weights associated with the Pharmaceuticals and All Other 
Services cost categories. The net effect of these offsetting factors is 
that the market basket update is currently forecasted to be the same 
for FY 2013 based on the current FY 2008-based RPL market basket and 
the proposed FY 2009-based LTCH-specific market basket. As stated 
above, we are proposing that if more recent data (such as a revised IGI 
forecast) are subsequently available, we would use such data, if 
appropriate, to determine the FY 2013 annual update in the final rule.
f. Proposed FY 2013 Labor-Related Share
    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 (Sec.  
412.525(c)). The labor-related portion of the LTCH PPS standard 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 total costs that are related to, influenced by, 
or vary with the local labor market. As discussed in more detail below 
and similar to the FY 2008-based RPL market basket and FY 2006 IPPS 
market basket (74 FR 43850), we classify a cost category as labor-
related and include it in the labor-related share if the cost category 
is defined as being labor-intensive and its cost varies with the local 
labor market. Given this, based on our definition of the labor-related 
share, we are proposing to include in the labor-related share the sum 
of the relative importance of Wages and Salaries, Employee Benefits, 
Professional Fees: Labor-related, Administrative and Business Support 
Services, All Other: Labor-related Services, and a portion of the 
Capital-Related cost weight. These are the same cost categories that 
were proposed and adopted in the FY 2012 labor-related share using the 
FY 2008-based RPL market basket, as we continue to believe these 
categories meet our criteria of being labor-intensive and whose costs 
vary with the local labor market. For a more detailed discussion of the 
selection of cost categories for inclusion in the FY 2012 labor-related 
share, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51766). We note that, similar to the FY 2008-based RPL market basket 
and as described above, the wages and salaries and benefit cost weights 
reflect allocated contract labor costs.
    For the FY 2008-based RPL market basket rebasing, in an effort to 
more accurately determine the share of professional fees for services 
such as accounting and auditing services, engineering services, legal 
services, and management and consulting services that should be 
included in the labor-related share, we obtained data from a survey of 
IPPS hospitals regarding the proportion of those fees that go to 
companies that are located beyond their own local labor market. The 
results from this survey were then used to separate a portion of the 
Professional Fees cost category into labor-related and nonlabor-related 
costs. These results and our allocation methodology are discussed in 
more detail in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51766). For 
the proposed FY 2009-based LTCH-specific market basket, we are 
proposing to apply these survey results using this same methodology to 
separate the Professional Fees category into Professional Fees: Labor-
related and Professional Fees: Nonlabor-related cost categories. We 
believe using the survey results serves as an appropriate proxy for the 
purchasing patterns of professional services for LTCHs as they also are 
providers of institutional care.
    In addition to the professional services listed above, we also are 
proposing to classify expenses under NAICS 55, Management of Companies 
and Enterprises, into the Professional Fees: Labor-related and 
Professional Fees: Nonlabor-related cost categories, as was done for 
the FY 2008-based RPL

[[Page 28017]]

market basket. The NAICS 55 industry is mostly comprised of corporate, 
subsidiary, and regional managing offices (otherwise referred to as 
home offices). As stated above, we classify a cost category as labor-
related and include it in the labor-related share if the cost category 
is labor-intensive and if its costs vary with the local labor market. 
We believe many of the costs associated with NAICS 55 are labor-
intensive and vary with the local labor market. However, data indicate 
that not all LTCHs with home offices have home offices located in their 
local labor market. Therefore, we are proposing to include in the 
labor-related share only a proportion of the NAICS 55 expenses based on 
the methodology described below.
    For the FY 2008-based RPL market basket, we used data primarily 
from the Medicare cost reports and a CMS database of Home Office 
Medicare Records (HOMER) (a database that provides city and state 
information (addresses) for home offices) and determined that 19 
percent of the total number of freestanding IRFs, freestanding IPFs, 
and LTCHs that had home offices had those home offices located in their 
respective local labor markets--defined as being in the same 
Metropolitan Statistical Area (MSA). For a detailed discussion of this 
analysis, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51766 through 51767).
    For the proposed FY 2009-based LTCH-specific market basket, we 
conducted a similar analysis of home office data. However, instead of 
using data on freestanding IRF, freestanding IPF, and LTCHs, we began 
with the initial set of LTCH Medicare cost reports that were used to 
derive the cost weights for the proposed FY 2009-based LTCH-specific 
market basket. For consistency, we believe it is important for our 
analysis on home office data to be conducted on the same LTCHs used to 
derive the proposed FY 2009 LTCH market basket cost weights.
    The Medicare cost report requires a hospital to report information 
regarding their home office provider. Approximately 82 percent of LTCHs 
reported some type of home office information on their Medicare cost 
report for FY 2009 (for example, home office number, city, state, zip 
code, or name). For the majority of these providers, we were able to 
identify in which MSA the LTCH's home office was located using the 
HOMER database and the Medicare cost reports. We then compared the home 
office MSA with the MSA in which the LTCH was located.
    We found that 13 percent of the LTCHs with home offices had those 
home offices located in the same MSA as their facilities. We then 
concluded that these providers were located in the same local labor 
market as their home office. As a result, we are proposing to apportion 
the NAICS 55 expense data by this percentage. Thus, we are proposing to 
classify 13 percent of these costs into the ``Professional Fees: Labor-
related Services'' cost category and the remaining 87 percent into the 
``Professional Fees: Nonlabor-related Services'' cost category.
    Using this proposed method and the IGI forecast for the first 
quarter 2012 of the proposed FY 2009-based LTCH-specific market basket, 
the proposed LTCH labor-related share for FY 2013 would be the sum of 
the FY 2013 relative importance of each labor-related cost category. 
Consistent with our proposal to update the labor-related share with the 
most recent available data, the labor-related share for this proposed 
rule reflects IGI's first quarter 2012 forecast of the proposed FY 
2009-based LTCH-specific market basket. Table VII.C-6 below shows the 
proposed FY 2013 relative importance labor-related share using the 
proposed FY 2009-based LTCH-specific market basket and the FY 2012 
relative importance labor-related share using the FY 2008-based RPL 
market basket.

   Table VII.C-6--Comparison of the FY 2012 Relative Importance Labor-
   Related Share Based on the FY 2008-Based RPL Market Basket and the
  Proposed FY 2013 Relative Importance Labor-Related Share Based on the
                Proposed FY 2009-Based LTCH Market Basket
------------------------------------------------------------------------
                                                        Proposed FY 2013
                                      FY 2012 relative      relative
                                      importance labor- importance labor-
                                        related share     related share
                                             \1\               \2\
------------------------------------------------------------------------
Wages and Salaries..................            48.984            45.604
Employee Benefits...................            12.998             8.143
Professional Fees: Labor-Related....             2.072             2.216
Administrative and Business Support              0.416             0.502
 Services...........................
All Other: Labor-Related Services...             2.094             2.513
                                     -----------------------------------
    Subtotal........................            66.564            58.978
Labor-Related Portion of Capital                 3.635             4.239
 Costs (46%)........................
                                     -----------------------------------
    Total Labor-Related Share.......            70.199            63.217
------------------------------------------------------------------------
\1\ Published in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51767) and
  based on the second quarter 2011 IGI forecast.
\2\ Based on the first quarter 2012 IGI forecast.

    The proposed labor-related share for FY 2013 is the sum of the 
proposed FY 2013 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 2009) and FY 2013. The 
sum of the proposed relative importance for FY 2013 for operating costs 
(Wages and Salaries, Employee Benefits, Professional Fees: Labor-
related, Administrative and Business Support Services, and All Other: 
Labor-related Services) would be 58.978 percent, as shown in Table 
VII.C-6 above. We are proposing that the portion of capital-related 
costs that is influenced by the local labor market is estimated to be 
46 percent, which is the same percentage applied to the FY 2008-based 
RPL market basket. Because the relative importance for capital-related 
costs would be 9.216 percent of the proposed FY 2009-based LTCH-
specific market basket in FY 2013, we are proposing to take 46 percent 
of 9.216 percent to determine the proposed labor-related share of 
capital-related costs for FY 2013 (.46 * 9.216). The result would be 
4.239 percent, which we are proposing to add to 58.978 percent for the 
operating cost amount to determine the total proposed labor-related 
share for FY

[[Page 28018]]

2013. Thus, the labor-related share that we are proposing to use for 
the LTCH PPS in FY 2013 would be 63.217 percent. This proposed labor-
related share is determined using the same methodology as employed in 
calculating all previous LTCH labor-related shares.

D. Proposed Changes to the LTCH Payment Rates for FY 2013 and Other 
Proposed Changes to the LTCH PPS for FY 2013

1. Overview of Development of the LTCH Payment Rates
    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 we are proposing to use to 
update the LTCH PPS standard Federal rate for FY 2013, that is, 
effective for LTCH discharges occurring on or after October 1, 2012 
through September 30, 2013.
    For further details on the development of the FY 2003 standard 
Federal rate when the LTCH PPS was initially implemented, we refer 
readers to the August 30, 2002 LTCH PPS final rule (67 FR 56027 through 
56037). For subsequent updates to the LTCH PPS 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 (68 FR 25682 
through 25684); RY 2006 LTCH PPS final rule (70 FR 24179 through 
24180); RY 2007 LTCH PPS final rule (71 FR 27819 through 27827); RY 
2008 LTCH PPS final rule (72 FR 26870 through 27029); RY 2009 LTCH PPS 
final rule (73 FR 26800 through 26804); RY 2010 LTCH PPS final rule (74 
FR 44021 through 44030); FY 2011 IPPS/LTCH PPS final rule (75 FR 50443 
through 50444); and FY 2012 IPPS/LTCH PPS final rule (76 FR 51769 
through 51773).
    The proposed update to the LTCH PPS standard Federal rate for FY 
2013 is presented in section V.A. of the Addendum to this proposed 
rule. The components of the proposed annual market basket update to the 
LTCH PPS standard Federal rate for FY 2013 are discussed below. 
Furthermore, as discussed in section VII.E.4. of this preamble, for FY 
2013, in addition to the proposed update factor, we are proposing to 
make a one-time prospective adjustment to the standard Federal rate for 
FY 2013 so that the effect of any significant difference between the 
data used in the original computations of budget neutrality for FY 2003 
and more recent data to determine budget neutrality for FY 2003 is not 
perpetuated in the prospective payment rates for future years under 
existing Sec.  412.523(d)(3) (this adjustment would not apply to 
payments made for discharges occurring on or before December 28, 2012, 
consistent with the statute). Furthermore, as discussed in section V.A. 
of the Addendum of this proposed rule, we are proposing to make an 
adjustment to the standard Federal rate to account for the estimated 
effect of the proposed changes to the area wage level adjustment for FY 
2013 on estimated aggregate LTCH PPS payments, in accordance with Sec.  
412.523(d)(4).
2. Proposed FY 2013 LTCH PPS Annual Market Basket Update
a. Overview
    Historically, the Medicare program has used a market basket to 
account for price increases in the services furnished by providers. The 
market basket used for the LTCH PPS includes both operating and 
capital-related costs of LTCHs because the LTCH PPS uses a single 
payment rate for both operating and capital-related costs. As discussed 
in section VII.C. of this preamble, we are proposing to adopt the newly 
created FY 2009-based LTCH-specific market basket for use under the 
LTCH PPS beginning in FY 2013. For additional details on the historical 
development of the market basket used under the LTCH PPS, we refer 
readers to section VII.C.1. of this preamble.
    Section 3401(c) of the Affordable Care Act provides for certain 
adjustments to any annual update to the standard Federal rate and 
refers to the timeframes associated with such adjustments as a ``rate 
year.'' (The adjustments are discussed in more detail in section 
VII.D.2.b. of this preamble.) We note that because the annual update to 
the LTCH PPS policies, rates, and factors now occurs on October 1, we 
adopted the term ``fiscal year'' (FY) rather than ``rate year'' (RY) 
under the LTCH PPS beginning October 1, 2010, to conform with the 
standard definition of the Federal fiscal year (October 1 through 
September 30) used by other PPSs, such as the IPPS (75 FR 50396 through 
50397). Although the language of sections 3401(c), 10319, and 1105(b) 
of the Affordable Care Act refers to years 2010 and thereafter under 
the LTCH PPS as ``rate year,'' consistent with our change in the 
terminology used under the LTCH PPS from ``rate year'' to ``fiscal 
year,'' for purposes of clarity, when discussing the annual update for 
the LTCH PPS, including the provisions of the Affordable Care Act, we 
employ ``fiscal year'' rather than ``rate year'' for 2011 and 
subsequent years.
b. Revision of Certain Market Basket Updates as Required by the 
Affordable Care Act
    Section 1886(m)(3)(A) of the Act, as added by section 3401(c) of 
the Affordable Care Act, specifies that, for rate year 2010 and each 
subsequent rate year through 2019, any annual update to the standard 
Federal rate shall be reduced:
    <bullet> For rate year 2010 through 2019, by the ``other 
adjustment'' specified in sections 1886(m)(3)(A)(ii) and (m)(4) of the 
Act; and
    <bullet> For rate year 2012 and each subsequent year, by the 
productivity adjustment (which we refer to as ``the multifactor 
productivity (MFP) adjustment'') described in section 
1886(b)(3)(B)(xi)(II) of the Act.
    Section 1886(m)(3)(B) of the Act provides that the application of 
paragraph (3) of section 1886(m) of the Act may result in the annual 
update being less than zero for a rate year, and may result in payment 
rates for a rate year being less than such payment rates for the 
preceding rate year.
    As discussed in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51770 
through 51771), section 1886(b)(3)(B)(xi)(II) of the Act defines the 
MFP adjustment as equal to the 10-year moving average of changes in 
annual economy-wide, private nonfarm business multifactor productivity 
(as projected by the Secretary for the 10-year period ending with the 
applicable fiscal year, calendar year, cost reporting period, or other 
annual period). As discussed in the FY 2012 IPPS/LTCH PPS final rule 
(76 FR 51691 through 51692 and 51771), we proposed and finalized that 
the end of the 10-year moving average of changes in the MFP should 
coincide with the end of the appropriate FY update period. Therefore, 
the MFP adjustment that is applied in determining any annual update to 
the LTCH PPS standard Federal rate is the same adjustment that is 
required to be applied in determining the applicable percentage 
increase under the IPPS under section 1886(b)(3)(B)(i) of the Act as 
they are both based on a fiscal year. As we established in that same 
final rule, the MFP adjustment is derived using a projection of MFP 
that is currently produced by IHS Global Insight, Inc. We established 
our methodology for calculating and applying the MFP adjustment in 
determining any annual update to the LTCH PPS standard Federal rate in 
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51771 through 51772). In 
this proposed rule, we are not proposing to change our methodology

[[Page 28019]]

for calculating and applying the MFP adjustment to determine the annual 
update to the LTCH PPS standard Federal rate for FY 2013. (For details 
on the development of the MFP, including our finalized methodology for 
calculating and applying the MFP adjustment, we refer readers to the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51689 through 51692).)
c. Proposed Market Basket Under the LTCH PPS for FY 2013
    As discussed above in section VII.C. of this preamble, under the 
authority of section 123 of the BBRA as amended by section 307(b) of 
the BIPA, we are proposing to adopt a newly created FY 2009-based LTCH-
specific market basket for use under the LTCH PPS beginning in FY 2013 
because we believe it appropriately reflects the cost structure of 
LTCHs. The proposed FY 2009-based LTCH-specific market basket is based 
solely on the Medicare cost report data submitted by LTCHs and, 
therefore, specifically reflects the cost structures of only LTCHs.
d. Proposed Annual Market Basket Update for LTCHs for FY 2013
    Consistent with our historical practice, we are proposing to 
estimate the proposed market basket update and the proposed MFP 
adjustment based on IGI's forecast using the most recent available 
data. As discussed in section VII.C.3.e. of this preamble, based on 
IGI's first quarter 2012 forecast, the proposed FY 2013 full market 
basket estimate for the LTCH PPS using the proposed FY 2009-based LTCH-
specific market basket is 3.0 percent. Using our established 
methodology for determining the MFP adjustment (discussed in section 
VII.D.2.b. of this preamble), the current estimate of the proposed MFP 
adjustment for FY 2013 based on IGI's first quarter 2012 forecast is 
0.8 percent. Consistent with our historical practice of using the best 
available data, we are proposing that if more recent data become 
available to determine the market basket estimate or the MFP 
adjustment, we would use such data for the final rule, if appropriate.
    For FY 2013, section 1886(m)(3)(A)(i) of the Act requires that any 
annual update to the standard Federal rate be reduced by the 
productivity adjustment (``the MFP adjustment'') described in section 
1886(b)(3)(B)(xi)(II) of the Act. Consistent with the statute, we are 
proposing to reduce the full FY 2013 market basket update by the FY 
2013 MFP adjustment. To determine the market basket update for LTCHs 
for FY 2013, as reduced by the MFP adjustment, consistent with the 
approach we established in the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51771), we are proposing to subtract the FY 2013 MFP adjustment from 
the FY 2013 market basket update. Furthermore, sections 
1886(m)(3)(A)(ii) and 1886(m)(4)(C) of the Act requires that any annual 
update to the standard Federal rate for FY 2013 be reduced by the 
``other adjustment'' described in paragraph (4), which is 0.1 
percentage point for FY 2013. Therefore, following application of the 
productivity adjustment, we are proposing to reduce the adjusted market 
basket update (that is, the full market basket increase less the MFP 
adjustment) by the ``other adjustment'' specified by sections 
1886(m)(3)(A)(ii) and 1886(m)(4) of the Act.
    In this proposed rule, in accordance with the statute, we are 
proposing to reduce the proposed FY 2013 full market basket estimate of 
3.0 percent (based on the first quarter 2012 forecast of the proposed 
FY 2009-based LTCH-specific market basket) by the proposed FY 2013 MFP 
adjustment (that is, the 10-year moving average of MFP for the period 
ending FY 2013, as described in section VII.D.2.b. of the preamble of 
this proposed rule) of 0.8 percentage point (based on IGI's first 
quarter 2012 forecast). Following application of the proposed 
productivity adjustment, the proposed adjusted market basket update of 
2.2 percent (3.0 percent minus 0.8 percentage point) is then reduced by 
0.1 percentage point, as required by sections 1886(m)(3)(A)(ii) and 
1886(m)(4)(C) of the Act. Therefore, in this proposed rule, under the 
authority of section 123 of the BBRA as amended by section 307(b) of 
the BIPA, we are proposing to establish an annual market basket update 
under the LTCH PPS for FY 2013 of 2.1 percent (that is, the most recent 
estimate of the proposed LTCH PPS market basket update at this time of 
3.0 percent less the proposed MFP adjustment of 0.8 percentage point 
less the 0.1 percentage point required under section 1886(m)(4)(C) of 
the Act). Accordingly, we are proposing to revise Sec.  412.523(c)(3) 
by adding a new paragraph (ix), which would specify that the standard 
Federal rate for FY 2013 is the standard Federal rate for the previous 
LTCH PPS year updated by 2.1 percent, and as further adjusted, as 
appropriate, as described in Sec.  412.523(d). In addition, proposed 
Sec.  412.523(c)(3)(ix)(B) would specify that, with respect to 
discharges occurring on or after October 1, 2012, and before December 
29, 2012, payments are based on the standard Federal rate in proposed 
Sec.  412.523(c)(3)(ix)(A) without regard to the one-time prospective 
adjustment provided for under proposed Sec.  412.523(d)(3)(iii). As 
stated above, consistent with our historical practice of using the most 
recent available data, we are proposing that if more recent data become 
available when we develop the final rule, we would use such data, if 
appropriate, in determining the final market basket update under the 
LTCH PPS for FY 2013. (We note that we are proposing to adjust the FY 
2013 standard Federal rate by a one-time prospective adjustment under 
proposed Sec.  412.523(d)(3) (discussed in section VII.E.4. of this 
preamble) and a proposed area wage level budget neutrality factor in 
accordance with Sec.  412.523(d)(4) (discussed in section V.B.5. of the 
Addendum of this proposed rule).)
3. Proposed LTCH PPS Cost-of-Living Adjustment (COLA) for LTCHs Located 
in Alaska and Hawaii
    Under Sec.  412.525(b), we established a cost-of-living adjustment 
(COLA) for LTCHs located in Alaska and Hawaii to account for the higher 
costs incurred in those States (67 FR 56022). Specifically, we apply a 
COLA to payments to LTCHs located in Alaska and Hawaii by multiplying 
the nonlabor-related portion of the standard Federal rate by the 
applicable COLA factors established annually by CMS. Higher labor-
related costs for LTCHs located in Alaska and Hawaii are taken into 
account in the adjustment for area wage levels.
    Historically, we have used the most recent updated COLA factors 
obtained from the U.S. Office of Personnel Management (OPM) Web site at 
http://www.opm.gov/oca/cola/rates.asp to adjust the payments for LTCHs 
in Alaska and Hawaii. Sections 1911 through 1919 of the Nonforeign Area 
Retirement Equity Assurance Act, as contained in subtitle B of title 
XIX of the National Defense Authorization Act (NDAA) for Fiscal Year 
2010 (Pub. L. 111-84, October 28, 2009) transitions the Alaska and 
Hawaii COLAs to locality pay. Under section 1914 of Public Law 111-84, 
locality pay is being phased in over a 3-year period beginning in 
January 2010, with COLA rates frozen as of the date of enactment, 
October 28, 2009, and then proportionately reduced to reflect the 
phase-in of locality. As we discussed in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51809), we did not believe it was appropriate to use 
either the 2010 or 2011 reduced factors to adjust the nonlabor-related 
portion of the standard Federal rate for LTCHs in Alaska and Hawaii for 
Medicare payment purposes.

[[Page 28020]]

Therefore, we established in that same final rule that, for FY 2012, we 
continued to use the same COLA factors (published by OPM) that we used 
to adjust payments in FY 2011 (which were based on OPM's 2009 COLA 
factors) to adjust the nonlabor-related portion of the standard Federal 
rate for LTCHs located in Alaska and Hawaii.
    We believe it was appropriate to use ``frozen'' COLA factors to 
adjust payments in FY 2012 while we explored alternatives for updating 
the COLA adjustment in the future because we believe those COLA factors 
appropriately adjusted the nonlabor-related portion of the standard 
Federal rate for LTCHs located in Alaska ad Hawaii, consistent with 
Sec.  412.523(b) (76 FR 51809). In this proposed rule, under the 
authority of section 123 of the BBRA, as amended by section 307(b) of 
the BIPA, we are proposing to continue to use the same ``frozen'' COLA 
factors used in FY 2012 for FY 2013 and to update the COLA factors for 
Alaska and Hawaii, beginning in FY 2014, based on a comparison of the 
growth in the consumer price indices (CPIs) for Anchorage, Alaska and 
Honolulu, Hawaii relative to the growth in the CPI for the average U.S. 
city as published by the Bureau of Labor Statistics (BLS). 
Specifically, in FY 2014, under the authority of section 123 of the 
BBRA, as amended by section 307(b) of the BIPA, we would update the 
COLA factors published by OPM that we used to adjust payments in FY 
2011 (which are based on OPM's 2009 COLA factors) as these are the last 
COLA factors OPM published prior to transitioning from COLAs to 
locality pay. Because the BLS publishes CPI data only for the cities of 
Anchorage and Honolulu, we are proposing to use a comparison of the 
relative growth in the overall CPI for those cities to update the COLA 
adjustment factors for all areas in Alaska and Hawaii, respectively. We 
believe that the relative price differences between these cities and 
the United States are appropriate proxies for the relative price 
differences of the ``other areas'' of Alaska and Hawaii.
    The BLS publishes the CPI for All Items for Anchorage, Honolulu, 
and for the average U.S. city. However, we are proposing to create 
reweighted CPIs for each of the respective areas to reflect the 
underlying composition of the IPPS market basket nonlabor-related 
share. The current composition of the CPI for All Items for all the 
respective areas is approximately 40 percent commodities and 60 percent 
services. However, the IPPS nonlabor-related share is comprised of 
approximately 60 percent commodities and 40 percent services. 
Therefore, we are proposing to create reweighted indexes for Anchorage, 
Honolulu, and the average U.S. city using the respective CPI 
commodities index and CPI services index using the approximate 60/40 
share obtained from the IPPS market basket. We believe that proposing 
to use the underlying composition of the IPPS market basket nonlabor-
related share to reweighted CPIs for each of the respective areas is an 
appropriate proxy for determining the COLA adjustments for LTCHs 
because both LTCHs and IPPS hospitals are required to meet the same 
certification criteria set forth in section 1861(e) of the Act to 
participate as a hospital in the Medicare program and generally 
experience similar nonlabor-related costs for providing inpatient 
hospital services. We also note that the composition of the proposed 
nonlabor-related share of the propose LTCH-specific market basket is 
not significantly different from the approximate 60/40 share obtained 
from the IPPS market basket.
    We believe this proposed methodology is appropriate because we 
would be able to continue updating COLA adjustments for hospitals 
located in Alaska and Hawaii using the relative price differences as a 
proxy for relative cost differences. We believe this is an appropriate 
alternative methodology given the discontinuation of COLA factors from 
OPM. We note that OPM's COLA factors were calculated with a statutorily 
mandated cap of 25 percent, and since the inception of the LTCH PPS, we 
have exercised our discretionary authority to adjust payments to LTCHs 
located in Alaska and Hawaii by incorporating this cap. Consistent with 
our existing policy, our proposed approach for FY 2014 would continue 
to use such a cap, as our proposal is based on OPM's COLA factors 
(updated by the proposed methodology described above). We note that 
this proposal is consistent with the proposal we are making for IPPS 
hospitals discussed in section II.B.2. of the Addendum to this proposed 
rule.
    Lastly, we are proposing to update the COLA factors using this 
proposed methodology every 4 years (beginning in FY 2014), consistent 
with the proposal for updating the COLA factors under the IPPS 
discussed in section II.B.2. of the Addendum to this proposed rule. 
Under the IPPS, we are proposing to update the COLA factors every 4 
years (beginning of FY 2014) concurrently with the update to the labor-
related share of the IPPS market basket. The labor-related share of the 
IPPS market basket currently is not scheduled to be updated until FY 
2014. At the time of development of the FY 2014 proposed rule, we 
expect to have CPI data available through 2012. Therefore, the proposed 
FY 2014 COLA factors for Alaska and Hawaii would be based on the 2009 
OPM COLA factors updated through 2012 by the comparison of the growth 
in the CPIs for Anchorage, Alaska, and Honolulu, Hawaii, relative to 
the growth in the CPI for the average U.S. city.
    In this proposed rule, for FY 2013, 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 use the same COLA factors used to adjust 
payments in FY 2012 (which are based on OPM's 2009 COLA factors) by 
multiplying the nonlabor-related portion of the standard Federal 
payment rate by the proposed factors listed in the chart shown in 
section V.C. of the Addendum to this proposed rule. We believe that 
these proposed COLA factors would appropriately adjust the nonlabor-
related portion of the standard Federal rate in FY 2013 for LTCHs 
located in Alaska and Hawaii, consistent with Sec.  412.523(b).

E. Expiration of Certain Payment Rules for LTCH Services and the 
Moratorium on the Establishment of Certain Hospitals and Facilities and 
the Increase in Number of Beds in LTCHs and LTCH Satellite Facilities

1. Background
    Moratoria on the implementation of certain LTCH payment policies 
and on the development of new LTCHs and LTCH satellite facilities and 
on bed increases in existing LTCHs and LTCH satellite facilities 
established under sections 114(c) and (d) of the MMSEA (Pub. L. 110-
173) as amended by section 4302 of the ARRA (Pub. L. 111-5) and further 
amended by sections 3106 and 10312 of the Affordable Care Act are set 
to expire during CY 2012, under current law.
    The moratoria established by these provisions delayed the full 
implementation of the following policies for 5 years beginning at 
various times in CY 2007:
    <bullet> The full application of the ``25-percent payment 
adjustment threshold'' to certain LTCHs, including hospitals-within-
hospitals (HwHs) and LTCH satellite facilities for cost reporting 
periods beginning on or after July 1, 2007, and before July 1, 2012, or 
cost reporting periods beginning on or after October 1, 2007, and 
before October 1,

[[Page 28021]]

2012, as applicable under the regulations at Sec. Sec.  412.534 and 
412.536.
    <bullet> The inclusion of an ``IPPS comparable'' option for payment 
determinations under the short stay outlier (SSO) adjustment at Sec.  
412.529 of the regulations for LTCH discharges occurring on or after 
December 29, 2007, but prior to December 29, 2012.
    <bullet> The application of any one-time prospective adjustment to 
the LTCH PPS standard Federal rate provided for in Sec.  412.523(d)(3) 
of the regulations from December 29, 2007, until December 29, 2012.
    <bullet> In general, the development of new LTCHs and LTCH 
satellite facilities, or increases in the number of beds in existing 
LTCHs and LTCH satellite facilities from December 29, 2007, and ending 
December 28, 2012, unless one of the specified exceptions to the 
particular moratorium was met. (We refer readers to the May 22, 2008 
interim final rule with comment period for the MMSEA (73 FR 29699, 
29704 through 29707, 29709), the interim final rule for the ARRA (74 FR 
43990 through 43992, and 43997), and the finalizing of the ACA changes 
in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50399 through 50400, and 
50416) for a complete description of this moratorium.)
    In this proposed rule, we are proposing to extend the existing 
delay of the full implementation of the 25-percent payment adjustment 
threshold for an additional year; that is, for cost reporting periods 
beginning on or after October 1, 2012, and before October 1, 2013, as 
applicable. We also are proposing to make a one-time prospective 
adjustment to the standard Federal rate under Sec.  412.523(d)(3) of 
the regulations. We are proposing to phase in this proposed one-time 
prospective adjustment to the standard Federal rate over a 3-year 
period, beginning in FY 2013; however, consistent with the statute, 
this proposed adjustment would not apply to payments made for 
discharges occurring on or before December 28, 2012. We are not 
proposing to make any changes to the SSO policy as it currently exists 
in the regulations at Sec.  412.529. Accordingly, consistent with the 
existing regulations at Sec.  412.529(c)(3), for SSO discharges 
occurring on or after December 29, 2012, the ``IPPS comparable'' option 
at Sec.  412.529(c)(3)(i)(D) would apply to payment determinations as 
appropriate for certain short stay cases. The moratoria on the 
development of new LTCHs or LTCH satellite facilities and on an 
increase in the number of beds in existing LTCHs or LTCH satellite 
facilities mandated by section 114(d) of the MMSEA, as amended by 
section 4302(b) of the ARRA and further amended by section 3106 and 
10312 of the Affordable Care Act, are set to expire on December 29, 
2012, under current law. As discussed later in this section, we are 
supportive of a statutory extension of these moratoria as we anticipate 
potential payment policy changes to the LTCH PPS as a result of CMS' 
research initiatives.
2. The 25-Percent Payment Adjustment Threshold
    We are proposing to provide a 1-year extension (that is, for cost 
reporting periods beginning on or after October 1, 2012, and before 
October 1, 2013) on the moratorium on the application of the 25-percent 
payment adjustment threshold policy as provided by section 144(c) of 
the MMSEA, as amended by section 4302(a) of the ARRA and sections 
3106(c) and 10312(a) of the Affordable Care Act. Therefore, we are 
proposing to revise Sec. Sec.  412.534 and 412.536 of the regulations 
to reflect this proposed extension. Specifically, we are proposing to 
change ``2012'' to ``2013'' in Sec. Sec.  412.534(c)(1)(i) and (ii), 
(c)(2)(1), (d)(1) and (2), and (e)(1) and (2) to incorporate this 
proposed change. In addition, we are proposing to revise the headings 
at Sec. Sec.  412.534(c)(3), (d)(3), and (e)(3), and make conforming 
changes to (h)(4) and (5) and Sec.  412.536(a)(2) to reflect this 
proposed 1-year extension. This proposed 1-year extension would 
continue the existing statutory exemption of grandfathered HwHs and 
freestanding LTCHs from the 25-percent payment adjustment threshold and 
the continued statutory increase in the percentage threshold to 50 or 
75 percent, as applicable, for those LTCHs and LTCH satellite 
facilities presently so affected. For a detailed description of the 
moratorium on the ``25-percent threshold'' policy, we refer readers to 
the May 22, 2008 interim final rule with comment period (73 FR 29699 
through 29704) and the interim final rule with comment period for the 
ARRA (74 FR 43990 through 43992).
    Although we are proposing to extend the moratorium relating to the 
application of the 25-percent payment adjustment threshold policy for 
cost reporting period beginning on or after October 1, 2012, and before 
October 1, 2013, this moratorium will expire for certain classes of 
LTCHs prior to the effective date of the proposed extension. 
Specifically, under existing regulations, the moratoria on the ``25-
percent threshold'' payment adjustment policies set forth in Sec. Sec.  
412.534(h) and 412.536 for a LTCH described in Sec.  412.23(e)(2)(i) 
that meets the criteria in Sec.  412.22(f) and a satellite facility of 
a LTCH described under Sec.  412.22(h)(3)(i) (that is, a grandfathered 
HwH and a grandfathered LTCH satellite facility, respectively), and the 
moratoria on the ``25 percent threshold'' policies set forth in Sec.  
412.536 for a ``freestanding'' LTCH as described in Sec.  412.23(e)(5) 
will expire beginning with discharges occurring in cost reporting 
periods beginning on or after July 1, 2012. In addition, under existing 
regulations, the moratorium on the ``25-percent threshold'' policies 
set forth in Sec. Sec.  412.534(h) and 412.536 expire beginning with 
discharges occurring in cost reporting periods beginning on or after 
July 1, 2012, for a LTCH or a LTCH satellite facility that, as of 
December 29, 2007, was co-located with an entity that is a provider-
based, off-campus location of a subsection (d) hospital which did not 
provide services payable under section 1886(d) of the Act at the off-
campus location. Therefore, under our proposed policy, there will be a 
period during which the above-described LTCHs and LTCH satellite 
facilities must comply with Sec. Sec.  412.534 and 412.536 before 
becoming subject to the moratoria again. The period during which the 
above-described LTCHs and LTCH satellite facilities would comply with 
Sec. Sec.  412.534 and 412.536 would be for discharges occurring in 
cost reporting periods beginning on or after July 1, 2012, and before 
July 1, 2013. Then, for discharges occurring in cost reporting periods 
beginning on or after July 1, 2013, and before July 1, 2014, the above-
described LTCHs and LTCH satellite facilities would be under the 
proposed extension of the moratorium. We note that, if our proposal is 
finalized, the proposed policy would be effective prospectively, 
consistent with the prospective nature of the FY 2013 rulemaking.
    We are proposing a 1-year extension in the delay of the full 
application of the 25-percent payment adjustment threshold policy 
because we believe, based on recent research as explained in greater 
detail below, that we could be in a position within the near future to 
propose revisions to our payment policies that could render the 25-
percent payment adjustment threshold policy unnecessary. In light of 
this potential result, we believe it is prudent to avoid requiring 
LTCHs (or CMS payment processing systems) to retool in order to 
implement the full reinstatement of the policy for what could be a 
relatively short period of time.
    We originally instituted the 25-percent payment adjustment 
threshold policy for co-located LTCHs and LTCH satellite facilities in 
the FY 2005 IPPS

[[Page 28022]]

final rule (69 FR 49191 through 49214), and expanded it to all 
``subclause I'' LTCHs in RY 2008 (72 FR 26919 through 26944) because 
our data and medical reviews revealed a strong pattern of correlations 
between growing numbers of patient discharges from IPPS hospitals to 
onsite or neighboring LTCHs after shorter lengths of stay at the IPPS 
hospitals and significant and increasing costs to the Medicare program. 
Our concern was that such patient shifting by providers could be 
financially, rather than clinically, motivated and that many LTCHs, in 
effect, were functioning as long-stay units of IPPS hospitals, a 
configuration not permitted under the governing statute. Section 
1886(d)(1)(B) of the Act provides for an exclusion of LTCHs from the 
IPPS for acute care hospitals. While the statute provides for an 
exclusion for psychiatric units and rehabilitation units, it does not 
provide for an exclusion for long-term care units. Our goal was to 
``challenge'' this otherwise unrestricted flow of patients from one 
provider to the other which we believed was resulting in two Medicare 
payments, one to the IPPS hospital and one to the LTCH, for what often 
could be understood as one episode of care. The policy was aimed at 
altering both the financial benefits accruing to the providers and the 
resulting increasing costs to the Medicare program by establishing a 
percentage threshold for patient shifting beyond which a payment 
adjustment would be applied to the LTCH discharge. The policy did not 
include patients who had been a high-cost outlier case at the IPPS 
hospital prior to discharge to the LTCH in the calculation of the 
percentage threshold. The attainment of high-cost outlier status serves 
as a ``benchmark,'' which we believe indicates that there has not been 
a premature discharge from the IPPS hospital.
    In addition, in several reports to the Congress (June 2003, Chapter 
5; June 2004, Chapter 5; and March 2011, Chapter 10), MedPAC 
recommended the development of patient-level and facility-level 
criteria for LTCHs. It was MedPAC's belief that developing facility-
level criteria would standardize the level and delivery of services 
provided by all LTCHs and that applying patient-level criteria would 
limit the type of beneficiaries admitted. The criteria would target the 
particular subgroup of beneficiaries who could derive the most clinical 
benefit from the long-stay and specialized hospital-level treatment at 
LTCHs while justifying the high Medicare payments in light of concerns 
about cost effectiveness and the program's commitment to value-based 
purchasing decisions (MedPAC's Report to Congress, June 2004, p. 128 
through 131).
    MedPAC's March 2011 Report to Congress (page 238) included the 
following statement:

    Previous research by the Commission found that the type of 
patients long-term care hospitals (LTCHs) treat are often cared for 
in alternative settings, such as acute care hospitals and skilled 
nursing facilities (SNFs) (Medicare Payment Advisory Commission 
2004). The Commission found that Medicare pays more for patients 
using LTCHs than for similar patients using other settings; however 
the payment difference narrowed considerably if LTCH care was 
targeted to the most severely ill patients. The Commission has 
therefore argued that, while LTCHs appear to have value for very 
sick patients, they are too expensive to be used for patients who 
could be treated in less intensive settings.

    Since MedPAC's 2004 recommendations for the development of patient-
level and facility-level criteria for LTCHs, CMS has awarded research 
contracts for the purposes of exploring the feasibility of such 
criteria as a basis for ``ensuring that appropriate patients are 
treated in long-term care hospitals'' (MedPAC's March 2011 Report to 
Congress, p. 238). Specifically, in response to MedPAC's 2004 
recommendation for the development of patient-level and facility-level 
criteria, CMS awarded research contracts to Research Triangle 
International, Inc. (RTI). Summaries of work done by RTI have been 
published in rules issued in the Federal Register for FY 2007 (71 FR 
27884 through 27885), for FY 2008 (72 FR 4884 through 4886), and FY 
2009 (73 FR 5374 through 5377). Reports on the research are posted on 
the Web site at: http://www.cms.gov/LongTermCareHospitalPPS/02a_RTIReports.asp#TopOfPage. As these researchers discovered, developing 
LTCH-specific patient-level criteria has been extremely difficult. This 
is because patients fitting the profile of LTCH patients (clinically 
complex, with multiple acute and chronic conditions) are far more 
likely to be treated in IPPS hospitals nationwide than they are in 
LTCHs, with over 3,500 general acute care hospitals as compared to 
approximately 440 LTCHs and with the number of LTCHs highly 
concentrated in some areas and nonexistent in others.
    More recently, during the last 2 years, CMS has been engaged with 
contractors in two projects that appear to be moving toward addressing 
the concerns and perhaps realizing the goals that MedPAC articulated in 
its recommendations, quoted above. We believe that, within the near 
future, we could potentially be in a position to recommend revisions to 
our payment policies that could render the 25-percent payment 
adjustment threshold policy unnecessary. We are also aware that the 
LTCH industry has requested legislators to, among other things, 
forestall the reinstatement of the full implementation of the 25-
percent payment adjustment threshold policy at this time. In 
acknowledgement of hopeful research outcomes as well as concerns raised 
by the industry, we are proposing a 1-year extension (that is, for cost 
reporting periods beginning on or after October 1, 2012, and before 
October 1, 2013) of the existing moratoria on the full application of 
the 25-percent payment adjustment threshold policy as provided by 
section 144(c) of the MMSEA as amended by section 4302(a) of the ARRA 
and section 3106(c) and 10312(a) of the Affordable Care Act.
3. The ``IPPS Comparable Per Diem Amount'' Payment Option for Very 
Short Stays Under the Short-Stay Outlier (SSO) Policy
    Prior to the enactment of section 114(c)(3) of the MMSEA, for LTCH 
short stay outlier (SSO) cases with a covered length of stay that was 
equal to or less than one standard deviation from the geometric average 
length of stay for the same MS-DRG under the IPPS (that is, the ``IPPS 
comparable threshold''), the SSO payment adjustment determination 
included an additional option, the ``IPPS comparable amount per diem 
amount'' (72 FR 26906). This policy was implemented in our regulations 
at Sec.  412.529(c)(3)(i) in the RY 2008 LTCH PPS final rule (72 FR 
26904 through 26908).
    Section 114(c)(3) of the MMSEA as amended by section 3106(a) of the 
Affordable Care Act provided a 5-year moratorium from the application 
of the ``IPPS comparable amount'' option under the SSO payment 
adjustment, which is scheduled to expire for discharges beginning on or 
after December 29, 2012 (75 FR 50399 through 50400). With the 
expiration of the moratorium, payment for an SSO discharge occurring on 
or after December 29, 2012, the Medicare payment will be based on the 
least of the following:
    <bullet> 100 percent of the estimated cost of the case.
    <bullet> 120 percent of the MS-LTC-DRG specific per diem amount 
multiplied by the covered length of stay of the particular case.
    <bullet> The full MS-LTC-DRG per diem amount.

[[Page 28023]]

    <bullet> Comparing the covered length of stay for as an SSO case 
and the ``IPPS comparable threshold,'' one of the following:
    1. The blend of the 120 percent of the MS-LTC-DRG specific per diem 
amount (specified in Sec.  412.529(d)(1)) and an amount comparable to 
the IPPS per diem amount (specified in Sec.  412.529(d)(4)), for cases 
where the covered length of stay for an SSO case is greater than the 
``IPPS comparable threshold'' (as specified under Sec.  
412.529(c)(3)(ii)).
    2. An amount comparable to the IPPS comparable per diem amount 
(specified in Sec.  412.529(d)(4)), if the covered length of stay for 
an SSO case is equal to or less than one standard deviation from the 
geometric average length of stay for the same MS-DRG under the IPPS 
(the ``IPPS comparable threshold''), as specified under Sec.  
412.529(d)(4).
    For a comprehensive discussion of the SSO policy, including the 
payment for very short stays under the SSO policy, we refer readers to 
the May 6, 2008 interim final rule with comment period (73 FR 24874 
through 24881).
    The proposed FY 2013 ``IPPS comparable thresholds'' (that is, one 
standard deviation from the geometric average length of stay for the 
same MS-DRG under the IPPS used in determining SSO payments for 
discharges occurring on or after December 29, 2012, under Sec.  
412.529(c)(3) of the regulations are provided in Table 11, which is 
listed in section VI. of the Addendum to this proposed rule and 
available via the Internet.
    Technical change. With the expiration of the moratorium on the 
application of the ``IPPS comparable per diem amount'' option at Sec.  
412.529(c)(3)(i)(D) to the determination of the payment adjustment 
under the SSO policy, described above, we are proposing to make a 
technical change to the regulation text at Sec.  412.529(d)(4)(i)(C) in 
order to clarify the application of our policy. Specifically, at Sec.  
412.529(d)(4)(i)(C), we are proposing to remove the following 
introductory phrase that appears at the beginning of the paragraph: 
``For purposes of the blend amount described in paragraph (c)(2)(iv) of 
this section,'' so that the provision of the paragraph is not limited 
only to the ``blend amount'' option under the SSO policy at Sec.  
412.529(c)(2)(iv), but is also applicable to the ``IPPS comparable per 
diem amount'' option at Sec.  412.529(c)(3)(i)(D). We are proposing to 
clarify this policy by revising the language of paragraph (d)(4)(i)(C) 
to read as follows:
    ``(C) The payment amount specified under paragraph (d)(4)(i)(B) of 
this section may not exceed the full amount comparable to what would 
otherwise be paid under the hospital inpatient prospective payment 
system determined under paragraph (d)(4)(i)(A) of this section.''
    We are proposing this technical correction in order to clarify 
that, payment for a case based solely on the ``IPPS comparable per diem 
amount'' described at Sec.  412.529(d)(4) is calculated in the same way 
that it is calculated when payment for a case will be based on the 
``blend amount'' (under Sec.  412.529(c)(2)(iv)) of the ``IPPS 
comparable per diem amount'' and the ``120 percent of the LTC-DRG 
specific per diem payment amount.'' When we finalized the ``IPPS 
comparable per diem amount'' option to the SSO payment adjustment in 
the RY 2008 LTCH PPS final rule we stated in the preamble that ``the 
IPPS comparable per diem amount [was] capped at the full IPPS 
comparable amount that is used under the blend option of the current 
SSO policy * * *'' (72 FR 26907). However, we neglected, at that time, 
to revise the regulation text. Therefore, we are proposing to clarify 
our regulations at Sec.  412.52(d)(4)(i)(C) to reflect existing policy 
that the ``IPPS comparable per diem amount'' is calculated as a per 
diem that is capped at an amount comparable to what would have been a 
full payment under the inpatient prospective payment system, such that 
an SSO payment made under the ``IPPS comparable per diem amount'' 
option may also not exceed the full amount comparable to what would 
otherwise be paid under the inpatient prospective payment system.
4. Proposed One-Time Prospective Adjustment to the Standard Federal 
Rate Under Sec.  412.523(d)(3)
    In the August 30, 2002 LTCH PPS final rule (67 FR 55954), we set 
forth regulations implementing the LTCH PPS, based upon the broad 
authority granted to the Secretary, under section 123 of the BBRA (as 
amended by section 307(b) of the BIPA). Section 123(a)(1) of the BBRA 
required that the system ``maintain budget neutrality.'' The statute 
requires the LTCH PPS to be budget neutral in FY 2003, so that 
estimated aggregate payments under the LTCH PPS for FY 2003 would be 
equal to the estimated aggregate payments that would have been made if 
the LTCH PPS were not implemented for FY 2003. The methodology for 
determining the LTCH PPS standard Federal rate for FY 2003 that would 
``maintain budget neutrality'' is described in considerable detail in 
the August 30, 2002 final rule (67 FR 56027 through 56037). Our 
methodology for estimating payments for the purposes of budget 
neutrality calculations used the best available data, and necessarily 
reflected several assumptions (for example, costs, inflation factors 
and intensity of services provided) in estimating aggregate payments 
that would be made if the LTCH PPS was not implemented. In performing 
our budget neutrality calculations, we took into account the statute's 
requirement that certain statutory provisions that affect the level of 
payments to LTCHs in years prior to the implementation of the LTCH PPS 
shall not be taken into account in the development and implementation 
of the LTCH PPS. Specifically, section 307(a)(2) of the BIPA requires 
that the increases to the target amounts and the increases to the cap 
on the target amounts for LTCHs provided for by section 307(a)(1) of 
the BIPA (as set forth in section 1886(b)(3)(J) of the Act) and the 
enhanced continuous improvement bonus (CIB) payments for LTCHs provided 
for by section 122 of the BBRA (as set forth in section 1886(b)(2)(E) 
of the Act) are not to be taken into account in the development and 
implementation of the LTCH PPS.
    In the August 30, 2002 final rule, we also stated our intentions to 
monitor LTCH PPS payment data to evaluate whether later data varied 
significantly from the data available at the time of the original 
budget neutrality calculations (for example, data related to inflation 
factors, intensity of services provided, or behavioral response to the 
implementation of the LTCH PPS). To the extent the later data 
significantly differ from the data employed in the original 
calculations, the aggregate amount of payments during FY 2003 based on 
later data may be higher or lower than the estimates upon which the 
budget neutrality calculations were based. Therefore, in that same 
final rule, under the broad authority conferred upon the Secretary in 
developing the LTCH PPS, including the authority for establishing 
appropriate adjustments, provided by section 123(a)(1) of the BBRA, as 
amended by section 307(b) of BIPA, we provided in Sec.  412.523(d)(3) 
of the regulations for the possibility of making a one-time prospective 
adjustment to the LTCH PPS rates by a deadline of October 1, 2006, so 
that the effect of any significant difference between actual payments 
and estimated payments for the first year of the LTCH PPS would not be 
perpetuated in the LTCH PPS rates for future years. This deadline was 
revised to July 1, 2008, in the RY 2007 LTCH PPS final rule

[[Page 28024]]

because sufficient time had not elapsed since the start of the LTCH PPS 
for new data to be generated that would have enabled us to conduct a 
comprehensive reevaluation of our budget neutrality calculations (71 FR 
27842 through 27844). Therefore, we did not implement the one-time 
prospective adjustment provided under Sec.  412.523(d)(3) at that time; 
however, we stated that we would continue to collect and interpret new 
data as it became available in order to determine whether we should 
propose such an adjustment in the future. Furthermore, we revised Sec.  
412.523(d)(3) by changing the original October 1, 2006 deadline to July 
1, 2008, to postpone the prospective one-time adjustment due to the 
time lag in the availability of Medicare data upon which a proposed 
adjustment would be based, noting that there is a lag time between the 
submission of claims data and cost report data, and the availability of 
that data in the MedPAR files and HCRIS, respectively. We also 
explained that we believed that postponing the deadline of the 
prospective one-time prospective adjustment to the LTCH PPS rates 
provided for in Sec.  412.523(d)(3) to July 1, 2008, would allow our 
decisions regarding a possible adjustment to be based on more complete 
and up-to-date data (71 FR 27842 through 27845).
    Section 114(c)(4) of the Medicare, Medicaid, and SCHIP Extension 
Act of 2007 (Pub. L. 110-173) (MMSEA) provides that the ``Secretary 
shall not, for the 3-year period beginning on the date of the enactment 
of this Act, make the one-time prospective adjustment to long-term care 
hospital prospective payment rates provided for in section 
412.523(d)(3) of title 42, Code of Federal Regulations, or any similar 
provision.'' That provision delayed the effective date of any one-time 
prospective adjustment until no earlier than December 29, 2010. 
Accordingly, we revised Sec.  412.523(d)(3) of the regulations to 
conform with this requirement (73 FR 26801 through 26804 and 26839). 
Then, section 3106 of the Affordable Care Act amended section 114(c) of 
the MMSEA by specifying an additional 2-year delay in the one-time 
prospective adjustment to the standard Federal rate at Sec.  
412.523(d)(3). Thus, under current law the Secretary is precluded from 
making the one-time adjustment to standard Federal rate until December 
29, 2012. Therefore, we revised Sec.  412.523(d)(3) to conform with 
this requirement (75 FR 50399 and 50416).
    Prior to the statutory delay in the application of any one-time 
prospective adjustment required when the MMSEA was enacted on December 
29, 2007, we had developed a methodology for evaluating whether to 
propose a one-time prospective adjustment under Sec.  412.523(d)(3) of 
the regulations. In order to inform the public of our thinking, and to 
stimulate comments for our consideration during the statutory delay in 
implementing any one-time prospective adjustment, we discussed our 
analysis and its results in the RY 2009 LTCH PPS proposed and final 
rules (73 FR 5353 through 5360 and 26800 through 26804, respectively).
    Evaluating the appropriateness of the possible one-time prospective 
adjustment under Sec.  412.523(d)(3) requires a thorough review of the 
relevant LTCH data (as described below). As we discussed in the RY 2009 
LTCH PPS proposed and final rules, we conducted a thorough review of 
the relevant data, that is, cost data from FY 2002, representing the 
final year LTCHs were paid under the TEFRA payment system. The cost 
report data for FY 2002 is comprised of a high proportion of settled 
and audited cost reports submitted by LTCHs. We also have payment data 
on the first year of the LTCH PPS (that is, FY 2003). On the basis of 
our review of these data sources, we discussed a potential methodology 
for determining whether the one-time prospective adjustment provided 
for under Sec.  412.523(d)(3) of the regulations should be proposed and 
the computation an adjustment, if appropriate, based on that potential 
methodology. We also discussed that under that potential methodology, 
our analysis indicated that a permanent adjustment factor of 0.9625 to 
the LTCH PPS standard Federal rate could be warranted. Consistent with 
the requirements of section 114(c)(4) of the MMSEA, which delayed the 
implementation of such an adjustment, we did not propose any one-time 
prospective adjustment to the standard Federal rate. However, we 
presented our analysis and welcomed public comment to inform the public 
of our analysis if and when we decide to propose (and ultimately 
finalize) such an adjustment under Sec.  412.523(d)(3).
    As we discussed in the RY 2009 LTCH PPS final rule (73 FR 26803), 
our policy objective in providing for this one-time prospective 
adjustment has always been to ensure that computations based on the 
earlier, necessarily limited (but at that time best available) data 
available at the inception of the LTCH PPS would not be built 
permanently into the rates if data available at a later date could 
provide more accurate results. When we established the FY 2003 standard 
Federal rate in a budget neutral manner, we used the most recent LTCH 
cost data available at that time (that is, FY 1999 data), and trended 
that data forward to estimate what Medicare would have paid to LTCHs in 
FY 2003 under the TEFRA payment system if the PPS were not implemented 
for FY 2003. As we discussed in the RY 2009 LTCH PPS final rule (73 FR 
26803), after a thorough evaluation of the currently available data in 
light of this stated policy objective, we believe that the most 
appropriate methodology for evaluating an adjustment to the original 
budget neutrality adjustment would be to compare estimated payments in 
the first year under the LTCH PPS to what estimated payments would have 
been under the prior TEFRA payment system for that year based on the 
best available data. Accordingly, in that same final rule, we revised 
Sec.  412.523(d)(3) to provide for the possibility of making a one-time 
prospective adjustment to LTCH PPS rates so that ``the effect of any 
significant difference between the data used in the original 
computations of budget neutrality for FY 2003 and more recent data to 
determine budget neutrality for FY 2003 is not perpetuated in the 
prospective payment rates for future years.''
    The regulations at Sec.  412.523(d)(3) provide that the Secretary 
may make a one-time prospective adjustment to the LTCH PPS rates in 
order to ensure that any ``significant'' difference is not perpetuated 
in the LTCH PPS rates for future years. The regulation does not 
specifically define what constitutes a significant difference for this 
purpose. In this proposed rule, in evaluating whether a one-time 
prospective adjustment under Sec.  412.523(d)(3) is warranted, we are 
proposing to consider as ``significant'' any difference greater than or 
equal to a 0.25 percentage point difference between the original budget 
neutrality calculations and budget neutrality calculations based on the 
more recent data now available. As we discussed in the RY 2009 LTCH PPS 
final rule (73 FR 26804), we believe this proposed threshold would 
avoid making an adjustment to account for very minor deviations between 
earlier and later estimates of budget neutrality. It would also be 
consistent with thresholds that we employ for similar purposes in other 
prospective payment systems. For example, under the capital IPPS, we 
make a forecast error correction in the framework used to update the 
capital Federal rate if a previous forecast of input prices varies by 
at least a 0.25 percentage point from actual input price changes (72 FR 
47425). We do not

[[Page 28025]]

believe that we should treat differences greater than or equal to 0.25 
percent as not ``significant,'' since the effect of any difference 
would be magnified as the rates are updated each year.
    In order to determine whether a one-time prospective adjustment 
would be warranted, as we discussed in the RY 2009 LTCH PPS proposed 
and final rules, we evaluated several issues regarding the data to use 
for this purpose. These issues and our proposals related to these 
issues are discussed below.
    As noted previously, as we considered the appropriateness of a one-
time prospective adjustment to the standard Federal rate, it is 
necessary to estimate both aggregate payments under the LTCH PPS for FY 
2003 and the estimated aggregate payments that would have been made 
under the TEFRA system in FY 2003 if the LTCH PPS were not implemented. 
While it is possible to determine actual TEFRA payments to LTCHs for FY 
2002, the last year of payment under that methodology, it is necessary 
to estimate what TEFRA payments would have been in FY 2003 if the new 
LTCH PPS had not been implemented. In developing our proposed 
methodology for evaluating a one-time prospective adjustment, we 
considered whether we should use actual FY 2003 costs to calculate 
estimated TEFRA payments for FY 2003 or use costs for FY 2002 trended 
forward to FY 2003 as the basis for the calculation. As we discussed in 
the RY 2009 LTCH PPS final rule (73 FR 26802), basing the estimate on 
actual FY 2003 costs would have the considerable advantage of avoiding 
the need to inflate FY 2002 costs to FY 2003 costs. However, there is 
also a potentially serious disadvantage to using actual FY 2003 costs. 
Because FY 2003 was the first year of payment under the LTCH PPS, the 
cost experience of LTCHs in that year would reflect their response to 
the incentives provided by the new payment system, instead of 
reflecting behavior under the reasonable cost payment system. Indeed, 
implementation of an LTCH PPS should directly affect the behavior of 
LTCHs, and, therefore, the level of costs in LTCHs. One of the 
incentives of a PPS is to improve efficiency in the delivery of care, 
which generally results in decreased cost per discharge. For this 
reason, using FY 2003 costs directly could be a poor basis for 
estimating payments that ``would have been made if the LTCH PPS were 
not implemented.'' On balance, however, we believe that trending 
forward for 1 year the costs incurred under the last year of the TEFRA 
payment system poses a smaller prospect for distortion than using costs 
incurred during the subsequent year, when the incentives faced by LTCHs 
to reduce costs could have had a significant effect. We also note that 
some LTCH stakeholders have expressed concern that using FY 2003 costs 
directly would provide a poor basis upon which to estimate payments 
that ``would have been made if the LTCH PPS were not implemented'' for 
precisely the reasons discussed above. Therefore, we believe that 
basing the estimate of FY 2003 TEFRA payments on FY 2002 costs trended 
forward should satisfy these concerns.
    In this proposed rule, under the broad authority conferred upon the 
Secretary by section 123 of the BBRA as amended by section 307(b) of 
BIPA, in evaluating the appropriateness of the possible one-time 
prospective adjustment under Sec.  412.523(d)(3) of the regulations, we 
are proposing to base our calculation of the estimated aggregate 
payments that would have been made if the LTCH PPS were not implemented 
(that is, estimated FY 2003 TEFRA payments) on FY 2002 costs trended 
forward for the reasons discussed above. Specifically, under our 
proposed methodology, we trended forward the most recent available LTCH 
FY 2002 costs to FY 2003 using the excluded hospital market basket, 
because we believe these data best reflect the price changes in 
hospital inpatient costs realized by LTCHs from FY 2002 to FY 2003. We 
believe using the excluded hospital market basket to update FY 2002 
reasonable cost-based (TEFRA) payments in order to estimate FY 2003 
TEFRA payments is appropriate because the TEFRA payment system under 
which LTCHs were paid prior to the implementation of the LTCH PPS 
utilized the excluded hospital market basket to update the hospital-
specific limits on payment for operating costs of LTCHs. In addition, 
we used the excluded hospital market basket to update the inpatient 
hospital operating and capital costs of LTCHs when we developed the 
initial LTCH PPS standard Federal rate for FY 2003 (67 FR 56029 through 
56031). We believe that the LTCH cost report data for FY 2002 currently 
available is appropriate to use for this purpose because, as noted 
above, it is comprised of settled and audited cost reports submitted by 
LTCHs. (We note that this is the same methodology for evaluating the 
appropriateness of the possible one-time prospective adjustment under 
Sec.  412.523(d)(3) that we presented in the RY 2009 LTCH PPS proposed 
and final rules (73 FR 5356 and 26802, respectively).)
    As discussed above, to determine whether a one-time prospective 
adjustment under Sec.  412.523(d)(3) may be warranted, we believe that 
an estimate of the payments that would have been made in FY 2003 under 
the TEFRA methodology should be compared to estimated payments under 
the new LTCH PPS in FY 2003. We explained in the RY 2009 LTCH PPS final 
rule (73 FR 26802) that the most direct way to determine payments under 
the new LTCH PPS is simply to aggregate the actual payments calculated 
under the LTCH PPS methodology for the discharges that occurred during 
the first year of the LTCH PPS (FY 2003). However, that approach raises 
an issue of consistency since the discharges for which Medicare 
payments were made under the LTCH PPS during FY 2003 are not the same 
as the discharges for which costs were incurred during the last year of 
payment under the TEFRA methodology, FY 2002. For these reasons 
discussed above, we believe that the best way to estimate the TEFRA 
payments that would have been made to LTCHs during FY 2003 is to use 
inflated FY 2002 costs as a proxy for FY 2003 costs. Comparing actual 
FY 2003 LTCH PPS payments to FY 2003 TEFRA payments estimated on the 
basis of FY 2002 discharges would amount to a comparison between 
payments related to two different sets of discharges, potentially 
skewing the results. Therefore, for the purpose of consistency, rather 
than comparing TEFRA payments based on FY 2002 costs updated to FY 
2003, to aggregate LTCH PPS payments for discharges that actually 
occurred in FY 2003, it would be preferable to compare estimated TEFRA 
payments based on updated FY 2002 costs to the estimated payments that 
would have been made under LTCH PPS methodology in FY 2003 for those 
same FY 2002 discharges.
    In this proposed rule, under the broad authority conferred upon the 
Secretary by section 123 of the BBRA as amended by section 307(b) of 
BIPA, in evaluating the appropriateness of the possible one-time 
prospective adjustment under Sec.  412.523(d)(3) of the regulations, we 
are proposing to base our estimate of FY 2003 LTCH PPS payments on the 
same set of discharges (from FY 2002) which are the basis for the 
estimate of what would have been paid in FY 2003 under the reasonable 
cost-based (TEFRA) payment system. Specifically we are proposing to 
compare--
    <bullet> Estimated aggregate FY 2003 TEFRA payments calculated on 
the basis of FY 2002 costs updated to FY 2003; to

[[Page 28026]]

    <bullet> Estimated aggregate payments that would have been made in 
FY 2003 under the LTCH PPS methodology, by applying the FY 2003 LTCH 
payment rules to the discharges that occurred in FY 2002.
    We believe that this approach would ensure that we are comparing 
the estimated FY 2003 TEFRA payments, which are based on updated costs 
incurred for FY 2002 discharges, to the estimated PPS payments that 
would have been made for those same FY 2002 discharges under the new 
LTCH PPS payment methodology. (We note that this is the same 
methodology for evaluating the appropriateness of the possible one-time 
prospective adjustment under Sec.  412.523(d)(3) of the regulations 
that we presented in the RY 2009 LTCH PPS proposed and final rules (73 
FR 5356 and 73 FR 26802, respectively).)
    Under our proposal to use FY 2002 LTCH costs as a basis for 
estimating FY 2003 LTCH TEFRA payments in evaluating whether to propose 
a one-time prospective adjustment under Sec.  412.523(d)(3), we are 
proposing to update LTCHs' FY 2002 costs for inflation to FY 2003 by 
our Office of the Actuary's current estimate of the actual increase in 
the excluded hospital market basket from FY 2002 to FY 2003 of 4.2 
percent. This updated amount would serve as the proxy for actual FY 
2003 costs under the TEFRA payment system in the proposed budget 
neutrality computation for purposes of the one-time prospective 
adjustment at Sec.  412.523(d)(3). We note that when estimating 
reasonable cost-based payments under the TEFRA payment system, under 
our proposed methodology we updated LTCHs' TEFRA target amounts from FY 
2002 to FY 2003 using the forecasted market basket percentage increase 
of 3.5 percent, as discussed in greater detail below. This approach 
maintains consistency with the approach taken in the FY 2003 IPPS final 
rule in which we established an applicable rate-of-increase percentage 
to update TEFRA target amounts from FY 2002 to FY 2003 of 3.5 percent 
(67 FR 50289). This increase was based on our Office of the Actuary's 
forecasted increase in the excluded hospital market basket for FY 2003, 
using the best available data at that time. Based on more recent data, 
our Office of the Actuary now estimates the actual increase in the 
excluded hospital market based from FY 2002 to FY 2003 is 4.2 percent 
(as stated above). We believe it is appropriate to propose to use the 
current estimate of the actual increase in the excluded hospital market 
basket based from FY 2002 to FY 2003 (4.2 percent) to update LTCHs' FY 
2002 costs for inflation to FY 2003 because this reflects the most 
recent estimate of increases in the prices of goods and services 
realized by LTCHs when providing inpatient hospital services.
    Our proposed methodology to estimate FY 2003 LTCH payments under 
the TEFRA payment system is similar in concept to the methodology we 
used to estimate FY 2003 LTCH total payments under the TEFRA payment 
system when we determined the initial standard Federal rate in the 
August 30, 2002 final rule (67 FR 56030 through 56033). We note that 
our proposed methodology for estimating FY 2003 LTCH total payments 
under the TEFRA payment system using FY 2002 cost data for the purposes 
of the one-time prospective adjustment at Sec.  412.523(d)(3), includes 
modifications to the methodology we used to estimate FY 2003 LTCH total 
payments under the TEFRA system when we implemented the LTCH PPS 
because we are using data from a later period (FY 2002 as compared to 
FYs 1998 and 1999), as discussed in greater detail below. In general, 
we are proposing to estimate total LTCH payments under the TEFRA 
payment system in FY 2003 using the following steps:
    <bullet> Estimate each LTCH's payment per discharge for inpatient 
operating costs under the TEFRA payment system for FY 2003, including 
continuous bonus improvement payments (proposed step 1);
    <bullet> Estimate each LTCH's payment per discharge for capital-
related costs for FY 2003 (proposed step 2); and
    <bullet> Sum each LTCH's estimated operating and capital payment 
per case to determine its estimated total FY 2003 TEFRA payment system 
payment per discharge (proposed step 3).
    We discuss each of these proposed steps in greater detail below.
    Proposed Step 1.--Estimate each LTCH's payment per discharge for 
inpatient operating costs under the TEFRA payment system for FY 2003.
    Under our proposed methodology, the first step in the process of 
estimating total FY 2003 payments under the TEFRA payment system would 
be to estimate each LTCH's payment per discharge for inpatient 
operating costs under the TEFRA payment system. Until FY 1998, the 
payment methodology for inpatient operating costs under the TEFRA 
payment system was a relatively straightforward process. First, we 
calculated a target amount by dividing the Medicare total allowable 
inpatient operating costs in a base year by the number of Medicare 
discharges. The provider's target amount under the TEFRA payment system 
(referred to as the TEFRA target amount) was then updated by a rate-of-
increase percentage (Sec.  413.40(c)(3) of the regulations to determine 
the TEFRA target amount for the subsequent cost reporting period (Sec.  
413.40(c)(4)(i) and(ii)). Generally, for any particular cost reporting 
period, the Medicare payment for inpatient operating costs would be the 
lesser of the hospital's allowable net inpatient operating costs, or 
the updated TEFRA target amount multiplied by the number of Medicare 
discharges during the cost reporting period, that is, the TEFRA ceiling 
(Sec.  413.40(a)(3)).
    The TEFRA payment system methodology described above, broadly 
speaking, is the general approach that we are proposing to use to 
arrive at an estimate of what Medicare payments for hospital inpatient 
operating costs would have been in FY 2003 under the TEFRA payment 
system. That is, under our proposed methodology, each LTCH's FY 2003 
TEFRA target amount would be calculated by updating its estimated FY 
2002 target amount per discharge by the full market basket percentage 
increase. The sum of all LTCH payments for operating costs (TEFRA 
target amount multiplied by Medicare discharges), bonus or relief 
payments, continuous improvement bonus payments, and payments for 
capital-related costs yields, in general, the estimate of what total 
Medicare payments to LTCHs would have been in FY 2003 under the TEFRA 
payment system if the LTCH PPS had not been implemented.
    However, because sections 4413 through 4419 of the BBA of 1997, 
section 122 of the BBRA of 1999, and section 307(a)(1) of the BIPA made 
numerous changes to the TEFRA payment system, our proposed methodology 
reflects variations in the method described above to arrive at the 
estimate of FY 2003 payments for the inpatient operating costs of each 
LTCH under the TEFRA payment system, depending on the participation 
date of the hospital. Specifically, we are proposing to make the 
requisite computations differently for two classes of hospitals, 
``existing'' hospitals and ``new'' hospitals. (A detailed explanation 
of the provisions affecting LTCHs, established by each of the 
amendments, is found in the August 30, 2002 final rule that implemented 
the LTCH PPS (67 FR 55959).) We discuss below these specific BBA, BBRA, 
and BIPA changes, and their impact on the calculations of estimated FY 
2003 TEFRA payments for ``existing'' and ``new'' hospitals under our 
proposed methodology for estimating total LTCH payments under the TEFRA 
payment

[[Page 28027]]

system in FY 2003 for purposes of the one-time prospective adjustment 
under Sec.  412.523(d)(3). As discussed in greater detail below, we are 
proposing to employ two approaches to estimate Medicare payments under 
the TEFRA payment system to LTCHs in FY 2003, depending on how these 
changes in calculating TEFRA payments, as established by the 
amendments, applied to each LTCH. (We note, the discussion below of the 
specific BBA, BBRA, and BIPA changes and their impact on the 
calculations of estimated FY 2003 TEFRA payments for ``existing'' and 
``new'' hospitals under our proposed methodology for estimating total 
LTCH payments under the TEFRA payment system in FY 2003 for purposes of 
the one-time prospective adjustment under Sec.  412.523(d)(3) is the 
same as the discussion presented in the RY 2009 LTCH PPS proposed rule 
(73 FR 5356 through 5359).)
    The first set of changes that we would take into account was 
included in the BBA. The BBA made significant changes to the TEFRA 
payment methodology starting with cost reporting periods beginning on 
or after October 1, 1997. While the changes were applicable to three 
types of PPS-excluded providers (rehabilitation hospitals and units, 
psychiatric hospitals and units, and LTCHs), the following discussion 
will address the provisions of the amendments as they relate to LTCHs.
    The first change to consider under the BBA is section 4414 that 
established caps on the TEFRA target amounts for cost reporting periods 
beginning on or after October 1, 1997, for LTCHs that were paid as 
IPPS-excluded providers prior to that date. The cap was determined by 
taking the 75th percentile of target amounts for cost reporting periods 
ending in FY 1996 for each class of provider (rehabilitation hospitals 
and units, psychiatric hospitals and units, and LTCHs), updating that 
amount by the market basket percentage increases to FY 1998, and 
applying it to the cost reporting period beginning on or after October 
1, 1997 (62 FR 46018). The cap calculated for FY 1998 was updated by 
the applicable market basket percentages for cost reporting periods 
beginning during FY 1999 through 2002. Providers subject to the 75th 
percentile cap were paid the lesser of their inpatient operating costs 
or the TEFRA target amount, which was limited by the 75th percentile 
cap amount (67 FR 55959). In addition, section 4411 of the BBA 
established a formula for calculating the update factor for FY 1999 
through FY 2002 that was dependent on the relationship of a provider's 
inpatient operating costs to its ceiling amount based on data from the 
most recently available cost report. Section 121 of the BBRA provided 
that the 75th percentile cap amount should be wage adjusted, starting 
with cost reporting periods beginning on or after October 1, 1999, and 
before October 1, 2002.
    The second change that we would take into account was section 4415 
of the BBA. This provision revised the percentage factors used to 
determine the amount of bonus and relief payments for LTCHs meeting 
specific criteria. If a provider's net inpatient operating costs did 
not exceed the hospital's ceiling, a bonus payment was made to the LTCH 
(Sec.  413.40(d)(2) of the regulations). The bonus payment was the 
lower of 15 percent of the difference between the hospital's inpatient 
operating costs and the ceiling, or 2 percent of the ceiling. In 
addition, relief payments were made to providers whose net inpatient 
operating costs were greater than 110 percent of the ceiling (or 
adjusted ceiling, if applicable). These relief payments were the lower 
of 50 percent of the allowable inpatient operating costs in excess of 
110 percent of the ceiling (or the adjusted ceiling, if applicable) or 
10 percent of the ceiling (or adjusted ceiling, if applicable) (Sec.  
413.40(d)(3)(ii) of the regulations).
    The third change that should be considered would be the additional 
incentive established by section 4415 of the BBA, the CIB payment for 
providers meeting certain conditions and that kept their costs below 
the target amount. Eligibility for the CIB payment required that a 
provider had three full cost reporting periods as an IPPS-excluded 
provider prior to the applicable fiscal year (62 FR 46019). To qualify 
for a CIB payment, a provider's operating costs per discharge in the 
current cost reporting period had to be lower than the least of any of 
the following: its target amount; its expected costs, that is, the 
lower of its target amount or allowable inpatient operating costs per 
discharge from the previous cost reporting period, updated by the 
market basket percent increase for the fiscal year; or, its trended 
costs, that is, the inpatient operating costs per discharge from its 
third full cost reporting period, updated by the market basket 
percentage increase to the applicable fiscal year (62 FR 46019; Sec.  
413.40(d)(5)(ii)(B) of the regulations). For providers with their third 
or subsequent full cost reporting period ending in FY 1996, trended 
costs are the lower of their allowable inpatient operating costs per 
discharge or target amount updated forward to the current year (Sec.  
413.40(d)(5)(ii)(A) of the regulations). The CIB payment equals the 
lesser of 50 percent of the amount by which the operating costs were 
less than expected costs, or 1 percent of the ceiling (Sec.  
413.40(d)(4) of the regulations). Section 122 of the BBRA increased 
this percentage for LTCHs for FY 2001 to 1.5 percent of the ceiling, 
and beginning in FY 2002, to 2 percent of the ceiling (Sec.  
413.40(d)(4)(ii) and (iii) of the regulations). The increase in the CIB 
payment percentage is not to be accounted for in the development and 
implementation of the LTCH PPS in accordance with section 307(a)(2) of 
BIPA.
    The fourth change that we would take into account was section 4416 
of the BBA, which significantly revised the payment methodology for 
``new'' IPPS-excluded providers. This provision applies to three 
classes of providers--psychiatric hospitals and units, rehabilitation 
hospitals and units, and LTCHs--that were not paid as excluded 
hospitals prior to October 1, 1997. The payment amount for a new 
provider for the first 12-month cost reporting period is the lower of 
its Medicare inpatient operating cost per discharge or a limit based on 
110 percent of the national median of target amounts for the same class 
of hospital for cost reporting periods ending in FY 1996, updated by 
the market basket percentage increases to the applicable period, and 
wage-adjusted. The payment limit in the second 12-month cost reporting 
period is the same 110 percent limit as for the first year (Sec.  
413.40(f)(2)(ii)). A new provider's target amount would be established 
in its third cost reporting period by updating the amount paid in its 
second cost reporting period by the market basket percentage increase 
for hospitals and hospital units excluded from the IPPS, applicable to 
the specific year, as published annually in the Federal Register, which 
then becomes the target amount for its third cost reporting period. The 
target amount for the fourth and subsequent cost reporting periods is 
determined by updating the target amount from the previous cost 
reporting period by the applicable market basket percentage increase.
    Finally, two provisions under BIPA specifically related to LTCHs. 
Section 307(a) of BIPA provided a 2 percent increase to the wage-
adjusted 75th percentile cap for existing LTCHs for cost reporting 
periods beginning in FY 2001, and a 25 percent increase to the target 
amount for LTCHs, subject to the increased 75th percentile cap. 
However, it is important to note that in accordance with section 
307(a)(2) of BIPA, the 2 percent increase to the 75th percentile cap 
and the 25 percent

[[Page 28028]]

increase to the target amount were not to be taken into account in the 
development and implementation of the LTCH PPS.
    In this proposed rule, under our proposed methodology, in order to 
determine what a LTCH's estimated payments would be under the TEFRA 
payment system in FY 2003, we are proposing to use cost report data for 
LTCHs from the Hospital Cost Reporting Information System (HCRIS) for 
FYs 1999 through 2002. In addition, to determine whether a LTCH is 
``new,'' the certification date for each LTCH was obtained from the On-
line Survey & Certification Automated Reporting (OSCAR) file. Based on 
the certification date, a LTCH would either be a ``new'' LTCH, meaning 
a LTCH that was not paid as an excluded hospital prior to October 1, 
1997, or, an ``existing'' LTCH, meaning a LTCH that was paid as an 
excluded hospital prior to October 1, 1997. This could include a LTCH 
that was certified as an LTCH on or after October 1, 1997, but was 
previously paid as another type of IPPS-excluded provider prior to 
October 1, 1997. Our proposed approach to estimating Medicare payments 
in FY 2003 under the TEFRA payment system would vary somewhat, 
depending on whether an LTCH was ``existing'' or ``new'' is discussed 
in greater detail below. Below we discuss our proposed methodology for 
estimating FY 2003 inpatient operating payments under the TEFRA payment 
system for ``existing'' hospitals (proposed Step 1.a.) and ``new'' 
hospitals (proposed Step 1.b.), and our proposed methodology for 
estimating CIB payments under the TEFRA payment system in FY 2003 
(under proposed Step 1.c.).
    Proposed Step 1.a.--Estimate FY 2003 inpatient operating payments 
under the TEFRA payment system for ``existing'' LTCHs.
    Based on the applicable statutory changes mentioned above, under 
our proposed methodology, the first step would be to estimate FY 2003 
inpatient operating payments under the TEFRA payment system for 
``existing'' LTCHs. ``Existing'' LTCHs are those receiving payment as 
IPPS-excluded providers in cost reporting periods prior to FY 1998. 
These LTCHs were subject to the 75th percentile cap on their hospital-
specific target amounts. While section 307(a)(1) of BIPA provided for a 
2-percent increase to the 75th percentile cap amount for LTCH's for 
cost reporting periods beginning in FY 2001 and a 25-percent increase 
to the target amount for cost reporting periods beginning in FY 2001 
(subject to the limiting or cap amount determined under section 
1886(b)(3)(H) of the Act), section 307(a)(2) of BIPA precluded 
accounting for these increases in developing the LTCH PPS. In addition, 
section 122 of the BBRA increased the CIB payment percentage to 1.5 
percent for FY 2001 and 2.0 percent for FY 2002 (Sec.  413.40(d)(4)(ii) 
and (iii)). But these increases, also, are not to be accounted for the 
development and implementation of the LTCH PPS in accordance with 
section 307(a)(2) of BIPA. Therefore, to ensure that these increases 
would be excluded from the computations, as required by the statute, we 
are proposing to estimate an existing LTCH's FY 2003 target amount by 
starting with the hospital's target amount from the FY 2000 cost 
report, the year prior to when these increases were effective. Target 
amounts and payments for FY 2003 would be simulated using the FY 2000 
target amount in the hospital's cost report and updating the target 
amount for each subsequent cost reporting period by the applicable 
rate-of-increase percentage as described in Sec.  413.40(c)(3)(vii) 
through FY 2002. The target amount from FY 2002 would be updated by the 
forecasted market basket percentage increase of 3.5 percent to arrive 
at the FY 2003 target amount (Sec.  413.40(c)(3)(viii)). (We note that 
the forecasted increase in the excluded hospital market basket for FY 
2003 of 3.5 percent would be used to establish the applicable rate-of-
increase percentage used to update TEFRA target amounts in accordance 
with Sec.  413.40(c)(3)(viii) in the FY 2003 IPPS final rule (67 FR 
50289)). Based on more recent data, our Office of the Actuary currently 
estimates an increase of 4.2 percent in the excluded hospital market 
basket for FY 2003, which we are proposing to use to update LTCHs' FY 
2002 costs to FY 2003, as described below.) In a small number of cases 
where FY 2002 operating cost data were not available, we would use 
operating cost data from the most recent year available and trend it 
forward to FY 2003. In addition, we would estimate FY 2003 bonus or 
relief payments without the inclusion of the 2-percent and 25-percent 
increases to the cap amount and target amount, respectively, and 
without the 1.5 percent and 2.0 percent increases to the CIB payments, 
consistent with section 307(a)(2) of BIPA as discussed above.
    In addition, because comparisons are made between the target amount 
and Medicare inpatient operating costs to determine bonus or relief 
payments, under our proposed methodology, we would estimate FY 2003 
operating costs for each LTCH by updating its FY 2002 operating costs 
by the actual percentage increase in operating costs for PPS-excluded 
hospitals from FY 2002 to FY 2003 (4.2 percent, as determined by our 
Office of the Actuary) because this is currently our best estimate of 
actual cost increase from FY 2002 to FY 2003 realized by excluded 
hospitals, including LTCHs. As discussed earlier, we are proposing to 
estimate the FY 2003 operating costs using FY 2002 costs rather than 
using the costs reported on the FY 2003 cost report.
    The 75th percentile cap for LTCHs for FY 2002, without the 2-
percent and 25-percent increases to the cap and target amount, 
respectively, was $30,783 for the wage-index adjusted labor-related 
share, and $12,238 for the nonlabor-related share. If a LTCH's costs 
and hospital-specific target amount were above the 75th percentile cap, 
Medicare's payment under the TEFRA system would be the wage-index 
adjusted cap amount. If under our proposed payment model a LTCH's 
estimated FY 2002 TEFRA payment would have been limited by the wage-
adjusted 75th percentile cap in FY 2002, that amount would be updated 
by the forecasted market basket percentage increase (of 3.5 percent) to 
FY 2003 to determine the LTCH's FY 2003 target amount that was used to 
estimate its TEFRA payment system amount for FY 2003 under our proposed 
methodology.
    Proposed Step 1.b.--Estimate FY 2003 inpatient operating payments 
under the TEFRA payment system for ``new'' LTCHs.
    Next, under our proposed methodology, we would estimate FY 2003 
hospital operating payments under the TEFRA payment system applied to 
``new'' LTCHs based on the applicable statutory changes discussed 
above. A ``new'' LTCH is one that was first paid as an IPPS-excluded 
hospital on or after October 1, 1997. For a ``new'' LTCH, payment in 
the hospital's first 12-month cost reporting period is the lower of its 
Medicare net inpatient operating costs per discharge or the wage-
adjusted 110 percent median amount determined for that particular year 
(Sec.  413.40(f)(2)(ii) of the regulations). For the hospital's second 
12-month cost reporting period, payment is the lower of their costs, or 
the same 110 percent median amount that was used in the first cost 
reporting period, that is, it is not updated. The hospital's ``target 
amount'' is established in the third cost reporting period by updating 
the per discharge amount that was paid in the prior cost reporting 
period by the estimated market basket percentage increase for hospitals 
and hospital units excluded from the IPPS,

[[Page 28029]]

applicable to the specific year, as published annually in the Federal 
Register. Therefore, if the LTCH was paid its costs in the previous 
cost reporting period because costs were lower than the 110 percent 
median amount, the hospital's cost per discharge for the second cost 
reporting period is updated and becomes the target amount for the 
hospital's third cost reporting period. Target amounts for subsequent 
cost reporting periods are determined by updating the previous year's 
target amount by the applicable market basket percentage increase.
    New LTCHs with their first 12-month cost reporting period beginning 
in FY 1998 would have had a target amount calculated under section 
1886(b)(7)(A)(ii) of the Act in FY 2000. Therefore, consistent with our 
proposals concerning ``existing'' LTCHs (described in proposed Step 
1.a. above), in estimating the FY 2003 target amount for ``new'' LTCHs 
we are proposing to use the target amount from the FY 2000 cost report 
and update that target amount by the applicable estimated market basket 
percentage increases as published annually in the Federal Register for 
the IPPS final rule, without the 25-percent increase, to FY 2003. That 
is, we used 3.4 percent to update from FY 2000 to FY 2001, 3.3 percent 
to update from FY 2001 to FY 2002, and 3.5 percent to update from FY 
2002 to FY 2003. For LTCHs with their first 12-month cost reporting 
period beginning in FY 1999, we would use the lower of their costs or 
target amount from their FY 2000 cost report, and updated that amount 
by the applicable estimated market basket percentage increase to 
establish the target amount in FY 2001, without the 25-percent 
increase. Next, we would continue to update that target amount by the 
estimated market basket percentage increases to FY 2003. We believe 
that it is necessary to propose to compute an estimated target amount 
for LTCHs that are ``new'' in FY 1999 under our proposed methodology in 
order to eliminate the potential inclusion of the increase to the 
target amounts provided for by section 307(a)(1) of BIPA (consistent 
with the statute).
    The 25-percent increase (under section 307(a) of the BIPA) to the 
target amount would not be an issue for LTCH's with their first 12-
month cost reporting period beginning in FYs 2000, 2001, and 2002 
because they would not have a ``target amount'' based on sections 
1886(b)(7)(A)(ii) of the Act, in FY 2001. Rather, for these LTCHs, 
under our proposed methodology we would determine the estimated payment 
amount for their first 12-month cost reporting period by looking at 
their certification date from the OSCAR file, the applicable 110 
percent median amount (adjusted by their wage-index) and their costs 
from the applicable cost report, and then proceed in accordance with 
the policy in Sec.  413.40(f)(2)(ii) of the regulations, to arrive at 
estimated FY 2003 TEFRA payments.
    Proposed Step 1c.--Estimate CIB payments that would have been made 
in FY 2003 under the TEFRA payment system (for both ``existing'' and 
``new'' LTCHs).
    In addition to the TEFRA system payments for operating costs, and 
any bonus or relief payments made, we also are proposing to add an 
amount to account for the estimate of the CIB payments that would have 
been made in FY 2003 under the TEFRA payment system under Sec.  
413.40(d)(4). We are proposing to estimate what CIB payments would have 
been in FY 2003 by using actual CIB payments from the cost reports for 
FYs 1999 and 2000, as they would not include the statutory increases to 
the target amount discussed above, and recalculated CIB payments for 
FYs 2001 and 2002 based on cost report data. Based on these historical 
CIB payments, we estimated that CIB payments in FY 2003 would have been 
approximately $10 million. Just as the TEFRA payments and bonus and 
relief payments had to be recalculated in particular years to eliminate 
percentage increases that are not to be included in our budget 
neutrality calculations (as required by the statute), we believe that 
it is necessary to propose to recalculate the CIB payments in FYs 2001 
and 2002 to eliminate the percentage increases to these payments as 
provided for under section 122 of BBRA, such that they would not be 
accounted for in the development of the LTCH in accordance with section 
307(a)(2) of BIPA. Therefore, under our proposed methodology, we are 
proposing to add $10 million as an estimate of the CIB payments that 
would have been made in FY 2003 under the TEFRA payment system to our 
estimated FY 2003 TEFRA system payments for operating costs, including 
any bonus or relief payments.
    Step 2.--Estimate each LTCH's payment per discharge for inpatient 
capital costs under the TEFRA payment system for FY 2003.
    As we discussed above, under our proposed methodology, the second 
step in estimating total payments under the TEFRA payment system is to 
estimate each LTCH's payment per discharge for capital-related costs 
for FY 2003. Under the TEFRA payment system, in accordance with the 
regulations at 42 CFR Part 413, Medicare allowable capital costs are 
paid on a reasonable cost basis. Therefore, we are proposing to update 
each LTCH's payment for capital-related costs directly from the FY 2002 
cost report for inflation using the FY 2003 capital excluded hospital 
market basket estimate of 0.7 percent, consistent with the methodology 
used to establish the initial standard Federal rate (67 FR 56031). 
Thus, we are proposing to determine capital-related costs per case 
using capital cost data from Worksheets D, Parts I and II, and total 
Medicare discharges for the cost reporting period from Worksheet S-3. 
(We note that since payments for capital-related costs are on a 
reasonable-cost basis, capital payments were the same for ``existing'' 
and ``new'' LTCHs.)
    Proposed Step 3.--Sum each LTCH's estimated operating and capital 
payment per case to determine its estimated total FY 2003 TEFRA payment 
system payment per discharge.
    Under our proposed methodology for estimating FY 2003 LTCH total 
payments under the TEFRA payment system using FY 2002 cost data for the 
purposes of the one-time prospective adjustment at Sec.  412.523(d)(3), 
after estimating payments for inpatient operating costs under the TEFRA 
payment system for FY 2003 and payments for capital-related costs under 
the TEFRA payment system for FY 2003, we would sum each LTCH's 
estimated operating and capital payment per case to determine its 
estimated total FY 2003 TEFRA payment system payment per discharge. 
Therefore, we are proposing to add the estimate of each LTCH's payment 
per discharge for inpatient operating costs under the TEFRA payment 
system for FY 2003, including continuous improvement bonus payments 
(determined under proposed Steps 1.a. through 1.c. above) and the 
estimate of each LTCH's payment per discharge for capital-related costs 
for FY 2003 (determined under proposed Step 2 above).
    Once we estimate total TEFRA payments as the sum of each LTCH's 
estimated operating and capital payment per case, under our proposed 
methodology for evaluating the one-time prospective adjustment at Sec.  
412.523(d)(3), the next step is to estimate FY 2003 payments under the 
LTCH PPS. As we discussed above, we believe that the best approach is 
to propose to use FY 2002 LTCH claims data as a proxy for estimating FY 
2003 LTCH PPS payments in evaluating the one-time prospective 
adjustment at Sec.  412.523(d)(3). We note that we are proposed to use 
the same FY 2002 LTCH MedPAR data that was used to

[[Page 28030]]

develop the FY 2004 LTC-DRG relative weights in the FY 2004 IPPS final 
rule (68 FR 45376), as explained below. As we discussed in that final 
rule, there is a data problem with the FY 2002 claims data for LTCHs 
where multiple bills for the stay were submitted. Specifically, given 
the long stays at LTCHs, some providers had submitted multiple bills 
for payment under the reasonable cost-based reimbursement system for 
the same stay. In certain LTCHs, hospital personnel apparently reported 
a different principal diagnosis on each bill because, under the 
reasonable cost-based (TEFRA) reimbursement system, payment was not 
dependent upon principal diagnosis, as it is under a DRG-based PPS 
system. As a result of this billing practice, we discovered that only 
data from the final bills were being extracted for the MedPAR file. 
Therefore, it was possible that the original MedPAR file was not 
receiving the correct principal diagnosis. In that same IPPS final 
rule, we discussed how we addressed this problem in the LTCH FY 2002 
MedPAR data when we used that data to determine the FY 2004 LTC-DRG 
relative weights. Therefore, for the evaluation of the one-time 
prospective adjustment at Sec.  412.523(d)(3) in this proposed rule, we 
are proposing to use the same ``corrected'' FY 2002 LTCH MedPAR data 
that was used to develop the FY 2004 LTC-DRG relative weights. For the 
reader's benefit, we are providing a summary of how we addressed the 
multiple bill problem in the FY 2002 LTCH MedPAR data below. As we 
explained in the FY 2004 IPPS final rule (68 FR 45376), we addressed 
this problem by identifying all LTCH cases in the FY 2002 MedPAR file 
for which multiple bills were submitted. For each of these cases, 
beginning with the first bill and moving forward consecutively through 
subsequent bills for that stay, we recorded the first unique diagnosis 
codes up to 10 and the first unique procedure codes up to 10. We then 
used these codes to appropriately group each LTCH case to a LTC-DRG for 
FY 2004. (We note that this is the same data we used to estimate FY 
2003 payments under the LTCH PPS for purposes of evaluating the one-
time prospective adjustment at Sec.  412.523(d)(3) that we presented in 
the RY 2009 LTCH PPS proposed rule (73 FR 5359).)
    In this proposed rule, we are proposing to estimate FY 2003 LTCH 
PPS payments using the same general methodology that we used to 
estimate FY 2003 payments under the LTCH PPS (without a budget 
neutrality adjustment) when we determined the initial standard Federal 
rate in the August 30, 2002 final rule (67 FR 56032). Specifically, we 
are proposing to estimate FY 2003 LTCH PPS payments for each LTCH by 
simulating payments on a case-by-case basis by applying the final FY 
2003 payment policies established in the August 30, 2002 final rule 
that implemented the LTCH PPS (67 FR 55954) based on the LTCH case-
specific discharge information from the FY 2002 MedPAR files (as 
explained above), and we also are proposing to use LTCH provider-
specific data from the FY 2003 Provider-Specific File (PSF), as these 
were the data used by fiscal intermediaries to make LTCH payments 
during the first year of the LTCH PPS (FY 2003). Under our proposed 
methodology, we are proposing to use the FY 2003 LTC-DRG Grouper 
(Version 22.0), relative weights, and average length of stay (67 FR 
55979 through 55995); we are proposing to make adjustments for 
differences in area wage levels established for FY 2003 as set forth at 
Sec.  412.525(c) using the appropriate phase-in wage index values for 
FY 2003 (67 FR 56015 through 56020); we are proposing to make a cost-
of-living adjustment for LTCHs located in Alaska and Hawaii as set 
forth at Sec.  412.525(b) (67 FR 56022); we are proposing to make 
adjustments for SSO cases based on the method for determining payment 
applicable for discharges occurring during FY 2003 in accordance with 
Sec.  412.529(c)(1) (67 FR 55975 and 55995 through 56002); and we are 
proposing to include additional payments for HCO cases in accordance 
with former Sec.  412.525(a) for determining payments for discharges 
occurring in FY 2003 and the FY 2003 fixed-loss amount of $24,450 (67 
FR 56023). (We note that correctly billed interrupted stay cases under 
Sec.  412.531 are single LTCH cases in the MedPAR files; therefore, we 
estimated a single LTCH PPS payment for those cases.) Under this 
proposed methodology, for purposes of this calculation we are proposing 
to simulate case-by-case payments for each LTCH as if it were paid 
based on 100 percent of the standard Federal rate in FY 2003 rather 
than the transition blend methodology set forth at Sec.  412.533. To 
determine total estimated PPS payments for all LTCHs, we are proposing 
to sum the individual estimated LTCH PPS payments for each LTCH. (We 
note that this is the same methodology we used to estimate FY 2003 
payments under the LTCH PPS for purposes of evaluating the one-time 
prospective adjustment at Sec.  412.523(d)(3) that we presented in the 
RY 2009 LTCH PPS proposed rule (73 FR 5359 through 5360).)
    In order to determine if there is any difference between estimated 
total TEFRA payments and estimated LTCH PPS payments in FY 2003 under 
our proposed methodology for evaluating a possible one-time prospective 
adjustment under Sec.  412.523(d)(3), we are proposing to determine a 
case-weighted average estimated TEFRA payment, consistent with the 
methodology used when we determined the initial standard Federal rate 
in the FY 2003 LTCH PPS final rule (68 FR 56032). Under this proposed 
methodology, each LTCH's estimated total FY 2003 TEFRA payment per 
discharge would be determined by summing its estimated FY 2003 
operating and capital payments under the TEFRA payment system based on 
FY 2002 cost report data (as described in proposed Step 3 above), and 
dividing that amount by the number of discharges from the FY 2002 cost 
report data. Next, we would determine each LTCH's average estimated 
TEFRA payment weighted for its number of discharges in the FY 2002 
MedPAR file (for the purpose of estimating FY 2003 LTCH PPS payments, 
as discussed above) by multiplying its average estimated total TEFRA 
payment per discharge by its number of discharges in the FY 2002 MedPAR 
file. We would then estimate total case-weighted TEFRA payments by 
summing each LTCH's (MedPAR) case-weighted estimated FY 2003 TEFRA 
payments. Under our proposed methodology, we are proposing to compare 
these estimated FY 2003 total TEFRA payments to estimated FY 2003 total 
LTCH PPS payments in order to determine whether a one-time prospective 
adjustment would be appropriate. (As discussed in greater detail above, 
we are proposing to determine both estimated total FY 2003 TEFRA 
payments and estimated total FY 2003 LTCH PPS payments based on FY 2002 
cost report and claims data, respectively.) Our proposal to adjust our 
proposed estimate of FY 2003 TEFRA payments for the number of 
discharges that we are proposing to use to estimate FY 2003 LTCH PPS 
payments would ensure that the comparison of estimated aggregate FY 
2003 TEFRA payments to estimated aggregate FY 2003 LTCH PPS payments 
would be based on the same number of LTCH discharges. (We note that 
this is the same methodology we used to compare estimated FY 2003 total 
TEFRA payments to estimated FY 2003 total LTCH PPS payments for 
purposes of evaluating the one-time prospective adjustment at Sec.  
412.523(d)(3) that we presented in the

[[Page 28031]]

RY 2009 LTCH PPS proposed rule (73 FR 5360).)
    For this proposed rule, using the proposed methodology and data 
described above, we have calculated that estimated FY 2003 LTCH PPS 
payments are approximately 2.5 percent higher than estimated payments 
to the same LTCHs in FY 2003 if the LTCH PPS had not been implemented 
(that is, estimated total FY 2003 TEFRA payment system payments). This 
analysis was based on approximately 91,300 LTCH discharges for 250 
LTCHs. As discussed above, we are proposing that any difference greater 
than or equal to 0.25 percentage points that is ``significant'' for 
purposes of determining whether the one-time prospective adjustment 
provided under Sec.  412.523(d)(3) would be warranted. Although we 
project that estimated FY 2003 LTCH PPS payments are approximately 2.5 
percent higher than estimated FY 2003 TEFRA payments, proposing to 
reduce the standard Federal rate by 2.5 percent would not ``maintain 
budget neutrality'' for FY 2003 (that is, estimated FY 2003 LTCH PPS 
payments would not be equal to estimated FY 2003 TEFRA payments) 
because a considerable number of LTCH discharges are projected to have 
received a LTCH PPS payment in FY 2003 based on the estimated cost of 
the case (rather than a payment based on the standard Federal rate) 
under the payment adjustment for SSO cases at Sec.  412.529. 
Specifically, under our proposed methodology our payment analysis 
indicates that nearly 20 percent of estimated FY 2003 LTCH PPS payments 
are SSO payments that were paid based on estimated cost and not based 
on the LTCH PPS standard Federal rate. These SSO cases that receive a 
payment based on the estimated cost of the case are generally 
unaffected by any changes to the standard Federal rate because the 
estimated cost of the case is determined by multiplying the Medicare 
allowable charges by the LTCH's cost-to-charge ratio (Sec.  
412.529(d)(2)). In other words, if we were to propose to reduce the 
standard Federal rate by 2.5 percent, estimated total FY 2003 LTCH PPS 
payments would still be greater than estimated total FY 2003 TEFRA 
payments (that is, would not be budget neutral), and this difference 
would be perpetuated in the LTCH PPS payment rates for future years. 
This is because the estimated LTCH PPS payments for those SSO cases 
that in FY 2003 were estimated to have been paid 120 percent of the 
estimated cost of the case generally are not affected (that is, in this 
case, not lowered) by any one-time prospective adjustment budget 
neutrality factor that would be applied to the standard Federal rate 
because those payments are not derived from the standard Federal rate 
(as explained above). Therefore, it is necessary to propose to offset 
the standard Federal rate by a factor that is larger than 2.5 percent 
in order to ensure that estimated total FY 2003 LTCH PPS payments would 
be equal to estimated total FY 2003 TEFRA payments in order to 
``maintain budget neutrality.'' To determine the necessary adjustment 
factor that would need to be applied to the standard Federal rate in 
order to ``maintain budget neutrality,'' we are proposing to simulate 
FY 2003 LTCH PPS payments using the same payment simulation model 
discussed above (that we proposed to use to estimate FY 2003 LTCH PPS 
payments without a budget neutrality factor). Using iterative payment 
simulations using the data from the 250 LTCHs in our database, we 
determined that we would need to apply a factor of 0.9625 (that is, a 
reduction of approximately 3.75 percent rather than 2.5 percent) to the 
standard Federal rate in order to make estimated total FY 2003 LTCH PPS 
payments equal to estimated total FY 2003 TEFRA payments consistent 
with our stated policy goal of the one-time prospective adjustment at 
Sec.  412.523(d)(3) (that is, to ensure that the difference between 
estimated total FY 2003 LTCH PPS payments and estimated total FY 2003 
TEFRA payments is not perpetuated in the LTCH PPS payment rates in 
future years). (We note that this proposed adjustment of approximately 
-3.75 percent is the same result of the evaluation of the one-time 
prospective adjustment at Sec.  412.523(d)(3) that we presented in the 
RY 2009 LTCH PPS proposed and final rules (73 FR 5360 and 26804, 
respectively).) As we note in the RY 2009 LTCH PPS proposed and final 
rules, in the years following the initial implementation of the LTCH 
PPS, we have adopted some revised policies and adjustments to LTCH PPS 
payment levels. However, none of these revised policies and payment 
adjustments have addressed the intended purpose of the one-time 
prospective adjustment allowed under Sec.  412.523(d)(3) of the 
regulations, to ensure that any significant difference between the data 
used in the original computations of budget neutrality for FY 2003 and 
more recent data to determine budget neutrality for FY 2003 are not 
perpetuated in the LTCH PPS rates for future years. For example, the 
adjustments that we have made to account for coding changes in excess 
of real severity increases in RYs 2007 through 2010 were made to 
account for changes in coding behavior in the years following the 
implementation of the LTCH PPS, and not to address any issue regarding 
the budget neutrality calculations that were used to establish the base 
rate for the LTCH PPS.
    In this proposed rule, based on the proposed methodology described 
above, under the broad authority granted to the Secretary under section 
123 of the BBRA, as amended by section 307(b) of the BIPA, we are 
proposing to revise Sec.  412.523(d)(3) to specify that the standard 
Federal rate would be permanently reduced by 3.75 percent so that the 
estimated difference between projected aggregate LTCH PPS payments in 
FY 2003 and the projected aggregate payments that would have been made 
in FY 2003 under the TEFRA payment system if the LTCH PPS had not been 
implemented. Consistent with current law, we also are proposing that 
this adjustment would not apply to payments for discharges occurring on 
or after October 1, 2012, and on or before December 28, 2012. 
Furthermore, given the magnitude of this adjustment and in 
acknowledgement of hopeful research outcomes (discussed above in 
section VII.E.2. of this preamble), we are proposing to phase-in this 
approximate 3.75 percent reduction to the standard Federal rate over a 
3-year period. Although the adjustment to the standard Federal rate 
provided for at Sec.  412.523(d)(3) is called a ``one-time'' 
prospective adjustment, as stated above, this proposed adjustment would 
be permanently applied to the standard Federal rate so that the effect 
of the estimated difference between the data used in the original 
computations of budget neutrality for FY 2003 and more recent data to 
determine budget neutrality for FY 2003 is not perpetuated in the 
prospective payment rates for future years. During this proposed 3-year 
period, we intend to further explore potential revisions to certain 
LTCH PPS payment policies as discussed above in section VII.E.2. of 
this preamble. Under this proposal, we would make a one-time 
prospective adjustment by applying a factor of 0.98734 to the standard 
Federal rate in FY 2013 (which would not be applicable to payments for 
discharges occurring on or after October 1, 2012, and on or before 
December 28, 2012, consistent with current law), FY 2014 and FY 2015 to 
completely account for our estimate (determined using the proposed 
methodology described above) that a factor of 0.9625 (that is 0.98734

[[Page 28032]]

x 0.98734 x 0.98734 = 0.9625) needs to be applied to the standard 
Federal rate in order to ensure that the difference between estimated 
total FY 2003 LTCH PPS payments and estimated total FY 2003 TEFRA 
payments is not perpetuated in the LTCH PPS payment rates in future 
years consistent with our stated policy goal of the one-time 
prospective adjustment at Sec.  412.523(d)(3). In other words, we are 
proposing that in determining the standard Federal rate in each year 
for FYs 2013 through 2014, we would multiply the standard Federal rate 
otherwise determined in absence of the one-time prospective adjustment 
at Sec.  412.523(d)(3) by 0.98734 in order to ensure that the estimated 
difference between estimated total FY 2003 LTCH PPS payments and 
estimated total FY 2003 TEFRA payments is not perpetuated in the LTCH 
PPS payment rates in future years.

VIII. Proposed Quality Data Reporting Requirements for Specific 
Providers and Suppliers

    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 for most settings and to measure various aspects of care for 
most Medicare beneficiaries. These measures assess structural aspects 
of care, clinical processes, patient experiences with care, and, 
increasingly, outcomes.
    CMS has implemented quality measure reporting programs for multiple 
settings of care. To measure the quality of hospital inpatient 
services, CMS implemented the Hospital Quality Reporting (IQR) Program 
(formerly referred to as 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 Reporting (OQR) Program (formerly referred 
to as the Hospital Outpatient Quality Data Reporting Program (HOP 
QDRP)), and for physicians and other eligible professionals, the 
Physician Quality Reporting System (formerly referred to as the 
Physician Quality Reporting Program Initiative (PQRI)). CMS has also 
implemented quality reporting programs for inpatient rehabilitation 
hospitals, hospices, and ambulatory surgical centers, and an end-stage 
renal disease quality improvement program (76 FR 628 through 646) that 
links payment to performance.
    In implementing the Hospital IQR Program and other quality 
reporting programs, we have focused on measures that have high impact 
and support CMS and HHS priorities for improved quality and efficiency 
of care for Medicare beneficiaries. Our goal for the future is to align 
the clinical quality measure requirements of the Hospital IQR Program 
with various other Medicare and Medicaid programs, including those 
authorized by the Health Information Technology for Economic and 
Clinical Health (HITECH) Act so that the burden for reporting will be 
reduced. As appropriate, we will consider the adoption of measures with 
electronic specifications, so that the electronic collection of 
performance information is part of care delivery. Establishing such a 
system will require interoperability between EHRs and CMS data 
collection systems, additional infrastructural development on the part 
of hospitals and CMS, and the adoption of standards for capturing, 
formatting, and transmitting the data elements that make up the 
measures. However, once these activities are accomplished, the adoption 
of many measures that rely on data obtained directly from EHRs will 
enable us to expand the Hospital IQR Program measure set with less cost 
and burden to hospitals. We believe that automatic collection and 
reporting of data elements for many measures through EHRs will greatly 
simplify and streamline reporting for various CMS quality reporting 
programs and that at a future date, such as FY 2015, hospitals will be 
able to switch primarily to EHR-based reporting of data for many 
measures that are currently manually chart-abstracted and submitted to 
CMS for the Hospital IQR Program.
    We have also implemented a Hospital Value-Based Purchasing (VBP) 
Program under section 1886(o) of the Act. In 2011, we issued the 
Hospital Inpatient VBP Program final rule (76 FR 26490 through 26547). 
We adopted additional policies for the Hospital VBP Program in section 
IV.B. of the FY 2012 IPPS/LTCH PPS final rule (76 FR 51653 through 
51660) and in section XVI. of the CY 2012 OPPS/ASC final rule with 
comment period (76 FR 74527 through 74547). Under the Hospital VBP 
Program, hospitals will receive value-based incentive payments if they 
meet performance standards with respect to measures for a performance 
period for the fiscal year involved. The measures under the Hospital 
VBP Program must be selected from the measures (other than readmission 
measures) specified under the Hospital IQR Program as required by 
section 1886(o)(2)(A) of the Act.
    In selecting measures for the Hospital IQR Program, we are mindful 
of the conceptual framework of the Hospital VBP Program. Section 
1886(o)(2)(B)(i)(I) of the Act states that for FY 2013, the selected 
measures for the Hospital VBP Program must cover at least the following 
five specified conditions or procedures: Acute myocardial infarction 
(AMI), Heart failure (HF), Pneumonia (PN), surgical care, as measured 
by the Surgical Care Improvement Project (SCIP), and Healthcare-
Associated Infections (HAIs), as measured by the prevention metrics and 
targets established in the HHS Action Plan to Prevent HAIs (or any 
successor HHS plan). Section 1886(o)(2)(B)(i)(II) of the Act provides 
that, for FY 2013, measures selected for the Hospital VBP Program must 
also be related to the Hospital Consumer Assessment of Healthcare 
Providers and Systems survey (HCAHPS).
    The Hospital IQR Program is linked with the Hospital VBP Program 
because the measures and reporting infrastructure for both programs 
overlap. We view the Hospital VBP Program as the next step in promoting 
higher quality care for Medicare beneficiaries by transforming Medicare 
into an active purchaser of quality healthcare for its beneficiaries. 
Value-based purchasing is an important step to revamping how care and 
services are paid for, moving increasingly toward rewarding better 
value, outcomes, and innovations instead of merely volume. As we stated 
in the Hospital Inpatient VBP Program proposed rule (76 FR 2455), we 
applied the following principles for the development and use of 
measures and scoring methodologies:
    <bullet> Public reporting and value-based payment systems should 
rely on a mix of standards, process, outcomes, and patient experience 
of care measures, including measures of care transitions and changes in 
patient functional status. Across all programs, we seek to move as 
quickly as possible to the use of primarily outcome and patient 
experience measures. To the extent practicable and appropriate, outcome 
and patient experience measures should be adjusted for risk or other 
appropriate patient population or provider characteristics.
    <bullet> To the extent possible and recognizing differences in 
payment system maturity and statutory authorities, measures should be 
aligned across public reporting and payment systems under Medicare and 
Medicaid. The measure sets should evolve so that they include a focused 
core set of

[[Page 28033]]

measures appropriate to the specific provider category that reflects 
the level of care and the most important areas of service and measures 
for that provider.
    <bullet> The collection of information should minimize the burden 
on providers to the extent possible. As part of this effort, we will 
continuously seek to align our measures with the adoption of e-
specified measures, so the electronic collection of performance 
information is part of care delivery.
    <bullet> To the extent practicable, measures used by CMS should be 
nationally endorsed by a multistakeholder organization. Measures should 
be aligned with best practices among other payers and the needs of the 
end users of the measures.
    We also view the Hospital-Acquired Condition (HAC) payment 
adjustment program authorized by section 3008 of the Affordable Care 
Act and the Hospital VBP Program as being related but separate efforts 
to reduce HACs. The Hospital VBP Program is an incentive program that 
awards payments to hospitals based on quality performance, while the 
program established by section 3008 of the Affordable Care Act creates 
a payment adjustment resulting in payment reductions for the lowest 
performing hospitals based on their rates of HACs.
    Although we intend to monitor the various interactions of programs 
authorized by the Affordable Care Act and their overall impact on 
providers and suppliers, we also view programs that could potentially 
affect a hospital's Medicaid payment as separate from programs that 
could potentially affect a hospital's Medicare payment.
    In this section VIII. of this proposed rule, we are proposing 
changes to, or implementing, the following Medicare quality reporting 
systems:
    <bullet> In section VIII.A., the Hospital IQR Program.
    <bullet> In section VIII.B., the Hospital VBP Program.
    <bullet> In section VIII.C., the PPS-Exempt Cancer Hospital Quality 
Reporting (PCHQR) Program.
    <bullet> In section VIII.D., the Long-Term Care Hospital Quality 
Reporting (LTCHQR) Program.
    <bullet> In section VIII.E., the Ambulatory Surgical Center Quality 
Reporting (ASCQR) Program.
    <bullet> In section VIII.F., the Inpatient Psychiatric Facilities 
Quality Reporting (IPFQR) Program.

A. Hospital Inpatient Quality Reporting (IQR) Program

1. Background
a. History of Measures Adopted for the Hospital IQR Program
    We refer readers to the FY 2010 IPPS/RY 2010 LTCH PPS final rule 
(74 FR 43860 through 43861) and the FY 2011 IPPS/LTCH PPS final rule 
(75 FR 50180 through 50181) for detailed discussions of the history of 
the Hospital IQR Program, including the statutory history and the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51636 through 51637) for the 
measures we have adopted for the Hospital IQR measure set through FY 
2015.
b. Maintenance of Technical Specifications for Quality Measures
    The technical specifications for the Hospital IQR Program measures, 
or links to Web sites hosting technical specifications, are contained 
in the CMS/The Joint Commission (TJC) Specifications Manual for 
National Hospital Quality Measures (Specifications Manual). This 
Specifications Manual is posted on the CMS QualityNet Web site at 
https://www.QualityNet.org. We generally update the Specifications 
Manual on a semiannual basis and include in the updates detailed 
instructions and calculation algorithms for hospitals to use when 
collecting and submitting data on required measures. These semiannual 
updates are accompanied by notifications to users, providing sufficient 
time between the change and the effective date in order to allow users 
to incorporate changes and updates to the specifications into data 
collection systems.
    The technical specifications for the HCAHPS patient experience of 
care survey are contained in the current HCAHPS Quality Assurance 
Guidelines manual, which is available at the HCAHPS On-Line Web site, 
http://www.hcahpsonline.org. We maintain the HCAHPS technical 
specifications by updating the HCAHPS Quality Assurance Guidelines 
manual annually, and include detailed instructions on survey 
implementation, data collection, data submission and other relevant 
topics. As necessary, HCAHPS Bulletins are issued to provide notice of 
changes and updates to technical specifications in HCAHPS data 
collection systems.
    Many of the quality measures used in different Medicare and 
Medicaid reporting programs are endorsed by the National Quality Forum 
(NQF). The NQF is a voluntary consensus standard-setting organization 
with a diverse representation of consumer, purchaser, provider, 
academic, clinical, and other healthcare stakeholder organizations. The 
NQF was established to standardize healthcare quality measurement and 
reporting through its consensus development process. As part of its 
regular maintenance process for endorsed performance measures, the NQF 
requires measure stewards to submit annual measure maintenance updates 
and undergo maintenance of endorsement review every 3 years. In the 
measure maintenance process, the measure steward (owner/developer) is 
responsible for updating and maintaining the currency and relevance of 
the measure and will confirm existing or minor specification changes to 
NQF on an annual basis. NQF solicits information from measure stewards 
for annual reviews and in order to review measures for continued 
endorsement in a specific 3-year cycle.
    Through NQF's measure maintenance process, NQF-endorsed measures 
are sometimes updated to incorporate changes that we believe do not 
substantially change the nature of the measure. Examples of such 
changes could be updated diagnosis or procedure codes, changes to 
exclusions to the patient population, definitions, or extension of the 
measure endorsement to apply to other settings. We believe these types 
of maintenance changes are distinct from more substantive changes to 
measures that result in what are considered new or different measures, 
and that they do not trigger the same agency obligations under the 
Administrative Procedure Act.
    In this proposed rule, we are proposing that if the NQF updates an 
endorsed measure that we have adopted for the Hospital IQR Program in a 
manner that we consider to not substantially change the nature of the 
measure, we would use a subregulatory process to incorporate those 
updates to the measure specifications that apply to the program. 
Specifically, we would revise the Specifications Manual so that it 
clearly identifies the updates and provide links to where additional 
information on the updates can be found. We would also post the updates 
on the QualityNet Web site at https://www.QualityNet.org. We would 
provide sufficient lead time for hospitals to implement the changes 
where changes to the data collection systems would be necessary.
    We would continue to use the rulemaking process to adopt changes to 
a measure that we consider to substantially change the nature of the 
measure. We believe that this proposal adequately balances our need to

[[Page 28034]]

incorporate NQF updates to NQF-endorsed Hospital IQR Program measures 
in the most expeditious manner possible, while preserving the public's 
ability to comment on updates that so fundamentally change an endorsed 
measure that it is no longer the same measure that we originally 
adopted. We invite public comment on this proposal.
c. Public Display of Quality Measures
    Section 1886(b)(3)(B)(viii)(VII) of the Act, as amended by section 
3001(a)(2) of the Affordable Care Act, requires that the Secretary 
establish procedures for making information regarding measures 
submitted available to the public after ensuring that a hospital has 
the opportunity to review its data before they are made public. In the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51608 through 51609), we 
adopted a policy to display information regarding the measures (such as 
names of measures for which data will be displayed in the future) on 
the Hospital Compare Web site under this provision. We will continue 
our current practice of reporting data from the Hospital IQR Program as 
soon as it is feasible on CMS Web sites such as the Hospital Compare 
Web site, http://www.hospitalcompare.hhs.gov, after a 30-day preview 
period.
    The Hospital Compare Web site is an interactive Web tool that 
assists beneficiaries by providing information on hospital quality of 
care to those who need to select a hospital. 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 Hospital IQR Program currently includes 
process of care measures, risk-adjusted outcome measures, the HCAHPS 
patient experience-of-care survey, structural measures, Emergency 
Department Throughput timing measures, hospital acquired condition 
measures, immunization measures, and hospital acquired infection 
measures, all of which are featured on the Hospital Compare Web site.
    However, information that may not be relevant to or easily 
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, although 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 
information regarding measures submitted under the Hospital IQR Program 
available to the public following a preview period. In such 
circumstances, affected parties are notified via CMS listservs, CMS e-
mail blasts and memorandums, Hospital Open Door Forums, 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. Removal and Suspension of Hospital IQR Program Measures
a. Considerations in Removing Quality Measures From the Hospital IQR 
Program
    We generally retain measures from the previous year's Hospital IQR 
Program measure set for subsequent years' measure sets except when they 
are removed or replaced as indicated. In previous rulemakings, we have 
referred to the removal of measures from the Hospital IQR Program as 
``retirement.'' We have used this term to indicate that Hospital IQR 
Program measures are no longer included in the Hospital IQR Program 
measure set for one or more indicated reasons. However, we note that 
this term may imply that other payers/purchasers/programs should cease 
using these measures that are no longer required for the Hospital IQR 
Program. In order to clarify that this is not our intent, beginning 
with this rulemaking cycle, we will use the term ``remove'' rather than 
``retire'' to refer to the action of no longer including a measure in 
the Hospital IQR Program.
    As we stated in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50185), 
the criteria that we consider when determining whether to remove 
Hospital IQR Program measures are the following: (1) Measure 
performance among hospitals is so high and unvarying that meaningful 
distinctions and improvements in performance can no longer be made 
(``topped out'' measures); (2) availability of alternative measures 
with a stronger relationship to patient outcomes; (3) a measure does 
not align with current clinical guidelines or practice; (4) the 
availability of a more broadly applicable (across settings, 
populations, or conditions) 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; and, (7) collection or public reporting of a measure 
leads to negative unintended consequences other than patient harm. 
These criteria were suggested by commenters during rulemaking, and we 
agreed that these criteria should be among those considered in 
evaluating Hospital IQR Program quality measures for removal.
    Additionally, we take into account the views of the Measure 
Application Partnership (MAP). The MAP is a public-private partnership 
convened by the NQF for the primary purpose of providing input to HHS 
on selecting performance measures for quality reporting programs and 
pay for reporting programs. The MAP views patient safety as a high 
priority area and it strongly supports the use of NQF-endorsed safety 
measures. Furthermore, for efficiency and streamlining purposes, we 
strive to eliminate redundancy of similar measures.
b. Hospital IQR Program Measures Removed in Previous Rulemakings
    In previous rulemakings, we have removed several Hospital IQR 
Program quality measures, including:
    <bullet> PN-1: Oxygenation Assessment for Pneumonia, a ``topped 
out'' measure, because measures with very high performance among 
hospitals present little opportunity for improvement and do not provide 
meaningful distinctions in performance for consumers (73 FR 48604).
    <bullet> AMI-6: Beta Blocker at Arrival measure from the Hospital 
IQR Program because it no longer ``represent[ed] the best clinical 
practice,'' as required under section 1886(b)(3)(B)(viii)(VI) of the 
Act. 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, it is appropriate for CMS to take immediate 
action to remove a measure from the Hospital IQR Program and not wait 
for the annual rulemaking cycle. Therefore, we adopted the policy (74 
FR 43864 and 43865) that we would promptly remove such a measure, 
confirm the removal in the next IPPS rulemaking cycle, and notify 
hospitals and the public of the decision to promptly remove measures 
through the usual hospital and QIO communication channels used for the 
Hospital IQR Program. These channels include memos, email notification, 
and QualityNet Web site postings.
    <bullet> Mortality for Selected Procedures Composite measure 
because the measure is not considered suitable for

[[Page 28035]]

purposes of comparative reporting by the measure developer (75 FR 
50186).
    <bullet> Three adult smoking cessation measures: AMI-4: Adult 
Smoking Cessation Advice/Counselling; HF-4: Adult Smoking Cessation 
Advice/Counselling; and PN-4: Adult Smoking Cessation Advice/
Counselling, because these measures are ``topped-out'' and no longer 
NQF-endorsed (76 FR 51611).
    <bullet> PN-5c: Timing of Receipt of Initial Antibiotic Following 
Hospital Arrival measure out of concerns that the continued collection 
of this measure might lead to the unintended consequence of antibiotic 
overuse (76 FR 51611).
c. Proposed Removal of Hospital IQR Program Measures for FY 2015 
Payment Determination and Subsequent Years
    To accommodate the expansion of the measure set, we have considered 
the removal of additional Hospital IQR measures using our stated 
measure removal criteria. Based on some of these criteria, we are 
proposing to remove 17 measures from the Hospital IQR Program. One of 
these 17 measures is chart-abstracted, and the other 16 are claims-
based.
(1) Proposed Removal of One Chart-Abstracted Measure
    We are proposing to remove the SCIP-Venous Thromboembolism (VTE) 
measure: ``SCIP-VTE-1: Surgery patients with recommended VTE 
prophylaxis ordered'' measure because we believe that the ``SCIP-VTE-2: 
Surgery patients who received appropriate VTE prophylaxis within 24 
hours of pre/post surgery'' measure currently used in the Hospital IQR 
Program assesses practices that are more proximal in time to better 
surgical outcomes resulting from the use of VTE prophylaxis. We also 
note that during a recent NQF maintenance review of SCIP-VTE-1, the 
measure was not recommended for continued endorsement.
(2) Proposed Removal of 16 Claims-Based Measures
    We are proposing to remove eight HAC measures, three AHRQ Inpatient 
Quality Indicator (IQI) measures, and five AHRQ Patient Safety 
Indicator (PSI) measures from the Hospital IQR Program measure set.
(A) Proposed Removal of Eight Hospital-Acquired Condition (HAC) 
Measures
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50194 through 
50196), for the FY 2012 payment determination, we adopted 8 claims-
based HAC measures based on 8 of the 10 conditions applicable under the 
HAC payment provisions specified in section 1886(d)(4)(D) of the Act 
apply. These eight HAC measures are: Air Embolism; Blood 
Incompatibility; Catheter-Associated Urinary Tract Infection (UTI); 
Falls and Trauma: (Includes Fracture Dislocation, Intracranial Injury, 
Crushing Injury, Burn, Electric Shock); Foreign Object Retained After 
During Surgery; Manifestations of Poor Glycemic Control; Pressure Ulcer 
Stages III or IV; and Vascular Catheter Associated Infections. Six of 
these HACS were identified by NQF as serious reportable events.
    We are proposing to remove these eight HAC measures based on 
several considerations. First, the MAP recommended that we replace the 
HAC measures in the Hospital IQR Program with NQF-endorsed measures. 
Second, we seek to reduce redundancy among the measures in the program. 
Two of the eight HAC measures address HAIs which are addressed by other 
measures currently in the Hospital IQR Program. These two HAI measures 
are the NQF-endorsed CAUTI and CLABSI measures collected via the CDC's 
NHSN system. An additional three of the eight HAC measures address 
similar topics (pressure ulcers, air embolism, and manifestations of 
poor glycemic control) to patient safety indicators that are included 
in the NQF-endorsed AHRQ PSI composite that is also included in the 
Hospital IQR Program. Accordingly, because more broadly applicable NQF-
endorsed measures are available that address the same HAIs and HACs, we 
believe it is appropriate to remove these measures from the program. We 
note that section 3008 of the Affordable Care Act will require public 
reporting of HAC measures, including measures for conditions adopted 
under section 1886(d)(4)(D) of the Act. HACs remain an important aspect 
of our strong commitment to measure patient harm and safety. ``Safer 
care'' is one of the six priorities identified to address the three 
aims established under the National Quality Strategy. We intend to 
pursue development of an all-cause harm composite measure for potential 
use in our quality reporting programs.
(B) Proposed Removal of Three AHRQ IQI Measures
    In the FY 2009 IPPS final rule (73 FR 48607), we adopted three 
claims-based AHRQ IQI outcome measures for the FY 2010 payment 
determination: (1) IQI-11: Abdominal aortic aneurysm (AAA) repair 
mortality rate (with or without volume); (2) IQI-19: Hip fracture 
mortality rate; and (3) IQI-91: Mortality for selected medical 
conditions (composite).
    We are proposing to remove these three AHRQ IQI measures from the 
Hospital IQR Program. In removing measures from the Hospital IQR 
Program, we seek to eliminate measures that would not be used under the 
Hospital VBP Program, and to reduce redundancy among the measures in 
the Hospital IQR Program. Three of the six conditions in the IQI 
composite measure overlap with 30-day mortality measures that we have 
in the Hospital IQR Program, and which were recommended by the MAP for 
use in the Hospital VBP Program. The proposed removal of these AHRQ IQI 
measures would eliminate unnecessary redundancy in the Hospital IQR 
measure set. We also believe that inclusion of a large number of in-
hospital mortality measures, the performance on which is highly 
dependent upon hospital discharge patterns, may lead to unintended 
consequences of patients being discharged sooner than advisable. We 
invite public comment on this proposal.
(C) Proposed Removal of Five AHRQ PSI Measures
    In the FY 2009 IPPS final rule (73 FR 48607), we adopted three 
claims-based PSI outcome measures for the FY 2010 payment 
determination: (1) PSI-06: Iatrogenic pneumothorax; (2) PSI-14: 
Postoperative wound dehiscence; and (3) PSI-15: Accidental puncture or 
laceration. In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50194), we 
adopted two more claims-based PSI outcome measures for the FY 2012 
payment determination: PSI-11: Post Operative Respiratory Failure; and 
PSI 12: Post Operative PE or DVT.
    We are proposing to remove these five AHRQ PSI measures from the 
Hospital IQR Program because four of these five individual measures 
(all but PSI 11) are included in the NQF-endorsed AHRQ PSI Composite 
measure that is already included in the Hospital IQR Program. Also, the 
post-operative ventilator associated events assessed in PSI-11 could be 
captured more robustly using non-administrative data collected via the 
NHSN in the near future. Therefore, we are proposing to remove these 
five individual PSIs from the Hospital IQR Program measure set in order 
to eliminate unnecessary redundancy. We invite public comment on this 
proposal.
    In summary, for the FY 2015 payment determination and subsequent 
years, we are proposing to remove the SCIP-VTE-1 measure, eight HAC 
measures, three AHRQ IQI measures, and five AHRQ PSI measures from the 
Hospital IQR measure set. The list of measures we are

[[Page 28036]]

proposing to remove is set out in the table below. We invite public 
comment on these proposals.

------------------------------------------------------------------------
                                      17 Measures proposed for removal
                                      from hospital IQR program measure
               Topic                   set for FY 2015 and subsequent
                                           payment determinations
------------------------------------------------------------------------
Surgical Care Improvement Project   <bullet> SCIP INF VTE-1 Surgery
 (SCIP) Measures.                    patients with recommended Venous
                                     Thromboembolism (VTE) prophylaxis
                                     ordered.
AHRQ Patient Safety Indicators      <bullet> PSI 06 Iatrogenic
 (PSIs), Inpatient Quality           pneumothorax, adult.
 Indicators (IQIs) and Composite    <bullet> PSI 11 Post Operative
 Measures.                           Respiratory Failure.
                                    <bullet> PSI 12 Post Operative PE or
                                     DVT.
                                    <bullet> PSI 14 Postoperative wound
                                     dehiscence.
                                    <bullet> PSI 15 Accidental puncture
                                     or laceration.
                                    <bullet> IQI 11 Abdominal aortic
                                     aneurysm (AAA) mortality rate (with
                                     or without volume).
                                    <bullet> IQI 19 Hip fracture
                                     mortality rate.
                                    <bullet> IQI 91 Mortality for
                                     selected medical conditions
                                     (composite).
Hospital Acquired Condition         <bullet> Foreign Object Retained
 Measures.                           After Surgery.
                                    <bullet> Air Embolism.
                                    <bullet> Blood Incompatibility.
                                    <bullet> Pressure Ulcer Stages III &
                                     IV.
                                    <bullet> Falls and Trauma:
                                     (Includes: Fracture Dislocation
                                     Intracranial Injury Crushing Injury
                                     Burn Electric Shock).
                                    <bullet> Vascular Catheter-
                                     Associated Infection.
                                    <bullet> Catheter-Associated Urinary
                                     Tract Infection (UTI).
                                    <bullet> Manifestations of Poor
                                     Glycemic Control.
------------------------------------------------------------------------

d. Suspension of Data Collection for the FY 2014 Payment Determination 
and Subsequent Years
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51611), we suspended 
data collection for four measures beginning with January 1, 2012 
discharges, affecting the FY 2014 payment determination and subsequent 
years.

------------------------------------------------------------------------
                                        Hospital IQR program measures
               Topic                    suspended for FY 2015 payment
                                     determination and subsequent years
------------------------------------------------------------------------
Acute Myocardial Infarction (AMI).  <bullet> AMI-1 Aspirin at arrival.
                                    <bullet> AMI-3 ACEI/ARB for left
                                     ventricular systolic dysfunction.
                                    <bullet> AMI-5 Beta-blocker
                                     prescribed at discharge.
Surgical Care Improvement Project   <bullet> SCIP INF-6 Appropriate Hair
 (SCIP).                             Removal.
------------------------------------------------------------------------

    We suspended, rather than removed, these measures because although 
our analysis indicated that these measures are topped-out measures 
(that is, their performance is uniformly high nationwide, with little 
variability among hospitals), some commenters still believed that the 
processes assessed by the measures were tied to better patient 
outcomes, and that removal of the measures from the program may result 
in declines in performance and hence worse outcomes.
    The suspension of data collection for these four measures will be 
continued unless we have evidence that performance on the measures is 
in danger of declining. Should we determine that hospital adherence to 
these practices has unacceptably declined, we would resume data 
collection using the same form and manner and on the same quarterly 
schedule that we finalize for these and other chart abstracted 
measures, providing at least 3 months of notice prior to resuming data 
collection. Hospitals would be notified of this via CMS listservs, CMS 
e-mail blasts, national provider calls, and QualityNet announcements. 
In addition, we would comply with any requirements imposed by the 
Paperwork Reduction Act before resuming data collection of these four 
measures.
3. Proposed Measures for the FY 2015 and FY 2016 Hospital IQR Program 
Payment Determinations
a. Additional Considerations in Expanding and Updating Quality Measures 
Under the Hospital IQR Program
    In general, we seek to adopt measures for the Hospital IQR Program 
that would promote better, safer, more efficient care. We believe it is 
important to expand the pool of measures to include measures that aim 
toward improving patient safety. This goal is supported by many reports 
documenting that tens of thousands of patients do not receive safe care 
in the nation's hospitals.<SUP>48,49</SUP>
---------------------------------------------------------------------------

    \48\ OEI-06-09-00090, ``Adverse Events in Hospitals: National 
Incidence Among Medicare Beneficiaries.'' Department of Health and 
Human Services, Office of Inspector General, November 2010.
    \49\ 2009 National Healthcare Quality Report, pp. 107-122. 
``Patient Safety,'' Agency for Healthcare Research and Quality.
---------------------------------------------------------------------------

    In addition to our goals to align measures and support the Hospital 
VBP Program, we also take into account other considerations in 
implementing and expanding the Hospital IQR Program:
    <bullet> Our overarching purpose is to support the National Quality 
Strategy's three-part aim of better health care for individuals, better 
health for populations, and lower costs for health care. The Hospital 
IQR Program will help achieve the three-part aim by creating 
transparency around the quality of care at inpatient hospitals to 
support patient decision-making and quality improvement. Given the 
availability of well-validated measures and the need to balance breadth 
with minimizing burden, measures should take into account and address, 
as fully as possible, the six domains of measurement that arise from 
the six priorities of the National Quality Strategy: Clinical care; 
Person- and caregiver-centered experience and outcomes; Safety; 
Efficiency and cost

[[Page 28037]]

reduction; Care coordination; and Community/population health. More 
information regarding the National Quality Strategy can be found at: 
http://www.hhs.gov/secretary/about/priorities/priorities.html and 
http://www.ahrq.gov/workingforquality/. HHS engaged a wide range of 
stakeholders to develop the National Quality Strategy, as required by 
the Affordable Care Act.
    <bullet> We seek to collect data in a manner that balances the need 
for information related to the full spectrum of quality performance and 
the need to minimize the burden of data collection and reporting. 
Within the framework of our statutory authority and taking into account 
programmatic considerations, measures used in the Hospital IQR Program 
should be harmonized with other Medicare/Medicaid quality reporting 
programs and incentive programs to promote coordinated efforts to 
improve quality.
    <bullet> As part of our burden reduction efforts, we will 
continuously weigh the relevance and utility of the measures compared 
to the burden on hospitals in submitting data under the Hospital IQR 
Program. We seek 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 databases. In recent 
years we have adopted measures that do not require chart abstraction, 
including structural measures and claims-based measures that we can 
calculate using other data sources.
    <bullet> To the extent practicable, measures we use should be 
nationally endorsed by a multistakeholder organization. Section 
3001(a)(2) of the Affordable Care Act added new sections 
1886(b)(3)(B)(viii)(IX)(aa) and (bb) of the Act. These sections state 
that ``* * * effective for payments beginning with fiscal year 2013, 
each measure specified by the Secretary under this clause shall be 
endorsed by the entity with a contract under section 1890(a) [of the 
Act],'' and ``[i]n the case of a specified area or medical topic 
determined appropriate by the Secretary for which a feasible and 
practical measure has not been endorsed by the entity with a contract 
under section 1890(a) [of the Act], the Secretary may specify a measure 
that is not so endorsed as long as due consideration is given to 
measures that have been endorsed or adopted by a consensus organization 
identified by the Secretary.'' Accordingly, we attempt to utilize 
endorsed measures whenever possible.
    <bullet> Measures should be developed with the input of providers, 
purchasers/payers, and other stakeholders. Measures should be aligned 
with best practices among other payers and the needs of the end users 
of the measures. We take into account widely accepted criteria 
established in medical literature.
    <bullet> Section 1890A(a)(4) of the Act, as added by section 
3014(b) of the Affordable Care Act, requires the Secretary to take into 
consideration input from multistakeholder groups in selecting quality 
and efficiency measures that have been endorsed by the entity with a 
contract under section 1890 of the Act, currently NQF, and measures 
that have not been endorsed. The MAP is a partnership comprised of 
multi-stakeholder groups that was convened by NQF to provide input on 
measures. Accordingly, we consider the MAP's recommendations in 
selecting quality and efficiency measures (http://www.qualityforum.org.map/).
    <bullet> HHS Strategic Plan and Initiatives. HHS is the U.S. 
government's principal agency for protecting the health of all 
Americans. HHS accomplishes its mission through programs and 
initiatives. Every 4 years HHS updates its Strategic Plan and measures 
its progress in addressing specific national problems, needs, or 
mission-related challenges. The goals of the HHS Strategic Plan for 
Fiscal Years 2010 through 2015 are: Strengthen Health Care; Advance 
Scientific Knowledge and Innovation; Advance the Health, Safety, and 
Well-Being of the American People; Increase Efficiency, Transparency, 
and Accountability of HHS Programs; and Strengthen the Nation's Health 
and Human Services Infrastructure and Workforce (http://www.hhs.gov/about/FY2012budget/strategicplandetail.pdf). HHS prioritizes policy and 
program interventions to address the leading causes of death and 
disability in the United States, including heart disease, cancer, 
stroke, chronic lower respiratory diseases, unintentional injuries, and 
preventable behaviors. Initiatives such as the HHS Action Plan to 
Reduce HAIs in clinical settings and the Partnership for Patients 
exemplify these programs.
    <bullet> CMS Strategic Plan. We strive to ensure that measures for 
different Medicare and Medicaid programs are aligned with priority 
quality goals, that measure specifications are aligned across settings, 
that outcome measures are used whenever possible, and that quality 
measures are collected from EHRs as appropriate.
    <bullet> We give priority to 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 in the Medicare population have been reported, 
despite established clinical guidelines, across populations or 
geographic areas.
    <bullet> We will focus on selecting measures that we believe will 
also meet the Hospital VBP Program measure inclusion criteria and 
advance the goals of the Hospital VBP Program by targeting hospitals' 
ability to improve patient care and patient outcomes.
    In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50191 through 
502192), we finalized our proposal to adopt measures for the Hospital 
IQR Program for three consecutive payment determinations. The intent of 
this policy was to provide greater certainty for hospitals to plan to 
meet future reporting requirements and implement related quality 
improvement efforts. In addition to giving hospitals more advance 
notice in planning quality reporting, this multiyear approach also 
provides more time for us to prepare, organize and implement the 
infrastructure needed to collect data on the measures and make payment 
determinations. However, we indicated that these finalized measure sets 
for multiple years could still be updated through the rulemaking 
process should we need to respond to agency and/or legislative changes.
    Finally, in section IV.A.5.a.(2) of the FY 2011 IPPS/LTCH PPS final 
rule (75 FR 50219 through 50220), we adopted a proposal to make 
Hospital IQR Program payment determinations beginning with FY 2013 
using one calendar year of data for chart-abstracted measures. We began 
using this approach, which synchronizes the quarters for which data on 
these measures must be submitted during each year with the quarters 
used to make payment determinations with respect to a fiscal year, 
beginning with January 1, 2011 discharges. However, it will not affect 
our payment determinations until FY 2013.
b. Proposed Hospital IQR Program Measures for the FY 2015 Payment 
Determination and Subsequent Years
(1) Process for Retention of Hospital IQR Program Measures Adopted in 
Previous Payment Determinations
    We previously finalized 76 measures for the FY 2015 Hospital IQR 
Program measure set (76 FR 51636 through 51637). We note that this 
number includes the four measures for which we have suspended data 
collection.

[[Page 28038]]

    In past rulemakings, we have proposed to retain previously adopted 
measures for each payment determination on a year-by-year basis and 
invited public comment on the proposal to retain such measures for all 
future payment determinations unless otherwise specified. Specifically, 
for the purpose of streamlining the rulemaking process, we are 
proposing that when we adopt measures for the Hospital IQR Program 
beginning with a payment determination and subsequent years, these 
measures are automatically adopted for all subsequent payment 
determinations unless we propose to remove, suspend, or replace the 
measures. We invite public comment on this approach.
(2) Proposed Additional Hospital IQR Program Measures for the FY 2015 
Payment Determination and Subsequent Years
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51636 through 
51637), we finalized 17 new measures for the Hospital IQR measure set 
for FY 2015 payment determination: 3 HAI measures collected through the 
NHSN, (MRSA Bacteremia, C. difficile SIR, and the Healthcare Personnel 
Influenza Vaccination), the Stroke measure set (8 measures) and the VTE 
measure set (6 measures).
(A) Proposed New Survey-Based Measure Items for Inclusion in the HCAHPS 
Survey Measure for the FY 2015 Payment Determination and Subsequent 
Years
    For the FY 2015 payment determination and subsequent years, we are 
proposing to add the NQF-endorsed 3-Item Care Transition Measure (CTM-
3) (NQF <greek-i>0228) to the existing HCAHPS survey. This measure is 
NQF-endorsed; therefore, the measure meets the selection criteria under 
section 1886(b)(3)(B)(viii)(IX)(aa) of the Act. The 3-Item Care 
Transition was developed by the University of Colorado Health Sciences 
Center for the NQF Endorsement Project entitled ``National Voluntary 
Consensus Standards for Quality of Cancer Care.'' The MAP supports the 
immediate inclusion of the CTM-3 measure within the Hospital IQR 
Program. The three care transitions items that comprise the CTM-3, 
which we are proposing to add to the HCAHPS survey beginning with 
January 2013 discharges, are listed below. Detailed information on 
scoring methodology can be found on the Care Transition Measure Web 
site: http://www.caretransitions.org/documents/CTM3Specs0807.pdf.
    The HCAHPS Survey was designed to accommodate the addition of 
supplemental items, provided such items adhere to the relevant HCAHPS 
survey protocols, see HCAHPS Quality Assurance Guidelines V7.0, p. 72: 
http://www.hcahpsonline.org/files/HCAHPS%20Quality%20Assurance%20Guidelines%20V7.0%20March%202012.pdf. 
The survey items that comprise the CTM-3 that we propose to add to 
HCAHPS meet these protocols. The addition of select items to HCAHPS is 
consistent with the survey's original design, development and NQF 
endorsement. Further, the CTM-3 was designed by its developers to be 
consistent and compatible with extant HCAHPS items and HCAHPS sampling 
and survey administration protocols. The original, NQF-endorsed CTM-3 
items and response options are as follows:
    <bullet> The hospital staff took my preferences and those of my 
family or caregiver into account in deciding what my health care needs 
would be when I left the hospital.
    [squ] Strongly Disagree
    [squ] Disagree
    [squ] Agree
    [squ] Strongly Agree
    [squ] Don't Know/Don't Remember/Not Applicable
    <bullet> When I left the hospital, I had a good understanding of 
the things I was responsible for in managing my health.
    [squ] Strongly Disagree
    [squ] Disagree
    [squ] Agree
    [squ] Strongly Agree
    [squ] Don't Know/Don't Remember/Not Applicable
    <bullet> When I left the hospital, I clearly understood the purpose 
for taking each of my medications.
    [squ] Strongly Disagree
    [squ] Disagree
    [squ] Agree
    [squ] Strongly Agree
    [squ] Don't Know/Don't Remember/Not Applicable
    In order to make the CTM-3 items more fully consistent and 
compatible with the original HCAHPS Survey items, we have made a few 
small modifications. Specifically, we are proposing: (1) To slightly 
reword the first care transition item by adding the phrase, ``During 
this hospital stay;'' (2) to delete the ``Don't Know/Don't Remember/Not 
Applicable'' response option from each item; and (3) to add a new 
response option, ``I was not given any medication when I left the 
hospital,'' to the third care transition item. These small 
modifications preserve the integrity and utility of the HCAHPS Survey 
as it is expanded to encompass a new dimension of patients' experience 
of hospital care. The developer of the CTM-3 has agreed to these 
modifications, which we believe are consistent with the NQF 
endorsements of the original 27-item HCAHPS Survey and of the CTM-3.
    After incorporating these modifications, the CTM-3 items that we 
are proposing to add to the HCAHPS Survey are as follows:
    <bullet> During this hospital stay, staff took my preferences and 
those of my family or caregiver into account in deciding what my health 
care needs would be when I left.
    [squ] Strongly disagree
    [squ] Disagree
    [squ] Agree
    [squ] Strongly agree
    <bullet> When I left the hospital, I had a good understanding of 
the things I was responsible for in managing my health.
    [squ] Strongly disagree
    [squ] Disagree
    [squ] Agree
    [squ] Strongly agree
    <bullet> When I left the hospital, I clearly understood the purpose 
for taking each of my medications.
    [squ] Strongly disagree
    [squ] Disagree
    [squ] Agree
    [squ] Strongly agree
    [squ] I was not given any medication when I left the hospital
    We also are proposing to add two items to the ``About You'' section 
of the HCAHPS survey beginning with January 2013 discharges. These two 
items would not be included in public reporting of the HCAHPS survey 
but may be employed in the patient-mix adjustment of survey responses.
    The two proposed ``About You'' items are as follows:
    <bullet> During this hospital stay, were you admitted to this 
hospital through the Emergency Room?
    [squ] Yes
    [squ] No
    <bullet> In general, how would you rate your overall mental or 
emotional health?
    [squ] Excellent
    [squ] Very good
    [squ] Good
    [squ] Fair
    [squ] Poor
    The two new ``About You'' items were developed and tested in the 
Three-State Pilot Study of HCAHPS in 2003. Neither item was adopted in 
the national implementation of HCAHPS in 2006; however, current 
circumstances, as explained below, warrant the addition of these items 
to the HCAHPS survey at this time. We invite public comment on the two 
proposed ``About You'' items.

[[Page 28039]]

    Until 2010, ``emergency room admission'' as a point of origin for 
hospital patients was an administrative code provided by hospitals and 
was used as a patient-mix adjustment for HCAHPS scores. However, since 
July 2010, the ``Point of Origin for Admission or Visit'' code for 
Emergency Room has been discontinued for use by Medicare payment 
systems and, thus became unavailable for HCAHPS patient-mix adjustment. 
In the original HCAHPS mode experiment, we determined empirically that 
emergency room admission status both vary across hospitals and have an 
important bearing on patient experience of care: http://www.hcahpsonline.org/files/Final%20Draft%20Description%20of%20HCAHPS%20Mode%20and%20PMA%20with%20bottom%20box%20modedoc%20April%2030,%202008.pdf. The inclusion of a new 
patient-reported survey item will allow us to again use emergency room 
admission as a patient-mix adjustment variable.
    We have received numerous inquiries and requests from hospitals and 
researchers to add a survey item concerning the patient's overall 
mental health. The survey item we are proposing to add, which is very 
similar in structure to the existing ``overall health'' item, will 
allow us to introduce a patient-mix adjustment for this characteristic 
in the future. Although we chose not to add a survey item about 
patient's overall mental health status in the national implementation 
of HCAHPS in 2006, we continue to receive inquiries and requests from 
hospitals and researchers on this topic. Some researchers claim that 
mental health status is an important factor in how patients respond to 
HCAHPS survey items. The continuing interest in this topic, coupled 
with the direct impact of HCAHPS performance on hospital payments 
beginning in October 2012, led to the decision to add an overall mental 
health item to the HCAHPS survey. The overall mental health survey item 
we have chosen very closely resembles the Overall General Health item 
in the HCAHPS Survey, has been extensively tested, and is currently 
included in several other CAHPS surveys.
    We are proposing to add these two ``About You'' items to the 
existing HCAHPS survey, with required collection beginning January 1, 
2013. More detail regarding HCAHPS requirements is included in the 
Form, Manner and Timing section of this preamble for this program. We 
invite public comment on the proposed addition of these items for the 
FY 2015 payment determination.
(B) Proposed New Claims-Based Measures for the FY 2015 Payment 
Determination and Subsequent Years
(i) Hip/Knee Complication: Hospital-Level Risk-Standardized 
Complication Rate (RSCR) Following Elective Primary Total Hip 
Arthroplasty (THA) and Total Knee Arthroplasty (TKA) (NQF 
<greek-i>1550)
    The THA and TKA are commonly performed procedures for the Medicare 
population that improve quality of life. In 2003, there were 202,500 
THAs and 402,100 TKAs performed,\50\ and the number of procedures 
performed annually has increased steadily over the past decades. Annual 
hospital charges are projected to increase by 340 percent to $17.4 
billion for THA and by 450 percent to $40.8 billion for TKA by 2015. 
Annual hospital charges are projected to increase by 340 percent to 
$17.4 billion for THA and by 450 percent to $40.8 billion for TKA by 
2015.\51\ The post-operation complications of these procedures are high 
considering these are selective procedures and usually the 
complications are devastating to patients. For example, rates for 
periprosthetic joint infection, a rare but devastating complication, 
have been reported at 2.3 percent for THA/TKA patients with rheumatoid 
arthritis,\52\ and 1.6 percent in primary elective TKA patients after 1 
and 2 years of follow up, respectively.\53\ Two studies reported 90-day 
death rates following THA at 0.7 percent \54\ and 2.7 percent.\55\ 
Reported rates for pulmonary embolism following TKA range from 0.5 
percent to 0.9 percent.\56,57,58,59\ Reported rates for septicemia 
range from 0.1 percent, during the index admission \60\ to 0.3 percent, 
90 days following discharge for primary TKA.\61\ Rates for bleeding and 
hematoma following TKA have been reported at 0.94 percent \62\ to 1.7 
percent.\63\ In 2005, annual hospital charges totaled $3.95 billion and 
$7.42 billion for primary THA and TKA, respectively.\64\ Combined, THA 
and TKA procedures account for the largest payments for procedures 
under Medicare.\65\
---------------------------------------------------------------------------

    \50\ Kurtz S, Ong K, Lau E, Mowat F, Halpern M., Projections of 
primary and revision hip and knee arthroplasty in the United States 
from 2005 to 2030. J Bone Joint Surg Am. Apr 2007;89(4):780-785.
    \51\ Kurtz SM, Ong KL, Schmier J, et al., Future clinical and 
economic impact of revision total hip and knee arthroplasty. J Bone 
Joint Surg Am. Oct 2007;89 Suppl 3:144-151.
    \52\ Bongartz, T, Halligan CS, Osmon D, et al. Incidence and 
risk factors of prosthetic joint infection after total hip or knee 
replacement in patients with rheumatoid arthritis. Arthritis Rheum. 
2008; 59(12): 1713-1720.
    \53\ Kurtz S, Ong K, Lau E, Bozic K, Berry D, Parvizi J. 
Prosthetic joint infection risk after TKA in the Medicare 
population. Clin Orthop Relat Res. 2010;468:5.
    \54\ Cram P, Vaughan-Sarrazin MS, Wolf B, Katz JN, Rosenthal GE. 
A comparison of total hip and knee replacement in specialty and 
general hospitals. J Bone Joint Surg Am. Aug 2007;89(8):1675-1684.
    \55\ Soohoo NF, Farng E, Lieberman JR, Chambers L, Zingmond, DS. 
Factors That Predict Short-term Complication Rates After Total Hip 
Arthroplasty. Clin Orthop Relat Res. Sep 2010;468(9):2363-2371.
    \56\ Cram P, Vaughan-Sarrazin MS, Wolf B, Katz JN, Rosenthal GE. 
A comparison of total hip and knee replacement in specialty and 
general hospitals. J Bone Joint Surg Am. Aug 2007;89(8):1675-1684.
    \57\ Mahomed NN, Barrett JA, Katz JN, et al. Rates and outcomes 
of primary and revision total hip replacement in the United States 
medicare population. J Bone Joint Surg Am. Jan 2003;85-A(1):27-32.
    \58\ Khatod M, Inacio M, Paxton EW, et al. Knee replacement: 
epidemiology, outcomes, and trends in Southern California: 17,080 
replacements from 1995 through 2004. Acta Orthop. Dec 
2008;79(6):812-819.
    \59\ Solomon DH, Chibnik LB, Losina E, et al. Development of a 
preliminary index that predicts adverse events after total knee 
replacement. Arthritis & Rheumatism. 2006;54(5):1536-1542.
    \60\ Browne, JA, Cook C, Hofmann A, Bolognesi MP. Postoperative 
morbidity and mortality following total knee arthroplasty with 
computer navigation. Knee. 2010;17(2): 152-156.
    \61\ Cram P, Vaughan-Sarrazin MS, Wolf B, Katz JN, Rosenthal GE. 
A comparison of total hip and knee replacement in specialty and 
general hospitals. J Bone Joint Surg Am. Aug 2007;89(8):1675-1684.
    \62\ Browne, JA, Cook C, Hofmann A, Bolognesi MP. Postoperative 
morbidity and mortality following total knee arthroplasty with 
computer navigation. Knee. 2010;17(2): 152-156.
    \63\ Huddleston JI, Maloney WJ, Wang Y, Verzier N, Hunt DR, 
Herndon JH. Adverse Events After Total Knee Arthroplasty: A National 
Medicare Study. The Journal of Arthroplasty. 2009;24(6, Supplement 
1):95-100.
    \64\ Kurtz S, Ong K, Lau E, Mowat F, Halpern M., Projections of 
primary and revision hip and knee arthroplasty in the United States 
from 2005 to 2030. J Bone Joint Surg Am. Apr 2007;89(4):780-785.
    \65\ Bozic KJ, Rubash HE, Sculco TP, Berry DJ., An analysis of 
medicare payment policy for total joint arthroplasty. J 
Arthroplasty. Sep 2008;23(6 Suppl 1):133-138.
---------------------------------------------------------------------------

    Both hip and knee arthroplasty procedures improve the function and 
quality of life of patients with disabling arthritis, and the volume 
and cost associated with these procedures are very high. We believe it 
is important to assess the quality of care provided to Medicare 
beneficiaries who undergo one or both of these procedures.
    The Hip/Knee Complication: Hospital-Level Risk-Standardized 
Complication Rate (RSCR) Following Elective Primary Total Hip 
Arthroplasty (THA) and Total Knee Arthroplasty (TKA) measure (NQF 
<greek-i> 1550) is an outcome measure. We are proposing this measure 
for the Hospital IQR Program because outcome measures are priority 
areas for the Hospital IQR Program. We believe it is important to 
assess the quality of care provided to Medicare beneficiaries who 
undergo one or both of these procedures and publicly report

[[Page 28040]]

the hospital rates for consumer choice of care.
    The proposed measure assesses complications occurring after THA and 
TKA surgery from the date of the index admission to 90 days post date 
of the index admission. The outcome is one or more of the following 
complications: acute myocardial infarction, pneumonia, or sepsis/
septicemia within 7 days of admission; surgical site bleeding, 
pulmonary embolism or death within 30 days of admission; or mechanical 
complications, periprosthetic joint infection or wound infection within 
90 days of admission. The data indicated that the median hospital-level 
risk-standardized complication rate for 2008 was 4.2 percent, with a 
range from 2.2 percent to 8.9 percent in hospitals. The variation in 
complication rates suggest that there are important differences in the 
quality of care delivered across hospitals, and that there is room for 
quality improvement.
    In 2010, we developed a hospital-level risk-standardized 
complication rate (RSCR) following elective primary THA and TKA 
surgery. NQF endorsed this THA and TKA complication measure in February 
2012 (NQF <greek-i>1550). In its Pre-Rulemaking Report for 2012, the 
MAP also recommended the inclusion of this measure in the Hospital IQR 
Program. We are proposing to adopt the Hospital-Level Risk-Standardized 
Complication Rate (RSCR) Following Elective Primary Total Hip 
Arthroplasty (THA) and Total Knee Arthroplasty (TKA) measure for the 
Hospital IQR Program for the FY 2015 payment determination and 
subsequent years. This measure is NQF-endorsed (NQF <greek-i>1550); 
therefore, the measure meets the selection criteria under section 
1886(b)(3)(B)(viii)(IX)(aa) of the Act. The measure specifications can 
be found at: http://www.qualityforum.org/Projects/Surgery_Maintenance.aspx#t=2&s=&p=.
    The proposed measure uses the same hierarchical logistic modeling 
(HLM) methodology that is specified for other NQF-endorsed CMS 
inpatient outcome measures previously adopted for this program, 
including AMI, HF, and PN readmission and mortality measures because 
this modeling has already been subjected to NQF review, and has been 
determined to appropriately account for the types of patients a 
hospital treats, the number of patients it treats, and the quality of 
care it provides. The HLM model estimates risk-standardized 
complications rates. Medicare Part A and Part B (FFS) claims are the 
data source we used to develop the measure and that we are proposing to 
use to calculate the measure if finalized. Index admission diagnoses 
and in-hospital comorbidities would be assessed using Medicare Part A 
claims. Additional comorbidities prior to the index admission would be 
assessed using Part A inpatient, outpatient, and Part B office visit 
Medicare claims in the 12 months prior to index (initial) admission. 
Enrollment and post-discharge mortality status would be obtained from 
Medicare's enrollment database which contains beneficiary demographic, 
benefit/coverage, and vital status information.
    The proposed Total Hip and Total Knee Arthroplasty Complication 
measure includes Medicare FFS beneficiaries, aged 65 years or older, 
admitted to non-Federal acute care hospitals for THA or TKA. The 
measure methodology identifies eligible index admissions, using the 
following ICD-9-CM procedure codes: 81.51 Total Hip Arthroplasty; and 
81.54 Total Knee Arthroplasty in Medicare Part A inpatient claims data. 
The measure specifications will be updated yearly and will be specified 
using ICD-10.
    In addition, the proposed measure includes patients who have had 
continuous enrollment in Medicare FFS for one year prior to the date of 
index admission to ensure full data availability for risk adjustment. 
We restrict the sample to admissions of patients enrolled in Medicare 
FFS coverage in the 12 months prior to and including the time of their 
index admission to a non-Federal acute care hospital because of the 
availability of complete administrative data for most Medicare FFS 
patients.
    The proposed measure does not include beneficiaries enrolled in 
Medicare Managed Care (``Medicare Advantage'') plans because only 
partial administrative data are reported to CMS. We would not have 
complete data on these Medicare Advantage enrollees. Patients under age 
65 (the qualifying age for Medicare coverage for those not considered 
disabled or with end-stage renal disease) or for whom we otherwise have 
incomplete information--for example, those enrolled in a Medicare 
Advantage plan during any part of the relevant time period-- will also 
be excluded to ensure data comparability. Additionally, these 
restrictions on the data allow for an appropriately comprehensive risk-
adjustment for patient case-mix and comorbidity that would not be 
possible without access to data available to this population.
    The proposed measure excludes patients with hip fractures (patients 
with hip fractures have higher mortality, complication rates and the 
procedure (THA) is not elective); patients undergoing revision 
procedures (may be performed at a disproportionately small number of 
hospitals and are associated with higher mortality, complication and 
readmission rates); patients undergoing partial hip arthroplasty 
(primarily done for hip fractures and are typically performed on 
patients who are older, more frail, and with more comorbid conditions) 
; patients undergoing resurfacing procedures (different type of 
procedure which is typically performed on younger, healthier patients); 
patients who are transferred to the index hospital (it is likely that 
the procedure is not elective); patients who leave the hospital against 
medical advice (it is likely that the procedure is not elective); 
patients with more than two THA/TKA procedure codes during the index 
hospitalization (unlikely that patients would receive more than two 
THA/TKA procedures in one hospitalization, and this pattern may reflect 
coding errors); and patients with multiple admissions for THA/TKA in 
the 12 months studies.
    Consistent with the requirements in section 
1886(b)(3)(B)(viii)(VIII) of the Act, the proposed measure is risk-
adjusted. It takes into account the patient case-mix to assess hospital 
performance. The patient risk factors are defined using the 
Hierarchical Condition Categories (CC), which are clinically relevant 
diagnostic groups of ICD-9-CM codes.\66\ The CCs used in the risk 
adjustment model for this measure, are provided at: http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1182785083979. The proposed measure meets the statutory requirement because it 
adjusted for hospital patient mix including age and comorbidities to 
ensure that hospitals that care for a less healthy patient population 
are not penalized unfairly. The measure methodology defines 
``complications'' as Acute myocardial infarction; Pneumonia; Sepsis/
septicemia; Pulmonary embolism; Surgical site bleeding; Death; Wound 
infection; Periprosthetic joint infection; and Mechanical complication 
within 30 to 90 days post the index date of admission, depending on the 
complication. The decision on the appropriate follow-up period was 
based on our analysis of 90-day trends in complication rates using the 
2008 Medicare FFS Part A Inpatient Data. We found that rates for 
mechanical complications are elevated until 90 days

[[Page 28041]]

post the date of index admission. We found that the rates for four 
other complications--death, surgical site bleeding, wound infection, 
and pulmonary embolism--are elevated for 30 days, and that AMI, 
pneumonia, and sepsis/septicemia level off 7 days post date of index 
admission. The following table presents the follow-up period for each 
complication.
---------------------------------------------------------------------------

    \66\ Pope G, Ellis R, Ash A, et al., Principal Inpatient 
Diagnostic Cost Group Models for Medicare Risk Adjustment. Health 
Care Financing Review. 2000;21(3):26.

                     Complication Follow-Up Periods
------------------------------------------------------------------------
                                                               Follow-up
                        Complication                            period
                                                                (days)
------------------------------------------------------------------------
Death.......................................................          30
Mechanical complications....................................          90
Periprosthetic joint infection (PJI)........................          90
Surgical site bleeding......................................          30
Wound infection.............................................          30
Pulmonary embolism..........................................          30
AMI.........................................................           7
Pneumonia...................................................           7
Sepsis/septicemia...........................................           7
------------------------------------------------------------------------

    We are proposing to calculate the hospital risk-standardized 
complication rate by producing a ratio of the number of ``predicted'' 
complications (that is, the adjusted number of complications at a 
specific hospital based on its patient population) to the number of 
``expected'' complications (that is, the number of complications if an 
average quality hospital treated the same patients) for each hospital 
and then multiplying the ratio by the national raw complication rate.
    We invite public comment on the proposed inclusion of the Hospital-
Level Risk-Standardized Complication Rate (RSCR) Following Elective 
Primary Total Hip Arthroplasty (THA) and Total Knee Arthroplasty 
measure in the Hospital IQR Program for the FY 2015 payment 
determination and future years. (ii) Hip/Knee Readmission: Hospital-
Level 30-Day All-Cause Risk-Standardized Readmission Rate (RSRR) 
Following Elective Total Hip Arthroplasty (THA) and Total Knee 
Arthroplasty (TKA) (NQF <greek-i>1551)
    As previously stated, outcome measures such as complications and 
readmissions are the priority areas for the Hospital IQR Program. The 
THA and TKA are commonly performed procedures that improve quality of 
life. The complications are usually devastating to the patient and 
costly to the Medicare program. Furthermore we believe that there is an 
opportunity for quality improvement by hospitals to improve quality of 
life for the patient. The 2008 Medicare FFS claims data indicate that 
30-day hospital-level risk-standardized readmission rates ranged from 
3.06 percent to 50.94 percent among hospitals with a median rate of 
6.06 percent. The mean risk-standardized readmission rate was 6.3 
percent. This variation suggests there are important differences in the 
quality of care received across hospitals, and that there is room for 
improvement.
    Given the high volume and high cost associated with these hip and 
knee procedures (relative to other elective procedures performed in the 
Medicare population), we believe that it is imperative to assess the 
quality of care provided to Medicare beneficiaries who undergo one or 
both of these procedures. A measure that addresses readmission rates 
following THA and TKA provides an opportunity to provide targets for 
efforts to improve the quality of care and reduce costs for patients 
undergoing these elective procedures. The measure also increases 
transparency for consumers and provides patients with information that 
could guide their choices. Finally, it has the potential to lower 
health care costs associated with readmissions. The development of 
risk-adjusted measures of patient readmission outcomes can provide a 
critical perspective on the provision of care, and support improvements 
in care for the Medicare patient population following THA/TKA 
hospitalization.
    We are proposing to adopt the Hip/Knee Readmission: Hospital 30-Day 
All-Cause Readmission Following Elective Total Hip Arthroplasty (THA) 
and Total Knee Arthroplasty (TKA) measure for the Hospital IQR Program 
for the FY 2015 payment determination and subsequent years. This 
measure is NQF-endorsed; therefore, the measure meets the selection 
criteria under section 1886(b)(3)(B)(viii)(IX)(aa) of the Act. The 
measure specification for this measure can be found on the Web site at: 
http://www.qualityforum.org/Projects/Surgery_Maintenance.aspx#t=2&s=&p=. In its Pre-Rulemaking Report, the MAP 
recommended the inclusion of this measure in the Hospital IQR Program. 
The objective of this proposed measure is to assess readmission from 
any cause within 30 days of the initial total hip arthroplasty and 
total knee arthroplasty admissions for patients discharged from the 
hospital following elective primary THA and TKA.
    The proposed measure uses the same HLM methodology that is 
specified for the NQF-endorsed AMI, HF, and PN 30-day risk-adjusted 
all-cause readmission measures in the Hospital IQR Program because it 
has already been subjected to NQF review and has been determined to 
appropriately account for the types of patients the hospital treats, 
the number of patients it treats, and the quality of care it provides. 
The HLM model estimates risk-standardized readmission rates. The data 
source we used to develop the measure and that we would use to 
calculate the measure if finalized is Medicare Part A (FFS) claims. 
Index admission diagnoses and in-hospital comorbidity data would be 
assessed using Medicare Part A claims. Additional comorbidities prior 
to the index admission would be assessed using Part A inpatient, 
outpatient, and Part B office visit Medicare claims in the 12 months 
prior to index (initial) admission. Enrollment status would be obtained 
from Medicare's enrollment database which contains beneficiary 
demographic, benefit/coverage, and vital status information.
    The proposed measure includes admissions for patients who were 
Medicare FFS beneficiaries, aged 65 years or older, admitted to non-
Federal acute care hospitals with an ICD-9-CM code for THA or TKA. 
Eligible index admissions would be identified using the following ICD-
9-CM procedure codes: 81.51 (Total hip arthroplasty); and 81.54 (Total 
knee arthroplasty) in Medicare Part A inpatient claims data.
    In addition, patients must have had continuous enrollment in 
Medicare FFS for one year prior to the date of index admission to 
ensure full data availability for risk adjustment. We restrict the 
included cases to admissions of patients enrolled in Medicare FFS 
coverage in the 12 months prior to and including the time of their 
index admission to a non-Federal acute care hospital because of the 
availability of complete administrative data for most Medicare FFS 
patients.
    We are proposing not to include beneficiaries enrolled in Medicare 
Managed Care (``Medicare Advantage'') plans because only partial 
administrative data are reported to CMS. We would not have complete 
data on these Medicare Advantage enrollees. Patients under age 65 (the 
qualifying age for Medicare coverage for those not considered disabled 
or with end-stage renal disease) or for whom we otherwise have 
incomplete information--for example, those enrolled in a Medicare 
Managed Care plan during any part of the relevant time period--will 
also be excluded to ensure data comparability.
    We are proposing to exclude patients with hip fractures (patients 
with hip fractures have higher mortality, complication and readmission 
rates and the procedure (THA) is generally not elective); patients 
undergoing revision procedures (may be performed at a 
disproportionately small number of hospitals and are associated with 
higher readmission rates); patients undergoing

[[Page 28042]]

partial hip arthroplasty (partial arthroplasties are primarily done for 
hip fractures and are typically performed on patients who are older, 
more frail, and with more comorbid conditions); patients undergoing 
resurfacing procedures (resurfacing procedures are a different type of 
procedure which are typically performed on younger, healthier 
patients); patients who are transferred into the index hospital (it is 
likely that the procedure is not elective); patients who are admitted 
for the index procedure and subsequently transferred to another acute 
care facility (attribution of readmission to the index hospital would 
not be possible in these cases); patients who leave the hospital 
against medical advice (providers do not have the opportunity to 
provide the highest quality care for these patients); patients with 
more than two THA/TKA procedure codes during the index hospitalization 
(unlikely that patients would receive more than two THA/TKA procedures 
in one hospitalization and this may reflect a coding error); patients 
without at least 30-days post-discharge enrollment in Medicare FFS (the 
30-day readmission outcome cannot be assessed for the standardized time 
period); and patients who die during the index admission (patients who 
die during the initial hospitalization are not eligible for 
readmission).
    The proposed measure methodology does not count readmissions that 
are associated with a subsequent ``planned'' THA/TKA procedure within 
30-days of discharge from index hospitalization. Some patients may 
elect to stage their orthopedic replacement procedures across 
hospitalizations (for example, a patient may have the left and right 
knees replaced within one or two weeks of each other, potentially 
across multiple hospitalizations). The planned readmissions are defined 
as a second admission with a procedure code for THA or TKA AND a 
primary discharge diagnosis of osteoarthritis, rheumatoid arthritis, 
osteonecrosis, or arthropathy (excluding septic arthropathy).
    Consistent with the requirements in section 
1886(b)(3)(B)(viii)(VIII) of the Act, the proposed measure is risk-
adjusted. It takes into account patient age and comorbidities to allow 
a fair assessment of hospital performance. The measure defines the 
patient risk factors for readmission using diagnosis codes collected 
from all patient claims one year prior to patient index hospitalization 
for THA and TKA. The patient diagnosis codes are grouped using 
Hierarchical Condition Categories (CCs), which are clinically relevant 
diagnostic groups of ICD-9-CM codes.\67\
---------------------------------------------------------------------------

    \67\ Pope G, Ellis R, Ash A, et al., Principal Inpatient 
Diagnostic Cost Group Models for Medicare Risk Adjustment. Health 
Care Financing Review. 2000;21(3):26.
---------------------------------------------------------------------------

    The CCs used in the risk adjustment model for this measure, are 
provided at: http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier4&cid=1219069856694. Patient risk factors are used to determine how sick the patients 
are on admission (that is, patient comorbidities). The hospital measure 
rates are calculated taking into account how sick their patients are. 
In summary, age and comorbidities present at the time of admission 
would be adjusted for differences in hospital case mix (patient risk 
factors).
    The proposed measure uses the HLM methodology for risk adjustment. 
As we do for all the other 30-day readmission measures adopted for the 
Hospital IQR Program, we would calculate (using the HLM) the hospital 
risk-standardized readmission rate by producing a ratio of the number 
of ``predicted'' readmissions (that is, the adjusted number of 
readmissions at a specific hospital) to the number of ``expected'' 
readmissions (that is, the number of readmissions if an average quality 
hospital treated the same patients) for each hospital and then 
multiplying the ratio by the national raw readmission rate.
    While the hip and knee complications measure will inform quality 
improvement efforts targeted toward minimizing medical and surgical 
complications during surgery and in the recovery phase, the hip and 
knee readmission measure portrays a broader range of medical and 
surgical outcomes affected by in-hospital care and the transition to 
post-acute care. This measure was endorsed by the NQF (<greek-i>1551) 
and recommended by the MAP for the Hospital IQR Program in its Pre-
Rulemaking report for 2012.
    We are proposing to include the Hospital-Level 30-Day All-Cause 
Risk-Standardized Readmission Rate (RSRR) Following Elective Total Hip 
Arthroplasty (THA) and Total Knee Arthroplasty (TKA) measure in the 
Hospital IQR Program for the FY 2015 payment determination and future 
years. We invite public comment on this proposal.
(iii) Hospital-Wide Readmission (Tentative NQF <greek-i>1789)
    During 2003 and 2004, over 2.3 million Medicare patients (almost 
one fifth of all Medicare beneficiaries) were rehospitalized within 30 
days of discharge from an acute care hospital, and it was estimated 
that readmissions within 30 days of discharge cost Medicare more than 
$17 billion annually.\68\ In its 2007 Report to the Congress, MedPAC 
estimated that in 2005, 17.6 percent of hospital patients were 
readmitted within 30 days of discharge.\69\ MedPAC estimated that the 
average payment for a ``potentially preventable'' readmission was 
approximately $7,200. A 2006 Commonwealth Fund Report estimated that if 
national readmission rates were lowered to the levels achieved by the 
top performing regions, Medicare would save $1.9 billion annually.\70\ 
We believe that reducing preventable readmissions will bring down 
healthcare costs.
---------------------------------------------------------------------------

    \68\ Jencks SF, Williams MV, Coleman EA. Rehospitalizations 
among patients in the Medicare fee-for-service program. N Engl J 
Med. Apr 2 2009;360(14):1418-1428.
    \69\ Medicare Payment Advisory Commission (MedPAC), Report to 
the Congress: Promoting Greater Efficiency in Medicare. 2007.
    \70\ The Commonwealth Fund, Why Not the Best? Results from a 
National Scorecard on U.S. Health System Performance. 2006: 
Harrisburg, PA.
---------------------------------------------------------------------------

    Since 2009, we have publicly reported risk-standardized readmission 
rates (RSRRs) for three conditions: heart failure (HF), pneumonia (PN) 
and acute myocardial infarction (AMI) on Hospital Compare (http://www.hospitalcompare.hhs.gov/), as part of the efforts to improve 
quality of care and lower healthcare costs. However, these three 
conditions account for only a relatively small proportion of total 
hospital readmissions. High RSRRs and substantial variations in 
hospital RSRRs were found. The median 30-day RSRRs across hospitals is 
19.9 percent for AMI (range from 15.3 percent to 26.8 percent); 24.8 
percent for HF (range from 17.0 percent to 33.0 percent); and 18.4 
percent for PN (range from 13.8 percent to 26.4 percent).\71\
---------------------------------------------------------------------------

    \71\ Bernheim S, Wang Y, Grady J, et al. Measures Maintenance 
Technical Report: Acute Myocardial Infarction. Heart Failure, and 
Pneumonia 30-day Risk Standardized Mortality Measures. 2011; 
Available at: http://www.qualitynet.org/.
---------------------------------------------------------------------------

    A hospital's readmission rate is affected by complex and critical 
aspects of care such as communication between providers or between 
providers and patients; prevention of, and response to, complications; 
patient safety; and coordinated transitions to the outpatient 
environment. While disease-specific measures of readmission are useful 
in identifying deficiencies in care for specific groups of patients, 
they account for only a small minority of total readmissions.\72\ By 
contrast, a hospital-

[[Page 28043]]

wide, all-condition readmission measure could portray a broader sense 
of the quality of care in hospitals. Consequently, hospital-wide, all-
condition readmission measures can promote hospital quality improvement 
and better inform consumers about care quality.
---------------------------------------------------------------------------

    \72\ Jencks SF, Williams MV, Coleman EA. Rehospitalizations 
among patients in the Medicare fee-for-service program. N Engl J 
Med. Apr 2 2009;360(14):1418-1428.
---------------------------------------------------------------------------

    Studies have estimated the rate of preventable readmissions to be 
as low as 12 percent and as high as 76 percent.\73,74\ Some 
readmissions are unavoidable, for example, those that result from 
inevitable progression of disease or worsening of chronic conditions. 
However, readmissions may also result from poor quality of care or 
inadequate transitional care. Randomized controlled trials have shown 
that improvement in the following areas can directly reduce hospital 
readmission rates: Quality of care during the initial admission; 
improvement in communication with patients, their caregivers and their 
clinicians; patient education; pre-discharge assessment; and 
coordination of care after discharge. Successful randomized trials have 
reduced 30-day readmission rates by 20-40 
percent.<SUP>75,76,77,78,79,80,81</SUP> Evidence that hospitals have 
been able to reduce readmission rates through these quality-of-care 
initiatives illustrates the degree to which hospital best practices can 
affect readmission rates.
---------------------------------------------------------------------------

    \73\ Benbassat J, Taragin M. Hospital readmissions as a measure 
of quality of health care: advantages and limitations. Arch Inter 
Med 2000;160(8):1074-81.
    \74\ Medicare Payment Advisory Commission (U.S.). Report to the 
Congress promoting greater efficiency in Medicare. Washington, DC: 
Medicare Payment Advisory Commission, 2007.
    \75\ Jack BW, Chetty VK, Anthony D, Greenwald JL, Sanchez GM, 
Johnson AE, et al. A reengineered hospital discharge program to 
decrease rehospitalization: a randomized trial. Ann Intern Med 
2009;150(3):178-87.
    \76\ Coleman EA, Smith JD, Frank JC, Min SJ, Parry C, Kramer AM. 
Preparing patients and caregivers to participate in care delivered 
across settings: the Care Transitions Intervention. J Am Geriatr Soc 
2004;52(11):1817-25
    \77\ Courtney M, Edwards H, Chang A, Parker A, Finlayson K, 
Hamilton K. Fewer emergency readmissions and better quality of life 
for older adults at risk of hospital readmission: a randomized 
controlled trial to determine the effectiveness of a 24-week 
exercise and telephone follow-up program. J Am Geriatr Soc 
2009;57(3):395-402.
    \78\ Garasen H, Windspoll R, Johnsen R. Intermediate care at a 
community hospital as an alternative to prolonged general hospital 
care for elderly patients: a randomised controlled trial. BMC Public 
Health 2007;7:68.
    \79\ Koehler BE, Richter KM, Youngblood L, Cohen BA, Prengler 
ID, Cheng D, et al. Reduction of 30-day postdischarge hospital 
readmission or emergency department (ED) visit rates in high-risk 
elderly medical patients through delivery of a targeted care bundle. 
J Hosp Med 2009;4(4):211-218.
    \80\ Naylor M, Brooten D, Jones R, Lavizzo-Mourey R, Mezey M, 
Pauly M. Comprehensive discharge planning for the hospitalized 
elderly. A randomized clinical trial. Ann Intern Med 
1994;120(12):999-1006.
    \81\ Naylor MD, Brooten D, Campbell R, Jacobsen BS, Mezey MD, 
Pauly MV, et al. Comprehensive discharge planning and home follow-up 
of hospitalized elders: a randomized clinical trial. Jama 
1999;281(7):613-20.
---------------------------------------------------------------------------

    Our Quality Improvement Organizations (QIOs) began projects to 
improve care transitions during the 9th Statement of Work in fourteen 
communities by applying successful interventions learned from clinical 
trials, such as medication reconciliation, increased patient education, 
follow up after discharge, and post-discharge instructions for 
patients.\82\ Important interventions to integrate care for populations 
and communities now continue among all 53 QIOs on a national scale in 
the QIO 10th Statement of Work which began August 2011.
---------------------------------------------------------------------------

    \82\ Jack BW, Chetty VK, Anthony D, Greenwald JL, Sanchez GM, 
Johnson AE, et al. A reengineered hospital discharge program to 
decrease rehospitalization: A randomized trial. Ann Intern Med 
2009;150(3):178-87.
---------------------------------------------------------------------------

    Because many studies have shown readmissions to be related to 
quality of care, and that interventions have been able to reduce 30-day 
readmission rates, we believe that it is appropriate to include an all-
condition readmission rate as a quality measure in the Hospital IQR 
Program. Promoting quality improvements leading to successful 
transition of care for patients from acute care to outpatient setting, 
and reducing short term, preventable hospital-wide readmission rates 
are CMS's priority objectives.
    To provide a broader assessment of the quality of care at 
hospitals, especially for hospitals with too few AMI/HF/PN readmissions 
to count separately, we have developed a Hospital-Wide Readmission 
(HWR) measure using 2008 Medicare FFS data. Detailed information and 
specifications for this measure can be found on the NQF Web site at: 
http://www.qualityforum.org/Projects/Readmissions_Endorsement_Maintenance.aspx#t=2&s=&p=7%7C6%7C5%7C4%7C. The objective of the 
proposed HWR measure is to assess the hospital-level, risk-standardized 
rate of unplanned, all-cause readmissions after admissions for any 
eligible condition within 30 days of hospital discharge. The proposed 
measure comprises a single summary score, derived from the results of 
five different models, one for each of the following specialty cohorts 
(groups of discharge condition categories or procedure categories): 
Medicine, surgery/gynecology; cardiorespiratory; cardiovascular; and 
neurology.
    We are proposing to use one year of data to calculate the measure 
rate for the HWR measure, which we believe is sufficient to calculate 
this measure in a statistically reliable manner. The reliability of a 
hospital's measure rate is related to its sample size. For its rate to 
be calculated reliably statistically, a hospital needs to have a 
sufficient number of patient cases to which the measure applies. 
Because the proposed HWR measure addresses over 90 percent of Medicare 
FFS hospitalizations for patients aged 65 and older, we believe one 
year of data would yield a sufficient number of cases to assess 
hospital performance in a statistically reliable manner. In contrast, 
for the condition-specific readmission measures for AMI, Heart Failure 
and Pneumonia, each of which address a smaller proportion of Medicare 
FFS Hospitalizations than the HWR measure, we must use three years of 
data for to have a enough patient cases to calculate the rates for 
these measures. We also believe that use of one year of data for the 
HWR measure is appropriate because it allows us to calculate up-to-date 
hospital performance for the most recent year, rather than calculating 
hospital performance over the course of three years, as we must do for 
the AMI, HF, and PN readmission measures. The proposed measure 
methodology is described in greater detail below.
    The proposed measure uses 30 days following the index admission as 
the timeframe for assessing hospital performance because within this 
timeframe, readmissions are more likely attributable to care received 
during the index hospitalization and during the transition to the 
outpatient setting. For example, hospitals, in collaboration with their 
medical communities take actions to reduce readmission, such as 
ensuring patients are clinically ready at discharge, reducing risk of 
infection, reconciling medications, improving communications among 
providers involved in management principles, and educating patients 
about symptoms to monitor, whom to contact with questions, and where 
and when to seek follow-up care. Furthermore our ``time-to-event 
curve'' analyses showed a readmission curve with rapid early accrual of 
readmissions with a stable and consistent readmission rate thereafter; 
the curve typically stabilized within 30-days of discharge. Finally, 
the proposed 30-day timeframe is consistent with the other publicly 
reported CMS readmission measures endorsed by the NQF.
    The proposed HWR measure defines the outcome as ``all-cause'' 
unplanned readmissions. Unplanned readmissions

[[Page 28044]]

are acute clinical events experienced by a patient that require urgent 
hospital admission. Higher than expected unplanned readmission rates 
suggest lower quality of care and are the focus of quality measurement 
as part of quality improvement efforts. Because planned readmissions 
are not a signal of quality of care, we chose to exclude planned 
readmissions from being considered as an outcome for this measure. The 
proposed measure includes hospitalizations of patient who was age 65 or 
older (at the time of admission) who were in Medicare Fee-for-Service 
(FFS) for 12 months prior to the index admission, and who remained in 
Medicare FFS for at least 30-days post-discharge. The measure excludes 
patients who died during the index admission; patients who were 
transferred to another acute care hospital; patients who were 
discharged against medical advice; and patients who died within the 30-
day post-discharge period. The measure also excludes admissions for 
medical treatment of cancer; for primary psychiatric disease (patients 
admitted for psychiatric treatment are typically cared for in separate 
psychiatric or rehabilitation centers which are not comparable to acute 
care hospitals); or for physical rehabilitation and prosthetic 
services.
    The proposed measure excludes patients undergoing medical treatment 
for their cancer as their primary procedure because we concluded that 
readmission may not be a good quality indicator for this cohort of 
patients compared to other cohorts. For example, the cancer cohort had 
more than twice the post-discharge mortality of any other cohort. It 
also has a planned readmission rate six times that of any other 
cohort--41 percent of readmissions in this cohort were considered 
planned. This indicates that readmission in this population is a 
different phenomenon than for other cohorts. Most importantly, this 
cohort's risk standardized readmission ratio (SRR) was poorly 
correlated with the composite hospital-wide SRR of all other cohorts. 
Statistically this implies that readmission for the cancer cohort is 
likely measuring an aspect of quality very different from that for 
other cohorts. Consequently, we elected to exclude this subset of 
cancer patients from the measure.
    For this measure, a patient is considered to have been readmitted 
if they experience one or more inpatient admissions within the 30 days 
after being discharged from an initial inpatient admission, whether the 
patient was readmitted to the same hospital or another. The proposed 
measure identifies ``planned readmissions'' in claims data that will 
not count as readmissions in the measure using an algorithm that 
identifies readmissions that are likely to be planned as opposed to 
readmissions due to probable complications. The algorithm was based on 
two main principles:
    <bullet> The ``planned'' readmissions are those in which one of a 
pre-specified list of procedures took place (we refer readers to the 
measure methodology documentation on the NQF Web site at: http://www.qualityforum.org/Projects/Readmissions_Endorsement_Maintenance.aspx#t=2&p=2%7C3%7C&s for the list), or those 
for maintenance chemotherapy or rehabilitation. Maintenance 
chemotherapy and rehabilitation are common planned readmissions that 
are reliably distinguishable in the data even though they are not 
accompanied by procedures.
    <bullet> Admissions for acute illness or for complications of care 
are likely not ``planned.'' Clinically, any procedure completed during 
an admission for an acute illness is not likely to have been planned, 
even if that procedure is usually planned in other non-acute cases.
    Therefore, the proposed measure uses procedure codes and discharge 
diagnosis categories for each readmission to identify planned 
readmissions. Readmissions that occur for planned procedures (we refer 
readers to the measure methodology report on the NQF Web site at: 
http://www.qualityforum.org/Projects/Readmissions_Endorsement_Maintenance.aspx#t=2&p=2%7C3%7C&s for the list) and which 
are not for acute diagnoses or complications of care (listed below) are 
identified as planned.
    For example, some patients have their gallbladders removed after 
having been identified as having symptomatic gallstones. Usually this 
is a surgery that is planned in advance and scheduled. However, 
occasionally a patient becomes acutely ill or has sudden inflammation 
or infection that requires a gallbladder surgery that was not planned 
in advance. The measure uses the patients' principal discharge 
diagnosis to differentiate between patients coming in for gallbladder 
removal with chronic gallstones (biliary disease) and patients acutely 
ill with inflamed gallbladders (cholecystitis) who are having an 
unplanned gallbladder removal.
    Therefore, the proposed HWR measure defines planned readmissions 
which are excluded from the measure as any readmission:
    <bullet> In which any of these procedures set out in the table 
below are performed if the discharge condition category is not acute or 
a complication of care, as discussed below; or
    <bullet> For maintenance chemotherapy.
    All other readmissions are considered unplanned and are counted as 
readmissions in the measure.
    The following is the list of planned procedures based on the full 
AHRQ Clinical Classification Software (CCS) procedure category list.

   Procedure Categories Considered Planned Depending on the Discharge
                                Condition
------------------------------------------------------------------------
                                                   Description
------------------------------------------------------------------------
45.....................................  Percutaneous transluminal
                                          coronary angioplasty (PTCA).
                                         Rehabilitation (condition CCS
                                          254).
84.....................................  Cholecystectomy and common duct
                                          exploration.
157....................................  Amputation of lower extremity.
44.....................................  Coronary artery bypass graft
                                          (CABG).
78.....................................  Colorectal resection.
51.....................................  Endarterectomy; vessel of head
                                          and neck.
113....................................  Transurethral resection of
                                          prostate (TURP).
99.....................................  Other OR gastrointestinal
                                          therapeutic procedures.
48.....................................  Insertion; revision;
                                          replacement; removal of
                                          cardiac pacemaker or
                                          cardioverter/defibrillator.
                                         Maintenance Chemotherapy
                                          (condition CCS 45).
211....................................  Therapeutic radiology for
                                          cancer treatment.
3......................................  Laminectomy; excision
                                          intervertebral disc.
43.....................................  Heart valve procedures.
152....................................  Arthroplasty knee.
158....................................  Spinal fusion.
55.....................................  Peripheral vascular bypass.
52.....................................  Aortic resection; replacement
                                          or anastomosis.
36.....................................  Lobectomy or pneumonectomy.
153....................................  Hip replacement; total and
                                          partial.
60.....................................  Embolectomy and endarterectomy
                                          of lower limbs.
85.....................................  Inguinal and femoral hernia
                                          repair.
104....................................  Nephrectomy; partial or
                                          complete.
1......................................  Incision and excision of CNS.
124....................................  Hysterectomy; abdominal and
                                          vaginal.
167....................................  Mastectomy.
10.....................................  Thyroidectomy; partial or
                                          complete.
114....................................  Open prostatectomy.
74.....................................  Gastrectomy; partial and total.
119....................................  Oophorectomy; unilateral and
                                          bilateral.
154....................................  Arthroplasty other than hip or
                                          knee.
                                         Radical laryngectomy, revision
                                          of tracheostomy, scarification
                                          of pleura (ICD-9 codes 30.4,
                                          31.74, 34.6).
166....................................  Lumpectomy; quadrantectomy of
                                          breast.

[[Page 28045]]

 
64.....................................  Bone marrow transplant.
105....................................  Kidney transplant.
176....................................  Other organ transplantation.
                                         Electroshock therapy (ICD-9
                                          codes 94.26, 94.27).
------------------------------------------------------------------------

    The algorithm is designed to identify admissions for acute illness 
or complication of care as ``unplanned'' readmissions. The acute and 
complication discharge condition categories for unplanned readmissions 
are listed below.

Discharge Condition Categories Considered Acute or Complications of Care
------------------------------------------------------------------------
               AHRQ CCS                            Description
------------------------------------------------------------------------
237...................................  Complication of device; implant
                                         or graft.
106...................................  Cardiac dysrhythmias.
                                        Fracture (condition CCS 207,
                                         225, 226, 227, 229, 230, 231,
                                         232).
100...................................  Acute myocardial infarction.
238...................................  Complications of surgical
                                         procedures or medical care.
108...................................  Congestive heart failure;
                                         nonhypertensive.
2.....................................  Septicemia (except in labor).
146...................................  Diverticulosis and
                                         diverticulitis.
105...................................  Conduction disorders.
109...................................  Acute cerebrovascular disease.
145...................................  Intestinal obstruction without
                                         hernia.
233...................................  Intracranial injury.
116...................................  Aortic and peripheral arterial
                                         embolism or thrombosis.
122...................................  Pneumonia (except that caused by
                                         TB or sexually transmitted
                                         disease).
131...................................  Respiratory failure;
                                         insufficiency; arrest (adult).
157...................................  Acute and unspecified renal
                                         failure.
201...................................  Infective arthritis and
                                         osteomyelitis (except that
                                         caused by TB or sexually
                                         transmitted disease).
153...................................  Gastrointestinal hemorrhage.
130...................................  Pleurisy; pneumothorax;
                                         pulmonary collapse.
97....................................  Peri-; endo-; and myocarditis;
                                         cardiomyopathy.
127...................................  Chronic obstructive pulmonary
                                         disease and bronchiectasis.
55....................................  Fluid and electrolyte disorders.
159...................................  Urinary tract infections.
245...................................  Syncope.
139...................................  Gastroduodenal ulcer (except
                                         hemorrhage).
160...................................  Calculus of urinary tract.
112...................................  Transient cerebral ischemia.
                                        All condition categories.
------------------------------------------------------------------------

    To compare readmission performance across hospitals, the proposed 
measure accounts for differences in patient characteristics (patient 
case mix) as well as differences in mixes of services and procedures 
offered by hospitals (hospital service-mix). The proposed measure 
includes 93.4 percent of Medicare FFS hospitalizations occurring in 
2008, and includes 92.1 percent of readmissions following those 
hospitalizations.
    The proposed measure uses the conditions and procedures defined by 
the AHRQ CCS, which is a widely used and accepted method of grouping 
patients into diagnostic categories. The AHRQ CCS collapsed the more 
than 17,000 different ICD-9-CM diagnosis and procedure codes into 285 
clinically-coherent, mutually-exclusive condition categories and 231 
mutually-exclusive procedure categories. We created five major 
specialty cohorts based on organization of care (medical, surgery/
gynecology, cardiorespiratory, cardiovascular, and neurology), and 
assigned each condition category to a cohort. Admissions that included 
major surgical procedures (regardless of condition category) were 
assigned to the surgery/gynecology cohort. We estimated separate 
adjustment coefficients for each cohort using a single set of risk 
factors. We used hierarchical logistic regression to adjust for 
differences in hospital case mix and to account for the clustering of 
patients within a hospital. We adjusted for case mix differences among 
hospitals by risk-adjusting for patients' comorbid conditions 
identified in inpatient episodes of care for the 12 months prior to the 
index admission as well as those present at admission. We did not risk 
adjust for diagnoses that may have been a complication of care during 
the index admission. We used CMS Condition Category groups (CMS-CCs) to 
define the comorbid risk adjusters and used a fixed set of comorbid 
risk variables across models. We risk adjusted for service mix 
differences among hospitals within each major cohort by including 
indicator variables for discharge condition categories (as defined by 
AHRQ CCS) in each model.
    Finally, we used each of the five cohort models to calculate 
predicted and expected numbers of readmissions for each hospital in 
each cohort. We then derived a single summary score from the results of 
the five models by calculating the volume-weighted log average of the 
predicted over expected ratios from each model and multiplying the 
resulting ratio by the average national readmission rate. This approach 
allowed us to take into account the variation in hospital specialty 
cohort mix.
    The proposed HWR measure was recommended to the NQF board of 
directors for endorsement in March 2012 by the NQF Consensus Standards 
Approval Committee (CSAC). The MAP supported selection of the HWR 
measure for the Hospital IQR Program contingent on NQF endorsement. 
This measure is in the final stages of the NQF measure endorsement 
process, and we

[[Page 28046]]

expect its endorsement to be finalized in the coming months.
    We are proposing to adopt this measure in the Hospital IQR Program 
for the FY 2015 payment determination and subsequent years under the 
exception authority in section 1886(b)(3)(B)(IX)(bb) of the Act. This 
section provides that in the case of a specified area or medical topic 
determined appropriate by the Secretary for which a feasible and 
practical measure has not been endorsed by the entity with a contract 
under section 1890(a), the Secretary may specify a measure that is not 
so endorsed as long as due consideration is given to measures that have 
been endorsed or adopted by a consensus organization identified by the 
Secretary. We reviewed the NQF-endorsed measures, and we were unable to 
identify any other NQF-endorsed measures that assess hospital-wide 
readmissions. We also are not aware of any other hospital-wide 
readmission measures that have been endorsed or adopted by a consensus 
organization other than NQF. The one other hospital-wide readmissions 
measure of which we are aware is the Risk-Adjusted 30-Day All-Cause 
Readmission Rate measure (formerly NQF <greek-i>0329). This measure was 
endorsed by NQF, but NQF removed the measure's endorsement during a 
recent consensus development project that recommended endorsement of 
the HWR measure. Accordingly, we propose to adopt the HWR measure under 
the Secretary's authority set forth at section 1886(b)(3)(B)(IX)(bb) of 
the Act. We invite public comment on this proposal.
(C) Proposed New Chart-Abstracted Measure: Elective Delivery Prior to 
39 Completed Weeks Gestation: Percentage of Babies Electively Delivered 
Prior to 39 Completed Weeks Gestation (NQF <greek-i>0469)
    For the FY 2015 payment determination and subsequent years, we are 
proposing to add a chart-abstracted measure, Elective Delivery Prior to 
39 Completed Weeks Gestation: Percentage of Babies Electively Delivered 
Prior to 39 Completed Weeks Gestation. In launching the Strong Start 
Initiative (http://www.innovation.cms.gov/initiatives/strong-start/) to 
help reduce preterm births, the HHS Secretary indicated in a press 
release that more than half a million infants are born prematurely in 
America each year, and that this trend has increased 36 percent over 
the last 20 years. Preterm births may require additional medical 
attention and early intervention services. Some recent research 
indicates that elective deliveries before 39 weeks increase the risk of 
significant complications for mother and baby, as well as long-term 
health problems.<SUP>83,84,85,86</SUP> Preterm births are a growing 
public health problem that has significant consequences for families 
well into a child's life.
---------------------------------------------------------------------------

    \83\ Glantz, J. (Apr. 2005). Elective induction vs. spontaneous 
labor associations and outcomes. J Reprod Med. 50(4):235-40.
    \84\ Vardo, J., Thornburg, L., Glantz, J., (2011). Maternal and 
neonatal morbidity among nulliparous women undergoing elective 
induction of labor. J. Reprod Med. 56(1-2): 25-30.
    \85\ Tita, A., Landon, M., Spong, C., Lai, Y., Leveno, K., 
Varner, M, et al. (2009). Timing of elective repeat cesarean 
delivery at term and neonatal outcomes. [Electronic Version]. NEJM. 
360:2, 111-120.
    \86\ Clark, S., Miller, D., Belfort, M., Dildy, G., Frye, D., & 
Meyers, J. (2009). Neonatal and maternal outcomes associated with 
elective delivery. [Electronic Version]. Am J Obstet Gynecol. 
200:156.e1-156.e4.
---------------------------------------------------------------------------

    As a public campaign to reduce preterm births, the Strong Start 
Initiative's objective is to test ways to reverse this trend by helping 
provide expectant mothers with the care they need for a healthy 
delivery and a healthy baby, and by focusing on reducing early elective 
deliveries, which can lead to a variety of health problems for mothers 
and infants.
    The Strong Start Initiative cuts across many agencies within HHS 
and involves external organizations including the March of Dimes, and 
the American College of Obstetricians and Gynecologists (ACOG). We 
believe that a reduction in the number of nonmedically indicated 
elective deliveries at >=37 to <39 weeks gestation will result in a 
substantial decrease in neonatal morbidity and mortality, as well as a 
significant savings in healthcare costs. In addition, the rate of 
cesarean sections should decrease with fewer elective inductions 
resulting in decreased length of stay and healthcare costs. The 
proposed measure would assist hospitals in tracking nonmedically 
indicated early term elective deliveries and reduce the occurrence of 
such deliveries. This measure would assess patients with elective 
vaginal deliveries or elective cesarean sections at >=37 and <39 weeks 
of gestation completed. The numerator for this measure is the number of 
patients with elective deliveries with principal or other procedure 
codes for one or more of the following: Medical induction of labor, and 
cesarean section while not in active labor or experiencing spontaneous 
rupture of membranes. Exclusions are: Less than 8 years of age; Greater 
than or equal to 65 years of age; Length of Stay >120 days; and 
enrolled in clinical trials.
    We are proposing to adopt this measure for the Hospital IQR Program 
because we believe this measure furthers the National Quality 
Strategy's three-part aim of better health care for individuals, better 
health for populations, and low costs for health care. Additionally, we 
have determined that the measure is relevant to the nearly 2 million 
Medicare beneficiaries who are aged 44 and under, most of whom are dual 
eligible beneficiaries, who have the potential to be impacted by pre-
term births. This is evidenced by the fact that, in 2011, Medicare paid 
for roughly 14,000 births. The measure is NQF-endorsed; therefore, the 
measure meets the selection criteria under section 
1886(b)(3)(B)(viii)(IX)(aa) of the Act. The measure is currently under 
NQF maintenance review. In its Pre-Rulemaking report for 2012, the MAP 
also recommended the inclusion of this measure in the Hospital IQR 
Program. TJC is the measure steward of this measure and the detailed 
measure specification can be found on the TJC Web site at: http://manual.jointcommission.org/releases/TJC2012A/MIF0166.html.
    We are proposing to add this measure to the Hospital IQR Program 
for the FY 2015 payment determination, with collection beginning with 
January 1, 2013 discharges. Although this measure is chart-abstracted, 
we are proposing that this measure would be collected in aggregated 
numerator, denominator, and exclusion counts per hospital via a Web-
based tool (as opposed to collecting patient-level data from 
hospitals). Specific details regarding this proposed approach to data 
collection are included in section VIII.A.5. of this preamble on the 
form, manner, and timing of quality data submission for the Hospital 
IQR Program. We anticipate that the e-specifications of this measure 
will be completed in the summer of 2012. We intend to move to EHR-based 
collection of this and other measures once the necessary infrastructure 
to do so is in place. We invite public comment on our proposal to adopt 
this measure.

(D) Clarification Regarding Existing Hospital IQR Program Measures That 
Have Undergone Changes During NQF Measure Maintenance Processes

    As discussed previously, once adopted, we retain measures in the 
Hospital IQR Program unless specifically stated otherwise. Recently the 
CLABSI and CAUTI measures were expanded to pertain to non-ICU locations 
in hospitals and to other types of care settings as part of NQF

[[Page 28047]]

maintenance review. These measures retained their original NQF numbers 
as these changes were not considered substantive. However, we will 
continue to require hospitals to submit data for these two measures on 
ICU locations only for the Hospital IQR Program. We seek comment from 
hospitals on the feasibility and timing of expanding collection of 
these measures to include non-ICU locations in hospitals.
    NQF, in addition to expanding the care settings to which the CLABSI 
and CAUTI measures could apply, also changed how these measures are 
calculated. The original endorsed version of the measures calculated an 
infection rate per 1,000 central line days for CLABSI and for 1,000 
urinary catheter days for CAUTI. In the course of its maintenance 
review, NQF changed the way the measures are calculated from an 
infection rate per 1,000 days to a standardized infection ratio 
(``SIR''), which is comprised of the actual rate of infection over the 
expected rate of infection. We note that although the previously 
endorsed versions of the CAUTI and CLABSI measures did not include the 
SIR calculation, we have reported the CDC-calculated SIR for both 
measures on the Hospital Compare Web site. While use of this 
calculation is different from the original NQF-endorsed measure output, 
we believe the SIR is a more accurate way to calculate the CLABSI and 
CAUTI measures for comparative purposes rather than the rate per 1,000 
infection days because it takes into account hospitals' case mix. We 
will continue to report SIRs for both measures because this calculation 
is now consistent with NQF's endorsement of the measures. We also note 
that use of the SIR calculation does not change the type of data that 
hospitals submit on the CLABSI and CAUTI measures.
    In summary, we are proposing the removal of 17 measures (1 chart-
abstracted measure and 16 claims-based measures) from the measure set 
for the FY 2015 payment determination and subsequent years. We are 
proposing to add survey items to the existing HCAHPS survey. We also 
are proposing to add 3 claims-based measures and 1 chart-abstracted 
measure to the measure set for the FY 2015 payment determination and 
subsequent years, for a total of 59 measures. These 59 measures are 
listed below.

------------------------------------------------------------------------
                                        Proposed hospital IQR program
               Topic                    measures for FY 2015 payment
                                     determination and subsequent years
------------------------------------------------------------------------
Acute Myocardial Infarction (AMI)   <bullet> AMI-2 Aspirin prescribed at
 Measures.                           discharge.
                                    <bullet> AMI-7a Fibrinolytic
                                     (thrombolytic) agent received
                                     within 30 minutes of hospital
                                     arrival.
                                    <bullet> AMI-8a Timing of Receipt of
                                     Primary Percutaneous Coronary
                                     Intervention (PCI).
                                    <bullet> AMI-10 Statin Prescribed at
                                     Discharge.
Heart Failure (HF) Measures.......  <bullet> HF-1 Discharge
                                     instructions.
                                    <bullet> HF-2 Evaluation of left
                                     ventricular systolic function.
                                    <bullet> HF-3 Angiotensin Converting
                                     Enzyme Inhibitor (ACE-I) or
                                     Angiotensin II Receptor Blocker
                                     (ARB) for left ventricular systolic
                                     dysfunction.
Stroke (STK) Measure Set..........  <bullet> STK-1 VTE prophylaxis.
                                    <bullet> STK-2 Antithrombotic
                                     therapy for ischemic stroke.
                                    <bullet> STK-3 Anticoagulation
                                     therapy for Afib/flutter.
                                    <bullet> STK-4 Thrombolytic therapy
                                     for acute ischemic stroke.
                                    <bullet> STK-5 Antithrombotic
                                     therapy by the end of hospital day
                                     2.
                                    <bullet> STK-6 Discharged on Statin.
                                    <bullet> STK-8 Stroke education.
                                    <bullet> STK-10 Assessed for rehab.
VTE Measure Set...................  <bullet> VTE-1 VTE prophylaxis.
                                    <bullet> VTE-2 ICU VTE prophylaxis.
                                    <bullet> VTE-3 VTE patients with
                                     anticoagulation overlap therapy.
                                    <bullet> VTE-4 Patients receiving un-
                                     fractionated Heparin with doses/
                                     labs monitored by protocol.
                                    <bullet> VTE-5 VTE discharge
                                     instructions.
                                    <bullet> VTE-6 Incidence of
                                     potentially preventable VTE.
Pneumonia (PN) Measures...........  <bullet> PN-3b Blood culture
                                     performed in the emergency
                                     department prior to first
                                     antibiotic received in hospital.
                                    <bullet> PN-6 Appropriate initial
                                     antibiotic selection.
Surgical Care Improvement Project   <bullet> SCIP INF-1 Prophylactic
 (SCIP) Measures.                    antibiotic received within 1 hour
                                     prior to surgical incision.
                                    <bullet> SCIP INF-2 Prophylactic
                                     antibiotic selection for surgical
                                     patients.
                                    <bullet> SCIP INF-3 Prophylactic
                                     antibiotics discontinued within 24
                                     hours after surgery end time (48
                                     hours for cardiac surgery).
                                    <bullet> SCIP INF-4 Cardiac surgery
                                     patients with controlled 6AM
                                     postoperative serum glucose.
                                    <bullet> SCIP INF-9 Postoperative
                                     urinary catheter removal on post
                                     operative day 1 or 2 with day of
                                     surgery being day zero.
                                    <bullet> SCIP INF-10 Surgery
                                     patients with perioperative
                                     temperature management.
                                    <bullet> SCIP Cardiovascular-2
                                     Surgery Patients on a Beta Blocker
                                     prior to arrival who received a
                                     Beta Blocker during the
                                     perioperative period.
                                    <bullet> SCIP-VTE-2 Surgery patients
                                     who received appropriate VTE
                                     prophylaxis within 24 hours pre/
                                     post surgery.
Mortality Measures (Medicare        <bullet> Acute Myocardial Infarction
 Patients).                          (AMI) 30-day mortality rate.
                                    <bullet> Heart Failure (HF) 30-day
                                     mortality rate.
                                    <bullet> Pneumonia (PN) 30-day
                                     mortality rate.
Patients' Experience of Care        <bullet> HCAHPS survey (expanded to
 Measures.                           include one 3-item care transition
                                     set* and two new ``About You''
                                     items).
Readmission Measures (Medicare      <bullet> Acute Myocardial Infarction
 Patients).                          30-day Risk Standardized
                                     Readmission Measure.
                                    <bullet> Heart Failure 30-day Risk
                                     Standardized Readmission Measure.
                                    <bullet> Pneumonia 30-day Risk
                                     Standardized Readmission Measure.
                                    <bullet> 30-day Risk Standardized
                                     Readmission following Total Hip/
                                     Total Knee Arthroplasty.*
                                    <bullet> Hospital-Wide All-Cause
                                     Unplanned Readmission (HWR).*
AHRQ Patient Safety Indicators      <bullet> Complication/patient safety
 (PSIs) Composite Measures.          for selected indicators
                                     (composite).

[[Page 28048]]

 
AHRQ PSI and Nursing Sensitive      <bullet> PSI-4 Death among surgical
 Care.                               inpatients with serious treatable
                                     complications.
Structural Measures...............  <bullet> Participation in a
                                     Systematic Database for Cardiac
                                     Surgery.
                                    <bullet> Participation in a
                                     Systematic Clinical Database
                                     Registry for Stroke Care.
                                    <bullet> Participation in a
                                     Systematic Clinical Database
                                     Registry for Nursing Sensitive
                                     Care.
                                    <bullet> Participation in a
                                     Systematic Clinical Database
                                     Registry for General Surgery.
Healthcare-Associated Infections    <bullet> Central Line Associated
 Measures.                           Bloodstream Infection.
                                    <bullet> Surgical Site Infection.
                                    <bullet> Catheter-Associated Urinary
                                     Tract Infection.
                                    <bullet> MRSA Bacteremia.
                                    <bullet> Clostridium Difficile
                                     (C.Diff).
                                    <bullet> Healthcare Personnel
                                     Influenza Vaccination.
Surgical Complications............  <bullet> Hip/Knee Complication:
                                     Hospital-level Risk-Standardized
                                     Complication Rate (RSCR) following
                                     Elective Primary Total Hip
                                     Arthroplasty.*
Emergency Department                <bullet> ED-1 Median time from
(ED) Throughput Measures..........   emergency department arrival to
                                     time of departure from the
                                     emergency room for patients
                                     admitted to the hospital.
                                    <bullet> ED-2 Median time from admit
                                     decision to time of departure from
                                     the emergency department for
                                     emergency department patients
                                     admitted to the inpatient status.
Prevention: Global Immunization     <bullet> Immunization for Influenza.
 (IMM) Measures.                    <bullet> Immunization for Pneumonia.
Cost Efficiency...................  <bullet> Medicare Spending per
                                     Beneficiary.
Perinatal Care....................  <bullet> Elective delivery prior to
                                     39 completed weeks of gestation.*
------------------------------------------------------------------------
* New measures/items proposed for the FY 2015 payment determination and
  subsequent years.

c. Proposed Hospital IQR Program Quality Measures for the FY 2016 
Payment Determination and Subsequent Years
    In the CY 2012 OPPS/ASC final rule with comment period (76 FR 
74466), we adopted the Safe Surgery Checklist Use measure for the 
Hospital OQR Program for CY 2014 payment determination. In the same 
rule, we adopted this measure for the ASCQR Program for CY 2015 payment 
determination (76 FR 74507). This structural measure assesses whether a 
hospital outpatient department utilizes a Safe Surgery checklist that 
assesses whether effective communication and safe practices are 
performed during three distinct perioperative periods: (1) The period 
prior to the administration of anesthesia; (2) the period prior to skin 
incision; and (3) the period of closure of incision and prior to the 
patient leaving the operating room. The use of such checklists has been 
credited with dramatic decreases in preventable harm, complications, 
and post-surgical mortality.\87\ Like hospital outpatient settings and 
ambulatory surgical centers, acute care hospitals also perform many 
surgical procedures. Therefore, we believe this measure is also 
applicable for hospital inpatient settings in strengthening patient 
safety precautions in hospitals and we are proposing to adopt this 
measure for the Hospital IQR Program for FY 2016 payment determination 
and subsequent years.
---------------------------------------------------------------------------

    \87\ Haynes, A.B.; Weiser, T.G.; Berry, W.G. et al. (2009). ``A 
Surgical Safety Checklist to Reduce Morbidity and Mortality in a 
Global Population.'' New England Journal of Medicine. 360: 491-499.
---------------------------------------------------------------------------

    For this proposed structural measure, a hospital inpatient 
department would indicate whether or not it uses a safe surgery 
checklist for its surgical procedures that includes safe surgery 
practices during each of the three critical perioperative periods 
discussed above. The measure would not require a hospital to report 
whether it uses a checklist in connection with any individual inpatient 
procedures. We refer readers to the CY 2012 OPPS/ASC final rule with 
comment period (76 FR 74505 through 74506) for the detailed discussion 
of the Safe Surgery Checklist Use measure.
    We are proposing to adopt this Safe Surgery Checklist structural 
measure, which is not NQF-endorsed, under the exception authority 
provided in section 1886(b)(3)(B)(IX)(bb) of the Act. This section 
provides that in the case of a specified area or medical topic 
determined appropriate by the Secretary for which a feasible and 
practical measure has not been endorsed by the entity with a contract 
under section 1890(a), the Secretary may specify a measure that is not 
so endorsed as long as due consideration is given to measures that have 
been endorsed or adopted by a consensus organization identified by the 
Secretary. We reviewed the NQF-endorsed measures, and we were unable to 
identify any NQF-endorsed measures that assess use of safe surgery 
checklists. We also are not aware of any other safe surgery checklist 
use measures that have been endorsed or adopted by a consensus 
organization other than NQF. Accordingly, we propose to adopt the Safe 
Surgery Checklist measure under the Secretary's authority set forth at 
section 1886(b)(3)(B)(IX)(bb) of the Act.
    This measure was included on the pre-rulemaking list for 
consideration by the MAP, and this multistakeholder organization 
comprised of affected parties supported the direction of this measure 
pending availability of specifications. These specifications will be 
made available in an upcoming manual release for the ASC Quality 
Reporting Program which will be available on Quality Net Web site at 
http://www.qualitynet.gov. The proposed safe surgery checklist measure 
assesses the adoption of a best practice for surgical care that is 
broadly accepted and in widespread use among affected parties. In 
addition to being adopted by The World Federation of Societies of 
Anesthesiologists, the use of a safe surgery checklist is one of the 
safe surgery principles endorsed by the Council on Surgical and 
Perioperative Safety, which is comprised of the American Association of 
Nurse Anesthetists, the American College of Surgeons, the American 
Association of Surgical Physician Assistants, the American Society of 
Anesthesiologists, the American Society of PeriAnesthesia Nurses, the 
AORN, and the Association of Surgical Technologists. Two State agencies 
(Oregon and South Carolina), the Veterans Health Administration,\88\ 
numerous hospital systems, State hospital associations (such as 
California

[[Page 28049]]

and South Carolina), national accrediting organizations, and large 
private insurers have endorsed the use of a safe surgery checklist as a 
best practice for reducing morbidity, mortality, and medical 
errors.\89,90\ Although there is not currently an NQF endorsed measure 
for safe surgery checklist use, because the use of a safe surgery 
checklist is a widely accepted best practice for surgical care, we 
believe that the proposed structural measure of Safe Surgery Checklist 
use reflects consensus among affected parties. We also note that TJC 
included safe surgery checklist practices among those to be used to 
achieve National Patient Safety Goals (NPSGs) adopted for 2011 for 
surgeries performed in ambulatory settings and hospitals.
---------------------------------------------------------------------------

    \88\ Neily, J; Mills, PD, Young-Xu, Y. (2010). ``Association 
between implementation of a Medical Team Training Program and 
Surgical Mortality.'' JAMA. 304 (15): 1693-1700.
    \89\ Haynes, AB; Weiser, TG; Berry, WR et al. (2009) ``A 
Surgical Safety Checklist to Reduce Morbidity and Mortality in a 
Global Population.'' NEJM. 360: 491-499.
    \90\ Birkmeyer, JD (2010) ``Strategies for Improving Surgical 
Quality--Checklists and Beyond.'' NEJM. 363: 1963-1965.
---------------------------------------------------------------------------

    Given that this measure is pivotal in preventing human errors in 
surgical operations which are commonly performed by acute care 
hospitals, we are proposing to adopt this measure for the Hospital IQR 
Program for the FY 2016 payment determination and subsequent years. 
This proposal would achieve our goal to align measures across settings.
    In summary, we are proposing to add one new structural measure to 
the Hospital IQR measure set for the FY 2016 payment determination. The 
60 measures for the FY 2016 payment determination and subsequent years 
are listed below.

------------------------------------------------------------------------
                                        Proposed hospital IQR program
               Topic                    measures for FY 2016 payment
                                     determination and subsequent years
------------------------------------------------------------------------
Acute Myocardial Infarction (AMI)   <bullet> AMI-2 Aspirin prescribed at
 Measures.                           discharge.
                                    <bullet> AMI-7a Fibrinolytic
                                     (thrombolytic) agent received
                                     within 30 minutes of hospital
                                     arrival.
                                    <bullet> AMI-8a Timing of Receipt of
                                     Primary Percutaneous Coronary
                                     Intervention (PCI).
                                    <bullet> AMI-10 Statin Prescribed at
                                     Discharge.
Heart Failure (HF) Measures.......  <bullet> HF-1 Discharge
                                     instructions.
                                    <bullet> HF-2 Evaluation of left
                                     ventricular systolic function.
                                    <bullet> HF-3 Angiotensin Converting
                                     Enzyme Inhibitor (ACE-I) or
                                     Angiotensin II Receptor Blocker
                                     (ARB) for left ventricular systolic
                                     dysfunction.
Stroke Measure (STK) Set..........  <bullet> STK-1 VTE prophylaxis.
                                    <bullet> STK-2 Antithrombotic
                                     therapy for ischemic stroke.
                                    <bullet> STK-3 Anticoagulation
                                     therapy for Afib/flutter.
                                    <bullet> STK-4 Thrombolytic therapy
                                     for acute ischemic stroke.
                                    <bullet> STK-5 Antithrombotic
                                     therapy by the end of hospital day
                                     2.
                                    <bullet> STK-6 Discharged on Statin.
                                    <bullet> STK-8 Stroke education.
                                    <bullet> STK-10 Assessed for rehab.
VTE Measure Set...................  <bullet> VTE-1 VTE prophylaxis.
                                    <bullet> VTE-2 ICU VTE prophylaxis.
                                    <bullet> VTE-3 VTE patients with
                                     anticoagulation overlap therapy.
                                    <bullet> VTE-4 Patients receiving un-
                                     fractionated Heparin with doses/
                                     labs monitored by protocol.
                                    <bullet> VTE-5 VTE discharge
                                     instructions.
                                    <bullet> VTE-6 Incidence of
                                     potentially preventable VTE.
Pneumonia (PN) Measures...........  <bullet> PN-3b Blood culture
                                     performed in the emergency
                                     department prior to first
                                     antibiotic received in hospital.
                                    <bullet> PN-6 Appropriate initial
                                     antibiotic selection.
Surgical Care Improvement Project   <bullet> SCIP INF-1 Prophylactic
 (SCIP) Measures.                    antibiotic received within 1 hour
                                     prior to surgical incision.
                                    <bullet> SCIP INF-2 Prophylactic
                                     antibiotic selection for surgical
                                     patients.
                                    <bullet> SCIP INF-3 Prophylactic
                                     antibiotics discontinued within 24
                                     hours after surgery end time (48
                                     hours for cardiac surgery).
                                    <bullet> SCIP INF-4 Cardiac surgery
                                     patients with controlled 6AM
                                     postoperative serum glucose.
                                    <bullet> SCIP INF-9 Postoperative
                                     urinary catheter removal on post
                                     operative day 1 or 2 with day of
                                     surgery being day zero.
                                    <bullet> SCIP INF-10 Surgery
                                     patients with perioperative
                                     temperature management.
                                    <bullet> SCIP Cardiovascular-2
                                     Surgery Patients on a Beta Blocker
                                     prior to arrival who received a
                                     Beta Blocker during the
                                     perioperative period.
                                    <bullet> SCIP-VTE-2 Surgery patients
                                     who received appropriate VTE
                                     prophylaxis within 24 hours pre/
                                     post surgery.
Mortality Measures (Medicare        <bullet> Acute Myocardial Infarction
 Patients).                          (AMI) 30-day mortality rate.
                                    <bullet> Heart Failure (HF) 30-day
                                     mortality rate.
                                    <bullet> Pneumonia (PN) 30-day
                                     mortality rate.
Patients' Experience of Care        <bullet> HCAHPS survey (expanded to
 Measures.                           include one 3-item care transition
                                     set * and two new ``About You''
                                     items).
Readmission Measures (Medicare      <bullet> Acute Myocardial Infarction
 Patients).                          30-day Risk Standardized
                                     Readmission Measure.
                                    <bullet> Heart Failure 30-day Risk
                                     Standardized Readmission Measure.
                                    <bullet> Pneumonia 30-day Risk
                                     Standardized Readmission Measure.
                                    <bullet> 30-day Risk Standardized
                                     Readmission following Total Hip/
                                     Total Knee Arthroplasty.*
                                    <bullet> Hospital-Wide All-Cause
                                     Unplanned Readmission (HWR).*
AHRQ Patient Safety Indicators      <bullet> Complication/patient safety
 (PSIs) Composite Measures.          for selected indicators
                                     (composite).
AHRQ PSI and Nursing Sensitive      <bullet> PSI-4 Death among surgical
 Care.                               inpatients with serious treatable
                                     complications.
Structural Measures...............  <bullet> Participation in a
                                     Systematic Database for Cardiac
                                     Surgery.
                                    <bullet> Participation in a
                                     Systematic Clinical Database
                                     Registry for Stroke Care.
                                    <bullet> Participation in a
                                     Systematic Clinical Database
                                     Registry for Nursing Sensitive
                                     Care.
                                    <bullet> Participation in a
                                     Systematic Clinical Database
                                     Registry for General Surgery.

[[Page 28050]]

 
                                    <bullet> Safe Surgery Checklist
                                     Use.**
Healthcare-Associated Infections    <bullet> Central Line Associated
Measures..........................   Bloodstream Infection.
                                    <bullet> Surgical Site Infection.
                                    <bullet> Catheter-Associated Urinary
                                     Tract Infection.
                                    <bullet> MRSA Bacteremia.
                                    <bullet> Clostridium Difficile
                                     (C.Diff).
                                    <bullet> Healthcare Personnel
                                     Influenza Vaccination.
Surgical Complications............  <bullet> Hip/Knee Complication:
                                     Hospital-level Risk-Standardized
                                     Complication Rate (RSCR) following
                                     Elective Primary Total Hip
                                     Arthroplasty.*
Emergency Department (ED)           <bullet> ED-1 Median time from
Throughput Measures...............   emergency department arrival to
                                     time of departure from the
                                     emergency room for patients
                                     admitted to the hospital.
                                    <bullet> ED-2 Median time from admit
                                     decision to time of departure from
                                     the emergency department for
                                     emergency department patients
                                     admitted to the inpatient status.
Prevention: Global Immunization     <bullet> Immunization for Influenza.
 (IMM) Measures.                    <bullet> Immunization for Pneumonia.
Cost Efficiency...................  <bullet> Medicare Spending per
                                     Beneficiary.
Perinatal Care....................  <bullet> Elective delivery prior to
                                     39 completed weeks of gestation.*
------------------------------------------------------------------------
* New measures/items proposed for FY 2015 payment determination and
  subsequent years.
** New measures proposed for FY 2016 payment determination and
  subsequent years.

4. Possible New Quality Measures and Measure Topics for Future Years
    We anticipate that, as EHR technology evolves and more 
infrastructure is put in place, we will have the capacity to accept 
electronic reporting of many of the clinical chart-abstracted measures 
that are currently part of the Hospital IQR Program or have been 
proposed for adoption into the program. We intend for this future 
progress to significantly reduce the administrative burden on hospitals 
under the Hospital IQR Program. We recognize that considerable work 
needs to be done by measure owners and developers to make this possible 
with respect to the clinical quality measures that we proposed. This 
includes completing electronic specifications for measures, pilot 
testing, reliability and validity testing, and implementing such 
specifications into EHR technology to capture and calculate the 
results, and implementing the systems. We believe that at a future 
date, such as 2015, CMS and hospitals will be able to use EHR-based 
reporting for many chart-abstracted measures for the Hospital IQR 
Program, and we intend to work diligently toward this goal. We believe 
this will simplify measure collection and submission for the Hospital 
IQR Program, and will reduce the burden on hospitals to report chart-
abstracted measures.
    Once the e-specifications and the EHR-based collection mechanism 
are available for the smoking and alcohol cessations measures developed 
by TJC, we intend to propose two TJC smoking and alcohol cessation 
measure sets for inclusion in the Hospital IQR Program. Each of these 
TJC sets consists of four measures:
    <bullet> Smoking Cessation Set--(1) TAM-1 Tobacco Use Screening; 
(2) TAM-2 Tobacco Use Treatment Provided or Offered; (3) TAM-3 Tobacco 
Use Treatment Management at Discharge; and (4) TAM-4 Assessing Status 
after Discharge, and
    <bullet> Alcohol Cessation Set--(1) TAM-5 Alcohol Use Screening; 
(2) TAM-6 Alcohol Use Brief Intervention Provided or Offered; (3) TAM-7 
Alcohol and Other Drug Use Disorder Treatment Provided or Offered at 
Discharge; and (4) TAM-8 Substance Use: Assessing Status after 
Discharge.
    These measure sets were recommended by the MAP for inclusion in the 
Hospital IQR Program, provided they complete the NQF endorsement 
process prior to inclusion. We invite public comment on our intention 
to propose these measure sets.
    We also note that consistent with the updated NQF endorsements of 
the CLABSI (NQF <greek-i>139) and CAUTI (NQF <greek-i>138) measures, we 
intend to propose to collect data for non-ICU patients as well for 
these two measures at a future time, and we seek public comment on the 
feasibility and timing of expanding data collection for acute care 
hospitals.
    We intend to support the following measure domains in the Hospital 
IQR measure set in future measurement proposals for the Hospital IQR 
Program: Clinical quality (for example, the AMI, HF, PN, STK, and VTE 
measures), care coordination (for example, the mortality measures), 
patient safety (for example, the SCIP and HAI measures), patient and 
caregiver experience of care (for example, the HCAHPS measure), 
population/community health (for example, the global immunization 
measures), and efficiency (for example, the Medicare Spending per 
Beneficiary measure). This approach will enhance better patient care 
while bringing the Hospital IQR Program in line with our other 
established quality reporting and pay-for-performance programs.
5. Form, Manner, and Timing of Quality Data Submission
a. Background
    Sections 1886(b)(3)(B)(viii)(I) and (II) of the Act state that the 
applicable percentage increase, for FY 2007 and each subsequent fiscal 
year, shall be reduced by 2.0 percentage points (or, beginning with FY 
2015, by one-quarter of such applicable percentage increase (determined 
without regard to sections 1886(b)(3)(B)(ix), (xi), or (xii) of the 
Act)) for any subsection (d) hospital that does not submit quality data 
in a form and manner, and at a time, specified by the Secretary. CMS 
requires that hospitals submit data in accordance with the 
specifications for the appropriate discharge periods. The data 
submission requirements, Specifications Manual, and submission 
deadlines are posted on the QualityNet Web site at: http://www.QualityNet.org/. Hospitals submit quality data through the secure 
portion of the QualityNet (formerly known as QualityNet Exchange) Web 
site (https://www.QualityNet.org). This Web site meets or exceeds all 
current Health Insurance Portability and Accountability Act 
requirements for security of protected health information.
    In order to participate in the Hospital IQR Program, hospitals must 
meet specific procedural requirements. Hospitals choosing to 
participate in the Hospital IQR Program must also meet specific data 
collection, submission, and validation requirements.
b. Proposed Procedural Requirements for the FY 2015 Payment 
Determination and Subsequent Years
    The Hospital IQR Program procedural requirements are now codified 
in

[[Page 28051]]

regulation at 42 CFR 412.140. Hospitals should refer to the regulation 
for participation requirements. For the FY 2015 payment determination 
and future years, we are proposing to modify the following procedural 
requirements and the corresponding regulation text.
    <bullet> In order to ensure that hospitals that participate in the 
Hospital IQR Program are submitting data for a full year, we are 
proposing that hospitals that would like to participate in the Hospital 
IQR Program for the first time, or that previously withdrew from the 
program and would like to participate again, must submit to CMS a 
completed Notice of Participation by December 31 of the calendar year 
preceding the first quarter of the calendar year in which the chart-
abstracted IQR data submission is required for any given fiscal year. 
For example, if a hospital wishes to participate in FY 2015, it must 
submit a pledge by December 31, 2012, and submit data beginning with 
January 1, 2013 discharges. We also are proposing to modify our 
regulations at Sec.  412.140(a)(3)(i) to reflect this proposed 
requirement.
    <bullet> Currently, CMS will accept Hospital IQR Program withdrawal 
forms from hospitals on or before August 15 of the fiscal year 
preceding the fiscal year for which a Hospital IQR payment 
determination will be made. In order to decrease the time between final 
submission of IQR data and IQR payment determination notification for 
the hospitals, we are proposing that a subsection (d) hospital may 
withdraw from the Hospital IQR Program by submitting to CMS a 
withdrawal form that can be found in the secure portion of the 
QualityNet Web site. The hospital must submit the withdrawal form by 
May 15 prior to the start of the payment year affected. For example, if 
a hospital seeks to withdraw from the FY 2015 payment determination, 
the hospital must submit the withdrawal form to CMS by May 15, 2014. If 
a hospital withdraws from the program, it will receive a reduction 
until such time as it meets the participation requirements. This 
proposal will also align with the final abstraction data submission 
deadline which will eliminate the burden of one extra deadline for 
providers and vendors. We also are proposing to modify our regulations 
at Sec.  412.140(b) to reflect this proposed requirement.
c. Proposed Data Submission Requirements for Chart-Abstracted Measures
    For FY 2015 andsubsequent years, we are proposing to retain the 
4\1/2\ months quarterly submission deadline for chart-abstracted 
quality measures. We also are proposing to retain the aggregate 
population and sampling deadline of 4 months. Hospitals would continue 
to be required to submit aggregate population and sample size counts to 
CMS on a quarterly basis for Medicare and non-Medicare discharges for 
the topic areas for which chart-abstracted data must be submitted (76 
FR 51640 through 51641). We are proposing the same 14-day period after 
the aggregate population and sample size count deadline to submit the 
required patient-level records. For the FY 2015 payment determination 
and subsequent years, hospitals must submit data for four consecutive 
calendar year discharge quarters. For example for FY 2015, the 
submission quarters are as follows: 1Q CY 2013, 2Q CY 2013, 3Q CY 2013 
and 4Q CY 2013.
    We are proposing to collect a new chart-abstracted measure for FY 
2015, Elective Delivery Prior to 39 Completed Weeks Gestation: 
Percentage of Babies Electively Delivered Prior to 39 Completed Weeks 
Gestation. Although this is a chart-abstracted measure, we are 
proposing that this measure would be collected in aggregated numerator, 
denominator, and exclusion counts per hospital via a Web-based tool. 
The complete data submission requirements, submission deadlines, and 
data submission mechanism, known as the Web-Based Measure Tool, will be 
posted on the QualityNet Web site at: http://www.qualitynet.org/. The 
Web-Based Measure Tool will be an Internet database for hospitals to 
submit their aggregate data. We are proposing that hospitals submit 
data in accordance with the specifications for the appropriate proposed 
reporting periods to the Web-Based Measures Tool that will be found in 
the hospital section on the QualityNet Web site (http://www.qualitynet.org/).
d. Proposed Sampling and Case Thresholds Beginning With the FY 2015 
Payment Determination
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51641), we 
continued, for the FY 2015 payment determination and subsequent years, 
the approach we adopted in the FY 2011 IPPS/LTCH PPS final rule (75 FR 
50230) regarding hospital submission of population and sampling data. 
We are not proposing any changes to these requirements.
    We strongly recommend that hospitals review the QIO Clinical 
Warehouse Feedback Reports and the Hospital IQR Program Provider 
Participation Reports that are available after patient-level data are 
submitted to the QIO Clinical Warehouse. We generally update 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.
e. Proposed HCAHPS Requirements for the FY 2014, FY 2015, and FY 2016 
Payment Determinations
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51641 through 
51643), beginning with discharges occurring in third quarter CY 2011, 
we established that hospitals will have about 13 weeks after the end of 
a calendar quarter to submit HCAHPS data for that quarter to the QIO 
Clinical Warehouse.
    Other than this change, we did not make any other changes to the 
HCAHPS requirements for the FY 2013 and FY 2014 Hospital IQR Program 
payment determinations, which were adopted in the FY 2011 IPPS/LTCH PPS 
final rule (75 FR 50220).
    For the FY 2016 Hospital IQR payment determinations, we are 
proposing to continue these HCAHPS requirements. 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 HCAHPS Web site at: http://www.hcahpsonline.org. A current list of approved HCAHPS survey vendors 
can be found on the HCAHPS Web site. For the FY 2016 Hospital IQR 
Program, we are proposing that the HCAHPS data would be based on 
discharges from January 1, 2014 through December 31, 2014.
    Every hospital choosing to contract with a survey vendor must 
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 survey 
administration.)

[[Page 28052]]

Hospitals are strongly encouraged to submit their entire patient 
discharge list, excluding patients who had requested ``no publicity'' 
status or who are excluded because of State regulations, in a timely 
manner to their survey vendor to allow adequate time for sample 
creation, sampling, and survey administration. We emphasize that 
hospitals must also provide the administrative data that is required 
for HCAHPS in a timely manner to their survey vendor. This includes the 
patient MS-DRG at discharge, or alternative information that can be 
used to determine the patient's service line, in accordance with the 
survey protocols in the most recent HCAHPS Quality Assurance 
Guidelines.
    We note that the HCAHPS Quality Assurance Guidelines require that 
hospitals maintain complete discharge lists that indicate which 
patients were eligible for the HCAHPS survey, which patients were not 
eligible, and which patients were excluded, and the reason(s) for 
ineligibility and exclusion. (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.
    Hospitals must obtain and submit at least 300 completed HCAHPS 
surveys in a rolling four-quarter period unless the hospital is too 
small to obtain 300 completed surveys. We wish to emphasize that the 
absence of a sufficient number of HCAHPS eligible discharges is the 
only acceptable reason for obtaining and submitting fewer than 300 
completed HCAHPS surveys in a rolling four quarter period. If a 
hospital obtains fewer than 100 completed surveys, the hospital's 
HCAHPS scores will be accompanied by an appropriate footnote on the 
Hospital Compare Web site alerting the Web site users that the scores 
should be reviewed with caution, as the number of surveys may be too 
low to reliably assess hospital performance.
    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) and 
the HCAHPS Review and Correction Report that are available. These 
reports enable a hospital to ensure that its survey vendor has 
submitted the data on time, the data has been accepted into the QIO 
Clinical Warehouse, and the data accepted into the QIO Clinical 
Warehouse are complete and accurate.
    In order to ensure compliance with HCAHPS survey and administration 
protocols, hospitals and survey vendors must participate in all 
oversight activities. As part of the oversight process, during the 
onsite visits or conference calls, the HCAHPS Project Team will review 
the hospital's or survey vendor's survey systems and assess protocols 
based upon the most recent HCAHPS Quality Assurance Guidelines. All 
materials relevant to survey administration will be subject to review. 
The systems and program review includes, but is not limited to: (a) 
Survey management and data systems; (b) printing and mailing materials 
and facilities; (c) telephone and Interactive Voice Response (IVR) 
materials and facilities; (d) data receipt, entry and storage 
facilities; and (e) written documentation of survey processes. As 
needed, hospitals and survey vendors will be subject to follow-up site 
visits or conference calls. We point out that the HCAHPS Quality 
Assurance Guidelines state that hospitals should refrain from 
activities that explicitly influence how patients respond on the HCAHPS 
survey. If we determine that a hospital is not compliant with HCAHPS 
program requirements, we may determine that the hospital is not 
submitting HCAHPS data that meet the requirements of the Hospital IQR 
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 Hospital IQR 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 again are encouraging hospitals to regularly check the HCAHPS 
Web site at http://www.hcahpsonline.org for program updates and 
information. We invite public comment on our proposal to continue using 
these HCAHPS requirements for the FY 2016 payment determination.
f. Proposed Data Submission Requirements for Structural Measures
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51643 through 
51644), beginning with FY 2013, we finalized the period of data 
collection for which hospitals will submit the required registry 
participation information once annually for the structural measures via 
a Web-based collection tool. We finalized our proposal for FY 2014 for 
submission of structural measures between April 1, 2013 and May 15, 
2013 with respect to the time period of January 1, 2012 through 
December 31, 2012. We are proposing to continue this policy for FY 2015 
and subsequent years. For the FY 2015 payment determination, the period 
of data collection for which hospitals will submit the required 
registry participation information for the structural measures via a 
Web-based collection tool will be between April 1, 2014 and May 15, 
2014, with respect to the time period of January 1, 2013 through 
December 31, 2013. We invite public comment on this proposal.
g. Proposed Data Submission and Reporting Requirements for Healthcare-
Associated Infection (HAI) Measures Reported via NHSN
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51644 through 
51645), we adopted the data submission and reporting standard 
procedures that have been set forth by CDC for NHSN participation in 
general and for submission of the HAI measures to NHSN. The existing 
data collection and submission timeframes for the HAI measures for the 
FY 2014 payment determination align with the submission timeframes for 
chart abstracted measures. The data submission deadlines are posted on 
the QualityNet Web site at: http://www.QualityNet.org/. Hospitals will 
have until the Hospital IQR Program final submission deadline to submit 
their quarterly data to NHSN. After the final Hospital IQR Program 
submission deadline has occurred for each calendar quarter of CY 2013, 
for FY 2015 quarters, CMS will obtain the hospital-specific 
calculations that have been generated by the NHSN for the Hospital IQR 
Program.
    We are proposing to continue this policy, with the two exceptions 
discussed below, for the FY 2015 payment determination and subsequent 
years.

[[Page 28053]]



------------------------------------------------------------------------
                                       FY 2015 Payment determination:
               Topic                    Hospital associated infection
                                             measures (CDC/NHSN)
------------------------------------------------------------------------
                                    Central Line Associated Blood Stream
                                     Infection.
                                    Surgical Site Infection.
                                    Catheter Associated Urinary Tract
                                     Infection.
                                    MRSA Bacterimia.
                                    Clostridium difficile.
                                    Healthcare Provider Influenza
                                     Vaccination.
------------------------------------------------------------------------

    We realize that some hospitals may not have locations that meet the 
NHSN criteria for CLABSI or CAUTI reporting, for example, when a 
hospital has no ICUs. We are proposing to provide an exception for the 
CLABSI and CAUTI measures for hospitals that do not have an ICU, 
reducing the burden associated with reporting to NHSN. In addition, we 
recognize that some facilities may perform so few procedures requiring 
surveillance under the Surgical Site Infection (SSI) measure that the 
data may not be meaningful for Hospital Compare or sufficiently 
reliable to be utilized for payment determination. We are proposing to 
provide an exception for these hospitals from the reporting requirement 
in any given year if the hospital performed fewer than a combined total 
of 10 colon and abdominal hysterectomy procedures in the calendar year 
prior to the reporting year. For example, a hospital that performed 
only 2 colon surgeries and 4 abdominal hysterectomies in 2012 would not 
be required to report the SSI measure in 2014. We are proposing to 
provide hospitals with a single HAI exception form, to be used for 
seeking an exception for any of the CLABSI, CAUTI and SSI measures, 
which will be available on QualityNet. We invite public comment on this 
proposal.
6. Proposed Supplements to the Chart Validation Process for the 
Hospital IQR Program for the FY 2015 Payment Determination and 
Subsequent Years
    For the FY 2015 payment determination and subsequent years, we are 
proposing to continue using, with some modifications, the validation 
requirements and methods we adopted in the FY 2011 IPPS/LTCH PPS final 
rule (75 FR 50227 through 50229) and the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51645 through 51648). The modifications we are proposing, 
explained in detail below, are as follows: (a) Using separate 
validation approaches for chart-abstracted clinical process of care and 
HAI measures; (b) changing the number of hospitals included in the base 
annual validation random sample; and (c) using targeted selection of 
supplemental hospitals to be added to the base sample. As described 
below, these proposals are intended to strengthen the Hospital IQR 
Program by validating a larger set of measures, increasing 
opportunities to detect poor reporting through different approaches to 
targeting and scoring, and increasing the rigor associated with our 
validation process, all while ensuring that the wider scope and greater 
rigor only modestly increases the burden of validation activities on 
hospitals relative to prior years. We invite public comment on each of 
these proposals.
a. Separate Validation Approaches for Chart-Abstracted Clinical Process 
of Care and HAI Measures
(1) Background and Rationale
    We finalized reporting to the Hospital IQR Program of 25 chart-
abstracted measures in 7 topic areas: acute myocardial infarction 
(AMI); heart failure (HF); pneumonia (PN); surgical care improvement 
project (SCIP); emergency department throughput (ED); immunization 
(IMM); and HAIs for the FY 2014 payment determination and subsequent 
years in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51628 through 
51629). For the FY 2015 payment determination and subsequent years, we 
are proposing to continue validating the chart-abstracted clinical 
process of care measures with the exception of the SCP-VTE-1 measure, 
which we are proposing for removal from the Hospital IQR program 
starting with the FY 2015 payment determination. We are also proposing 
to continue validating the one HAI measure--CLABSI--that we finalized 
for validation in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51646). 
We also are proposing to validate two additional HAI measures, 
catheter-associated urinary tract infection (CAUTI) and surgical site 
infection (SSI), which were finalized for inclusion in the Hospital IQR 
Program for the FY 2014 payment determination and subsequent years in 
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51628 through 61629). We 
are proposing to add these two measures to those we validate so that we 
can ensure data reliability on all chart-abstracted measures on which 
hospitals will have been reporting data under the Hospital IQR Program 
for at least one year prior to the FY 2015 payment determination.
    The inclusion of the three chart-abstracted HAI measures--CLABSI, 
CAUTI, and SSI--in the Hospital IQR Program reflects HHS' priority to 
increase patient safety by preventing HAIs. As finalized in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51640 through 51645), the mechanism for 
reporting HAI measures is different from the mechanism for reporting on 
the chart-abstracted clinical process of care measure sets (AMI, ED, 
IMM, HF, PN, SCIP). In addition, the infection events for which 
hospitals would report on the HAI measures occur rarely relative to the 
events for which hospitals would report on the clinical process of care 
measure sets. We cannot report a single number describing the national 
incidence for these three HAIs collectively or individually because 
infection rates vary by the type of hospital, their patient 
populations, device utilization rates, and performance of different 
types of surgeries.\91\ However, we know that these events are 
sufficiently rare that if we did not find a way to target records with 
a higher probability of including an HAI, many hospitals would have to 
submit virtually all records per quarter to effectively validate the 
HAI measure set. For these reasons, we are proposing, and we describe 
below in section VIII.A.6.a.(3) of this preamble, to separate the 
approaches for targeting and sampling of records for HAI validation 
from the approaches finalized for validation of the chart-abstracted 
clinical process of care measure sets in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51647 through 51648), and summarized in 
VIII.A.6.a.(2) of this preamble, and we are proposing to calculate 
separate scores for the group of clinical process of care measure sets 
and the HAI measure set as described in VIII.A.6.a.(4) of this 
preamble.
---------------------------------------------------------------------------

    \91\ Dudeck MA, Horan TC, Peterson KD, et al. National 
Healthcare Safety Network (NHSN) Report, data summary for 2010, 
device-associated module. Am J Infect Control. 2011 Dec;39(10):798-
816. Edwards JR, Peterson KD, Mu Y, et al. National Healthcare 
Safety Network (NHSN) report: Data summary for 2006 through 2008, 
issued December 2009. Am J Infect Control 2009 Dec; 37:783-805.

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

[[Page 28054]]

    (2) Selection and Sampling of Clinical Process of Care Measures for 
Validation
    The approach to selection and sampling of clinical process of care 
measure sets for validation was finalized in the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51645 through 51648) for the 2014 payment 
determination and subsequent years. These measures and measure sets are 
shown in the table below.

   Hospital Inpatient Quality Reporting (IQR) Program Chart-Abstracted
    Clinical Process of Care Measures To Be Validated for the FY 2014
               Payment Determination and Subsequent Years
------------------------------------------------------------------------
               Topic                              Measures
------------------------------------------------------------------------
Acute Myocardial Infarction (AMI)   <bullet> AMI-2 Aspirin prescribed at
 Measures.                           discharge.
                                    <bullet> AMI-7a Fibrinolytic
                                     (thrombolytic) agent received
                                     within 30 minutes of hospital
                                     arrival.
                                    <bullet> AMI-8a Timing of Receipt of
                                     Primary Percutaneous Coronary
                                     Intervention (PCI).
                                    <bullet> AMI-10 Statin Prescribed at
                                     Discharge.
Heart Failure (HF) Measures.......  <bullet> HF-1 Discharge
                                     instructions.
                                    <bullet> HF-2 Evaluation of left
                                     ventricular systolic function.
                                    <bullet> HF-3 Angiotensin Converting
                                     Enzyme Inhibitor (ACE-I) or
                                     Angiotensin II Receptor Blocker
                                     (ARB) for left ventricular systolic
                                     dysfunction.
Pneumonia (PN) Measures...........  <bullet> PN-3b Blood culture
                                     performed in the emergency
                                     department prior to first
                                     antibiotic received in hospital.
                                    <bullet> PN-6 Appropriate initial
                                     antibiotic selection.
Surgical Care Improvement Project   <bullet> SCIP INF-1 Prophylactic
 (SCIP) Measures.                    antibiotic received within 1 hour
                                     prior to surgical incision.
                                    <bullet> SCIP INF-2 Prophylactic
                                     antibiotic selection for surgical
                                     patients.
                                    <bullet> SCIP INF-3 Prophylactic
                                     antibiotics discontinued within 24
                                     hours after surgery end time (48
                                     hours for cardiac surgery).
                                    <bullet> SCIP INF-4 Cardiac surgery
                                     patients with controlled 6AM
                                     postoperative serum glucose.
                                    <bullet> SCIP INF-9 Postoperative
                                     urinary catheter removal on
                                     postoperative day 1 or 2 with day
                                     of surgery being day zero.
                                    <bullet> SCIP INF-10 Surgery
                                     patients with perioperative
                                     temperature management.
                                    <bullet> SCIP Cardiovascular-2
                                     Surgery Patients on a Beta Blocker
                                     prior to arrival who received a
                                     Beta Blocker during the
                                     perioperative period.
                                    <bullet> SCIP INF-VTE-1 Surgery
                                     patients with recommended Venous
                                     Thromboembolism (VTE) prophylaxis
                                     ordered.*
                                    <bullet> SCIP-VTE-2 Surgery patients
                                     who received appropriate VTE
                                     prophylaxis within 24 hours pre/
                                     post surgery.
Emergency Department Throughput     <bullet> ED-1 Median time from
 (ED) Measures.                      emergency department arrival to
                                     time of departure from the
                                     emergency room for patients
                                     admitted to the hospital.
                                    <bullet> ED-2 Median time from admit
                                     decision to time of departure from
                                     the emergency department for
                                     emergency department patients
                                     admitted to the inpatient status.
Prevention: Global Immunization     <bullet> Immunization for Influenza.
 (IMM) Measures.                    <bullet> Immunization for Pneumonia.
------------------------------------------------------------------------
* We are proposing to remove this measure from the Hospital IQR Program
  starting with the FY 2015 payment determination.

    We describe the validation approach for these measures, which was 
finalized in FY 2012 IPPS/LTCH PPS final rule (76 FR 51645 through 
51648), for informational purposes only. A total of 15 records will be 
selected per quarter for the chart-abstracted clinical process of care 
measures. Three records per quarter will be sampled from among all 
records submitted to the Warehouse in each of four groups defined as 
part of the AMI, HF, PN, and SCIP measure sets. In addition, three 
records per quarter will be sampled from among the remaining 
submissions to the Warehouse and will be validated for the ED and IMM 
measure sets. CMS will also abstract data regarding the ED and IMM 
measure sets from records submitted for the AMI, HF, PN, and SCIP 
measure sets.
    We finalized our proposal in the FY 2012 IPPS/LTCH PPS final rule 
(76 FR 51648) to abstract ED and IMM data from all cases selected from 
other measure sets (AMI, HF, PN, SCIP, and CLABSI). For the FY 2015 
payment determination and subsequent years, we are proposing to 
discontinue abstracting ED and IMM data from cases selected for the 
CLABSI measure. We are proposing this change in order to be consistent 
with the policy proposed in section VIII.A.6.a.(1) of this preamble to 
calculate separate scores for HAI and chart-abstracted clinical process 
of care measure sets.
    Accordingly, for the FY 2015 payment determination and future 
years, we are proposing to continue our current validation approach for 
chart-abstracted clinical process of care measures as finalized in the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51645 through 51648) with the 
exception of discontinuing our policy of abstracting ED and IMM cases 
from CLABSI records. The chart-abstracted clinical process of care 
measures we have previously finalized for validation for the FY 2015 
and subsequent years' payment determinations are set out above.
(3) Selection and Sampling of HAI Measures for Validation
    As explained in section VIII.A.6.a.(1) of this preamble, we are 
proposing separate selection, sampling, and validation scoring for HAI 
measures. The HAI measures we are proposing to validate for the FY 2015 
payment determination and subsequent years are CLABSI, CAUTI, and SSI.

 HAI Measures in the Hospital Inpatient Quality Reporting (IQR) Program
  To Be Validated for the FY 2015 Payment Determination and Subsequent
                                  Years
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Measures Continued for Validation for the FY 2014 Payment Determination

[[Page 28055]]

 
    <bullet> Central line-associated blood stream infection (CLABSI)
     among intensive care unit (ICU) patients.
Additional Measures Proposed for Validation for the 2015 Payment
 Determination
    <bullet> Surgical Site Infection (SSI) among patients with
     procedures for colon surgery or abdominal hysterectomy.
    <bullet> Catheter-associated urinary tract infection (CAUTI) among
     ICU patients.
------------------------------------------------------------------------

    Because the events reported in the HAI measure set occur rarely, 
they require a targeted approach to validation. For the FY 2015 payment 
determination and subsequent years, we are proposing to validate these 
measures by identifying records that are ``candidate HAI events,'' 
which we define below. We would construct three separate lists of 
candidate events, one for each HAI measure. The proposed process to 
construct these lists is detailed further below. Each listing of 
candidate events will include both actual HAI events as well as many 
non-events. The purpose in creating these listings would be to identify 
records that are more likely to contain HAI events than CMS could 
obtain through a simple random sample of hospital discharges each 
quarter. In each case, this proposed process would minimize burden to 
hospitals while enriching the validation sample by targeting candidate 
events. As described later in this section, a combined list of 
candidate HAI events would be created from the three separate candidate 
HAI lists (for CLABSI, CAUTI, and SSI). The final list would be used to 
generate a random sample of medical records to be reviewed and 
evaluated for the presence or absence of one or more of the HAI events. 
We describe the proposed sample size later in this section and describe 
the scoring process in section VIII.A.6.a.(4) of this preamble.
    We are also proposing to discontinue the practice finalized in FY 
2012 IPPS/LTCH final rule (76 FR 5148) of abstracting CLABSI data from 
the records selected for the chart-abstracted clinical process of care 
measure sets (AMI, ED/IMM, HF, PN, SCIP). We are proposing this change 
in order to be consistent with the policy proposed in section 
VIII.A.6.a.(1) of this preamble to calculate separate scores for HAI 
and chart-abstracted clinical process of care measure sets. We invite 
public comment on this proposal.
    We finalized a two-phase process for identifying and constructing 
lists of candidate CLABSI events in the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51645 through 51648). This process is summarized for the 
readers' information. In the first phase, each sampled hospital 
quarterly provides CMS with listings of positive blood cultures drawn 
from ICU patients. The listings include ``all blood cultures positive 
for infection status taken from ICU patients conducting CLABSI 
surveillance \92\ during the discharge quarter'' (76 FR 51646). These 
listings are annotated to identify each ICU patient on this list who 
had a central venous catheter (CVC). The listings are then reviewed by 
a CMS contractor who produces a list of unique episodes of care for ICU 
patients with a CVC and that include either at least one positive blood 
culture for a known pathogen, or at least two positive blood cultures 
for the same common commensal. A blood culture which is positive for a 
common commensal may reflect a contaminated sample. Therefore, when the 
only positive blood culture result is for a common commensal, the 
second culture bearing the same result must be drawn from the patient 
within 48 hours of the first; this would confirm that the first 
positive common commensal result is not a consequence of contamination. 
A list of common commensals is provided by CDC.\93\
---------------------------------------------------------------------------

    \92\ http://www.cdc.gov/nhsn/PDFs/FINAL-ACH-CLABSI-Guidance.pdf.
    \93\ http://www.cdc.gov/nhsn/XLS/Common-Skin-Contaminant-List-June-2011.xlsx.
---------------------------------------------------------------------------

    We are proposing to modify this process for FY 2015 and subsequent 
years by requiring the Medicare health insurance claim (HIC) number to 
be added to the positive blood culture list if a patient has one. As 
explained further below, we are proposing this addition specifically so 
that we may identify candidate CLABSIs that we also identify as 
candidate SSIs. Because the candidate SSIs would be identified through 
claims, the HIC number is needed to match patients from the candidate 
CLABSI list with those from the candidate SSI list. To protect this 
sensitive information, we are proposing that positive blood culture 
lists be submitted through the Secure Data Exchange on the QualityNet 
Web site. We invite public comment on each of these proposed 
modifications to the identification of candidate CLABSI events.
    For the FY 2015 payment determination and subsequent years, we are 
proposing to adapt the process finalized to identify candidate CLABSI 
events in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51645 through 
51648) to identify candidate CAUTI events. In the first stage of this 
process, a CMS contractor would request a listing of positive urine 
cultures among ICU patients from the hospitals targeted for validation. 
The culture list would indicate the name of each pathogen detected and 
the number of colony forming units per ml. For the same reasons and 
following the same processes as those explained for CLABSI above, we 
are proposing to require the hospital to report the Medicare HIC number 
for Medicare patients included on this list.
    In the second stage of this process, the CMS contractor would apply 
NHSN criteria to eliminate those urine cultures that are not consistent 
with the definition of an ICU-associated CAUTI. The contractor would 
then remove duplicates from the same patient to produce a list which 
would include only one entry per ICU patient. Our intent is to target a 
set of patient discharges with a higher probability of having a CAUTI 
event than one could obtain from a simple random sample of patient 
discharges. We invite public comment on this proposal.
    The final HAI measure we are proposing for targeted validation is 
SSI. Consistent with Hospital IQR Program reporting requirements for 
this measure, we are proposing that validation will target SSIs among 
patients with colon surgeries and abdominal hysterectomy 
procedures.\94\ We are proposing a process for identifying candidate 
SSIs that is different from that which we are proposing for candidate 
CLABSI and CAUTI both because post-discharge follow-up is so critical 
to proper ascertainment and because SSIs are reported more consistently 
in claims data than CLABSI and CAUTI. Thus, claims data provide a 
resource for selecting candidate events for SSI using a methodology 
which limits burden to hospitals. Accordingly, we are proposing to 
select candidate events from among Medicare FFS claims for patients who 
have had colon surgeries or abdominal hysterectomies as defined by 
NHSN.\5\ For each Medicare FFS

[[Page 28056]]

patient who had a relevant surgery in the period under validation, a 
CMS contractor would review the index claim (that is, the one denoting 
the surgery) and all subsequent readmissions to the index hospital 
within a 30 day post-discharge period. To identify ``candidate SSI 
events,'' we would look specifically for discharge diagnoses on the 
index claim and all inpatient claims in the 30 days post-discharge that 
might indicate infection. Examples of such diagnoses include ``post-
operative shock'' (ICD-9-CM: 998.0), ``post-operative wound disruption 
(ICD-9-CM: 998.3), and postoperative infection (ICD-9-CM: 998.5). A 
description of our general approach, and a list of ICD-9-CM codes which 
we are proposing to use to identify applicable candidate SSIs is 
included in Appendix 1 of ``Platt R, Kleinman K, Thompson K, et al. 
Using automated health plan data to assess infection risk from coronary 
artery bypass surgery. Emerg Infect Dis. 2002 Dec;8(12):1433-41,'' 
which may be accessed online at http://www.cdc.gov/eid/content/8/12/pdfs/v8-n12.pdf.\95\
---------------------------------------------------------------------------

    \94\ http://www.cdc.gov/nhsn/PDFs/FINAL-ACH-SSI-Guidance.pdf.
    \95\ Platt R, Kleinman K, Thompson K, et al. Using automated 
health plan data to assess infection risk from coronary artery 
bypass surgery. Emerg Infect Dis. 2002 Dec;8(12):1433-41.
---------------------------------------------------------------------------

    Although diagnoses which identify candidate SSIs may also be 
identified during readmission to hospitals other than the index 
hospital, for validation of SSI for the FY 2015 payment determination, 
we are proposing to exclude these candidate events. We are proposing 
this approach because we will be unable to distinguish between a 
candidate SSI that the index hospital determined was not an actual SSI 
because it did not meet properly applied NHSN case definitions, and an 
actual SSI that the index hospital failed to properly identify and 
document. Although records from the readmitting hospital may provide 
evidence as to the likelihood that a candidate SSI was an actual SSI, 
the index hospital may not have had access to this information. 
Therefore, if the index hospital does not report a candidate SSI event 
associated with a readmission to another hospital, and also does not 
document this event, we do not know what information, if any, the index 
hospital used to assess the candidate event.
    This situation arises because although our regulation at 42 CFR 
482.24 requires hospitals to maintain medical records that document 
HAI, it does not require hospitals to document that follow-up was 
performed. We understand that this represents a gap in our validation 
program for SSI, and solicit public comments on how we might fill this 
gap in the future.
    After identifying the three separate sets of candidate events for 
CLABSI, CAUTI, and SSI, we will combine the lists and remove any 
duplicates for a given episode of care. Removing duplicates is a 
standard statistical practice which is important for the accuracy of 
the estimates.\96\ Next, we are proposing to draw a random sample of 12 
candidate events per quarter from which to assess reliability of HAI 
reporting. Over four quarters, this would yield a sample size of 48 
candidate events per year. Whenever a sample is used to estimate a 
statistic such as reliability for the entire population of events, that 
estimate is said to be made with error, commonly referred to as the 
margin of error. For hospitals with 480 or more candidate HAI events 
each year, and assuming a relatively constant number of candidates per 
quarter, the annual sample size will be sufficient to estimate a score 
of 75 percent with a margin of error plus or minus 10 points with 90 
percent confidence. We believe this is the smallest sample size that 
would be sufficient to identify hospitals that are reporting HAI data 
poorly and have 480 or more candidate events.
---------------------------------------------------------------------------

    \96\ ``Duplicate listings'' in Kish L. Survey Sampling, John 
Wiley & Sons, New York: 1995, pp.58-59.
---------------------------------------------------------------------------

    However, if there are fewer than 480 candidate events per year, the 
finite population correction applies, such that the margin of error 
will decrease as the total number of candidate events per year gets 
smaller.\97\ Based on our analysis of CLABSI data previously reported 
under the Hospital IQR Program, estimating the relative occurrence of 
CLABSI, CAUTI, and SSI, and allowing for the fact that there may be 
many candidates for every confirmed HAI, we expect that most hospitals 
will have fewer than 480 candidate HAI events per year (or 120 per 
quarter), which will allow us to estimate a score of 75 percent for 
these hospitals with a margin of error even less than plus or minus 10 
points with 90 percent confidence.
---------------------------------------------------------------------------

    \97\ ``2.6 The finite population correction.'' Cochran WG. 
Sampling Techniques, third edition. John Wiley & Sons, New York, 
1977, pp. 24-25.
---------------------------------------------------------------------------

    In the event that a hospital has 12 or fewer candidate HAIs in a 
given quarter, it is still possible to produce accurate estimates of 
reliability. In quarters in which a hospital has 12 or fewer candidate 
HAI events, we are proposing to select all candidates, which will allow 
us to measure reliability without any margin of error. These quarterly 
estimates will have no sampling error because we will not be drawing a 
sample, but rather will be using the entire population for that 
quarter. If a hospital has 12 or fewer cases in every quarter, we may 
estimate reliability of HAI reporting for the year without any margin 
of error. If a hospital has no candidate events in the year, we would 
not be able to estimate a reliability rate. Therefore, as discussed in 
section VIII.A.6.a.(4) of this preamble, we would not attempt to 
estimate an HAI score for hospitals with 0 cases. We invite public 
comment on these proposed sample sizes.
(4) Validation Scoring for Chart-Abstracted Clinical Process of Care 
Measures and HAI Measures
    As noted in section VIII.A.6.a.(1) of this preamble, HAIs occur 
rarely relative to the clinical process of care measures. The rarity of 
HAIs creates problems for validation scoring of this measure set. To 
produce an overall score that combines the scores for the individual 
measure sets, CMS computes a weighted average of each measure set score 
for each quarter.\98\ The weight applied to each measure set is 
proportionate to the occurrence of records that were submitted to the 
Warehouse for that measure set. Because CLABSI, CAUTI, and SSI occur 
rarely, we anticipate that the total number of records targeted for 
validation of these measures will account for much less than 25 percent 
of the combined total of all records submitted to the Warehouse. 
Consequently, if the scores for HAI were combined with the other 
measure sets, a hospital could potentially report incorrectly for all 
HAI targeted records, and still meet our established reliability 
criterion of 75 percent, thus passing validation. This would mean that 
our process would fail to offer proper quality control for the HAI 
measure set. Although HAIs are rare, we believe that validation of HAI 
reporting is critical because it supports HHS' priority to reduce these 
infections.
---------------------------------------------------------------------------

    \98\ ``Confidence Interval Calculation'', http://www.qualitynet.org/dcs/ContentServer?c=Page&pagename=QnetPublic%2FPage%2FQnetTier2&cid=1138115987129, last accessed March 19, 2012.
---------------------------------------------------------------------------

    For all of these reasons, we are proposing separate scoring 
processes for the HAI and chart-abstracted clinical process of care 
measure sets, and to require hospitals to receive passing scores on 
both processes to pass validation for the FY 2015 payment determination 
and subsequent years. We are proposing changes to our regulations at 
Sec.  412.140(d)(2) to address this proposed requirement. In 
particular, our regulation currently states that ``A hospital meets the 
validation

[[Page 28057]]

requirement with respect to a fiscal year if it achieves a 75-percent 
score as determined by CMS.'' We are proposing to change this language 
to state: ``A hospital meets the validation requirement with respect to 
a fiscal year if it achieves a passing score, as determined by CMS, on 
applicable measure sets.'' We propose to define ``passing score'' to 
mean a score of 75-percent on both of the chart-abstracted clinical 
process of care and HAI measure set groupings that apply to the 
hospital. The proposed computation and evaluation of passing for these 
separate scores are described further below.
    For the chart-abstracted clinical process of care measures, we are 
not proposing any changes to the methodology for reviewing charts, 
computing the score for each measure set, computing a summary score 
across all measure sets, or computing the variance around these summary 
scores. This process was described in the FY 2011 IPPS/LTCH PPS final 
rule (75 FR 50226).
    For the FY 2015 payment determination and subsequent years, we are 
proposing to use the same basic approach to CLABSI scoring that we 
finalized in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51647), but to 
modify this scoring process to include consideration of all three HAI 
measures simultaneously. For example, if a sampled record is determined 
to include a CLABSI event and no CAUTI or SSI events, and one CLABSI 
event, was reported to NHSN, we are proposing to assign the record a 
score of 1/1. If a sampled record had two independent episodes of 
CLABSI, CAUTI, or SSI or a combination of infections, both events would 
have to be reported to NHSN to receive a score of 1/1. Similarly, if no 
events were reported to NHSN and the medical record indicated there 
were no events, we are proposing that the record would receive a score 
of 1/1. We are proposing to assign a score of 0/1 to a record if no 
event was reported to NHSN and at least one CLABSI, CAUTI, or SSI was 
detected, or if an event was reported but for the wrong infection. For 
example, if an SSI was reported to NHSN as a CLABSI, the record would 
receive a 0/1. We are also proposing to assign a score of 0/1 to a 
record if an event was reported to NHSN for CLABSI, CAUTI, or SSI, and 
the CMS contractor determined that there was no such event.
    For the FY 2015 payment determination and subsequent years, we are 
proposing a slightly different process for requesting medical records 
for SSI. Specifically, we are proposing that when a candidate SSI is 
identified based on a readmission diagnosis, CDAC would request two 
records per candidate SSI event. This proposal is necessary because 
many SSIs are not diagnosed until after patient discharge. In these 
circumstances, the hospital might first become aware of the SSI upon 
readmission. Therefore, the information needed to evaluate the presence 
or absence of an SSI for these candidate events would be divided across 
two records: (1) The medical record for the hospitalization during 
which surgery was performed; and (2) the medical record for the 
readmission to treat the candidate infection. Therefore, we are further 
proposing for the FY 2015 payment determination and subsequent years 
that when a candidate SSI is identified based on a readmission 
diagnosis, we evaluate the occurrence of an SSI event related to the 
index hospitalization using data in both records. In contrast, we are 
proposing to limit evaluation of CLABSI and CAUTI to the record for the 
index hospitalization. We are proposing these changes to incorporate 
CAUTI and SSI into HAI scoring, which were not part of previous 
validation efforts. We invite comments on these proposals.
    This proposed process will be used to create a mean HAI score for 
each hospital. The mean will equal the number of HAI records correctly 
classified divided by the total number of HAI records scored. As 
described in section VIII.A.6.a.(3) of this preamble, a sample of up to 
12 records is to be drawn quarterly, for annual sample of up to 48. The 
approach of dividing the year into 4 quarters and drawing an 
independent random sample from each is known as stratified random 
sampling. When the validation sample includes all of the candidate HAI 
events that a hospital generates in a year, reliability is measured 
without error. In this case, the upper bound of the confidence interval 
will be exactly the same as the estimate of reliability. However, when 
this score is based on only a sample of records containing candidate 
HAIs, we must compute a variance around this mean. We are proposing to 
compute the confidence interval by applying the appropriate formula for 
the variance of a proportion in a stratified random sample.\99\
---------------------------------------------------------------------------

    \99\ ``Section 5.10 Stratified sampling for proportions'' in 
Cochran WG. Sampling Techniques, third edition. John Wiley and Sons, 
New York,1977, pp. 107-108.
---------------------------------------------------------------------------

(5) Criteria to Evaluate Whether a Score Passes or Fails
    Historically, we have used two criteria for passing validation in 
the Hospital IQR Program, which were described in FY 2011 IPPS/LTCH PPS 
final rule (75 FR 50226):
    <bullet> Require all Hospital IQR Program participating hospitals 
selected for validation to attain at least a 75-percent validation 
score per quarter to pass the validation requirement.
    <bullet> Use the upper bound of a one-tailed 95 percent confidence 
interval to estimate the validation score.
    For the FY 2015 payment determination and subsequent years, we are 
proposing to modify both of these criteria. We are proposing that 
hospitals achieve scores of 75 percent or higher for both the chart-
abstracted clinical process of care measure grouping and the HAI score 
to pass validation. We are proposing to compute each score by combining 
the data across all four quarters, instead of by considering the 
quarters separately. We are proposing to make this change because 4 
quarters combined can provide a more accurate estimate of reliability 
than could be attained from a single quarter.
    We also are proposing that if hospital has no candidate CLABSI, 
CAUTI, or SSI in the year to be validated or a hospital has been 
excepted from NHSN reporting for all three HAIs, it will only be 
required to achieve a 75 percent score for the chart-abstracted 
clinical process of care measures to pass validation. We are making 
this proposal because, in these instances, no HAI score can be 
computed.
    For the FY 2015 payment determination and subsequent years, we are 
proposing to replace the use of a one-tailed 95 percent confidence 
interval with a two-tailed 90 percent confidence interval. The reason 
for this proposal is so that we may identify hospitals passing our 
annual 75 percent threshold that also have scores within the 
statistical margin of error for not passing this annual requirement. 
The upper bound of a two-tailed 90 percent confidence interval is 
exactly the same number as the upper bound of a one-tailed 95 percent 
confidence interval. Therefore, this proposal will have no impact on 
the number of hospitals in the base annual sample that pass or fail 
validation. The Government Accountability Office (GAO) has noted that 
CMS does not have a methodology to address hospitals, for which ``the 
statistical margin of error for their accuracy included both passing 
and

[[Page 28058]]

failing levels.'' \100\ For data included in the GAO report, one-
quarter to one-third of hospitals fell into this category. CMS has 
subsequently taken steps to address other GAO concerns, which has 
reduced the percentage of hospitals that neither passed nor failed 
validation to 7 percent in the FY 2012 payment determination.
---------------------------------------------------------------------------

    \100\ Government Accountability Office. ``Hospital Quality Data. 
CMS needs more rigorous methods to ensure reliability of publicly 
released data''. GAO-06-54, January 2006.
---------------------------------------------------------------------------

    Nonetheless, we believe that there is value in looking more closely 
at the remainder of these hospitals. For the FY 2015 payment 
determination and subsequent years, we propose to identify those 
hospitals which have neither passed nor failed, using a two-tailed 
confidence interval. In addition, for the purpose of payment 
determination in FY 2015 and subsequent years, we are proposing to 
continue to pass these hospitals, while also targeting these hospitals 
for validation next year, which we are proposing in section VIII.C.6.c. 
of this preamble.
    If, as in previous years, our only concern was in hospitals with an 
upper bound for the reliability rate below 75 percent, we would have 95 
percent confidence in the upper bound. However, because we are 
proposing to identify hospitals for which ``the statistical margin of 
error for their accuracy included both passing and failing levels,'' we 
must consider both an upper and lower confidence bound. Therefore, the 
same interval provides only 90 percent confidence (5 percent of samples 
will have lower interval bounds based on the sample that are higher 
than the actual reliability for the population and 5 percent will have 
upper interval bounds that are lower than the actual reliability rate 
for the population). Computing a two-tailed interval and adjusting its 
confidence level from 95 to 90 percent is the only way to maintain the 
computation for the upper bound using the same formula as that used in 
previous years and also calculate the lower bound,\100,101\ which will 
allow us to identify hospitals that would otherwise neither pass nor 
fail validation. We invite public comment on this proposal.
---------------------------------------------------------------------------

    \101\ ``Chapter 8 Interval estimation'' in Wonnacott TH, 
Wonnacott RJ. Introductory statistics for business and economics, 
2nd edition, 1977, John Wiley & Sons, New York, pp.199-201, 231-232.
---------------------------------------------------------------------------

b. Number and Manner of Selection for Hospitals Included in the Base 
Annual Validation Random Sample
    As finalized in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50225-
50227), validation of chart-abstracted measures in the Hospital IQR 
Program uses a base annual random sample of 800 hospitals. For the FY 
2015 payment determination and subsequent years, we are proposing to 
reduce the total base sample size of hospitals included in the annual 
validation random sample from 800 to 400. One of our goals in targeting 
a certain number of hospitals for our base annual random sample is to 
estimate the total percentage of hospitals that have been reporting 
unreliable data for the Hospital IQR Program. The minimum sample size 
required to assess the percentage of hospitals in the Hospital IQR 
Program have been reporting unreliable data depends on the expected 
percentage of hospitals that fail validation. Because a very high 
percentage of Hospital IQR Program hospitals pass validation (more than 
99 percent of the hospitals in the FY 2012 payment determination), we 
believe that we can reduce burden on hospitals by selecting fewer 
hospitals for the base annual random sample without adversely affecting 
our estimate of this percentage. We are not proposing to change the 
criteria for selecting the annual validation random sample because we 
believe that these criteria are appropriate for sample selection.
    For informational purposes, we are summarizing the finalized 
definition of a hospital eligible for validation, as provided in the FY 
2011 IPPS/LTCH PPS final rule (75 FR 50227). Those eligible for 
validation are the subset of subsection (d) hospitals who successfully 
submitted ``at least one [IQR] 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 2015 payment determination, we would select the sample in early 
2013, and all Hospital IQR Program-eligible hospitals that submitted at 
least one IQR case for third quarter 2012 discharges would be eligible 
to be selected for validation.
c. Targeting Criteria for Selection of Supplemental Hospitals for 
Validation
    We have established policies for supplementation to the base annual 
random sample of hospitals. In particular, our supplemental validation 
sample includes all hospitals that fail validation in the previous year 
(75 FR 50227 through 50229), a policy that we do not intend to change. 
We also finalized a policy in the FY 2012 IPPS/LTCH PPS final rule (76 
FR 51645 through 51646), that the validation sample drawn for the FY 
2015 payment determination and subsequent years will include in the 
fourth year all hospitals not randomly occurring in the sample in the 
previous three years to the sample. We have reassessed this policy.
    We believe that we have identified an approach with comparable 
benefits to reliability which would have a smaller total burden to 
hospitals, and at less cost to CMS. Based on chance alone, we would 
expect that about 1,500 (slightly less than half of all IPPS-eligible) 
hospitals would not have been sampled in the previous three years. Of 
these, less than 200 would be expected to be randomly selected as part 
of the base validation sample of 400 hospitals for the FY 2015 payment 
determination. Accordingly, this means that for the FY 2015 payment 
determination, the supplemental sample size would be about 1,300 
hospitals. To increase the sample size by 1,300 hospitals in a single 
year is unnecessarily burdensome; we believe we can have the same 
influence on hospitals that have not been recently validated simply by 
increasing their probability of selection through targeting in 
subsequent years. Therefore, for the FY 2015 payment determination and 
subsequent years, we are proposing to discontinue our policy of 
including hospitals in the supplemental validation sample in the fourth 
year that have not been validated in the previous three years. We are 
proposing, however to use the lack of recent validation as one of 
several targeting criteria for a supplemental random sample described 
further below. For the FY 2015 payment determination and subsequent 
years, we are proposing to add targeting criteria as a supplement to 
the base random sample of up to 200 additional hospitals. We believe 
that this proposal would improve data quality by increased targeting of 
hospitals with possible or confirmed past data quality issues. As 
finalized in the FY 2011 IPPS/LTCH PPS final rule the supplement will 
include all hospitals that fail validation in the previous year. In 
addition, we are proposing to draw a random sample of hospitals meeting 
one or more of the following criteria to reach a total supplemental 
sample size of up to 200 hospitals (including those failing). We invite 
public comment on the proposal to include a targeted sample, and to use 
the following as criteria for targeting the additional hospitals:
    <bullet> Any hospital with abnormal or conflicting data patterns. 
An example of abnormal data pattern would be if a hospital has 
extremely high or extremely low values for a particular measure. 
Consistent with the Hospital OQR program, we propose to define an 
extremely high or low value as one that falls more than 3 standard 
deviations

[[Page 28059]]

from the mean (76 FR 74485). An example of a conflicting data pattern 
would be if two records were identified for the same patient episode of 
care but the data elements were mismatched for primary diagnosis. 
Primary diagnosis is just one of many fields that should remain 
constant across measure sets for an episode of care. Other examples of 
fields that should remain constant across measure sets are patient age 
and sex. Frequent occurrence of these types of data conflicts may 
indicate larger data quality problems. Any hospital not included in the 
base validation annual sample and with statistically significantly more 
abnormal or conflicting data patterns per record than would be expected 
based on chance alone (p <.05), would be included in the population of 
hospitals targeted in the supplemental sample.
    <bullet> Any hospital with rapidly changing data patterns. For this 
targeting criterion, we propose to define a rapidly changing data 
pattern as a hospital which improves its quality for one or more 
measure sets (that is, AMI, HF, PN, SCIP, ED, IMM, or HAI) by more than 
2 standard deviations from one year to the next, and also has a 
statistically significant difference in improvement (one-tailed p 
<.05). This pattern might indicate rapid quality improvement. It may 
also indicate a potential change in the accuracy of the data reported, 
and would be worthy of targeted validation.
    <bullet> Any hospital that submits data to NHSN after the Hospital 
IQR Program data submission deadline has passed, which could suggest 
that the hospital had data for relevant time periods that was not used 
in calculating Hospital IQR measure rates.
    <bullet> Any hospital that joined the Hospital IQR Program within 
the previous 3 years, and which has not been previously validated. When 
a hospital first enters the program, its staff may need additional 
support/education to ensure their understanding of reporting 
requirements. Moreover, receiving this feedback early in a hospital's 
participation may ensure that good data reporting habits are 
established when a hospital's process may not yet be entrenched.
    <bullet> Any hospital that has not been randomly selected for 
validation in any of the previous 3 years.
    <bullet> For the FY 2016 payment determination and subsequent 
years, we are proposing to add to the targeting criteria proposed for 
the 2015 payment determination by identifying hospitals that passed 
validation in the previous year, but had a two-tailed confidence 
interval that included 75 percent. Relative to hospitals whose 
confidence interval lies entirely above the target reliability rate of 
75 percent, a confidence interval that includes 75 percent would 
indicate a higher level of uncertainty as to the reliability of data 
for that particular hospital. This proposal is related to the proposal 
to produce a two-sided confidence interval (discussed in section 
VIII.A.6.b of this preamble). It is intended to respond to concerns 
that CMS does not have a methodology to address hospitals, for which 
``the statistical margin of error for their accuracy included both 
passing and failing levels.'' The reason that we are proposing 
implementation of this criterion beginning with the 2016 payment 
determination is that it is not feasible to implement this change until 
after we implement changes to the confidence interval, as proposed in 
section VIII.A.6.b. of this preamble.
    As noted above, the established procedure for drawing the base 
random sample involves selection of hospitals ``early'' in the calendar 
year two years prior to the payment determination FY 2011 IPPS/LTCH PPS 
final rule (75 FR 50227). For example, the base sample for the FY 2015 
payment determination will be drawn early in 2013. We are proposing 
that the selection of hospitals targeted in the supplemental sample for 
the FY 2015 payment determination occur after the FY 2014 payment 
determination; this will separate the timing of selection of base and 
supplemental samples. We are proposing to do so because CMS may need 
extra time to review hospital data before identifying the hospitals to 
include in the supplemental sample. Moreover, information regarding a 
hospital's status as failing or passing is not known at the time the 
base sample is drawn.
    As finalized in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50219), 
the quarters included in the validation effort for each year's payment 
determination will be the 4th calendar quarter of the year that occurs 
2 years before the payment determination and the first 3 calendar 
quarters of the following calendar year. For example, for the FY 2015 
payment determination, the quarters included in validation would be the 
fourth quarter of calendar year 2012 through the third quarter of 
calendar year 2013.
7. Proposed Data Accuracy and Completeness Acknowledgement Requirements 
for the FY 2015 Payment Determination and Subsequent Years
    We are proposing to require hospitals to continue to electronically 
acknowledge their data accuracy and completeness once annually. For the 
FY 2014 payment determination, the submission deadline for the Data 
Accuracy and Completeness Acknowledgement was aligned with the final 
submission quarter for each fiscal year. We are proposing to continue 
this approach for FY 2015 and subsequent years. For example, we are 
proposing that the submission deadline for the Data Accuracy and 
Completeness Acknowledgement would be May 15, 2014, with respect to the 
time period of January 1, 2013, through December 31, 2013. We invite 
public comment on this proposal.
8. Public Display Requirements for the FY 2015 Payment Determination 
and Subsequent Years
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51650), we 
continued, for the FY 2014 payment determination and subsequent years, 
the approach we adopted in the FY 2011 IPPS/LTCH PPS final rule (75 FR 
50230) for public display requirements for the FY 2012 payment 
determination and subsequent years. We are not proposing any changes to 
these requirements.
    The Hospital IQR Program quality measures are typically reported on 
the Hospital Compare Web site at: 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 Hospital IQR Program. Once a hospital has 
submitted a form, the hospital is considered to be an active Hospital 
IQR 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 us to publicly report the quality measures 
included in the Hospital IQR 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.
9. Reconsideration and Appeal Procedures for the FY 2015 Payment 
Determination
    The Hospital IQR Program reconsideration and appeals requirements 
were adopted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51650 
through 51651) and are found at 42 CFR 412.140(e) of our regulations. 
The form for reconsiderations and a detailed description of the 
reconsideration process are available on the QualityNet Web site at: 
http://www.qualitynet.org/ > Hospitals-

[[Page 28060]]

Inpatient > Hospital Inpatient Quality Reporting Program > APU 
Reconsiderations.
10. Hospital IQR Program Disaster Extensions or Waivers
    The Hospital IQR Program disaster extensions or waiver requirements 
were adopted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51650 
through 51652) and can be found at 42 CFR 412.140(e) and (c)(2), 
respectively. The forms and a detailed description of the extension or 
waiver process are available on the QualityNet Web site at: http://www.qualitynet.org/ > Hospitals-Inpatient > Hospital Inpatient Quality 
Reporting Program.
11. 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 
sought to prepare for future EHR submission of quality measures by 
sponsoring the creation of electronic specifications for quality 
measures under consideration for the Hospital IQR Program.
b. 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)(iii) 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 Hospital IQR 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. All measures must be proposed for public comment prior to 
their selection, except in the case of measures previously selected for 
the Hospital IQR Program under section 1886(b)(3)(B)(viii) of the Act.
    We continue to believe there are important synergies with respect 
to the two programs. 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 anticipated future reporting of clinical quality 
measures under the Hospital IQR Program. Through the EHR Incentive 
Programs we expect that the anticipated future submission of quality 
data through EHRs will provide a foundation for establishing the 
capacity of hospitals to send, and for CMS to receive, quality measures 
via hospital EHRs for certain Hospital IQR Program measures in the 
future.
    The HITECH Act requires that the Secretary seek to avoid redundant 
and duplicative reporting, with specific reference to the Hospital IQR 
Program for eligible hospitals. To the extent that quality measures are 
included in both the Hospital IQR Program and the EHR Incentive 
Programs, this would mean that the Hospital IQR Program would need to 
transition to use of certified EHR technology rather than manual chart 
abstraction. We are considering what the most practical approach to 
effect such a transition might be. One option is to select a date after 
which chart-abstracted data would no longer be used in the Hospital IQR 
Program where it is possible to report the data via certified EHR 
technology. This would require sufficient advance notice to hospitals 
for hospitals to report the data via certified EHR technology. At that 
point, we believe that it is likely that nearly all IPPS hospitals will 
have implemented certified EHR technology as incentivized by the HITECH 
Act. Another option would be to allow hospitals to submit the same 
measure for the Hospital IQR Program based on either chart-abstraction 
or, when available, EHR-based reporting. This would require extensive 
testing to ensure equivalence given that the data for the Hospital IQR 
Program supports both the public reporting of such information and the 
Hospital VBP Program. We are concerned that this option would not be 
feasible.
    Ultimately, we do not anticipate having two different sets of 
clinical quality measures for the EHR Incentive Programs and the 
Hospital IQR Program. Rather, we anticipate a single set of hospital 
clinical quality measures, most of which we anticipate would be 
electronically specified. We envision a reporting infrastructure for 
electronic submission as an additional reporting mechanism in the 
future, and will strive to align the hospital quality initiative 
programs to seek to avoid redundant and duplicative reporting of 
quality measures for hospitals. We note that some important Hospital 
IQR Program quality measures such as HCAHPS experience of care measures 
are based on survey data and do not lend themselves to EHR reporting. 
Similarly, certain outcome quality measures, such as the current 
Hospital IQR Program readmission measures, are based on claims data 
rather than clinical data. Thus, not all Hospital IQR quality measures 
will necessarily be capable of being submitted through EHRs. As a 
consequence, not all Hospital IQR Program measures would necessarily be 
appropriate for inclusion in the EHR Incentive Programs.
    We 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.

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

1. Statutory Authority
    Section 3005 of the Affordable Care Act added a new subsection 
(a)(1)(W) and new subsection (k) to section 1866 of the Act. Section 
1866(k) of the Act establishes a Quality Reporting Program for a 
hospital described in section 1886(d)(1)(B)(v) of the Act (hereafter 
referred to as a ``PPS-Exempt Cancer Hospital'' or ``PCH''). Section 
1866(k)(1) of the Act provides that, for FY 2014 and each subsequent 
fiscal year, a PCH shall submit data to the Secretary in accordance 
with section 1866(k)(2) of the Act with respect to such a fiscal year. 
Section 1866(k)(2) of the Act provides that, for FY 2014 and each 
subsequent fiscal year, each hospital described in section 
1886(d)(1)(B)(v) of the Act shall submit data to the Secretary on 
quality measures specified under section 1866(k)(3) of the Act in a 
form and manner, and at a time, specified by the Secretary.
    Section 1866(k)(3)(A) of the Act requires that any measure 
specified by the Secretary must have been endorsed by the entity with a 
contract under section 1890(a) of the Act, unless an exception under 
section 1866(k)(3)(B) of the Act applies. The National Quality Forum 
(NQF) currently holds this contract. The NQF is a voluntary, consensus-
based, standard-setting organization with a diverse representation of 
consumer, purchaser,

[[Page 28061]]

provider, academic, clinical, and other health care stakeholder 
organizations. The NQF was established to standardize healthcare 
quality measurement and reporting through its consensus development 
processes. We have generally adopted NQF-endorsed measures in our 
reporting programs. However, section 1866(k)(3)(B) of the Act provides 
an exception. Specifically, it provides that, in the case of a 
specified area or medical topic determined appropriate by the Secretary 
for which a feasible and practical measure has not been endorsed by the 
entity with a contract under section 1890(a) of the Act, the Secretary 
may specify a measure that is not so endorsed as long as due 
consideration is given to measures that have been endorsed or adopted 
by a consensus organization identified by the Secretary. Under section 
1866(k)(3)(C) of the Act, the Secretary must publish the measure 
selection for PCHs no later than October 1, 2012, with respect to FY 
2014.
    Section 1866(k)(4) of the Act requires the Secretary to establish 
procedures for making public the data submitted by PCHs under the PCHQR 
Program. Such procedures must ensure that a PCH has the opportunity to 
review the data that is to be made public with respect to the hospital 
prior to such data being made public. The Secretary must report quality 
measures of process, structure, outcome, patients' perspective on care, 
efficiency, and costs of care that relate to services furnished by PCHs 
on the CMS Internet Web site.
2. Covered Entities
    Section 1886(d)(1)(B)(v) of the Act excludes particular cancer 
hospitals from payment under the IPPS. This proposed regulation covers 
only those PPS-excluded cancer hospitals meeting eligibility criteria 
specified in 42 CFR 412.23(f).
3. Proposed Quality Measures for PCHs for FY 2014 Program and 
Subsequent Program Years
a. Considerations in the Selection of the Quality Measures
    Section 1866(k)(3)(A) of the Act requires that any measure 
specified by the Secretary must have been endorsed by the entity with a 
contract under section 1890(a) of the Act, unless an exception under 
section 1866(k)(3)(B) applies. The statutory requirement under section 
1866(k)(3)(B) of the Act provides an exception that, in the case of a 
specified area or medical topic determined appropriate by the Secretary 
for which a feasible and practical measure has not been endorsed by the 
entity with a contract under section 1890(a) of the Act, the Secretary 
may specify a measure that is not so endorsed as long as due 
consideration is given to measures that have been endorsed or adopted 
by a consensus organization identified by the Secretary.
    As appropriate, we have developed the principles we are using for 
the development and use of measures for the PCHQR Program on those we 
are using for the Hospital IQR Program:
    <bullet> Public reporting should rely on a mix of standards, 
outcomes, process of care measures, and patient experience of care 
measures, including measures of care transitions and changes in patient 
functional status.
    <bullet> The measure set should evolve so that it includes a 
focused core set of measures appropriate to the cancer hospital 
category that reflects the level of care and the most important areas 
of service and measures for cancer hospitals. Measures will address 
gaps in quality of cancer care.
    <bullet> We also consider input solicited from the public. For 
instance, CMS held a Listening Session on September 8, 2011, to receive 
input from consumers, advocacy groups, and providers on the measures 
under consideration for and implementation of the PCHQR Program.
    <bullet> We considered suggestions and input from a PCH Technical 
Expert Panel (TEP), convened by a CMS measure development contractor, 
which rates potential PCH quality measures for importance, scientific 
soundness, usability, and feasibility. The TEP membership includes 
health-care providers specializing in treatment of cancer, cancer 
researchers, consumer and patient advocates, disparities experts, and 
representatives from payer organizations.
    Like the Hospital IQR Program, the PCHQR Program also supports the 
National Quality Strategy, national priorities, HHS Strategic Plans and 
Initiatives, CMS Strategic Plans, takes into consideration the 
recommendations of the Measure Application Partnership (MAP), and 
strives for burden reduction whenever possible. We refer readers to the 
discussion of these topics in section VIII.A.3.a. of this proposed rule 
on ``Additional Considerations in Expanding and Updating Quality 
Measures'' under the Hospital IQR Program.
b. Proposed PCHQR Program Quality Measures for FY 2014 Program and 
Subsequent Program Years
    We are proposing to adopt five quality measures for the FY 2014 
program and subsequent program years. Specifically, we are proposing to 
adopt two CDC/NHSN-based HAI quality measures (outcome measures): (1) 
Central Line-Associated Bloodstream Infection (CLABSI); and (2) 
Catheter-Associated Urinary Tract Infection (CAUTI); and three cancer 
process of care measures: (1) Adjuvant chemotherapy is considered or 
administered within 4 months (120 days) of surgery to patients under 
the age of 80 with AJCC III (lymph node positive) colon cancer; (2) 
Combination chemotherapy is considered or administered within 4 months 
(120 days) of diagnosis for women under 70 with AJCC T1c, or Stage II 
or III hormone receptor negative breast cancer; and (3) Adjuvant 
hormonal therapy.
    All five of these proposed measures were reviewed by the MAP, and 
were recommended for inclusion in the PCHQR Program. For details 
regarding MAP input, please refer to the MAP Pre-Rulemaking reports 
located at: http://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partnership.aspx.
(1) Proposed CDC/NHSN-Based Healthcare-Associated Infection (HAI) 
Measures
    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.\102\ 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 number of days of 
hospitalization required for patients and add considerable health care 
costs.
---------------------------------------------------------------------------

    \102\ 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.
---------------------------------------------------------------------------

    The reduction of HAIs is a priority for HHS, as evidenced by HHS's 
2009 publication of an Action Plan to Reduce HAIs.\103\ To maximize the 
efficiency and improve the coordination of HAI prevention efforts 
across the Department, HHS established in 2008 a senior-level Steering 
Committee for the Prevention of HAIs. In 2009, a Steering Committee, 
which included scientists and program officials across the Government, 
developed the HHS Action Plan to Prevent HAIs, providing a roadmap for 
HAI prevention in acute care hospitals. In the first iteration of the 
Action Plan, the Steering Committee chose to focus on infections in 
acute care hospitals because the associated

[[Page 28062]]

morbidity and mortality were most severe in that setting and the 
scientific information on prevention and the capacity for measure 
improvement was most complete. Thus, prevention of HAIs in acute care 
hospitals became the first phase of the Action Plan, and it focuses on 
six high priority HAI-related areas.
---------------------------------------------------------------------------

    \103\ Available at: http://www.hhs.gov/ash/initiatives/hai/actionplan/.
---------------------------------------------------------------------------

    HAIs are largely preventable with widely publicized interventions 
such as better hygiene and advanced scientifically tested techniques 
for surgical patients. Therefore, the public reporting of HAIs has been 
of great interest to many health care consumers and advocacy 
organizations because it promotes awareness and permits health care 
consumers to choose the hospitals with lower HAI rates, as well as 
gives hospitals an incentive to improve infection control efforts. We 
note that the House Committee on Appropriations asked in a 2009 Report 
that CMS include in its ``pay for reporting'' system for subsection (d) 
hospitals two infection control measures, one of which was a central 
line-associated bloodstream infections measure (H. Rep. No. 111-220, at 
159 (2009)). In the Report, the Committee stated that ``[i]f the 
measures are included in Hospital Compare, the public reporting of the 
data is likely to reduce HAI occurrence, an outcome demonstrated in 
previous research.''
    In this proposed rule, we are proposing to adopt two NQF-endorsed 
HAI measures as stated in the above for the FY 2014 program and 
subsequent program years for the PCHQR Program: (1) National Healthcare 
Safety Network (NHSN) Central Line-Associated Bloodstream Infection 
(CLABSI) Outcome Measure; and (2) National Healthcare Safety Network 
(NHSN) Catheter-Associated Urinary Tract Infection (CAUTI) Outcome 
Measure. These proposed measures were developed by the CDC and are 
currently collected by the CDC via the NHSN. We are proposing to adopt 
these two measures for several reasons. First, we believe that these 
measures support the National Quality Strategy priority of patient 
safety as these measures focus on serious infections that can prolong 
patient hospital stays and increase the risk of mortality.\104\ Second, 
the Technical Expert Panel (TEP) convened by our measure development 
contractor identified CLABSI and CAUTI as high priority quality issues 
for PCHs as an important area of quality measurement and promoting 
potential for improved outcomes. Third, MAP reviewed these HAI measures 
and supported inclusion of these measures in the PCHQR Program as they 
address the National Quality Strategy's priority of safer care (see MAP 
Pre-Rulemaking Final Report at: http://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partnership.aspx).
---------------------------------------------------------------------------

    \104\ CDC/NHSN Manual. Device-Associated Module, CLABSI Event. 
Available at http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf, accessed on January 20, 2011.
---------------------------------------------------------------------------

    Fourth, these two HAI measures foster alignment with other our 
quality reporting programs. In the FY 2011 IPPS/LTCH PPS final rule, we 
adopted the CLABSI measure for the Hospital IQR Program. The CLABSI 
measure is currently being collected as part of the FY 2013 Hospital 
IQR measure set, and data submission on the measure began with January 
2011 events.\105\ In the Hospital IQR Program, collection of this 
measure is limited to ICU locations. This measure also has been adopted 
for the FY 2014 payment determination under the LTCHQR Program; for the 
LTCHQR Program, data collection for this measure extends to all 
inpatient locations in the LTCH.
---------------------------------------------------------------------------

    \105\ The CDC captures HAI data based on the onset of an event, 
rather than based on the discharge date.
---------------------------------------------------------------------------

    In the FY 2012 IPPS/LTCH PPS final rule, we adopted the Catheter 
Associated Urinary Tract Infection (CAUTI) rate per 1,000 urinary 
catheter days for Intensive Care Unit Patients measure for both the FY 
2014 Hospital IQR and LTCHQR measure sets. In the Hospital IQR Program, 
collection of this measure is limited to ICU locations; for the LTCHQR 
Program, collection of this measure extends to all inpatient locations 
except neonatal ICUs. This measure is a high priority HAI measure that 
is included among the prevention metrics established in the HHS Action 
Plan to Prevent HAIs, which, as we noted above, underscores the 
importance of reducing HAIs.
    We are proposing to collect data for these two HAI measures via the 
NHSN, which is a secure, Internet-based surveillance system maintained 
and managed by CDC, and can be used by all types of health care 
facilities in the United States, including acute care hospitals, cancer 
hospitals, long term care hospitals, psychiatric hospitals, 
rehabilitation hospitals, outpatient dialysis centers, and ambulatory 
surgery centers. The NHSN enables health care 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 health care facilities to 
submit patient-level data on measures mandated through their specific 
State legislation. Currently, 28 States require hospitals to report 
HAIs using NHSN, and CDC provides support to more than 5,000 hospitals 
that are using NHSN.
    NHSN data collection occurs via manual data entry into a Web-based 
tool hosted by CDC provided without charge to providers and via 
electronic reporting by providers directly to NHSN. The NHSN Agreement 
to Participate and Consent Form specifies the purposes to which NHSN 
data are put, including enabling providers, such as cancer hospitals, 
to report data via NHSN to CMS in fulfillment of CMS's quality 
measurement reporting requirements for those data.
    In addition, data submission for HAI measures through electronic 
health record technology (EHRs) may be possible in the near future and 
this would further reduce reporting burden on hospitals.
(A) Proposed Central Line-Associated Blood Stream Infections Measure 
((CLABSI), NQF <greek-i>0139)
    The proposed CLABSI measure was originally developed by CDC to 
assess the percentage of ICU and high-risk nursery patients who, over a 
certain amount of days, acquired central line catheter-associated 
bloodstream infections. CDC recently updated this measure to expand the 
care setting to all inpatient settings (not just ICUs). As indicated 
previously, the measure has been renamed as National Healthcare Safety 
Network (NHSN) Central Line-Associated Bloodstream Infection (CLABSI) 
Outcome Measure and we are proposing to adopt this measure for use for 
the FY 2014 program and subsequent program years. This measure is 
considered an outcome measure by NQF as it relates to the results of 
the quality of care provided to patients; it is risk adjusted by which 
the observed infection rate for a particular location in a hospital is 
compared to an expected infection rate calculated based on the specific 
location within other facilities that report to the NHSN. Measure 
specifications may be accessed at: http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf.
    A central line is a catheter that health care providers often place 
in a large vein in the neck, chest, or groin to give medication or 
fluids or to collect blood for medical tests. Many patients are 
discharged from short-term acute care hospital intensive care units 
(ICUs) or ICU stepdown units with these central lines in place.

[[Page 28063]]

    Bloodstream infections are usually serious infections typically 
causing a prolongation of hospital stay and increased cost and risk of 
mortality.\106\ An estimated 248,000 bloodstream infections occur in 
U.S. hospitals each year.\107\ Furthermore, despite the preventability 
of these infections, CLABSIs result in thousands of deaths each year 
and billions of dollars in added costs to the U.S. health care system, 
CDC is providing guidelines and tools to the health care community to 
help reduce central line catheter-associated bloodstream infections. 
CLABSIs can be prevented through proper management of the central line. 
CDC's Healthcare Infection Control Practices Advisory Committee (CDC/
HICPAC) Guidelines for the Prevention of Intravascular Catheter-Related 
Infections recommends evidence-based central line insertion practices 
known to reduce the risk of subsequent central line-associated 
bloodstream infection.\108\ These include hand-washing by inserters, 
use of maximal sterile barriers during insertion, proper use of a skin 
antiseptic prior to insertion, and allowing that skin antiseptic to dry 
before catheter insertion. Despite the scientific evidence supporting 
these practices, several reports suggest that adherence to these 
practices remains low in U.S. hospitals.
---------------------------------------------------------------------------

    \106\ CDC/NHSN Manual. Device-Associated Module, CLABSI Event. 
Available at http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf, accessed on January 20, 2011.
    \107\ Klevens RM, Edward JR, et al. Estimating health care-
associated infections and deaths in U.S. hospitals, 2002. Public 
Health Reports 2007; 122:160-166.
    \108\ O'Grady NP, Alexander M, Dellinger EP, Gerberding JL, 
Heard SO, Maki DG, et al., Guidelines for the prevention of 
intravascular catheter-related infections. MMWR 2002; 51(No. RR-
10:1-26).
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    This measure is NQF-endorsed and, therefore, meets the requirement 
of section 1866(k)(3)(A) of the Act, which states that quality measures 
selected for the PCHQR Program must be endorsed by the entity with a 
contract under section 1890(a) of the Act, unless an exception under 
section 1866(k)(3)(B) of the Act applies.
    We invite public comment on our proposal to adopt the NHSN Central 
Line-Associated Bloodstream Infection (CLABSI) outcome measure for the 
PCHQR Program for collection in both ICU and non-ICU locations within a 
PCH to align with the recently-expanded NQF-endorsed measure 
specifications for the FY 2014 program and subsequent program years.
(B) Proposed Catheter Associated Urinary Tract Infection Measure 
((CAUTI), NQF <greek-i>0138)
    The catheter-associated urinary tract infection (CAUTI) measure was 
developed by CDC to measure the percentage of patients with CAUTIs in 
the ICU context. CDC has recently updated the specifications of this 
measure to include all inpatient settings (not just ICUs). This measure 
has been renamed as National Healthcare Safety Network (NHSN) Catheter-
Associated Urinary Tract Infection (CAUTI) Outcome Measure and we are 
proposing to adopt this measure for use for the FY 2014 program and 
subsequent program years. This measure is considered an outcome measure 
as it relates to the results of the quality of care provided to 
patients; it is risk adjusted by which the observed infection rate for 
a particular location in a hospital is compared to an expected 
infection rate calculated based on the specific location within other 
facilities that report to the NHSN. Measure specifications may be 
accessed at: http://www.cdc.gov/nhsn/PDFs/pscManual/7pscCAUTIcurrent.pdf.
    The urinary tract is the most common site of HAI, accounting for 
more than 30 percent of infections reported by acute care 
hospitals.\109\ Healthcare-associated urinary tract infections (UTIs) 
are commonly attributed to catheterization of the urinary tract. CAUTI 
can lead to such complications as cystitis, pyelonephritis, gram-
negative bacteremia, prostatitis, epididymitis, and orchitis in males 
and, less commonly, endocarditis, vertebral osteomyelitis, septic 
arthritis, endophthalmitis, and meningitis in all patients. 
Complications associated with CAUTI cause discomfort to the patient, 
prolonged hospital stay, and increased cost and mortality. Each year, 
more than 13,000 deaths are associated with UTIs.\110\ Prevention of 
CAUTIs is discussed in the CDC/HICPAC document, Guideline for 
Prevention of Catheter-associated Urinary Tract Infections, which 
includes recommendations for proper insertion techniques, including 
hand washing, insertion by trained staff, use of sterile gloves, 
drapes, sponges and antiseptic or sterile solution for cleaning and 
lubricant jelly for insertion.\111\
---------------------------------------------------------------------------

    \109\ Klevens RM, Edward JR, et al., Estimating health care-
associated infections and deaths in U.S. hospitals, 2002. Public 
Health Reports 2007; 122:160-166.
    \110\ Wong ES., Guideline for prevention of catheter-associated 
urinary tract infections. Infect Control 1981; 2:126-30.
    \111\ Gould CV, Umscheid CA, Agarwal RK, Kuntz G, Pegues DA, et 
al., Guideline for prevention of catheter-associated urinary tract 
infections. Infect Control 2009; 31:319-326.
---------------------------------------------------------------------------

    UTIs are a major cause of morbidity and mortality. The HHS Action 
Plan to Prevent HAIs identified catheter associated urinary tract 
infections as the leading type of HAI that is largely preventable, and 
the occurrence of which can be drastically reduced in order to reduce 
adverse health care related events and avoid excess costs.
    This measure is NQF-endorsed and, therefore, meets the requirement 
of section 1866(k)(3)(A) of the Act, which states that quality measures 
selected for the PCHQR Program be endorsed by the entity with a 
contract under section 1890(a) of the Act, unless an exception under 
section 1866(k)(3)(B) of the Act applies.
    We invite public comment on our proposal to adopt the NHSN 
Catheter-Associated Urinary Tract Infection (CAUTI) outcome measure for 
the PCHQR Program for collection in both ICU and non-ICU locations 
within a facility to align with the recently expanded NQF-endorsed 
measure specifications for the FY 2014 program and subsequent program 
years.
(2) Proposed Cancer-Specific Measures
    We are proposing to adopt three measures related to the treatment 
of colon cancer and two types of breast cancer (hormone receptor-
negative and hormone receptor-positive). Specifically, these proposed 
measures are: (i) Adjuvant chemotherapy is considered or administered 
within 4 months (120 days) of surgery to patients under the age of 80 
with AJCC III (lymph node positive) colon cancer (NQF <greek-i>0223); 
(ii) Combination chemotherapy is considered or administered within 4 
months (120 days) of diagnosis for women under 70 with AJCC T1c, or 
Stage II or III hormone receptor negative breast cancer (NQF 
<greek-i>0559); and (iii) Adjuvant hormonal therapy (NQF <greek-i> 
0220). The proposed measures were developed by the American College of 
Surgeons/Commission on Cancer.
    We are proposing to adopt these three cancer treatment-related 
quality measures for several reasons. First, national cancer incidence 
rates suggest that breast and colon cancer will become two of the more 
common diagnoses (in 2012, 29 percent of cancer diagnosis in females 
will be breast cancer, and 6 percent of cancer diagnosis in both 
genders will be colon cancer \112\); these cancers are also highly 
prevalent among Medicare beneficiaries.

[[Page 28064]]

We believe the high incidence of these types of cancer creates an 
opportunity for measurements to make an impact on the quality of cancer 
care. Second, these measures support the National Quality Strategy's 
priority to promote the most effective prevention and treatment 
practices for the leading causes of mortality due to cancer. Third, the 
TEP convened by our measure development contractor identified the 
treatment of breast and colon cancer as high priority quality issues 
for PCHs due to the high incidence of these types of cancers and rated 
these measures highest compared to other potential program measures 
based on an assessment of the importance, scientific acceptability, 
usability, and feasibility of these measures. Also, participants in a 
CMS-convened Listening Session on September 8, 2011 expressed support 
for the proposed measures. The transcript for this Listening Session 
can be found at http://www.cms.gov/HospitalQualityInits/05_HospitalHighlights.asp#TopOfPage. Fourth, the MAP reviewed these 
cancer-specific measures and supported inclusion of these measures in 
the PCHQR Program. All of the three proposed cancer-specific measures 
are NQF-endorsed; therefore they satisfy the requirement of section 
1866(k)(3)(A) of the Act relating to the selection of endorsed measures 
for the PCHQR Program. Furthermore, section 1866(k)(4) of the Act 
provides that quality measures reported in the PCHQR Program should 
assess process, structure, outcome, patients' perspective on care, 
efficiency, and costs of care that relate to PCHs. We believe these 
three proposed cancer-specific measures meet the above statutory 
criteria, as they track important processes in the treatment of colon 
and breast cancer.
---------------------------------------------------------------------------

    \112\ Siegel R, Naishadham D, Jemal A. Cancer statistics, 2012. 
CA Cancer J Clin 2012; 62:10-29.
---------------------------------------------------------------------------

    Although these measures are not currently reported in other HHS 
programs, they are reported by over 1,500 cancer programs as part of 
their accreditation by the Commission on Cancer, a program of the 
American College of Surgeons (see http://www.facs.org/cancer/ncdb/index.html), further indicating their importance as the Commission on 
Cancer has taken a leading role in establishing national standards to 
ensure quality in the provision of cancer care.
    We are proposing that PCHs would submit the data needed to 
calculate these measures to a CMS contractor. We believe that a CMS 
contractor-based data collection mechanism would reduce the potential 
reporting burden because currently the majority of PCHs are submitting 
HAI and cancer-specific measures to the appropriate entities.
(A) Proposed Adjuvant Chemotherapy Is Considered or Administered Within 
4 Months (120 days) of Surgery to Patient Under the Age of 80 With AJCC 
III (Lymph Node Positive Colon Cancer) (NQF <greek-i>0223)
    This proposed measure examines whether adjuvant chemotherapy is 
delivered within a specified period of time after a diagnosis of colon 
cancer. Specifically, it looks at the proportion of patients 18-79 with 
AJCC Stage III (lymph node positive) colon cancer for whom adjuvant 
chemotherapy is considered or administered within 4 months of 
diagnosis. Stage III colon cancer is colon cancer that has spread 
outside the colon to one or more lymph nodes. The adjuvant chemotherapy 
measure is a process measure as it addresses whether a defined 
treatment was delivered to a patient; the measure is not risk adjusted 
by which the measure does not attempt to account for hospital patient 
populations or other differences between hospitals. Detailed 
specifications for this proposed measure can be accessed on the Web 
site of the measure steward, the American College of Surgeons at: 
http://www.facs.org/cancer/ncdb/colonmeasures.pdf. Additionally, CMS 
will provide a link to the specification manual on the QualityNet Web 
site.
    Colorectal cancer plays a sizeable role in affecting both health 
and health care costs in the United States. The American Cancer Society 
estimates that 51,690 Americans will die of colorectal cancer in 
2012.\113\ According to the National Cancer Institute, more than $14.1 
billion was spent on colorectal cancer in 2010.\114\
---------------------------------------------------------------------------

    \113\ Siegel R, Naishadham D, Jemal A. Cancer statistics, 2012. 
CA Cancer J Clin 2012; 62:10-29.
    \114\ Mariotto AB, Yabroff KR, Shao Y, Feuer EJ, and Brown ML. 
Projections of the Cost of Cancer Care in the United States: 2010-
2020. JNCI 2011; 103:117-128.
---------------------------------------------------------------------------

    Appropriate treatment may improve survival rates and reduce the 
likelihood of costly recurrence. Strong evidence suggests that treating 
Stage III colon cancer patients with adjuvant chemotherapy improves 
overall survival and disease-free survival.\115\ In addition to being 
supported by evidence, this measure is consistent with the National 
Comprehensive Cancer Network's (NCCN) guidelines for the treatment of 
colon cancer (COL-4: T3-4, N1-2, MO), which recommend that colon cancer 
patients should receive adjuvant chemotherapy.
---------------------------------------------------------------------------

    \115\ Andr[eacute] T, Boni C, Navarro M, et al. Improved Overall 
Survival With Oxaliplatin, Fluorouracil, and Leucovorin As Adjuvant 
Treatment in Stage II or III Colon Cancer in the MOSIAC Trial. J 
Clin Onc 2009; 27:3109-3116.
---------------------------------------------------------------------------

    Section 1866(k)(3)(A) of the Act requires quality measures selected 
for the PCHQR Program to be endorsed by the entity with a contract 
under section 1890(a) of the Act, unless an exception under 
1866(k)(3)(B) applies. This measure is NQF-endorsed and therefore, it 
meets the statutory endorsement requirements.
    We invite public comment on our proposal to adopt the Adjuvant 
Chemotherapy Is Considered or Administered Within 4 Months (120 days) 
of Surgery to Patient Under the Age of 80 With AJCC III (lymph node 
positive colon cancer) measure for the PCHQR Program for the FY 2014 
program and subsequent program years.
(B) Proposed Combination Chemotherapy Is Considered or Administered 
Within 4 Months (120 days) of Diagnosis for Women Under 70 With AJCC 
T1c, or Stage II or III Hormone Receptor Negative Breast Cancer (NQF 
<greek-i>0559)
    This proposed measure assesses the proportion of women ages 18-69 
who have their first diagnosis of breast cancer at AJCC Stage IC, II or 
III and whose primary tumor is hormone (estrogen and progesterone) 
receptor negative for whom combination chemotherapy is considered or 
administered within 4 months of diagnosis. Hormone receptor negative 
means that hormones, such as estrogen, do not drive tumor growth. This 
measure is a process measure as it addresses whether a defined 
treatment was delivered to a patient; the measure is not risk adjusted 
in that the measure does not attempt to account for differences in 
hospital patient populations or other differences between hospitals. 
Detailed specifications for this proposed measure can be accessed on 
the Web site of the measure steward, the American College of Surgeons, 
at: http://www.facs.org/cancer/ncdb/breastmeasures.pdf. Additionally, 
CMS will provide a link to the specification manual on the QualityNet 
Web site.
    The number of deaths from breast cancer has declined while spending 
has increased. The American Cancer Society estimates that 39,510 
Americans will die of breast cancer in 2012.\116\ Spending on breast 
cancer care is higher than for any other type of cancer: according to 
the National Cancer Institute, more than $16.5 billion was

[[Page 28065]]

spent on breast cancer care in 2010.\117\ Evidence shows that treating 
hormone receptor negative breast cancer patients with combination 
chemotherapy is associated with a reduced risk of relapse or 
death.\118\ This measure is also consistent with NCCN's guidelines for 
the treatment of invasive breast cancer (BINV-4, 7-8), which recommend 
adjuvant chemotherapy for patients with hormone receptor negative 
tumors, and therefore the measure aligns with recognized standards of 
treatment.
---------------------------------------------------------------------------

    \116\ Siegel R, Naishadham D, Jemal A. Cancer statistics, 2012. 
CA Cancer J Clin 2012; 62:10-29.
    \117\ Mariotto AB, Yabroff KR, Shao Y, Feuer EJ, and Brown ML. 
Projections of the Cost of Cancer Care in the United States: 2010-
2020. J Natl Cancer Inst 2011; 103:117-128.
    \118\ Fisher B, Jeong JH, Anderson S, et al.: Treatment of 
axillary lymph node-negative, estrogen receptor-negative breast 
cancer: updated findings from National Surgical Adjuvant Breast and 
Bowel Project clinical trials. J Natl Cancer Inst 96 (24): 1823-31, 
2004.
---------------------------------------------------------------------------

    This measure is NQF-endorsed and therefore, it meets the 
requirements under section 1866(k)(3)(A) of the Act which states that 
quality measures selected for the PCHQR Program be endorsed by the 
entity with a contract under section 1890(a) of the Act, unless an 
exception under section 1866(k)(3)(B) of the Act applies.
    We invite public comment on our proposal to adopt the Combination 
Chemotherapy is Considered or Administered Within 4 Months (120 days) 
of Diagnosis for Women Under 70 With AJCC T1c, or Stage II or III 
Hormone Receptor Negative Breast Cancer (NQF <greek-i>0559) quality 
measure for the PCHQR Program for the FY 2014 program and subsequent 
program years.
(C) Proposed Adjuvant Hormonal Therapy (NQF <greek-i>0220)
    This proposed measure assesses whether recommended treatment is 
delivered within a specified period of time from a patient's breast 
cancer diagnosis. Specifically, it tracks the proportion of eligible 
women 18 years or older who have their first diagnosis of breast cancer 
at AJCC T1c or Stage II or III and whose primary tumor is hormone 
(estrogen or progesterone) receptor positive breast cancer for whom 
tamoxifen or a third generation aromatase inhibitor is considered or 
administered within 1 year of diagnosis. Hormone receptor positive 
means that estrogen or progesterone promotes the growth of cancer 
cells. This measure is a process measure as it relates to whether a 
defined treatment was delivered to a patient; it is not risk adjusted. 
Detailed specifications for this proposed measure can be accessed on 
the Web site of the measure steward, the American College of Surgeons, 
at: http://www.facs.org/cancer/ncdb/breastmeasures.pdf. Additionally, 
we will provide a link to the specification manual on the QualityNet 
Web site.
    The American Cancer Society estimates that two-thirds of breast 
cancer cases are hormone receptor positive.\119\ As stated previously, 
appropriate and effective treatment is important to both the health and 
cost outcomes of breast cancer care. The measure is consistent with 
NCCN's guidelines (BINV-5, 6 and 9 and BINV-E) for the treatment of 
invasive breast cancer, which recommend hormone therapy for patients 
with hormone receptor positive breast cancer, and with the American 
Society of Clinical Oncology's (ASCO) Update on adjuvant endocrine 
therapy for women with hormone receptor positive breast cancer. The 
ASCO guideline cites a wide body of supporting evidence for this method 
of treatment.
---------------------------------------------------------------------------

    \119\ American Cancer Society. Breast Cancer Hormone Therapy. 
http://www.cancer.org/Cancer/BreastCancer/DetailedGuide/breast-cancer-treating-hormone-therapy Last revised 01/06/2012.
---------------------------------------------------------------------------

    This measure is NQF-endorsed and therefore, it meets the 
requirement under section 1866(k)(3)(A) of the Act, which states that 
quality measures selected for the PCHQR Program be endorsed by the 
entity with a contract under section 1890(a) of the Act, unless an 
exception under section 1866(k)(3)(B) of the Act applies.
    We invite public comment on our proposal to adopt the Adjuvant 
hormonal therapy measure for the PCHQR Program for the FY 2014 program 
and subsequent program years.
    In summary, we are proposing to adopt five quality measures for the 
PCHQR Program for the FY 2014 program and subsequent program years 
(listed in the table below): (1) NHSN Central Line-Associated 
Bloodstream Infection (CLABSI) Outcome Measure (data submission for ICU 
and non-ICU locations via CDC/NHSN); (2) NHSN Catheter-Associated 
Urinary Tract Infection (CAUTI) Outcome Measure (data submission for 
ICU and non-ICU locations via CDC/NHSN); (3) Adjuvant chemotherapy is 
considered or administered within 4 months (120 days) of surgery to 
patients under the age of 80 with AJCC III (lymph node positive) colon 
cancer (data submission to CMS contractor); (4) Combination 
chemotherapy is considered or administered within 4 months (120 days) 
of diagnosis for women under 70 with AJCC T1c, or Stage II or III 
hormone receptor negative breast cancer (data submission to CMS 
contractor); and (5) Adjuvant hormonal therapy (data submission to CMS 
contractor). We invite public comment on these proposed measures for 
the FY 2014 program and subsequent program years. The proposed details 
regarding data submission for these measures are covered in section 
VIII.B. of this preamble.

------------------------------------------------------------------------
                                     Proposed measures for PCHQR program
               Topic                 beginning with FY 2014 program and
                                          subsequent program years
------------------------------------------------------------------------
Safety and Healthcare Acquired      <bullet> NHSN Central Line-
 Infections--HAI.                    Associated Bloodstream Infection
                                     (CLABSI) Outcome Measure.
                                    <bullet> NHSN Catheter-Associated
                                     Urinary Tract Infections (CAUTI)
                                     Outcome Measure.
Cancer-Specific Treatments........  <bullet> Adjuvant Chemotherapy is
                                     considered or administered within 4
                                     months (120 days) of surgery to
                                     patients under the age of 80 with
                                     AJCC III (lymph node positive)
                                     colon cancer.
                                    <bullet> Combination Chemotherapy is
                                     considered or administered within 4
                                     months (120 days) of diagnosis for
                                     women under 70 with AJCC T1c, or
                                     Stage II or III hormone receptor
                                     negative Breast Cancer.
                                    <bullet> Adjuvant Hormonal Therapy.
------------------------------------------------------------------------

4. Possible New Quality Measures Topics for Future Years
    We seek to develop a comprehensive set of quality measures to be 
available for widespread use for informed decision-making and quality 
improvement in the cancer hospital setting. Therefore, through future 
rulemaking, we intend to propose new measures that help us further our 
goal of achieving better health care and improved health for Medicare 
beneficiaries who obtain cancer services through the widespread 
dissemination and use of performance information. Additionally, we are 
considering initiating a call for input to assess the following measure 
domains: Clinical quality of care, care coordination, patient safety, 
patient and caregiver experience of care, population/

[[Page 28066]]

community health and efficiency. We believe this approach will promote 
better cancer care while bringing the PCHQR Program in line with other 
established quality reporting and performance improvement programs such 
as the Hospital IQR, the Hospital OQR, the ESRD QIP, and others within 
CMS' purview.
    We welcome public comment and suggestions for these, or other, 
measurement areas.
5. Maintenance of Technical Specifications for Quality Measures
    Many of the quality measures used in different Medicare and 
Medicaid reporting programs are NQF-endorsed. As part of its regular 
maintenance process for endorsed performance measures, the NQF requires 
measure stewards to submit annual measure maintenance updates and 
undergo maintenance of endorsement review every 3 years. In the measure 
maintenance process, the measure steward (owner/developer) is 
responsible for updating and maintaining the currency and relevance of 
the measure and will confirm existing or minor specification changes to 
NQF on an annual basis. NQF solicits information from measure stewards 
for annual reviews and in order to review measures for continued 
endorsement in a specific 3-year cycle.
    Through NQF's measure maintenance process, NQF endorsed measures 
are sometimes updated to incorporate changes that we believe do not 
substantially change the nature of the measure. Examples of such 
changes could be updated diagnosis or procedure codes, changes to 
exclusions to the patient population, definitions, or extension of the 
measure endorsement to apply to other settings. We believe these types 
of maintenance changes are distinct from more substantive changes to 
measures that result in what are considered new or different measures, 
and that they do not trigger the same agency obligations under the 
Administrative Procedure Act. In this proposed rule, we are proposing 
that if the NQF updates an endorsed measure that we have adopted for 
the PCHQR Program in a manner that we consider to not substantially 
change the nature of the measure, we would use a subregulatory process 
to incorporate those updates to the measure specifications that apply 
to the program. Specifically, we would revise the Specifications Manual 
so that it clearly identifies the updates and provide links to where 
additional information on the updates can be found. We would also post 
the updates on the CMS QualityNet Web site at https://www.QualityNet.org. We would provide sufficient lead time for PCHs to 
implement the changes where changes to the data collection systems 
would be necessary.
    We would continue to use the rulemaking process to adopt changes to 
measures that we consider to substantially change the nature of the 
measure. We believe that this proposal adequately balances our need to 
incorporate NQF updates to NQF-endorsed PCH measures in the most 
expeditious manner possible, while preserving the public's ability to 
comment on updates that so fundamentally change an endorsed measure 
that it is no longer the same measure that we originally adopted. We 
invite public comment on this proposal.
    Additionally, we will provide a Specifications Manual that will 
contain links to measure specifications, data abstraction information, 
data submission information, and other information necessary for PCHs 
to participate in the PCHQR Program. This manual would be posted on the 
QualityNet Web site at: https://www.QualityNet.org. We would maintain 
the technical specifications for the quality measures by updating this 
manual periodically, which would include detailed instructions for PCHs 
to use when collecting and submitting data on the required measures. 
These updates would be accompanied by notifications to PCHQR Program-
participating users, providing sufficient time between the change and 
effective dates in order to allow users to incorporate changes and 
updates to the measure specifications into data collection systems. We 
would revise the Specification Manual and provide links to reflect such 
endorsement changes which also would be posted on the QualityNet Web 
site at: https://www.QualityNet.org. We invite public comment on the 
previously described proposed policy on maintenance of technical 
specifications for quality measures.
6. Proposed Public Display Requirements for the FY 2014 Program and 
Subsequent Program Years
    Section 1866(k)(4) of the Act requires the Secretary to establish 
procedures for making the data submitted under the PCHQR Program 
available to the public. Such procedures shall ensure that a PCH has 
the opportunity to review the data that is to be made public with 
respect to the hospital prior to such data being made public. Section 
1866(k)(4) of the Act also provides that the Secretary shall report 
quality measures of process, structure, outcome, patients' perspective 
on care, efficiency, and costs of care that relate to services 
furnished in such hospital on the CMS Internet Website. In order to 
meet these requirements, we are proposing to publicly display the 
submitted data on the Hospital Compare Web site (http://www.hospitalcompare.hhs.gov/). Before the data are publicly displayed, 
we propose that PCHs will have the opportunity to review their data 
prior to the public reporting of the measure rates consistent with 
section 1866(k)(4) of the Act. We are proposing that PCHs have the 
opportunity to review their data 30 days prior to the public reporting 
of the measure rates because we would continue our current practice of 
preview reporting data for the PCHQR program in alignment with the HIQR 
program.
    The Hospital Compare Website serves to encourage consumers to work 
with their doctors and hospitals to discuss the quality of care 
hospitals provide to patients, thereby providing an additional 
incentive to hospitals to improve the quality of care that they 
furnish.
    However, some information that may not be relevant to or easily 
understood by beneficiaries and information for which there are 
unresolved display issues or design considerations that may not make 
them suitable for inclusion on the Hospital Compare Web site may be 
made available on other CMS Web sites, such as http://www.cms.gov and/
or http://www.qualitynet.org. In such circumstances, affected parties 
would be notified via CMS listservs, CMS e-mail blasts, and QualityNet 
announcements regarding the release of confidential hospital-specific 
preview reports to individual hospitals followed by the posting of data 
on a CMS Web site other than Hospital Compare.
    We invite public comment on the previously described proposals 
regarding the public display of quality measures.
7. Proposed Form, Manner, and Timing of Data Submission for FY 2014 
Program and Subsequent Program Years
a. Background
    Section 1866(k)(2) of the Act requires that, for the FY 2014 
program and each subsequent program year, each PCH must submit to the 
Secretary data on quality measures established under section 1866(k)(3) 
of the Act in a form and manner, and at a time as specified by the 
Secretary.
    The complete data submission requirements and submission deadlines 
will be posted on the QualityNet Web site at: http://www.QualityNet.org/. In general, we are proposing that PCHs

[[Page 28067]]

submit data to the CDC for the HAI measures (CLABSI and CAUTI), and the 
CMS contractor for the three Cancer-Specific measures (Adjuvant 
Chemotherapy for Stage III Colon Cancer; Combination Chemotherapy for 
AJCC T1c or Stage II or III Hormone Receptor-Negative Breast Cancer; 
and Hormone Therapy for AJCC T1c or Stage II or III Hormone Receptor-
Positive Breast Cancer). As set forth below, we are proposing to 
utilize the data submission and reporting standard procedures that have 
been set forth by CDC for NHSN participation in general and for 
submission of the proposed HAI measures to NHSN. We refer readers to 
the CDC's website for detailed data submission and reporting 
procedures. We are also proposing procedures for PCHs to follow when 
submitting data on the three proposed cancer-specific measures.
b. Proposed Procedural Requirements for FY 2014 Program and Subsequent 
Program Years
    In order to participate in the PCHQR Program for the FY 2014 
program and subsequent program years, we are proposing that PCHs must 
comply with the procedural requirements outlined in this section. We 
have aligned these proposed procedural requirements with the Hospital 
IQR Program to the extent possible to streamline the procedural 
requirements across different types of providers. We are proposing that 
PCHs must do the following:
    <bullet> Register with QualityNet before participating PCHs begin 
reporting and regardless of the method used for submitting the data.
    <bullet> Identify QualityNet Administrator(s) who follows the 
registration process located on the QualityNet Website (http://www.QualityNet.org).
    <bullet> PCHs participating in the PCHQR Program must complete an 
online Data Accuracy and Completeness Acknowledgement (DACA) via 
QualityNet, which states that the quality measure results and any and 
all data including numerator and denominator data provided, are 
accurate and complete. We are proposing that the time period for 
submitting the DACA would be August 31 of the preceding fiscal year. 
For more information on DACA, please refer to the section below 
entitled, ``Proposed Data Accuracy and Completeness Acknowledgement 
(DACA) Requirements for the FY 2014 Program and Subsequent Program 
Years.''
    <bullet> Enroll in CDC/NHSN and register with the CMS contractor 
collecting the Cancer-Specific measures before participating PCHs begin 
reporting.
    We strongly encourage PCHs to complete an online Notice of 
Participation (NOP) via QualityNet. This form would grant CMS written 
authorization from the PCH to publicly report the PCH's measure rate on 
a CMS Web site.

             Proposed CMS Notice of Participation Timeframe
------------------------------------------------------------------------
                                               Notice of participation
        Program year  (fiscal year)                (NOP) deadline
------------------------------------------------------------------------
FY 2014...................................  August 15, 2013.
FY 2015...................................  August 15, 2014.
Subsequent Fiscal Years...................  August 15 of the preceding
                                             fiscal year.
------------------------------------------------------------------------

c. Proposed Reporting Mechanisms for FY 2014 Program and Subsequent 
Program Years
    For the purpose of reporting quality measures under the PCHQR 
Program, we are proposing to adopt the following data submission 
mechanisms. With respect to the proposed HAI measures (CLABSI and 
CAUTI), we are proposing that PCHs submit the data to the CDC through 
the NHSN database. We are proposing to utilize the data submission and 
reporting standard procedures that have been set forth by CDC for NHSN 
participation in general and for submission of the proposed HAI 
measures to NHSN. We refer readers to the CDC's website (http://www.cdc.gov/nhsn/) for detailed data submission and reporting 
procedures. After the final submission deadline has passed, CMS will 
obtain the PCH-specific calculations that have been generated by the 
NHSN for the PCHQR Program.
    With respect to the three proposed (3) cancer-specific measures, we 
are proposing that PCHs submit the data to the CMS contractor. The CMS 
Contractor would then calculate the quality measures rates and submit 
those rates to CMS on a quarterly basis.
    We invite public comment on our proposed reporting mechanisms.
(1) Proposed Reporting Mechanism for the Proposed HAI Measures
    We are proposing to adopt a quarterly submission process for the 
proposed HAI measures -CLABIS AND CAUTI, that use similar reporting 
mechanism to the one finalized for the Hospital IQR program (75 FR 
50223) starting with October 1, 2012 infection events. We have 
successfully implemented this reporting mechanism in the Hospital IQR 
program and intend to use similar reporting mechanism to collect data 
for the PCHQR program. We welcome comment on this proposal.
(2) Proposed Reporting Mechanism for the Proposed Cancer-Specific 
Measures
    We are proposing to collect the three cancer-specific measures data 
using a CMS contractor starting with the FY2014 program. Similar to the 
reporting mechanism we are proposing to adopt for the proposed HAI 
measures, we anticipate that PCHs would report their measure data to 
the contractor, which would then calculate the measure rates and submit 
those rates to CMS. Should these proposed measures be finalized, we 
will publish the technical specifications and file layouts necessary 
for reporting in enough time to enable PCHs to incorporate any 
necessary changes to their information systems. We invite public 
comment on our proposed reporting requirements.
d. Proposed Data Submission Timelines for FY 2014 Program and 
Subsequent Program Years
    We are proposing that PCHs must adhere to the following timelines 
in reporting their measure data:

------------------------------------------------------------------------
                                                         CMS submission
   Time line (calendar year)      Quality measures *        deadline
------------------------------------------------------------------------
Q4 (October-December 2012)....  NHSN CLABSI Outcome     May 15, 2013.
                                 Measure **.
                                NHSN CAUTI Outcome      May 15, 2013.
                                 Measure **.
                                Adjuvant Chemotherapy   August 15, 2013.
                                 is considered or
                                 administered within 4
                                 months (120 days) of
                                 surgery to patients
                                 under the age of 80
                                 with AJCC Stage III
                                 (lymph node positive)
                                 colon cancer \+\.
                                Combination             August 15, 2013.
                                 Chemotherapy is
                                 considered or
                                 administered within 4
                                 months (120 days) of
                                 diagnosis for women
                                 under 70 with AJCC
                                 T1c, or Stage II or
                                 III hormone receptor
                                 negative Breast
                                 Cancer \+\.
                                Adjuvant Hormonal       May 15, 2014.
                                 Therapy \+\.
Q1 (January-March 2013).......  NHSN CLABSI Outcome     August 15, 2013.
                                 Measure **.
                                NHSN CAUTI Outcome      August 15, 2013.
                                 Measure **.

[[Page 28068]]

 
                                Adjuvant Chemotherapy   November 15,
                                 is considered or        2013.
                                 administered within 4
                                 months (120 days) of
                                 surgery to patients
                                 under the age of 80
                                 with AJCC Stage III
                                 (lymph node positive)
                                 colon cancer \+\.
                                Combination             November 15,
                                 Chemotherapy is         2013.
                                 considered or
                                 administered within 4
                                 months (120 days) of
                                 diagnosis for women
                                 under 70 with AJCC
                                 T1c, or Stage II or
                                 III hormone receptor
                                 negative Breast
                                 Cancer \+\.
                                Adjuvant Hormonal       August 15, 2014.
                                 Therapy \+\.
Subsequent calendar quarters..  NHSN CLABSI Outcome     November 15 of
                                 Measure **.             each respective
                                                         year.
                                NHSN CAUTI Outcome      November 15 of
                                 Measure **.             each respective
                                                         year.
                                Adjuvant Chemotherapy   February 15 of
                                 is considered or        each respective
                                 administered within 4   year.
                                 months (120 days) of
                                 surgery to patients
                                 under the age of 80
                                 with AJCC Stage III
                                 (lymph node positive)
                                 colon cancer \+\.
                                Combination             February 15 of
                                 Chemotherapy is         each respective
                                 considered or           year.
                                 administered within 4
                                 months (120 days) of
                                 diagnosis for women
                                 under 70 with AJCC
                                 T1c, or Stage II or
                                 III hormone receptor
                                 negative Breast
                                 Cancer \+\.
                                Adjuvant Hormonal       November 15 of
                                 Therapy \+\.            each respective
                                                         year.
------------------------------------------------------------------------
* Referred to as the HAI and Cancer-Specific Treatment Quality Measures.
** HAI event occurred in applicable quarter.
\+\ Initial diagnosis in applicable quarter.

    Our principal rationale for these proposed timeframes is to align 
the HAI measure submission deadlines with existing CMS deadlines to 
collect the same quality measure information. We also seek to align our 
timeframes with those of the ACoS, which separately collects the same 
type of cancer-specific measure data from many PCHs. By aligning these 
deadlines by measure, we strive to reduce burden by using information 
already collected by many PCHs in their own quality measurement and 
improvement efforts. The proposed quarterly CDC/NHSN submission 
timeframes and deadlines also match the existing Hospital IQR quarterly 
submission timeframes for the same HAI measure. In the case of the 
three cancer-specific quality measures, we also believe that these 
proposed submission timeframes will give PCHs enough time to measure 
follow-up chemotherapy (4 months following the cancer diagnosis) and 
hormone therapy visits (12 months following the cancer surgery), as 
well as identify and correct discordant submitted data (2 months for 
the two proposed chemotherapy measures, and 3 months for the proposed 
adjuvant hormone therapy measure).
    We invite public comment on the proposed data submission methods 
and timelines.
e. Proposed Data Accuracy and Completeness Acknowledgement (DACA) 
Requirements for FY 2014 Program and Subsequent Program Years
    We are proposing to require PCHs to electronically acknowledge 
their data accuracy and completeness once annually. PCHs would submit 
an electronic acknowledgement that the data provided to meet the 
applicable annual PCHQR Program data submission requirement is accurate 
and complete to the best of the facility's knowledge at the time of 
data submission. We are proposing to begin annual DACA submission 
starting with the FY 2015 program, and such submission deadline would 
be due to CMS no later than August 31, 2014. We are proposing to begin 
the DACA with the FY 2015 program in an effort to provide ample 
opportunity for the PCHs to become familiar with the reporting 
processes. Therefore, we are not proposing submission of a DACA for the 
FY 2014 PCHQR Program. We are proposing that the DACA submission 
deadline for each program year be August 31 preceding the respective 
PCHQR Program year. We are proposing August 31 as the DACA deadline for 
several reasons. First, requiring PCHs to acknowledge their data's 
accuracy and completeness by August 31 preceding the respective PCHQR 
Program year provides us with sufficient time to ensure compliance with 
the program by October 1, the start of the fiscal year. Second, we 
believe it is appropriate to make the deadline for DACA the same as the 
deadline for data submission. Lastly, we are proposing to align our 
DACA deadline with other quality reporting programs, such as the 
Hospital IQR Program.

   Proposed CMS Data Accuracy and Completeness Acknowledgement (DACA)
                                Timeframe
------------------------------------------------------------------------
                                                  Data accuracy and
                                                    completeness
        Program year  (fiscal year)            acknowledgement (DACA)
                                                      deadline
------------------------------------------------------------------------
FY 2014...................................  Not required.
FY 2015...................................  August 31, 2014.
Subsequent Fiscal Years...................  August 31 of the preceding
                                             fiscal year.
------------------------------------------------------------------------

    We invite public comments on our proposed data accuracy and 
completeness acknowledgement requirements.

C. Hospital Value-Based Purchasing (VBP) Program

1. Statutory Background
    Section 1886(o) of the Act, as added by section 3001(a)(1) of the 
Affordable Care Act, requires the Secretary to establish a hospital 
value-based purchasing program (the Hospital Value-Based Purchasing 
(VBP) Program) under which value-based incentive payments are made in a 
fiscal year to hospitals that meet performance standards established 
for a performance period for such fiscal year. Both the performance 
standards and the performance period for a fiscal year are to be 
established by the Secretary.
    Section 1886(o)(1)(B) of the Act states that the Hospital VBP 
Program applies to payments for hospital discharges occurring on or 
after October 1, 2012. In accordance with section 1886(o)(6)(A) of the 
Act, we are required to make value-based incentive payments under the 
Hospital VBP Program to hospitals that meet or exceed performance 
standards

[[Page 28069]]

for a performance period for a fiscal year. As further required by 
section 1886(o)(6)(C)(ii)(I) of the Act, we will base each hospital's 
value-based payment percentage on the hospital's Total Performance 
Score (TPS) for a specified performance period. In accordance with 
section 1886(o)(7) of the Act, the total amount available for value-
based incentive payments for a fiscal year will be equal to the total 
amount of the payment reductions for all participating hospitals for 
such fiscal year, as estimated by the Secretary. For FY 2013, the 
available funding pool will be equal to 1.00 percent of the base-
operating DRG payments to all participating hospitals, as estimated by 
the Secretary, and the size of the applicable percentage will increase 
to 1.25 percent for FY 2014, 1.50 percent for FY 2015, 1.75 percent for 
FY 2016, and 2.0 percent for FY 2017 and successive fiscal years.
    Section 1886(o)(1)(C) of the Act generally defines the term 
``hospital'' for purposes of the Hospital VBP Program as a subsection 
(d) hospital (as that term is defined in section 1886(d)(1)(B) of the 
Act), but excludes from the definition of the term ``hospital,'' with 
respect to a fiscal year: (1) A hospital that is subject to the payment 
reduction under section 1886(b)(3)(B)(viii)(I) of the Act (the Hospital 
IQR Program) for such fiscal year; (2) a hospital for which, during the 
performance period for the fiscal year, the Secretary has cited 
deficiencies that pose immediate jeopardy to the health or safety of 
patients; and (3) a hospital for which there are not a minimum number 
(as determined by the Secretary) of measures that apply to the hospital 
for the performance period for the fiscal year involved, or for which 
there are not a minimum number (as determined by the Secretary) of 
cases for the measures that apply to the hospital for the performance 
period for such fiscal year.
2. Overview of the FY 2013 Hospital VBP Program
    In April 2011, we issued the Hospital Inpatient VBP Program final 
rule to implement section 1886(o) of the Act (76 FR 26490 through 
26547). As described more fully in that final rule, for the FY 2013 
Hospital VBP Program, we adopted 13 measures, including 12 clinical 
process of care measures and 8 dimensions from the Hospital Consumer 
Assessment of Healthcare Providers and Systems Survey (HCAHPS), that we 
categorized into two domains (76 FR 26495 through 26511). We grouped 
the 12 clinical process of care measures into a clinical process of 
care domain, and placed the HCAHPS survey measure into a patient 
experience of care domain. We adopted a 3-quarter performance period 
from July 1, 2011 through March 31, 2012 for these measures (76 FR 
26494 through 26495), and performance standards on which hospital 
performance will be evaluated. To determine whether a hospital meets or 
exceeds the performance standards for these measures, we will assess 
each hospital's achievement during this specified performance period, 
as well as its improvement during this period as compared with its 
performance during a 3-quarter baseline period from July 1, 2009 
through March 31, 2010 (76 FR 26493 through 26495).
    We will then calculate a TPS for each hospital by combining the 
greater of the hospital's achievement or improvement points for each 
measure to determine a score for each domain, weighting each domain 
score (for the FY 2013 Hospital VBP Program, the weights will be 
clinical process of care = 70 percent, patient experience of care = 30 
percent), and adding together the weighted domain scores. We will 
convert each hospital's TPS into a value-based incentive payment 
percentage using a linear exchange function and will then convert the 
value-based incentive payment percentage into a per discharge value-
based incentive payment amount. We will incorporate the reduction to 
each hospital's base operating DRG payment amount for each discharge, 
as well as the value-based incentive payment amounts that the hospital 
earned as a result of its performance (if applicable) into our claims 
processing systems in January 2013, and these adjustments will apply to 
FY 2013 discharges. We refer readers to the Hospital Inpatient VBP 
Program final rule for further explanation of the details of the FY 
2013 Hospital VBP Program (76 FR 26490 through 26547).
3. FY 2014 Hospital VBP Program Measures
    For FY 2014, we have adopted 17 measures for the Hospital VBP 
Program, including the 12 clinical process of care measures and the 
HCAHPS measure that we adopted for the FY 2013 program, 1 new clinical 
process of care measure (SCIP-Inf-9: Postoperative Urinary Catheter 
Removal on Postoperative Day 1 or 2), and 3 mortality outcome measures 
(Acute Myocardial Infarction (AMI) 30-Day Mortality Rate, Heart Failure 
(HF) 30-Day Mortality Rate, Pneumonia (PN) 30-Day Mortality Rate). The 
clinical process of care, HCAHPS, and mortality measures are discussed 
in more detail in the Hospital Inpatient VBP Program final rule (76 FR 
26510 through 26511) and SCIP-Inf-9 is discussed in more detail in the 
CY 2012 OPPS/ASC final rule with comment period (76 FR 74530). We are 
proposing to codify this for quality measures selection in our 
regulations at 42 CFR 412.164.
    Although we also previously adopted 8 HAC measures, 2 AHRQ 
composite measures, and a Medicare Spending Per Beneficiary Measure for 
the FY 2014 program, we have suspended the effective date of these 
measures, with the result that these measures will not be included in 
the FY 2014 Hospital VBP Program (76 FR 74528 through 74530).
    Set out below is a complete list of the measures adopted for the FY 
2014 Hospital VBP Program:

    Clinical Process of Care, Patient Experience of Care and Outcome
              Measures for the FY 2014 Hospital VBP Program
------------------------------------------------------------------------
          IV. Measure ID                     Measure description
------------------------------------------------------------------------
                    Clinical Process of Care Measures
------------------------------------------------------------------------
Acute myocardial infarction:
    AMI-7a........................  Fibrinolytic Therapy Received Within
                                     30 Minutes of Hospital Arrival.
    AMI-8a........................  Primary PCI Received Within 90
                                     Minutes of Hospital Arrival.
Heart Failure:
    HF-1..........................  Discharge Instructions.
Pneumonia:
    PN-3b.........................  Blood Cultures Performed in the
                                     Emergency Department Prior to
                                     Initial Antibiotic Received in
                                     Hospital.
    PN-6..........................  Initial Antibiotic Selection for CAP
                                     in Immunocompetent Patient.

[[Page 28070]]

 
Healthcare-associated infections:
    SCIP-Inf-1....................  Prophylactic Antibiotic Received
                                     Within One Hour Prior to Surgical
                                     Incision.
    SCIP-Inf-2....................  Prophylactic Antibiotic Selection
                                     for Surgical Patients.
    SCIP-Inf-3....................  Prophylactic Antibiotics
                                     Discontinued Within 24 Hours After
                                     Surgery End Time.
    SCIP-Inf-4....................  Cardiac Surgery Patients with
                                     Controlled 6AM Postoperative Serum
                                     Glucose.
    SCIP-Inf-9....................  Postoperative Urinary Catheter
                                     Removal on Post Operative Day 1 or
                                     2.
Surgeries:
    SCIP-Card-2...................  Surgery Patients on a Beta Blocker
                                     Prior to Arrival That Received a
                                     Beta Blocker During the
                                     Perioperative Period.
    SCIP-VTE-1....................  Surgery Patients with Recommended
                                     Venous Thromboembolism Prophylaxis
                                     Ordered.
    SCIP-VTE-2....................  Surgery Patients Who Received
                                     Appropriate Venous Thromboembolism
                                     Prophylaxis Within 24 Hours Prior
                                     to Surgery to 24 Hours After
                                     Surgery.
------------------------------------------------------------------------
                   Patient Experience of Care Measures
------------------------------------------------------------------------
HCAHPS............................  Hospital Consumer Assessment of
                                     Healthcare Providers and Systems
                                     Survey.*
------------------------------------------------------------------------
                            Outcome Measures
------------------------------------------------------------------------
MORT-30-AMI.......................  Acute Myocardial Infarction (AMI) 30-
                                     Day Mortality Rate.
MORT-30-HF........................  Heart Failure (HF) 30-Day Mortality
                                     Rate.
MORT-30 PN........................  Pneumonia (PN) 30-Day Mortality
                                     Rate.
------------------------------------------------------------------------
* The finalized dimensions of the HCAHPS survey for use in the FY 2014
  Hospital VBP Program are: Communication with Nurses, Communication
  with Doctors, Responsiveness of Hospital Staff, Pain Management,
  Communication about Medicines, Cleanliness and Quietness of Hospital
  Environment, Discharge Information and Overall Rating of Hospital.
  These are the same dimensions that we adopted for the FY 2013 program.

4. Other Previously Finalized Requirements for the Hospital VBP Program
    In the CY 2012 OPPS/ASC final rule with comment period (76 FR 74532 
through 74547), we finalized a number of other policies for the FY 2014 
Hospital VBP Program including: The minimum number of cases that a 
hospital must report to receive a score on a mortality measure; the 
minimum number of measures that a hospital must report in order to 
receive a score on the outcome domain; the baseline and performance 
periods; the performance standards for the clinical process of care and 
patient experience of care measures (we previously finalized the 
performance standards for the 3 mortality outcome measures in the 
Hospital Inpatient VBP Program final rule (76 FR 26513)); the scoring 
methodology; and the domain weighting methodology. We also finalized 
for all years of the program a process that will allow hospitals to 
review and correct the data that they submit to the QIO Clinical 
Warehouse on clinical process of care measures, their clinical process 
of care measure rates, their HCAHPS data, and their patient-mix and 
mode adjusted HCAHPS scores.
5. Proposed Hospital VBP Program Payment Adjustment Calculation 
Methodology
a. Proposed Definitions of the Term ``Base Operating DRG Payment 
Amount'' for Purposes of the Hospital VBP Program
    Section 1886(o)(7)(D) of the Act generally defines the base 
operating DRG payment amount, with respect to a hospital for a fiscal 
year, as ``the payment amount that would otherwise be made under 
section 1886(d) (determined without regard to subsection (q) [the 
Hospital Readmissions Reduction Program]) for a discharge if [the 
Hospital VBP Program] did not apply; reduced by any portion of such 
payment amount that is attributable to payments under paragraphs 
(5)(A), (5)(B), (5)(F), and (12) of subsection (d); and * * * such 
other payments under subsection (d) determined appropriate by the 
Secretary.'' Paragraphs (5)(A), (5)(B), (5)(F), and (12) of section 
1886(d) of the Act refer to outlier payments, indirect medical 
education (IME) payments, disproportionate share (DSH) payments, and 
low-volume hospital payments, respectively.
    The payment that would otherwise be made with respect to a 
discharge is the applicable average standardized amount adjusted for 
resource utilization by the applicable MS-DRG relative weight and 
adjusted for differences in geographic costs by the applicable area 
wage index (and by the applicable COLA for hospitals located in Alaska 
and Hawaii), which is often referred to as the ``the wage-adjusted DRG 
operating payment.'' The payment amount that would otherwise be made 
with respect to a discharge also includes any adjustments to the wage-
adjusted DRG operating payment that the hospital qualifies for, 
including an outlier adjustment (under section 1886(d)(5)(A) of the 
Act) an IME adjustment (under section 1886(d)(5)(B) of the Act), a 
disproportionate share payment adjustment (under section 1886(d)(5)(F) 
of the Act); a low-volume payment adjustment (under section 1886(d)(12) 
of the Act), an adjustment for new medical services or technologies 
under section 1886(d)(5)(K) of the Act (often referred to as ``new 
technology add-on payments''), and/or any other adjustment determined 
appropriate by the Secretary.
    Consistent with section 1886(o)(7)(D) of the Act, we are proposing 
to generally define the term ``base operating DRG payment amount'' for 
purposes of the Hospital VBP Program as the wage-adjusted DRG operating 
payment plus any applicable new technology add-on payment. We are 
proposing to include the new technology add-on payment amount in the 
definition of base operating DRG payment amount for the Hospital VBP 
Program because the provision of a new technology to a Medicare 
beneficiary is a treatment

[[Page 28071]]

decision, unlike the other add-on payments which are excluded by 
statute (for example, IME and DSH add-ons). We believe that it 
represents a cost to the Medicare program that should be subject to the 
applicable percent reduction to the base operating DRG payment amount 
which creates the funding pool for value-based incentive payments. We 
also note that this proposed definition is consistent with the 
definition of ``base operating DRG payment amount'' that we are 
proposing to adopt for the Hospital Readmissions Reduction Program, and 
we believe that maintaining consistency to the extent possible with 
other Medicare incentive payment programs is an important goal for the 
Hospital VBP Program. There are no other subsection (d) payment 
adjustments that would otherwise apply to the discharge on a per-claim 
basis. As required by the statute, the ``base operating DRG payment 
amount'' would not include an outlier, IME, DSH, or low-volume payment 
adjustment that would otherwise apply to the discharge.
    We are proposing to codify the definition of wage-adjusted DRG 
payment amount and the general definition of base-operating DRG payment 
amount in our regulations at Sec.  412.160. We welcome public comment 
on these proposed definitions.
    Section 1886(o)(7)(D)(ii)(I) of the Act states that in the case of 
a Medicare-dependent, small rural hospital (MDH) (with respect to 
discharges occurring during FY 2012 or FY 2013) or a sole community 
hospital (SCH), the base operating DRG payment amount is defined as the 
payment amount that would otherwise be made under section 1886(d) 
without regard to certain factors that affect payments to these 
categories of hospitals (sections 1886(b)(3)(I) and (L) of the Act, and 
section 1886(d)(5)(D) of the Act for SCHs, and section 1886(d)(5)(G) of 
the Act for MDHs). Consistent with the definition we are proposing to 
adopt for other subsection (d) hospitals, we are proposing to define 
the term ``base operating DRG payment amount'' for MDHs and SCHs as the 
wage-adjusted DRG operating payment amount plus any applicable new 
technology add-on payment. The proposed base operating DRG payment 
amount for SCHs and MDHs would not include an outlier, IME, DSH, and/or 
low-volume payment adjustment that would otherwise apply to the 
discharge. The base operating DRG payment amount for SCHs and MDHs 
would not include an outlier, IME, DSH, and/or low-volume payment 
adjustment that would otherwise apply to the discharge. Consistent with 
section 1886(o)(7)(D)(ii)(I) of the Act, we are also proposing to 
exclude from this definition of base operating DRG payment amount the 
difference between the hospital-specific payment rate and the Federal 
rate payment. This proposed definition is consistent with that being 
proposed under the Hospital Readmissions Reduction Program (discussed 
in section IV.A. of this preamble). We are proposing to codify this 
definition in our regulations at 42 CFR 412.160.
    We welcome public comment on this proposed definition of the base 
operating DRG payment amount for MDHs and SCHs under the Hospital VBP 
Program. We note that, under current law, the MDH program is set to 
expire at the end of FY 2012, after which all MDH hospitals would be 
paid in the same manner as other subsection (d) hospitals, unless they 
qualify for SCH status, as discussed in section VIII.C.5.b. of this 
preamble.
    Section 1886(o)(7)(D)(ii)(II) of the Act states that in the case of 
a hospital that is paid under section 1814(b)(3) of the Act, ``the term 
`base operating DRG payment amount' means the payment amount under that 
section.'' Acute care hospitals located in the State of Maryland are 
not paid under the IPPS but are, instead, paid under a special waiver 
provided by section 1814(b)(3) of the Act. For these hospitals, we are 
proposing that the term ``base operating DRG payment amount'' means the 
payment amount under section 1814(b)(3) of the Act. This proposed 
definition is consistent with the definition we are proposing under the 
Hospital Readmissions Reduction Program (discussed in section IV.A.. of 
this preamble). We are proposing to codify this definition in our 
regulations at 42 CFR 412.160. We welcome public comment on the 
proposed definition of base-operating DRG payment amount for Maryland 
hospitals under the Hospital VBP Program.
b. Proposals for Calculating the Funding Amount for Value-Based 
Incentive Payments Each Year
    Section 1886(o)(7)(B) of the Act instructs the Secretary to reduce 
the base operating DRG payment amount for a hospital for each discharge 
in a fiscal year by an applicable percent. Under section 1886(o)(7)(A) 
of the Act, the sum total of these reductions in a fiscal year must 
equal the total amount available for value-based incentive payments for 
all eligible hospitals for the fiscal year, as estimated by the 
Secretary. To implement these sections, and create the funding pool for 
value-based incentive payments for each fiscal year, we are proposing 
that beginning with FY 2013 discharges, every hospital that meets the 
definition of a hospital in section 1886(o)(1)(C) of the Act (referred 
to here as an eligible hospital) would receive a reduction to its base 
operating DRG payment amount for each discharge in a fiscal year, 
regardless of whether we have determined that the hospital has earned a 
value-based incentive payment for that fiscal year. The total amount of 
the reductions across all eligible hospitals for a fiscal year would 
constitute the total amount available from which we could make value-
based incentive payments for that fiscal year. We are proposing to 
estimate the total amount of the reductions across all eligible 
hospitals and the size of the funding pool prior to the start of each 
fiscal year because that is the only way, operationally, that we can 
calculate each hospital's value-based incentive payment percentage in a 
manner such that the estimated sum total of the value-based incentive 
payments for hospitals for the fiscal year would be equal to the 
estimated total amount available for value based incentive payments to 
all eligible hospitals.
    The data we are proposing to use to estimate these amounts is 
inpatient claims data from the Medicare Provider Analysis and Review 
(MedPAR) file. We believe that the use of MedPAR data is appropriate 
because we also use this data to calculate other IPPS payment 
adjustment amounts, including the DRG relative weights, budget 
neutrality factors, outlier thresholds, and standardized amounts. The 
proposed use of claims data from the MedPAR file is also consistent 
with our proposal in this proposed rule to determine applicable 
hospitals' base operating DRG payment amounts, for purposes of 
calculating their aggregate payments for excess readmissions and 
aggregate payments for all discharges for determining the readmissions 
payment adjustment factor under the Hospital Readmissions Reduction 
Program (section IV.A. of this preamble).
    We are proposing to run the MedPAR data for purposes of estimating 
the base operating DRG payment reduction amounts, as well as the size 
of the funding pool that will apply to a fiscal year, in December of 
the previous fiscal year so that we can provide preliminary estimates 
in the IPPS/LTCH PPS proposed rule. We are also proposing to provide 
the final estimates in the IPPS/LTCH PPS final rule using the March 
update. The data will contain inpatient claims information related to 
discharges from the fiscal year that ended the previous September. For 
example, with respect to the FY 2014 Hospital VBP Program, we would run 
the MedPAR

[[Page 28072]]

data in December, 2012 and that data would contain claims related to FY 
2012 discharges. We would use that data to provide preliminary 
estimates in the FY 2014 IPPS/LTCH PPS proposed rule. The March 2013 
update of this MedPAR data would then be used to provide final 
estimates in the FY 2014 IPPS/LTCH PPS final rule.
    We believe that this proposed approach will enable us to gather the 
most recent Medicare utilization data available in order to estimate 
the total amount of the base operating DRG payment amount reductions 
and the size of the value based incentive payment funding pool for the 
applicable fiscal year. We also believe that this approach will enable 
us to calculate each hospital's payment adjustment factor that will 
apply to its discharges in the applicable fiscal year, and to notify 
each hospital of such at the same time that we are proposing to notify 
each hospital regarding its performance, for purposes of making this 
information publicly available under section 1886(o)(10)(A) of the Act. 
In this way, hospitals will be able to consider this information during 
the review and correction period (the details of which are proposed 
below). We believe that it is important to notify a hospital of its 
value-based incentive payment adjustment factor at the start of review 
and corrections, so that hospitals can consider the payment impact of 
the TPS in their determination of whether or not to request review and 
corrections.
    In order to estimate the total base operating DRG payment 
reductions across all hospitals for a fiscal year, we are proposing to 
sum the estimated total base operating DRG payment amount per discharge 
for each hospital in that fiscal year. We would then multiply that 
estimated total annual base operating DRG payment amount by the 
applicable percent, which we are proposing to define in our regulations 
at Sec.  412.160 as the percentage specified in section 1886(o)(7)(C) 
of the Act. The product of the estimated total annual base operating 
DRG amount for a hospital and the applicable percent would be equal to 
taking the applicable percent reduction from each individual base 
operating DRG payment amount per hospital and then summing those 
reductions. We welcome public comment on this proposed approach to 
calculating the available pool of funds for value-based incentive 
payments.
    For the purpose of estimating the total amount available for value-
based incentive payments for a fiscal year, we are proposing to apply 
an inflation factor so that our estimate of the available pool of funds 
will more accurately reflect estimated total base operating DRG 
payments in the fiscal year in which the value-based incentive payments 
will actually be made. For example, in estimating the size of the FY 
2013 funding pool, we inflated the FY 2011 MedPAR data to FY 2013 
dollars because the value-based incentive payment amounts will actually 
be paid in FY 2013.
    Our actuaries provided us with this inflation factor, which 
included assumptions on changes in Medicare fee-for-service case mix 
and discharge levels. According to this proposed methodology, we 
estimate the available amount for FY 2013 value-based incentive 
payments to be $956 million. As noted above, under our proposed 
methodology, we would update this estimate using the March 2012 update 
of the FY 2011 MedPAR data for purposes of finalizing it in the FY 2013 
IPPS/LTCH PPS final rule.
    We note that, for the purposes of calculating the value-based 
incentive payment adjustment factors under the Hospital VBP Program, we 
would be able to use FY 2011 claims to accurately calculate the value-
based incentive payment percentage, without application of this 
inflation factor. This is because a constant inflation factor applied 
across all hospitals' total annual base-operating DRG payment amounts 
would not change the slope of the payment exchange function which we 
previously adopted for use in determining each hospital's value-based 
incentive payment amount. Application of an inflation factor would, 
therefore, not impact the amount of a hospital's value-based incentive 
payment amount under the Hospital VBP program for the fiscal year.
    We considered adopting a different approach that would apply only 
to the FY 2013 Hospital VBP Program because we do not anticipate 
beginning to make value-based incentive payments to hospitals for that 
program year until January 2013. Under this approach, we would estimate 
the total amount of funding available to make the value-based incentive 
payments using the latest available FY 2011 claims data from MedPAR, 
with payment amounts modeled using the rates, factors and policies 
finalized in the FY 2013 IPPS/LTCH PPS final rule. This data would 
include claims information that was not available at the time we ran 
the March update. However we are not proposing to adopt this approach 
because we believe that is important to establish a consistent process 
for annually estimating the total amount available to make value-based 
incentive payments to hospitals, as well as the payment adjustments 
that will be made to hospitals as a result of their performance under 
the Hospital VBP Program. Beginning with the FY 2014 Hospital VBP 
Program, we intend to make the value-based incentive payments to 
hospitals as part of the claims payment process, beginning at the start 
of the fiscal year, so it would not be possible to use the modeled 
base-operating DRG payment amount estimates based on the finalized 
rates, factors and policies established in the IPPS/LTCH PPS final rule 
applicable to the fiscal year, as they will typically not be finalized 
in time to notify hospitals of their value-based incentive payment 
adjustments at the start of the review and corrections process.
    Further, these factors, rates, and policies would not typically be 
finalized in time for us to notify hospitals of the net result of the 
base operating DRG payment amount reduction and the value-based 
incentive payment adjustment no later than 60 days prior to the start 
of the fiscal year, as required by section 1866(o)(8) of the Act. We 
also believe that our proposal to use the March update of the MedPAR 
file represents an accurate estimate of annual base operating DRG 
amounts because it reflects the most recently available utilization 
data, while preserving the interest in notifying hospitals of the 
payment impact in time for them to request review and correction.
    We are proposing to use a different methodology for purposes of 
estimating the reduced annual base operating DRG payment amounts for 
SCHs and MDHs. In general, eligible hospitals in the Hospital VBP 
Program include SCHs and current MDHs (we note that MDH status is set 
to expire under current law after FY 2012 and would, therefore, no 
longer exist in FY 2013), because they meet the definition of a 
``subsection (d)'' hospital. SCHs are paid in the interim (prior to 
cost report settlement) on a claim by claim basis at the amount that is 
the higher of the payment based on the hospital-specific rate or the 
IPPS Federal rate based on the standardized amount. At cost report 
settlement, the fiscal intermediary or A/B MAC determines if the 
hospital would receive higher aggregate operating IPPS payments using 
the hospital-specific rate (for all claims) or the Federal rate (for 
all claims). MDHs are paid the sum of the Federal payment amount plus 
75 percent of any amount by which the hospital-specific rate payment 
exceeds the Federal rate payment amount.
    Although MDH status is to expire at the end of FY 2012, the 
payments reflected on FY 2011 claims for current

[[Page 28073]]

MDHs may be based on the hospital-specific rate. As discussed above, we 
are generally proposing to use historical MedPAR data to determine the 
base operating DRG payment amounts that would be used to estimate the 
amount of funding available for value-based incentive payments for the 
FY 2013 Hospital VBP Program. Consistent with that proposal, for SCHs 
and hospitals that have MDH status in FY 2012, we are proposing to use 
MedPAR data to model the reduced base operating DRG payment amount for 
each claim as if it were paid based on the Federal standardized amount, 
rather than using the payments information on the claim (that is, 
regardless of whether a claim was paid under the hospital-specific rate 
or the Federal rate, the reduced base operating DRG payment amounts for 
SCHs and current MDHs would be estimated using the Federal rate).
    We welcome public comment on these proposals. We also welcome 
comment on other suggested approaches to most accurately estimate these 
amounts.
c. Proposed Methodology To Calculate the Value-Based Incentive Payment 
Adjustment Factor
    In accordance with section 1886(o)(6)(C)(i) of the Act, for each 
eligible hospital that receives a TPS greater than zero with respect to 
a fiscal year, we are proposing to calculate a value-based incentive 
payment percentage for that hospital for that fiscal year. In 
accordance with section 1886(o)(6)(C)(ii) of the Act, the value-based 
incentive payment percentage that we calculate for the hospital will be 
based on that hospital's individual TPS, and the total amount of value-
based incentive payments to all hospitals in the fiscal year will be 
equal to the total amount available for value-based incentive payments 
for the fiscal year, as estimated by the Secretary. We are proposing to 
define the term ``value-based incentive payment percentage'' in Sec.  
412.160 as the percentage of the total base operating DRG payment 
amount that a hospital has earned back, based on its TPS to that fiscal 
year. The hospital may earn a value-based incentive payment percentage 
that is less than, equal to, or more than the applicable percent. The 
applicable percent that we will use to reduce the base operating DRG 
payment amount for each FY 2013 discharge is 1.0 percent.
    A hospital may earn a value-based incentive payment percentage that 
is greater than the applicable percent, which would result in that 
hospital receiving a value-based incentive payment adjustment factor 
that is greater than one and a higher base operating DRG payment amount 
for each discharge than it would have received in the absence of the 
Hospital VBP Program. The proposed calculation of the value-based 
incentive payment adjustment factor is discussed in further detail 
below. A hospital may earn a value-based incentive payment percentage 
that is equal to the applicable percent, which would result in the 
hospital receiving a value based incentive payment adjustment factor of 
1 and the same base operating DRG payment amount that it would have 
received for each discharge in the absence of the Hospital VBP Program. 
Alternatively, a hospital may earn a value-based incentive payment 
percentage that is less than the applicable percent, which would result 
in the hospital receiving a value-based incentive payment adjustment 
factor that is less than one and a lower base operating DRG payment 
amount for each discharge than it would have received in the absence of 
the Hospital VBP Program.
    In order to convert a hospital's TPS into a value-based incentive 
payment factor that would be applied to each discharge in the 
applicable fiscal year, we are proposing to use the linear exchange 
function that we finalized in the Hospital Inpatient VBP Program final 
rule (76 FR 26534). Under this proposed methodology, we would utilize 
the following computed amounts:
    <bullet> The hospital's estimated total annual base-operating DRG 
amount for all discharges for the applicable fiscal year;
    <bullet> The applicable percent for the fiscal year (1.0 percent in 
FY 2013);
    <bullet> The (linear) exchange function slope; and
    <bullet> The hospital's TPS.
    The following six (6) steps illustrate our proposed methodology:
    Step 1: Estimate the hospital's total annual base-operating DRG 
amount. First, we would estimate each hospital's total annual base 
operating DRG amount for all discharges in the applicable fiscal year. 
As we discussed above, we are proposing to estimate this amount using 
Medicare inpatient claims data taken directly from the most recently 
available MedPAR files.
    Step 2: Calculate the total annual estimated base operating DRG 
payment reduction amount across all eligible hospitals. Second, we are 
proposing to estimate the total base operating DRG reduction amount 
across all eligible hospitals (which is the total amount available for 
value-based incentive payments) according to the following two steps:
    Step 2a: Repeat Step 1 for all eligible hospitals, and multiply the 
estimated total amount for each hospital by the applicable percent. For 
FY 2013, the applicable percent is 1.0 percent; then
    Step 2b: Add together the amount for each hospital calculated under 
Step 2a. This sum is the total amount available for value-based 
incentive payments, and the numerator of the linear exchange function 
slope that is calculated in Step 3 below.
    Step 3: Calculate the linear exchange function slope. Third, we 
would calculate the linear exchange function slope. As noted above, we 
finalized the use of a linear exchange function for the purpose of 
converting a hospital's TPS into a value-based incentive payment 
percentage. We would calculate the linear exchange function slope using 
the following steps:
    Step 3a: Convert the TPS for each hospital into a decimal by 
dividing it by 100. The TPS may range from zero to 100. In this step, 
we express it as a number between zero and 1.
    Step 3b: Multiply each hospital's estimated total base-operating 
DRG payment reduction amount for the applicable fiscal year (from Step 
2a above) by the hospital's TPS (decimal between zero and one from Step 
3a above).
    Step 3c: Add together the numbers computed in Step 3b above. This 
sum represents the denominator of the linear exchange function slope 
that is calculated in Step 3d below.
    Step 3d: The exchange function slope equals the sum computed in 
Step 2b above divided by the sum computed in Step 3c above.
    Step 4: For each hospital, calculate the hospital's value-based 
incentive payment percentage for the fiscal year. We are proposing to 
use the exchange function slope (from Step 3) and the hospital's TPS to 
calculate the hospital's value-based incentive payment percentage that 
it earned as a result of its performance under the Hospital Inpatient 
VBP Program for the fiscal year. We could calculate the value-based 
incentive payment percentage by multiplying the applicable percent by 
the amount computed for the hospital in Step 3a and the exchange 
function slope as computed in Step 3d above. This is the mathematical 
approach to locating the place along the linear exchange function where 
a given hospital's TPS score would be located and identifying the 
corresponding value-based incentive payment percentage. As we note 
above, the value-based payment percentage could be greater than, equal 
to, or less

[[Page 28074]]

than the applicable percent that is applied to reduce the base 
operating DRG payment amount for each discharge.
    Step 5: Compute the net percentage change in the hospital's base-
operating DRG payment amount for each discharge. Fifth, we are 
proposing to calculate the net percentage change to the hospital's base 
operating DRG payment amount for each discharge in the applicable 
fiscal year. We would calculate the net change as an intermediate step, 
in order to determine the value-based incentive payment adjustment 
factor described in Step 6, below. The net percentage change in the 
hospital's base operating DRG payment amount for each discharge would 
be the difference between the applicable percent and the value-based 
incentive payment percentage. We would calculate this net change for 
each hospital by subtracting the applicable percent used in Step 2a (1 
percent for FY 2013) from the value based incentive payment percentage 
computed for the hospital in Step 4. This net change in the base-
operating DRG payment amount would be expressed as a percentage and 
could be positive, zero, or negative, depending on the hospital's TPS 
and the exchange function slope.
    Step 6: To calculate this factor, we would convert the hospital's 
individual net percentage change in its base-operating DRG payment 
amount, from Step 5, from a percentage into a number (by removing the 
percent sign and dividing it by 100) and add it to 1. The 1 would 
reflect the base operating DRG payment amount that the hospital would 
have received for a discharge in the absence of the Hospital VBP 
Program. The result is that a hospital with a positive net percentage 
change to its total base operating DRG payment amount would have a 
value-based incentive payment adjustment factor that is greater than 
one. This means that we would multiply the hospital's base operating 
DRG payment amount for each discharge occurring in the applicable 
fiscal year by a number greater than one.
    A hospital with no net percentage change to its total base 
operating DRG payment amount percentage would have a value-based 
incentive payment adjustment factor of one. This means that we would 
multiply its base operating DRG payment amount for each discharge 
occurring in the applicable fiscal year by 1, and its base-operating 
DRG payment amount would be equal to what it would have been in the 
absence of the Hospital VBP Program.
    A hospital with a negative net percentage change to its total base-
operating DRG payment amount percentage would have a value-based 
incentive payment adjustment factor that is less than one. This means 
that we would multiply the hospital's base operating DRG payment amount 
for each discharge occurring in the applicable fiscal year by a number 
less than one.
    Example Calculation of the Value-Based Incentive Payment Amount 
Adjustment: As an example, assume the following information:
    <bullet> The hospital's estimated total annual base operating DRG 
payment amount for all discharges in the applicable fiscal year = 
$1,000,000;
    <bullet> The applicable percent that is applied to all discharges 
of eligible hospitals in FY 2013 = 1.0 percent;
    <bullet> The exchange function slope = 2.0;
    <bullet> The hospital's TPS = 80.
    Under our proposal, we would replicate the six steps to convert a 
hospital's TPS into a value-based incentive payment adjustment factor 
as follows:
    Step 1: Estimate the hospital's total annual base operating DRG 
payment amount. We would add together the estimated base-operating DRG 
payment amount for each FY 2013 discharge. In this example, we assume 
this total amount would be $1,000,000.
    Step 2: Calculate the total annual estimated base operating DRG 
payment reduction amount across all eligible hospitals. Second, we 
would:
    Step 2a: Repeat Step 1 for all eligible hospitals, and multiply the 
total amount for each hospital by the applicable percent, which is 1.0 
percent in this example: $1,000,000 * .01 = $10,000; and
    Step 2b: Add together the amount for each hospital calculated in 
Step 2a above. In this example, we assume this amount is a given. We 
note that computing this amount requires knowledge of all eligible 
hospitals' estimated total base operating DRG payment reduction amount.
    Step 3: Calculate the linear exchange function slope, which we 
assume in this example to be 2.0. We note that computing the slope 
requires knowledge of all eligible hospitals' estimated total base 
operating DRG payment reduction amount and their TPS to compute the 
relevant sums that are used in the numerator and denominator of the 
slope.
    Step 4: Calculate the hospital's value-based incentive payment 
percentage. The hospital's value-based payment percentage would be 
computed as follows: 0.01 (The applicable percent would be multiplied 
by 0.80 (the hospital's TPS divided by 100) and 2.0 (the exchange 
function slope). Mathematically, 0.01 * 0.80 * 2.0 = 0.016, which can 
be written as 1.60 percent. Therefore, the hospital's value-based 
incentive payment percentage for the FY 2013 Hospital VBP program would 
be 1.60 percent ($16,000 in this example).
    Step 5: Compute the net percentage change in the hospital's base-
operating DRG payment amount for each discharge by subtracting 1.0 
percent (the applicable percent) from the value-based incentive payment 
percentage that the hospital earned based on its TPS.
    In this example, the net percentage change would equal 1.60 percent 
minus 1.00 percent, or 0.60 percent. In this example, the net 
percentage change is positive and corresponds to a dollar amount of 
0.60 percent of the estimated total annual base operating DRG payment 
amount for the hospital of $1,000,000(0.60 percent * $1,000,000 = 
$6,000).
    Step 6: Compute the value-based payment adjustment factor as equal 
to the net percentage change calculated in Step 5), expressed as a 
number, plus one. In this example, the hospital's value-based payment 
adjustment factor would equal the sum of 0.006 (0.60 percent expressed 
as a number) plus one.
    Therefore, this hospital's value-based payment adjustment factor 
would equal 1.006, and this factor would be multiplied by the based 
operating DRG payment amount for each discharge occurring in FY 2013. 
This hospital had a positive net percentage change to its total base 
operating DRG payment amount and would have a value-based incentive 
payment adjustment factor that is greater than one, so we would 
multiply the hospital's base operating DRG payment amount for each 
discharge occurring in the applicable fiscal year by a number greater 
than one. In this example, the hospital would earn a total value-based 
incentive payment estimated at $16,000 for all discharges in the fiscal 
year) that is greater than the 1.0 percent base operating DRG payment 
reduction amount applied to each discharge in the fiscal year 
(estimated $10,000 total reduction), which would result in the hospital 
receiving a higher payment amount for each discharge occurring in FY 
2013 than it otherwise would have received, in the absence of the 
Hospital VBP Program (an estimated $6000 total increase in base 
operating DRG payments for the fiscal year).
    We welcome comments on this proposal.

[[Page 28075]]

d. Proposed Timing of the Base Operating DRG Payment Amount Reduction 
and Value-Based Incentive Payment Amount Adjustment for FY 2013 and 
Future Hospital VBP Program Years
    The applicable percent reduction and the value-based incentive 
payment adjustments are distinct adjustments which we are required to 
make to base operating DRG payment amounts for eligible hospitals under 
the Hospital VBP Program. In this section, we outline our proposals for 
applying these adjustments to the base-operating DRG payment amounts.
    In the Hospital Inpatient VBP Program final rule, for the FY 2013 
program, we established that we would incorporate the value-based 
incentive payment adjustment into our claims processing system in 
January 2013, and that the adjustment would apply to all FY 2013 
discharges, including those that occurred beginning on October 1, 2012 
(76 FR 26536). Because of this January 2013 application of the value-
based incentive payment adjustment, we are proposing that we would not 
apply the 1.00 percent applicable reduction to the base operating DRG 
payment amount for each discharge until we apply the value-based 
incentive payment adjustment factor. In other words, we would add the 
value-based incentive payment amount to the hospital's reduced base-
operating DRG payment amount for each FY 2013 discharge at the same 
time that we apply the 1.00 percent reduction to the base operating DRG 
payment amount. The simultaneous application of the 1.00 percent 
reduction to the base-operating DRG payment amounts and the value-based 
incentive payment amount (if applicable, based on the hospital's TPS) 
would prevent hospitals from receiving a 1.00 percent reduction to 
their base operating DRG payment amounts before they receive their 
value-based incentive payment amount adjustment. Accordingly, under our 
proposal, beginning in January 2013, a hospital would receive a base 
operating DRG payment amount for each discharge occurring in FY 2013 
that is the net result of the application of the 1.00 percent reduction 
and the application of the hospital's individual value-based incentive 
payment amount adjustment.
    In FY 2014 and future years of the Hospital VBP Program, we are 
proposing to apply both the applicable percent reduction and the value-
based incentive payment amount adjustment to the base operating DRG 
payment amount for a discharge during the regular claim payment 
process, beginning in October of each fiscal year. These adjustments 
would be made simultaneously with respect to each discharge.
    We invite public comment on this proposal.
e. Proposed Process for Reducing the Base Operating DRG Payment Amount 
and Applying the Value-Based Incentive Payment Amount Adjustment for FY 
2013
    In developing our proposal for FY 2013, we have considered two 
different methodologies for applying the 1.00 percent reduction to the 
base operating DRG payment amount for each discharge, and for applying 
the value-based incentive payment adjustment to the reduced base 
operating DRG payment amount: (1) Reprocessing the claims submitted 
prior to January 2013, which is when we expect to incorporate the 
value-based incentive payment adjustments into our claims processing 
system; and (2) modifying the exchange function slope, in such a way as 
to redistribute the value-based incentive payment adjustments for 
discharges occurring prior to incorporating the adjustments into our 
claims processing system. Neither approach would require hospitals to 
resubmit claims.
    We are proposing to reprocess the claims submitted by hospitals for 
discharges occurring between October 1, 2012 and such time as the 
value-based incentive payment adjustments are incorporated into the 
claims processing system. We believe that this approach is the most 
straightforward way to address the January implementation of FY 2013 
value-based incentive payment adjustments. For the second methodology 
we considered, we would need to modify the exchange function slope, 
because adjustments would not have been made beginning on October 1, 
2012, the start of FY 2013. As described in section VIII.C.5.c. of this 
preamble, calculation of the exchange function slope is based on the 
hospital TPS and the amount available for value-based incentive 
payments. The total amount available to make value based incentive 
payments to eligible hospitals is equal to the total of their base-
operating DRG payment reduction amounts, as estimated by the Secretary, 
according to section 1886(o)(6)(C)(ii)(I) of the Act.
    Under this approach, we would account for this delay in 
implementation of applicable percent reductions and value-based 
incentive payment adjustments by modifying the computed exchange 
function slope so that we could use it to calculate a value-based 
incentive payment adjustment for each hospital that would distribute 
the total amount available for value based incentive payments between 
January and September 30, 2013. We would modify the exchange function 
to accomplish this by multiplying its slope by the following fraction: 
The total number of days in the fiscal year/(divided by) the number of 
days between the date we incorporate adjustments and the end of the 
fiscal year. For example, if the date the value-based adjustment is 
incorporated into the system is January 15, then the number of days 
between January 15, 2013 and September 30, 2013 is 258. Therefore, we 
would multiply the exchange function slope by 365/258, in order to 
redistribute the value-based incentive payment adjustments that occur 
on or after January 15, 2013 in such a manner that they also account 
for discharges occurring between October 1, 2012 and January 15, 2013. 
For purpose of calculating the exchange function slope modification, we 
would assume that hospitals' base operating DRG payments are constant 
throughout the fiscal year (that is, DRG payments are not concentrated 
in the beginning or the end of the year, for example).
    We believe that this alternative approach could cause confusion 
regarding payment amounts for discharges that occur between the 
beginning of the fiscal year and the implementation of the value-based 
incentive payment adjustments but are not billed until after the 
implementation of the value-based incentive payment adjustments. Those 
claims would be paid as though the applicable percent reduction and the 
value-based incentive payment adjustments were not in effect, because 
they would be based on date of discharge.
    We invite public comment on our proposed approach to reprocess 
hospital inpatient claims that are billed between October 1, 2012 and 
such time as we are able to incorporate the value-based incentive 
payment adjustments into our claims processing system in January 2013. 
We recognize that hospitals would be responsible for maintaining their 
own internal accounting systems in order to accommodate the 
reprocessing of these claims in January 2013; therefore, we are also 
inviting public comment on the alternative approach described above of 
modifying the exchange function slope to redistribute the value-based 
incentive payment adjustments, or any other approaches which might 
minimize the administrative burden imposed upon hospitals.

[[Page 28076]]

6. Proposed Review and Corrections Processes
a. Background
    Section 1886(o)(10)(A)(i) of the Act requires that the Secretary 
make information available to the public regarding individual hospital 
performance in the Hospital VBP Program, including: (1) The performance 
of the hospital on each measure that applies to the hospital; (2) the 
performance of the hospital with respect to each condition or 
procedure; and (3) the hospital's TPS. To comply with this requirement, 
we stated in the Hospital Inpatient VBP Program final rule that we 
intended to publish hospital scores with respect to each measure, each 
hospital's condition-specific score (that is, the performance score 
with respect to each condition or procedure, for example, AMI, HF, PN, 
and SCIP), each hospital's domain-specific score, and each hospital's 
TPS on the Hospital Compare Web site (76 FR 26534 through 26536).
    Section 1886(o)(10)(A)(ii) of the Act requires the Secretary to 
ensure that each hospital has the opportunity to review, and submit 
corrections for, the information to be made public with respect to each 
hospital under section 1886(o)(10)(A)(i) of the Act prior to such 
information being made public. In the CY 2012 OPPS/ASC final rule with 
comment period (76 FR 74545), we finalized procedures that will enable 
hospitals to review and correct both the underlying data and measure 
rates for the clinical process of care measures and HCAHPS dimensions 
under the Hospital VBP Program (76 FR 74545 through 74547).
    In this proposed rule, we are making additional proposals that will 
enable hospitals to review and correct their claims-based measure 
rates, as well as their condition-specific scores, domain-specific 
scores, and TPSs.
b. Proposed Review and Corrections Process for Claims-Based Measure 
Rates
    We use claims/administrative data to calculate measure rates for 
measures that we have adopted for a number of pay for reporting and pay 
for performance programs, such as the Hospital VBP Program. For claims-
based measures used in the Hospital IQR Program, we currently provide 
hospitals with confidential reports containing the measure rate 
calculations and accompanying confidential detailed discharge-level 
information prior to making the rates available to the public. With 
respect to the claims-based measures we adopt for the Hospital VBP 
Program, we are proposing to deliver the same type of confidential 
reports and accompanying confidential detailed discharge-level 
information for purposes of providing hospitals an opportunity to 
review and submit corrections for their claims-based measure rates 
under section 1886(o)(10)(A)(ii) of the Act.
    The confidential reports would contain the claims-based measure 
rate calculations and would be accompanied by additional confidential 
discharge-level information based on the most recent administrative 
data available at the time we run the data for purposes of calculating 
the rates. As we discuss below, we are proposing to create extracts of 
the data to be used for measure rate calculation purposes approximately 
90 days after the last discharge date in the performance period for the 
measure. Our intent in providing the confidential reports and 
accompanying discharge-level data to hospitals is twofold: (1) To 
provide hospitals with an opportunity to review and submit corrections 
for the measure rates that we will make available to the public; and 
(2) to facilitate hospitals' quality improvement efforts with respect 
to the measures. The discharge-level information would contain data 
derived from claims and administrative data that were used in the 
calculation of the measure rates. Depending on the measure, this 
discharge level information might include data elements such as dates 
of admission, dates of discharge, patient risk factors, primary and 
secondary diagnoses, procedures, dates of death, dates of service after 
discharge by the same or other providers/suppliers, and provider/
supplier numbers. The confidential reports and accompanying discharge 
level data would be delivered to each hospital via its secure 
QualityNet account.
    We are proposing to provide hospitals a period of 30-days to review 
and submit corrections for the claims-based measure rates contained in 
their confidential reports. This 30-day period would begin the day 
hospitals' confidential reports and accompanying discharge-level data 
are posted to QualityNet. These measure rates will be used for 
performance scoring, value-based incentive payment amount calculations, 
and public reporting for the Hospital VBP Program. Based on our 
previous experience with public reporting of measures under the 
Hospital IQR Program, including the 30-day risk standardized mortality 
rates and the AHRQ Patient Safety Indicators, we believe this 30-day 
period will allow enough time for hospitals to review their data and 
notify us of suspected errors in the measure rate calculations, and for 
us to incorporate appropriate corrections to the calculations. During 
the review and correction period, hospitals should notify us of 
suspected errors using the technical assistance contact information 
provided in their confidential reports.
    The review and correction process we are proposing to adopt for the 
claims-based measure rates would not allow hospitals to submit 
corrections related to the underlying claims data we used to calculate 
the measure rates, or allow hospitals to add new claims to the 
performance period data set that we ran to calculate the rates. This is 
because it is necessary to take a static ``snapshot'' of the claims in 
order to perform the calculations. For purposes of this program, we 
would calculate the claims-based measures using claims and corrections 
to claims submitted by hospitals that were incorporated into our claims 
database during the approximately 90 day period following the last date 
of discharge to be included in the measure calculation.
    We recognize that under our current timely claims filing policy, 
hospitals have up to one year from the date of discharge to submit a 
claim. However, in using claims and other administrative data to 
calculate measure rates for the Hospital VBP Program, we are proposing 
to create data extracts using claims information as it exists in our 
Common Working File (CWF) approximately 90 days after the last 
discharge date in the performance period for the measures. For example, 
if the last discharge date in the performance period for a measure is 
June 30, 2011, we would create the data extraction on or about 
September 30, 2011 and use that data to calculate the measure rate for 
that performance period. Hospitals would then receive the measure rate 
in their confidential reports and accompanying data, and they would 
have an opportunity to review and submit corrections to that rate. As 
we stated above, hospitals would not be able to submit corrections to 
the underlying data that we extracted on or about September 30, 2011, 
and would also not be able to add claims to the data set. We would 
consider the underlying claims and administrative data to be complete 
for purposes of the Hospital VBP Program claims-based measure 
calculations at the conclusion of the approximately 90 day period 
following the last date of discharge used in the performance period.
    We considered a number of factors in determining that an 
approximately 90 day ``run-out'' period is appropriate for purposes of 
calculating the claims-based measure rates. First, we seek to provide

[[Page 28077]]

timely quality data to hospitals for the purpose of quality 
improvement, and to the public for the purpose of transparency. Next, 
we seek to make payment adjustments to hospitals as close in time to 
the applicable performance period as possible. Finally, we seek to have 
as complete a data set as possible, recognizing that hospitals have up 
to one year from the date of discharge to submit a claim under our 
timely claims filing policy.
    After we run the data and create the data extract for purposes of 
calculating the measure rate for a claims-based measure, it takes 
several months to incorporate other data needed to complete the rate 
calculation (particularly in the case of a risk-adjusted and/or episode 
based measure). We then need to generate and check the rate 
calculations, as well as program, populate, and deliver the 
confidential reports and accompanying data to hospitals. We are also 
aware that hospitals would like to receive performance information 
under the Hospital VBP Program as close in time to the performance 
period as possible. If we were to wait to run the data for purposes of 
calculating the claims-based measure rates until at least 12 months 
after the last discharge date in the performance period, we would not, 
for operational reasons, be able to provide the measure rates to 
hospitals 18 to 24 months after the performance period ended. We 
believe that this would create an unacceptably long delay both for 
hospitals that are interested in receiving timely measure rate 
calculations for their own quality improvement efforts, and for us to 
(1) calculate TPSs for a program year and (2) publicly report hospital 
performance on the Hospital Compare Web site. Therefore, we are 
proposing to extract the data needed to calculate a claims-based 
measure approximately 90 days after the last discharge date for the 
measure's performance period so that we can best balance our need to 
provide timely program information to hospitals against the need to 
calculate the claims-based measures using as complete as a data set as 
possible.
    During the 30-day review and correction period, hospitals should 
notify us of suspected errors in our calculation of the measure rates 
using the technical support contacts provided in the hospital's 
confidential report. We would investigate the validity of each 
submitted correction and notify hospitals of the results. Should we 
confirm that we made an error in calculating one or more claims-based 
measure rates included in a hospital's confidential report, we would 
correct the calculation(s) and issue a new confidential report to the 
hospital. We are proposing that once the 30-day review and corrections 
period has concluded, we would not accept any additional corrections 
submitted by a hospital.
    We invite public comment on the proposed review and correction 
process for claims-based measure rates to be used in the Hospital VBP 
Program.
c. Proposed Review and Correction Process for Condition-Specific 
Scores, Domain-Specific Scores and TPSs
    We are proposing to adopt a review and corrections process that 
will enable hospitals to review and submit corrections with respect to 
their performance on each condition (the condition-specific score), 
their performance on each domain (the domain-specific score) and their 
TPSs. Under this proposed process, we would provide each hospital with 
a TPS Report (this would be a different report than the hospital 
confidential report and accompanying data described above, and the 
reports described in previous rules that will enable hospitals to 
review and correct their chart-abstracted and HCAHPS measure data). A 
hospital would have 30 days from the date we post the report on its 
QualityNet account to review the TPS Report and submit any necessary 
corrections to us via QualityNet. This proposed requirement will enable 
us to evaluate corrections requests and provide decisions on those 
requests in a timely manner. As discussed further below, we are also 
proposing that the submission of a correction through this process be a 
prerequisite to a hospital being able to submit an appeal of the 
calculation of its performance assessment with respect to the 
performance standards and/or its TPS under section 1886(o)(11)(A) of 
the Act.
    Hospitals would not be able to use this proposed review and 
correction process to ask us to reconsider a hospital's eligibility 
under section 1886(o)(1)(C) of the Act to participate in the Hospital 
VBP Program for a fiscal year. However, we seek public comment on 
whether our determination regarding a hospital's eligibility should be 
subject to correction.
    We believe that this proposed review and corrections process will 
ensure that hospitals are able to fully and fairly review their 
condition-specific scores, domain-specific scores, and TPS. We are 
inviting public comment on this proposal. We note that we anticipate 
posting FY 2013 hospital performance information on Hospital Compare in 
April 2013. We are proposing to codify this for posting hospital-
specific information in our regulations at Sec.  412.163.
    We view the review and corrections process as separate and distinct 
from the appeals process. Each process is aimed at allowing hospitals 
to seek certain reconsiderations from CMS. The review and corrections 
process is aimed at correcting data that will be made public on the 
Hospital Compare Web site, while the appeals process allows hospitals 
to seek reconsideration for errors that may have been introduced during 
the TPS calculation that may affect hospitals' payments.
7. Proposed Appeal Process Under the Hospital VBP Program
a. Background
    Section 1886(o)(11)(A) of the Act requires the Secretary to 
establish a process by which hospitals may appeal the calculation of a 
hospital's performance assessment with respect to the performance 
standards (section 1886(o)(3)(A) of the Act) and the hospital 
performance score (section 1886(o)(5) of the Act).
    Under section 1886(o)(11)(B) of the Act, there is no administrative 
or judicial review under section 1869 of the Act, section 1878 of the 
Act, or otherwise of the following: (1) The methodology used to 
determine the amount of the value-based incentive payment under section 
1886(o)(6) of the Act and the determination of such amount; (2) the 
determination of the amount of funding available for the value-based 
incentive payments under section 1886(o)(7)(A) of the Act and the 
payment reduction under section 1886(o)(7)(B)(i) of the Act; (3) the 
establishment of the performance standards under section 1886(o)(3) of 
the Act and the performance period under section 1886(o)(4) of the Act; 
(4) the measures specified under section 1886(b)(3)(B)(viii) of the Act 
and the measures selected under section 1886(o)(2) of the Act; (5) the 
methodology developed under section 1886(o)(5) of the Act that is used 
to calculate hospital performance scores and the calculation of such 
scores; or, (6) the validation methodology specified in section 
1886(b)(3)(B)(viii)(XI) of the Act.
b. Proposed Appeal Process
    We solicited public comments on the general structure and 
procedures we should consider when developing an appeals process for 
the Hospital VBP Program in the Hospital Inpatient VBP Program proposed 
rule (76 FR 2484). We took these comments into consideration

[[Page 28078]]

when we developed the proposed appeals process that appears below. We 
are proposing to implement an administrative appeals process that 
provides hospitals with the opportunity to appeal the calculation of 
their performance assessment with respect to the performance standards, 
as well as their TPS.
    We are proposing to codify this proposed appeals process in our 
regulations at Sec.  412.167.
    Under our proposed appeals process, if a hospital is seeking to 
appeal a calculation of the TPS, measure/dimension score, condition-
specific score, domain specific score, or measure rate/data for which 
the hospital could have submitted a correction during the review and 
correction process we have both previously finalized (with respect to 
chart-abstracted and HCAHPS data) and are proposing to adopt in this 
proposed rule, we would require that the hospital first submit a 
correction to that calculation, and receive an adverse determination 
from us, as part of that process before the hospital could challenge it 
under the appeals process. We are proposing to adopt this requirement 
because we believe that we will be able to resolve many hospital claims 
through the review and corrections process, and thus eliminate the need 
for an appeal. To the extent that a hospital seeks to appeal a 
calculation that was the subject of a correction request, we are 
proposing that the deadline for the hospital to submit an appeal under 
section 1886(o)(11)(A) of the Act would be 30 days from the date the we 
informed the hospital through QualityNet of our decision on the 
correction request. For any other appeals requests, we are proposing 
that hospitals have up to 30 days after the conclusion of the review 
and corrections period specified above to submit an appeal. We seek 
public comment on the appropriateness of this proposed appeals timeline 
and whether we should consider any other possible deadlines.
    We are proposing that all appeals be submitted through QualityNet 
and that they contain the following information:
    <bullet> Hospital's CMS Certification Number (CCN)
    <bullet> Hospital Name
    <bullet> Hospital's basis for requesting an appeal. This must 
identify the hospital's specific reason(s) for appealing the hospital's 
TPS or performance assessment with respect to the performance 
standards.
    <bullet> CEO contact information, including name, email address, 
telephone number, and mailing address (must include the physical 
address, not just the post office box).
    <bullet> QualityNet System Administrator contact information, 
including name, email address, telephone number, and mailing address 
(must include the physical address, not just the post office box).
    Consistent with sections 1886(o)(11)(A) and (B) of the Act, we are 
proposing that hospitals would be able to submit an appeal on the 
following issues:
    <bullet> CMS' decision to deny a hospital's correction request that 
the hospital submitted under the review and corrections process;
    <bullet> Whether the achievement/improvement points were calculated 
correctly;
    <bullet> Whether CMS properly used the higher of the achievement/
improvement points in calculating the hospital's measure/dimension 
score;
    <bullet> Whether CMS correctly calculated the domain scores, 
including the normalization calculation;
    <bullet> Whether CMS used the proper lowest dimension score in 
calculating the hospital's HCAHPS consistency points;
    <bullet> Whether CMS calculated the HCAHPS consistency points 
correctly;
    <bullet> Whether the correct domain scores were used to calculate 
the TPS;
    <bullet> Whether each domain was weighted properly;
    <bullet> Whether the weighted domain scores were properly summed to 
arrive at the TPS; and,
    <bullet> Whether the hospital's open/closed status (including 
mergers and acquisitions) is properly specified in CMS' systems.
    We invite public comment on this proposed administrative appeal 
process.
8. Proposed Measures for the FY 2015 Hospital VBP Program
a. Relationship Between the National Strategy and the Hospital VBP 
Program
    Section 399HH of the Public Health Service Act, as added and 
amended by sections 3011 and 10302 of the Affordable Care Act, requires 
the Secretary to establish a national strategy to improve the delivery 
of health care services, patient health outcomes, and population 
health. The Secretary submitted the ``National Strategy for Quality 
Improvement in Health Care'' on March 21, 2011. The strategy is 
available at: http://www.healthcare.gov/law/resources/reports/nationalqualitystrategy032011.pdf.
    We believe we can incorporate the goals of the National Quality 
Strategy into our policies under the Hospital VBP Program. We view the 
strategy as an important driver in revamping how Medicare services are 
paid for, moving increasingly towards rewarding hospitals that deliver 
better outcomes in health and health care at lower cost to the 
beneficiaries and communities they serve. Over time, the strategy is 
also helping us align the goals for quality measurement and improvement 
in hospitals with those of other providers and suppliers in the health 
system, promoting shared accountability across care settings for 
beneficiary care and quality improvement.
    We believe that, given the availability of endorsed measures and 
the need to balance the number and scope of the measures against the 
burden on participating hospitals, as well as ensuring that the 
Hospital VBP Program's measure set reflects our quality improvement 
priorities, the Hospital VBP Program measures should as fully as 
possible reflect the six measurement domains that arise from the 
National Quality Strategy's six priorities: Clinical Care; Person- and 
Caregiver-Centered Experience and Outcomes; Safety; Efficiency and Cost 
Reduction; Care Coordination; and Community/Population Health. We 
believe that measure sets should generally rely on a mix of standards, 
outcome, process of care measures, and patient-reported measures 
including measures of care transitions, patient experience, and changes 
in patient functional status, with an emphasis on measurement as close 
to the patient-centered outcome of interest as possible. We took all of 
these factors into consideration when developing our measure proposals 
for the FY 2015 Hospital VBP Program.
    In addition, we believe that measure sets should evolve to include 
a focused set of measures that reflect the most important areas of 
service and quality improvement for hospitals as well as a core set of 
measure concepts that align quality improvement objectives across all 
provider types and settings.
b. Proposed FY 2015 Measures
    In the Hospital Inpatient VBP Program final rule (76 FR 26496 
through 26497), we adopted a policy under which we would examine 
whether any clinical process of care measures that were otherwise 
eligible for inclusion in a Hospital VBP Program measure set were 
topped-out, and thus, should be excluded because measuring hospital 
performance on a topped-out measure would have no meaningful effect on 
a hospital's TPS. Our methodology for evaluating whether a measure is 
topped-out focuses on two criteria: (1) National

[[Page 28079]]

measure data show statistically indistinguishable performance levels at 
the 75th and 90th percentiles, and (2) National measure data show a 
truncated coefficient of variation (TCV) less than 0.10.
    We analyzed the clinical process of care measures that we believe 
are eligible for the FY 2015 Hospital VBP Program based on their prior 
inclusion in the Hospital IQR Program and posting on Hospital Compare 
for ``topped out'' status, and concluded that one of the candidate 
measures for the FY 2015 Program--SCIP-Inf-10: Surgery Patients with 
Perioperative Temperature Management--is now ``topped-out.'' Therefore, 
we are not proposing to include this measure in the FY 2015 Hospital 
VBP Program.
    We welcome public comments on whether any other existing Hospital 
VBP measures may be ``topped out'' and should therefore be considered 
for removal from the proposed measure set. We also note that we do not 
believe it is appropriate at this time to test or re-test proposed 
outcome measures for ``topped-out'' status because such measures allow 
CMS to reward hospitals for high-quality outcomes, which is a central 
aim of quality improvement efforts in the health care system. We 
further believe that these measures are critical to providing patients 
with better care and believe it is important to hold hospitals 
accountable for the clinical outcomes captured by these measures. We 
invite public comments on this policy, including whether we should 
examine the proposed outcomes measure set for ``topped-out'' status at 
this time.
    For the FY 2015 Hospital VBP Program, we are proposing to retain 12 
of the 13 clinical process of care measures that we have adopted for 
the FY 2014 program. We are proposing to remove SCIP-VTE-1 from the FY 
2015 measure set because this measure is very similar to another 
measure we have adopted for the program (SCIP-VTE-2) but, in our view, 
is not as closely linked to better surgical outcomes because it 
assesses the ordering of VTE prophylaxis, as opposed to the patient's 
actual receipt of such prophylaxis within 24 hours of surgery. We also 
note that, during a recent maintenance review of SCIP-VTE-1, the NQF 
concluded that it would no longer endorse this measure, and we are 
proposing in this proposed rule to remove the measure from the Hospital 
IQR Program beginning with the FY 2015 payment determination. 
Therefore, we are also proposing to retire SCIP-VTE-1 from the Hospital 
VBP Program measure set beginning with the FY 2015 program. We note 
that in the future, we anticipate proposing to adopt surgical outcome 
measures, including one or more measures that assess complications 
arising from VTE prophylaxis medications, first into the Hospital IQR 
Program and then into the Hospital VBP Program.
    We are proposing to adopt one additional clinical process of care 
measure--AMI-10: Statin Prescribed at Discharge. This measure has been 
specified under the Hospital IQR Program for the FY 2013 payment 
determination (75 FR 50200). AMI-10 measure data were posted on the 
Hospital Compare Web site on January 26, 2012, so as discussed further 
below, we are proposing a 9-month performance period for this measure 
for FY 2015. We intend to align the performance period for AMI-10 with 
the other clinical process measures' performance period in future 
years. The measure is NQF-endorsed (<greek-i>0639) and we did not find 
it to be ``topped-out'' when we examined the list of candidate measures 
as described above. We also note that current American College of 
Cardiology (ACC)/American Heart Association (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. We therefore believe that this measure is 
appropriate for use in the Hospital VBP Program.
    For the Patient Experience of Care domain, we are proposing to 
retain the eight dimensions of the HCAHPS survey that we adopted for 
the FY 2013 and FY 2014 Hospital VBP Program. We believe that the 8 
HCAHPS dimensions finalized for the FY 2013 and FY 2014 Hospital VBP 
Programs are well-understood by hospitals and the public and capture 
important aspects of the patient's experience in the acute care 
environment.
    For the Outcome domain, we are proposing to retain the three 30-day 
mortality measures that we finalized for the FY 2014 Hospital VBP 
Program. As described above, we continue to believe that these measures 
are important to quality improvement efforts because outcomes measures 
allow us to reward hospitals for high-quality outcomes, which is a 
central aim of quality improvement efforts in the health care system. 
We further believe that these measures are critical to providing 
patients with better care and believe it is important to hold hospitals 
accountable for the clinical outcomes captured by these measures. We 
also are proposing to adopt two additional outcomes measures--PSI-90, 
the AHRQ PSI composite measure, and the CLABSI: Central Line-Associated 
Blood Stream Infection measure--for the Outcome domain.
    We initially adopted the CLABSI measure for the FY 2013 Hospital 
IQR Program in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50200 
through 50202) and refer readers to that rule for further discussion of 
the measure. CLABSI is an HAI measure that assesses the rate of 
laboratory-confirmed cases of bloodstream infection or clinical sepsis 
among ICU patients. This measure was first NQF-endorsed in 2004, and 
adopted by the HQA in 2007. The measure can be stratified by the type 
of ICU and is aggregated to the hospital level by the NHSN. We first 
posted hospital performance on this measure on Hospital Compare on 
January 26, 2012.
    We believe that adoption of the CLABSI measure for the Hospital VBP 
Program is consistent with the intention captured in the Hospital VBP 
Program's statutory requirement that we consider measures of HAIs for 
the FY 2013 Hospital VBP Program's measure set.
    We initially adopted the AHRQ PSI composite measure (PSI-90) for 
the FY 2010 payment determination in the FY 2009 IPPS/LTCH PPS final 
rule (73 FR 48602 through 48603) and refer readers to that rule for 
further discussion of that measure. PSI-90 is a composite measure of 
patient safety indicators developed and maintained by AHRQ and measure 
data were posted on Hospital Compare on October 14, 2011. We believe 
that its use in the Hospital VBP Program is appropriate in order to 
encourage hospitals to take all possible steps to avoid threats to 
patient safety that may occur in the acute care environment.
    For the Efficiency domain, we are proposing to adopt one new 
measure: the Medicare Spending per Beneficiary measure. The proposed 
measure is inclusive of all Part A and Part B payments from 3 days 
prior to a subsection (d) hospital admission through 30 days post 
discharge with certain exclusions. It is risk adjusted for age and 
severity of illness, and the included payments are standardized to 
remove differences attributable to geographic payment adjustments and 
other payment factors. We anticipate submitting the proposed measure to 
the NQF for endorsement in the near future.
    We refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51618 through 51627) for the measure's specifications. Additional 
information on the measure, including a detailed specification document 
can be found at: http://qualitynet.org/dcs/
ContentServer?c=Page&pagename=QnetPublic%

[[Page 28080]]

2FPage%2FQnetTier3&cid=1228772053996. This measure has been specified 
under the Hospital IQR Program, and we anticipate publicly posting 
hospital performance on the measure on the Hospital Compare Web site in 
mid to late April 2012. As discussed further below, we are proposing 
that the performance period for this measure for the FY 2015 Hospital 
VBP Program begin on May 1, 2013, which will be more than one year 
after the performance data has been publicly posted. Further, section 
1886(o)(2)(B)(ii) of the Act requires us to ensure that measures 
selected for the Hospital VBP Program include measures of efficiency, 
including measures of Medicare spending per beneficiary, for FY 2014 or 
a subsequent fiscal year. We believe that this proposed measure 
fulfills that requirement.
    The proposed FY 2015 Hospital VBP Program measures appear below:

       Proposed Quality Measures for FY 2015 Hospital VBP Program
------------------------------------------------------------------------
            Measure ID                           Description
------------------------------------------------------------------------
                    Clinical Process of Care Measures
------------------------------------------------------------------------
AMI-7a............................  Fibrinolytic Therapy Received Within
                                     30 Minutes of Hospital Arrival.
AMI-8a............................  Primary PCI Received Within 90
                                     Minutes of Hospital Arrival.
AMI-10............................  Statin Prescribed at Discharge.
HF-1..............................  Discharge Instructions.
PN-3b.............................  Blood Cultures Performed in the
                                     Emergency Department Prior to
                                     Initial Antibiotic Received in
                                     Hospital.
PN-6..............................  Initial Antibiotic Selection for CAP
                                     in Immunocompetent Patient.
SCIP-Inf-1........................  Prophylactic Antibiotic Received
                                     Within One Hour Prior to Surgical
                                     Incision.
SCIP-Inf-2........................  Prophylactic Antibiotic Selection
                                     for Surgical Patients.
SCIP-Inf-3........................  Prophylactic Antibiotics
                                     Discontinued Within 24 Hours After
                                     Surgery End Time.
SCIP-Inf-4........................  Cardiac Surgery Patients with
                                     Controlled 6AM Postoperative Serum
                                     Glucose.
SCIP-Inf-9........................  Urinary Catheter Removed on
                                     Postoperative Day 1 or
                                     Postoperative Day 2.
SCIP-Card-2.......................  Surgery Patients on Beta-Blocker
                                     Therapy Prior to Arrival Who
                                     Received a Beta-Blocker During the
                                     Perioperative Period.
SCIP-VTE-2........................  Surgery Patients Who Received
                                     Appropriate Venous Thromboembolism
                                     Prophylaxes Within 24 Hours Prior
                                     to Surgery to 24 Hours After
                                     Surgery.
------------------------------------------------------------------------
                       Patient Experience Measures
------------------------------------------------------------------------
HCAHPS *..........................  Hospital Consumer Assessment of
                                     Healthcare Providers and Systems
                                     Survey.
------------------------------------------------------------------------
                            Outcome Measures
------------------------------------------------------------------------
AHRQ PSI composite................  Complication/patient safety for
                                     selected indicators (composite).
CLABSI............................  Central Line-Associated Blood Stream
                                     Infection.
MORT-30-AMI.......................  Acute Myocardial Infarction (AMI) 30-
                                     day mortality rate.
MORT-30-HF........................  Heart Failure (HF) 30-day mortality
                                     rate.
MORT-30-PN........................  Pneumonia (PN) 30-day mortality
                                     rate.
------------------------------------------------------------------------
                           Efficiency Measures
------------------------------------------------------------------------
MSPB-1............................  Medicare spending per beneficiary.
------------------------------------------------------------------------
* Proposed dimensions of the HCAHPS survey for use in the FY 2015
  Hospital VBP Program are: Communication with Nurses, Communication
  with Doctors, Responsiveness of Hospital Staff, Pain Management,
  Communication about Medicines, Cleanliness and Quietness of Hospital
  Environment, Discharge Information and Overall Rating of Hospital.
  These are the same dimensions of the HCAHPS survey that have been
  finalized for prior Hospital VBP program years.

    We invite public comment on the proposed measure set for the FY 
2015 Hospital VBP Program.
c. Proposed General Process for Hospital VBP Program Measure Adoption 
for Future Program Years
    In order to facilitate measure adoption for the Hospital VBP 
Program for future years, as well as further align the Hospital VBP 
Program with the Hospital IQR Program, we are proposing to re-adopt 
measures from the prior program year for each successive program year, 
unless proposed and finalized otherwise (for example, because one or 
more of the clinical process of care measures is topped-out). We intend 
to continue monitoring Hospital VBP measures for topped-out status and 
will propose topped-out measures' removal from the program as 
appropriate in future rulemaking. We will therefore generally re-adopt 
the prior Program year's measure set unless we propose to add or remove 
measures through rulemaking and in response to public comments. 
However, under this policy, once measures are finalized, we would not 
separately re-propose them for each program year. We invite public 
comments on this proposal.
9. Proposed Measures and Domains for the FY 2016 Hospital VBP Program
a. Proposed FY 2016 Measures
    We are proposing to retain the three 30-day mortality measures that 
were finalized for the FY 2014 Hospital VBP Program, and which we are 
proposing to retain for the FY 2015 Hospital VBP Program, for the FY 
2016 Hospital VBP Program. We also are proposing to retain PSI-90, 
which is the AHRQ PSI composite measure that we are proposing to adopt 
for the FY 2015 Hospital VBP Program, for the FY 2016 program. By 
proposing to adopt these measures now, we believe we will be able to 
adopt a longer performance period and collect more data for performance 
scoring than would be possible if we waited to make this proposal until 
the FY 2014 IPPS/LTCH PPS proposed rule. We are also proposing to adopt 
these measures at this time because we recognize that under section 
1886(o)(3)(C) of the Act, we must establish and announce performance 
standards not later than 60 days prior to the beginning of the

[[Page 28081]]

performance period for the fiscal year involved. Accordingly, we are 
proposing that the performance period for these measures would begin 
October 1, 2012, for purposes of the FY 2016 Hospital VBP Program. If 
we finalize our proposal above to automatically re-adopt measures from 
year to year, then the other proposed FY 2015 measures would become 
part of the FY 2016 measure set unless we proposed otherwise in future 
rulemaking. We also anticipate adopting additional measures for the FY 
2016 Hospital VBP Program in future rulemaking.
    The proposed FY 2016 Hospital VBP Program 30-day mortality measures 
and AHRQ PSI composite measure are shown below:

       Proposed Outcome Measures for FY 2016 Hospital VBP Program
------------------------------------------------------------------------
            Measure ID                           Description
------------------------------------------------------------------------
AHRQ PSI composite................  Complication/patient safety for
                                     selected indicators (composite).
MORT-30-AMI.......................  Acute Myocardial Infarction (AMI) 30-
                                     day mortality rate.
MORT-30-HF........................  Heart Failure (HF) 30-day mortality
                                     rate.
MORT-30-PN........................  Pneumonia (PN) 30-day mortality
                                     rate.
------------------------------------------------------------------------

    We are not proposing to adopt the CLABSI measure for the FY 2016 
Hospital VBP Program at this time, but may propose it in future 
rulemaking.
    We invite public comment on these proposals.
b. Proposed Quality Measure Domains for the FY 2016 Hospital VBP 
Program
    Currently, measure domains are defined by the measure type rather 
than by measure function. At the time of the Hospital VBP Program's 
development, we believed this type of measure classification, which was 
included in the 2007 Report to Congress, was appropriate for the 
program based on its clarity and simplicity compared to alternative 
scoring models. We refer readers to the Hospital Inpatient VBP Program 
final rule (76 FR 26513 through 26514) for further discussion of our 
decision to finalize the Three-Domain Performance Scoring Model for the 
Hospital VBP Program with appropriate modifications for additional 
domains as necessary. The FY 2014 program's domains are clinical 
process of care, outcomes, and patient experience of care. The FY 2015 
Hospital VBP Program's proposed domains are clinical process of care, 
outcomes, patient experience of care, and efficiency.
    We strive to align quality measurement and value-based purchasing 
efforts with the National Quality Strategy and across programs. Value-
based purchasing programs in particular allow us to link the National 
Quality Strategy with Medicare reimbursements to providers and 
suppliers on a national scale. Given this objective, as well as our 
objective to focus quality measurement on the patient-centered outcome 
of interest to the extent possible, we are proposing to reclassify the 
Hospital VBP measures into domains based on the six priorities of the 
National Quality Strategy, beginning with the FY 2016 Hospital VBP 
Program. We are making this proposal in this proposed rule to ensure 
that we have ample time to consider all public comments and finalize 
any policies in advance of the FY 2016 program year.
    We are proposing that the following six domains serve as a 
framework for measurement and TPS calculations for the Hospital VBP 
Program beginning with the FY 2016 program year: Clinical Care; Person- 
and Caregiver-Centered Experience and Outcomes; Safety; Efficiency and 
Cost Reduction; Care Coordination; and Community/Population Health.
    To illustrate how CMS would classify measures into the proposed new 
domains, we offer the following example using the proposed FY 2015 
Hospital VBP measure set:

------------------------------------------------------------------------
                                   Proposed FY 2016    Proposed FY 2015
    Proposed FY 2015 measures           domain              domain
------------------------------------------------------------------------
HF-1 Discharge Instructions.....  Care Coordination.  Clinical Process
                                                       of Care.
AMI-10 Statin Prescribed at       Clinical Care.....  Clinical Process
 Discharge.                                            of Care.
AMI-7a Fibrinolytic Agent         Clinical Care.....  Clinical Process
 Received Within 30 Minutes of                         of Care.
 Hospital Arrival.
AMI-8a Primary PCI Received       Clinical Care.....  Clinical Process
 Within 90 Minutes of Hospital                         of Care.
 Arrival.
Mortality-30-AMI Acute            Clinical Care.....  Outcomes.
 Myocardial Infarction (AMI) 30-
 day Mortality Rate.
Mortality-30-HF Heart Failure     Clinical Care.....  Outcomes.
 (HF) 30-day Mortality Rate.
Mortality-30-PN Pneumonia (PN)    Clinical Care.....  Outcomes.
 30-Day Mortality Rate.
PN-3b Blood Cultures Performed    Clinical Care.....  Clinical Process
 in the Emergency Department                           of Care.
 Prior to Initial Antibiotic
 Received in Hospital.
PN-6 Initial Antibiotic           Clinical Care.....  Clinical Process
 Selection for Community-                              of Care.
 Acquired Pneumonia (CAP) in
 Immunocompetent Patients.
SCIP Card-2 Surgery Patients on   Clinical Care.....  Clinical Process
 Beta-Blocker Therapy Prior to                         of Care.
 Arrival Who Received a Beta-
 Blocker During the
 Perioperative Period.
SCIP-Inf-01 Prophylactic          Clinical Care.....  Clinical Process
 antibiotic received within 1                          of Care.
 hour prior to surgical incision.
SCIP-Inf-02 Prophylactic          Clinical Care.....  Clinical Process
 antibiotic selection for                              of Care.
 surgical patients.
SCIP-Inf-03 Prophylactic          Clinical Care.....  Clinical Process
 antibiotics discontinued with                         of Care.
 24 hours after surgery end time.
SCIP-Inf-04 Cardiac Surgery       Clinical Care.....  Clinical Process
 Patients with Controlled 6AM                          of Care.
 Postoperative Serum Glucose.
SCIP-VTE-2 Surgery Patients Who   Clinical Care.....  Clinical Process
 Received Appropriate Venous                           of Care.
 Thromboembolism Prophylaxis
 Within 24 Hours Prior to
 Surgery to 24 Hours After
 Surgery.
Medicare spending per             Efficiency and      Efficiency.
 beneficiary.                      Cost Reduction.

[[Page 28082]]

 
HCAHPS Hospital Consumer          Person- and         Patient Experience
 Assessment of Healthcare          Caregiver-          of Care.
 Providers and Systems Survey.     Centered
                                   Experience and
                                   Outcomes.
Central Line-Associated Blood     Safety............  Outcome.
 Stream Infection (CLABSI).
PSI 90 Complication/Patient       Safety............  Outcome.
 Safety for Selected Indicators
 (Composite).
------------------------------------------------------------------------

    We acknowledge that some of the measures noted above could 
appropriately be placed in more than one domain because the quality 
improvement characteristics they seek to measure, especially for 
outcome measures, are multifaceted. We believe that the measure 
classification by domain should reflect the primary measurement 
objective and the type of quality improvement goal the measure seeks to 
capture. For example, although a reduction in CLABSIs may reflect 
improved clinical care, we believe that it better reflects an 
improvement in patient safety because such infections often cause harm 
to patients.
    We are proposing that the TPS would continue to be determined by 
aggregating each hospital's scores across all domains. A hospital's 
score on each domain would also continue to be calculated based on the 
hospital's score on each measure within the domain, which is based on 
the higher of its achievement or improvement during the applicable 
performance period.
    We welcome public comment on our proposal to regroup the Hospital 
VBP Program's quality measures into six domains that better reflect the 
National Quality Strategy, beginning with the FY 2016 Hospital VBP 
Program.
    We are also soliciting comments on how to properly weight the 
domains in FY 2016. We believe that domain weighting should primarily 
balance two factors. First, it should reflect our concept of quality as 
it relates to the National Quality Strategy and the most critical needs 
for quality improvement in caring for beneficiaries. Second, it should 
reflect the relative depth and maturity of measures in each domain. For 
example, although improvement in the proposed Care Coordination domain 
is a priority, we would want to take into consideration whether the 
care coordination measures available for inclusion in that domain in a 
particular year capture multiple aspects of care coordination. If we 
did not believe that the measures within a domain captured enough 
aspects of care, we would consider proposing a relatively lower weight 
for the domain. We anticipate that the domain weights will evolve over 
time as the measure set changes.
    We also recognize that the current domain weighting system allows 
us to place higher value on measures closer to the patient-centered 
outcome of interest by grouping outcome measures into a single domain. 
In the proposed domain reclassification, the 30-day mortality measures 
would be grouped with process measures. Although we anticipate that the 
measure set will evolve over time to be more focused on outcomes, the 
current measure set continues to emphasize clinical processes. We seek 
public comment on whether CMS should continue to group all outcome 
measures in a single domain. In addition, we seek public comment on the 
implications of and alternatives to the proposed approach of including 
both clinical process of care measures and outcome measures in the 
proposed Clinical Care domain under the proposed domain 
reclassification.
10. Proposed Performance Periods and Baseline Periods for the FY 2015 
Hospital VBP Program
    Section 1886(o)(4) of the Act requires the Secretary to establish a 
performance period for the Hospital VBP Program for a fiscal year that 
begins and ends prior to the beginning of such fiscal year.
a. Proposed Clinical Process of Care Domain Performance Period and 
Baseline Period for FY 2015
    In the CY 2012 OPPS/ASC final rule with comment period (76 FR 
74534), for the FY 2014 Hospital VBP Program, we finalized a 9-month 
(3-quarter) performance period from April 1, 2012 through December 31, 
2012 for the clinical process of care domain measures.
    As we stated in that final rule with comment period, adopting a 3-
quarter performance period for this domain for the FY 2014 Hospital VBP 
Program would enable us to consider adopting a 12-month performance 
period for this domain for FY 2015. Therefore, we are proposing to 
adopt CY 2013 (January 1, 2013 through December 31, 2013) as the 
performance period for all but one of the clinical process of care 
domain measures for the FY 2015 program. This proposed performance 
period for FY 2015 would begin immediately after the end of the FY 2014 
performance period and will enable us to begin to make value-based 
incentive payments to hospitals beginning October 1, 2014. A 12-month 
performance period would also give us more data on which to score 
hospital performance, which is an important goal both for CMS and for 
stakeholders. We also note that a 12-month performance period is 
consistent with the periods used for the Hospital IQR Program.
    However, as noted above, AMI-10 measure data were posted on 
Hospital Compare on January 26, 2012. Therefore, we do not believe we 
can begin a performance period for this measure on January 1, 2013, 
which would align with the proposed performance period for all other 
clinical process of care measures. We considered the most appropriate 
way to include this measure in the FY 2015 Hospital VBP Program and 
concluded that we should propose a 9-month performance period from 
April 1, 2013 through December 31, 2013. As we have stated for prior 
program years, we believe that a 9-month performance period provides 
sufficiently reliable quality measure data for clinical process of care 
measures. We intend to align the AMI-10 measure's performance period 
with all other clinical process measures for future program years. We 
welcome public comment on this proposal.
    As we explained in the Hospital Inpatient VBP Program final rule 
(76 FR 26511), we believe that baseline data should be used from a 
comparable prior period for purposes of calculating the performance 
standards. However, we also strive to balance that belief with our 
desire to use the most recently-available data in order to calculate 
performance standards, as we believe that more recent data more closely 
reflects current performance on measures. Therefore, we are proposing 
to adopt CY 2011 (January 1, 2011 through December 31, 2011) as the 
baseline period for all but one of the Clinical Process of Care domain 
measures for the FY 2015 Hospital VBP Program. As noted above, we are 
proposing to adopt a 9-month performance period for the AMI-10 measure. 
In accordance with our preference for adopting a comparable prior 
period for purposes of calculating the performance standards, we are 
proposing to adopt a 9-month baseline period of April 1, 2011 through

[[Page 28083]]

December 31, 2011 for the AMI-10 measure.
    We welcome public comment on these proposals.
b. Proposed Patient Experience of Care Domain Performance Period and 
Baseline Period for FY 2015
    In the CY 2012 OPPS/ASC final rule with comment period (76 FR 
74534), for the FY 2014 Hospital VBP Program, we finalized a 9-month 
(3-quarter) performance period from April 1, 2012 through December 31, 
2012 for the Patient Experience of Care domain measure.
    As we stated in that final rule with comment period, adopting a 3-
quarter performance period for this domain for the FY 2014 Hospital VBP 
Program would enable us to consider adopting a 12-month performance 
period for this domain for FY 2015. Consistent with our goal of 
adopting a full 12-month period for this domain in order to collect a 
larger amount of HCAHPS survey data compared to a 9-month period, we 
are proposing to adopt CY 2013 (January 1, 2013 through December 31, 
2013) as the performance period for the Patient Experience of Care 
domain measure for the FY 2015 program. This proposed performance 
period for FY 2015 would begin immediately after the end of the FY 2014 
performance period and would enable us to begin making value-based 
incentive payments to hospitals beginning on October 1, 2014. We also 
note that a 12-month performance period is consistent with the periods 
used for the Hospital IQR Program.
    As we explained in the Hospital Inpatient VBP Program final rule 
(76 FR 26511), we believe that baseline data should be used from a 
comparable prior period for purposes of calculating the performance 
standards. Therefore, we are proposing to adopt CY 2011 (January 1, 
2011 through December 31, 2011) as the baseline period for the Patient 
Experience of Care domain measure for the FY 2015 program.
    We welcome public comment on these proposals.
c. Proposed Efficiency Domain Measure Performance Period and Baseline 
Period for FY 2015
    We plan to post performance data for the Medicare spending per 
beneficiary measure on Hospital Compare in April 2012. We have 
therefore concluded that the earliest we may begin a performance period 
for FY 2015 is one year from the date on which the data was posted. We 
are proposing an end date of December 31, 2013 for this measure's 
performance period. This end date is consistent with the end dates 
proposed for the Clinical Process of Care domain and for the HCAHPS 
measure in the Patient Experience of Care domain.
    In the interest of maintaining consistency across domains, to the 
extent possible, and in order to ensure that data have been posted for 
at least 1 year prior to the beginning of the measure performance 
period, we are proposing to adopt an 8-month performance period (May 1, 
2013 through December 31, 2013) for the Medicare spending per 
beneficiary measure for the FY 2015 Hospital VBP Program. We believe 
this proposed performance period enables us to collect as much measure 
data as possible and the time necessary to process claims and 
incorporate measure data into Hospital VBP Program scores. We are 
further proposing to adopt a corresponding prior period (May 1, 2011 
through December 31, 2011) as the baseline period for purposes of 
calculating the performance standards. This proposed baseline period 
would be consistent with the baseline period proposed for other 
Hospital VBP Program measures in that it precedes the performance 
period by two years.
    We welcome public comment on the proposed FY 2015 performance and 
baseline period for the Medicare spending per beneficiary measure.
d. Proposed Outcome Domain Performance Periods for FY 2015
(1) Mortality Measures
    In the Hospital Inpatient VBP Program final rule (76 FR 26495), we 
finalized a 12-month performance period (July 1, 2011-June 30, 2012) 
for the Outcome domain for the FY 2014 Hospital VBP Program. We also 
finalized a comparable prior period as the baseline period (July 1, 
2009 through June 30, 2010) for purposes of calculating improvement 
points as well as the performance standards.
    Due to the lengthy time needed for us to compile claims-based 
measure data at the individual hospital level and calculate the measure 
rates and scores (discussed more fully in section VIII.C.6.b. of this 
preamble in the context of our review and corrections proposal for 
claims-based measures), we must conclude the performance period for 
claims-based measures for FY 2015 by June 30, 2013.
    We are concerned about the difficulty that varied performance 
periods impose on participating hospitals. While we believe the public 
recognizes the need for different performance periods due to varied 
measure types and collection methods, we strive to propose performance 
periods that are as consistent as possible from one program year to the 
next. We believe this consistency is important for all hospitals that 
are working to improve the quality of care they provide to Medicare 
beneficiaries and to the entirety of the patient population. However, 
we are also aware that the Hospital VBP statute requires that we 
establish and announce performance standards for Hospital VBP measures 
at least 60 days in advance of the performance period. Because we are 
proposing to adopt these measures for FY 2015 in this proposed rule, 
which will not be effective until 60 days after it is finalized, we do 
not believe we can propose a performance period for these measures 
beginning earlier than October 1, 2012.
    We note that this proposed performance period is less than 12 
months, which may raise seasonality concerns with regard to these 
measures. We note further that we examined the independent analysis of 
these measures' reliability provided by Mathematica Policy Research, 
entitled, ``Reporting Period and Reliability of AHRQ, CMS 30-day and 
HAC Quality Measures--Revised,'' which is available on our Web site 
(http://cms.hhs.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/Downloads/HVBP_Measure_Reliability-.pdf), and which concluded that the measures may not 
achieve total reliability for all hospitals for reporting periods as 
short as 6 months. However, we believe that holding all hospitals 
accountable using the same period will fairly alleviate those concerns, 
particularly because these measures are risk-adjusted using a 
methodology that does not penalize hospitals for poor performance on 
the measure without a relatively larger sample size. As described 
further below, while we are concerned about these measures' reliability 
when adopting a performance period of less than 12 months, we believe 
that increasing the required minimum number of cases will assure 
sufficient reliability for these measures for value-based purchasing. 
Based on this analysis, as well as our objective to include outcome 
measures in the Hospital VBP Program, we believe that the proposed 9-
month performance period for these measures will produce sufficiently 
reliable results for hospitals.
    Therefore, we are proposing to adopt a 9-month performance period 
for the three 30-day mortality measures for FY 2015 from October 1, 
2012 through June 30, 2013. We further are proposing a comparable 
baseline period from October 1, 2010 through June 30, 2011.

[[Page 28084]]

    We welcome public comment on our proposal to adopt a performance 
period for the proposed FY 2015 mortality measures that runs from 
October 1, 2012 through June 30, 2013, and a baseline period that runs 
from October 1, 2010, through June 30, 2011.
(2) Proposed AHRQ PSI Composite Measure
    We posted hospital performance data on the AHRQ PSI composite 
measure on Hospital Compare on October 14, 2011. Based on that posting 
date, we believe the earliest we could begin a performance period for 
FY 2015 is October 14, 2012. As discussed above, we must conclude the 
performance period for claims-based measures by June 30, 2013 in order 
to allow sufficient time to calculate the measure rates and scores.
    Therefore, we are proposing to adopt a nearly 9-month performance 
period (October 15, 2012 through June 30, 2013) for the AHRQ PSI 
composite measure for FY 2015. We believe that this performance period 
will provide us with sufficiently reliable data on which to base 
hospitals' scores. We further are proposing to adopt a comparable prior 
period from October 15, 2010 through June 30, 2011 as the baseline 
period for purposes of calculating the performance standards.
    While we would prefer to adopt a performance period longer than 
nearly 9-months in order to provide the most reliable measure data 
possible, we believe that the proposed period enables us to ensure that 
this measure, which assesses hospital performance on the critical topic 
of patient safety, is included in hospitals' FY 2015 TPSs and, 
therefore, will become a focus of quality improvement efforts. We note 
further that we examined the independent analysis of this measure's 
reliability provided by Mathematica Policy Research, entitled, 
``Reporting Period and Reliability of AHRQ, CMS 30-day and HAC Quality 
Measures--Revised,'' which is available on our Web site (http://cms.hhs.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/Downloads/HVBP_Measure_Reliability-.pdf), and which concluded that the measure achieves 
moderate reliability for the majority of hospitals for reporting 
periods of 6 months or longer. Based on this analysis, as well as our 
objective to include patient safety measures in the Hospital VBP 
Program, we believe that the proposed nearly 9-month performance period 
for this measure will produce reliable results for hospitals.
    We welcome public comment on these proposals.
(3) CLABSI Measure
    We posted CLABSI measure data on Hospital Compare on January 26, 
2012. Pursuant to our commitment to post measure data on Hospital 
Compare at least one year prior to the beginning of a performance 
period for the Hospital VBP Program, the earliest we can begin a 
performance period for this measure is January 26, 2013. Because, as 
described above, we believe this measure captures important patient 
safety data, in this case related to infections that present the 
possibility of significant harm to hospitalized patients, we believe it 
is appropriate to adopt the measure as soon as possible for as lengthy 
a performance period as possible. Adopting an approximately 11-month 
performance period for this measure will not, in our view, appreciably 
harm the measure's statistical reliability for purposes of value-based 
purchasing scoring, particularly because (as described below) we are 
also proposing to adopt the measure steward's criteria for minimum 
number of cases to receive a measure score.
    Therefore, we are proposing to adopt an approximately 11-month 
performance period for the CLABSI measure from January 26, 2013 through 
December 31, 2013 with a comparable baseline period of January 26, 2011 
through December 31, 2011 for purposes of calculating the performance 
standards.
    We welcome public comment on these proposals.
    The proposed performance and baseline periods for all proposed FY 
2015 measures appear below:

------------------------------------------------------------------------
           Domain                Baseline period     Performance period
------------------------------------------------------------------------
Clinical Process of Care....  January 1, 2011-      January 1, 2013-
                               December 31, 2011.    December 31, 2013.
    <bullet> AMI-10 *.......  <bullet> April 1,     <bullet> April 1,
                               2011-December 31,     2013-December 31,
                               2011.                 2013.
Patient Experience of Care..  January 1, 2011-      January 1, 2013-
                               December 31, 2011.    December 31, 2013.
Outcome:
    <bullet> Mortality......  <bullet> October 1,   <bullet> October 1,
                               2010-June 30, 2011.   2012-June 30, 2013.
    <bullet> AHRQ...........  <bullet> October 15,  <bullet> October 15,
                               2010-June 30, 2011.   2012-June 30, 2013.
    <bullet> CLABSI.........  <bullet> January 26,  <bullet> January 26,
                               2011-December 31,     2013-December 31,
                               2011.                 2013.
Efficiency:
    <bullet> Medicare         <bullet> May 1, 2011- <bullet> May 1, 2013-
     Spending Per              December 31, 2011.    December 31, 2013.
     Beneficiary-1.
------------------------------------------------------------------------
*As discussed further above, we are proposing a separate performance
  period for the AMI-10 measure. The proposed 12-month performance
  period specified above would apply to all other clinical process of
  care measures.

e. Proposed Performance Periods for Proposed FY 2016 Measures
    In order to provide relatively more reliable data for the three 
proposed 30-day mortality measures and the AHRQ PSI composite measure, 
we considered how we could adopt a 24-month performance period for the 
FY 2016 Hospital VBP Program. We do not believe it is feasible to do so 
at this time given the statutory requirement that we establish and 
announce performance standards at least 60 days in advance of the 
applicable performance period. However, we intend to propose to adopt a 
24-month performance period for these measures as soon as is 
practicable and will consider a 24-month performance period in future 
rulemaking.
    Given the time constraints associated with the annual IPPS/LTCH PPS 
rulemaking schedule, we believe that the longest performance period we 
can propose for FY 2016 at this time is 21 months. We believe that this 
performance period will provide relatively more reliable measure data 
and will enable us to consider adopting a 24-month performance period 
in the future.
    We therefore are proposing to adopt a 21-month performance period 
for the three proposed 30-day mortality measures and the AHRQ PSI 
composite measure for the FY 2016 Hospital VBP Program, from October 1, 
2012 through July 30, 2014. We are further proposing a baseline period 
of October 1, 2010 through July 30, 2011, for purposes of calculating 
performance standards and measuring improvement. We note that this 
baseline period is identical to the proposed baseline period for these

[[Page 28085]]

measures for FY 2015. We also note that this baseline period is shorter 
than the proposed performance period. We believe it is appropriate to 
use the most recently-available data to calculate performance standards 
and are concerned about the possibility of using data from several 
years prior to the performance period for performance standards. 
However, we seek public comment on whether we should adopt a 24-month 
baseline period.
    The table below displays the proposed performance period for the FY 
2016 mortality and AHRQ PSI composite measures.

------------------------------------------------------------------------
           Measure               Baseline period     Performance period
------------------------------------------------------------------------
Mortality/AHRQ PSI..........  October 1, 2010-June  October 1, 2012-June
                               30, 2011.             30, 2014.
------------------------------------------------------------------------

    We welcome public comment on this proposal. We also seek comments 
on the possibility of adopting a ``rolling'' 2-year performance period 
for certain claims-based measures during which we would score hospitals 
using 24 months of data. As an example, under such a policy for 
mortality measures, hospitals could be scored for the FY 2018 Hospital 
VBP Program using data from the performance periods for FY 2017 (while 
not yet proposed, one possibility for that year could be July 1, 2013 
through June 30, 2015). For subsequent fiscal years, we would drop the 
oldest 12 months of data from that period and add the next 12 months. 
The performance period for the FY 2019 Hospital VBP Program under that 
policy could be July 1, 2014 through June 30, 2016.
11. Proposed Performance Standards for the Hospital VBP Program for FY 
2015 and FY 2016
a. Background
    Section 1886(o)(3)(A) of the Act requires the Secretary to 
establish performance standards for the measures selected under the 
Hospital VBP Program for a performance period for the applicable fiscal 
year. The performance standards must include levels of achievement and 
improvement, as required by section 1886(o)(3)(B) of the Act, and must 
be established and announced not later than 60 days before the 
beginning of the performance period for the fiscal year involved, as 
required by section 1886(o)(3)(C) of the Act. Achievement and 
improvement standards are discussed more fully in the Hospital 
Inpatient VBP Program final rule (76 FR 26511 through 26513). In 
addition, when establishing the performance standards, section 
1886(o)(3)(D) of the Act requires the Secretary to consider appropriate 
factors, such as: (1) Practical experience with the measures, including 
whether a significant proportion of hospitals failed to meet the 
performance standard during previous performance periods; (2) 
historical performance standards; (3) improvement rates; and (4) the 
opportunity for continued improvement. We are proposing to codify this 
for performance standards in our regulations at Sec.  412.165.
b. Proposed Performance Standards for the FY 2015 Hospital VBP Program 
Measures
    We are proposing to establish performance standards that apply to 
the FY 2015 Hospital VBP Program using the same methodologies that we 
previously adopted for the FY 2013 and FY 2014 programs. We refer 
readers to the Hospital Inpatient VBP Program final rule (76 FR 26511 
through 26513) for a detailed discussion of the methodology we adopted 
for the clinical process of care, patient experience of care, and 
outcome measures, and the FY 2012 IPPS/LTCH PPS final rule (76 FR 51654 
through 51656) for a discussion of the methodology we adopted for the 
Medicare spending per beneficiary measure.
    We continue to believe that the finalized methodology for 
calculating performance standards is appropriate for the Hospital VBP 
Program given that the program remains relatively new to hospitals and 
the public. The proposed performance standards for the clinical 
process, outcome, and Medicare spending per beneficiary measures appear 
in the first table below, while the proposed performance standards for 
the patient experience of care (HCAHPS survey) measure appears in the 
second table below. We note that the performance standards displayed 
below represent estimates based on the most recently-available data; we 
will update the standards in the FY 2013 IPPS/LTCH PPS final rule. We 
also note that the performance standards for the CLABSI measure and the 
AHRQ PSI composite measure are calculated with lower values 
representing better performance, in contrast to other measures, on 
which higher values indicate better performance.

    Proposed Performance Standards for the FY 2015 Hospital VBP Program Clinical Process of Care and Outcome
                           Domains, and the Medicare Spending per Beneficiary Measure
----------------------------------------------------------------------------------------------------------------
                                                                           Achievement
           Measure ID                         Description                   threshold             Benchmark
----------------------------------------------------------------------------------------------------------------
                                        Clinical Process of Care Measures
----------------------------------------------------------------------------------------------------------------
AMI-7a..........................  Fibrinolytic Therapy Received       0.72727               1.00000
                                   Within 30 Minutes of Hospital
                                   Arrival.
AMI-8a..........................  Primary PCI Received Within 90      0.92857               1.00000
                                   Minutes of Hospital Arrival.
AMI-10..........................  Statin Prescribed at Discharge....  0.90474               ....................
PN-3b...........................  Blood Cultures Performed in the     0.97129               1.00000
                                   Emergency Department Prior to
                                   Initial Antibiotic Received in
                                   Hospital.
PN-6............................  Initial Antibiotic Selection for    0.93671               0.99832
                                   CAP in Immunocompetent Patient.
SCIP-Card-2.....................  Surgery Patients on Beta-Blocker    0.95122               1.00000
                                   Therapy Prior to Arrival Who
                                   Received a Beta-Blocker During
                                   the Perioperative Period.
SCIP-Inf-1......................  Prophylactic Antibiotic Received    0.97872               1.00000
                                   Within One Hour Prior to Surgical
                                   Incision.
SCIP-Inf-2......................  Prophylactic Antibiotic Selection   0.97882               1.00000
                                   for Surgical Patients.
SCIP-Inf-3......................  Prophylactic Antibiotics            0.96154               0.99905
                                   Discontinued Within 24 Hours
                                   After Surgery End Time.
SCIP-Inf-4......................  Cardiac Surgery Patients with       0.94799               0.99824
                                   Controlled 6AM Postoperative
                                   Serum Glucose.

[[Page 28086]]

 
SCIP-Inf-9......................  Urinary Catheter Removed on         0.93333               1.00000
                                   Postoperative Day 1 or
                                   Postoperative Day 2.
SCIP-VTE-2......................  Surgery Patients Who Received       0.94118               0.99938
                                   Appropriate Venous
                                   Thromboembolism Prophylaxes
                                   Within 24 Hours Prior to Surgery
                                   to 24 Hours After Surgery.
----------------------------------------------------------------------------------------------------------------
                                                Outcome Measures
----------------------------------------------------------------------------------------------------------------
MORT-30--AMI....................  Acute Myocardial Infarction (AMI)   0.8477                0.8673
                                   30-Day Mortality Rate.
MORT-30-HF......................  Heart Failure (HF) 30-Day           0.8861                0.9042
                                   Mortality Rate.
MORT-30-PN......................  Pneumonia (PN) 30-Day Mortality     0.8818                0.9021
                                   Rate.
PSI-90..........................  Patient safety for selected         0.4006                0.2754
                                   indicators (composite).
CLABSI..........................  Central Line-Associated Blood       0.442                 0.000
                                   Stream Infection.
----------------------------------------------------------------------------------------------------------------
                                               Efficiency Measures
----------------------------------------------------------------------------------------------------------------
MSPB-1..........................  Medicare Spending per Beneficiary.  Median Medicare       Mean of the lowest
                                                                       spending per          decile of Medicare
                                                                       beneficiary ratio     spending per
                                                                       across all            beneficiary ratios
                                                                       hospitals during      across all
                                                                       the performance       hospitals during
                                                                       period                the performance
                                                                                             period.
----------------------------------------------------------------------------------------------------------------


      Proposed Performance Standards for the FY 2015 Hospital VBP Program Patient Experience of Care Domain
----------------------------------------------------------------------------------------------------------------
                                                                                    Achievement
                     HCAHPS survey dimension                           Floor         threshold       Benchmark
                                                                     (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Communication with Nurses.......................................           49.22           76.28           85.56
Communication with Doctors......................................           57.31           79.61           88.72
Responsiveness of Hospital Staff................................           34.83           62.75           78.59
Pain Management.................................................           43.05           69.24           78.24
Communication about Medicines...................................           28.11           60.46           71.72
Hospital Cleanliness & Quietness................................           40.35           63.79           78.46
Discharge Information...........................................           55.10           83.29           89.60
Overall Rating of Hospital......................................           29.26           67.73           83.13
----------------------------------------------------------------------------------------------------------------

    We welcome public comment on these proposed performance standards.
    We are also aware that once the ICD-10-CM/PCS coding transition is 
completed, we will be faced with comparing hospitals' performance from 
baseline periods coded using ICD-9-CM with performance periods coded 
using ICD-10-CM/PCS. We note that constructing performance standards 
from such baseline periods could produce unforeseen consequences for 
quality measurement and performance scoring. Therefore, we seek 
comments on how to fairly compare hospitals' performance on quality 
measures when captured in different coding sets.
c. Proposed Performance Standards for FY 2016 Hospital VBP Program 
Measures
    As described further above, in this proposed rule, we are proposing 
to adopt the three 30-day mortality measures and the AHRQ PSI composite 
measure for the FY 2016 Hospital VBP Program. We therefore must also 
propose performance standards for these measures based on the proposed 
baseline periods outlined above. Proposed performance standards for 
these measures appear in the table below. We note that the performance 
standards displayed below represent estimates based on the most 
recently-available data; we will update the standards in the FY 2013 
IPPS/LTCH PPS final rule. We also note that the performance standards 
for the AHRQ PSI composite measure are calculated with lower values 
representing better performance, in contrast to the mortality measures, 
on which higher values indicate better performance.

    Proposed Performance Standards for FY 2016 Hospital VBP Programs Outcome Domain: Mortality/PSI Composite
                                                    Measures
----------------------------------------------------------------------------------------------------------------
                                                                                    Achievement
              Measure ID                               Description                   threshold       Benchmark
----------------------------------------------------------------------------------------------------------------
                                                Outcome Measures
----------------------------------------------------------------------------------------------------------------
MORT-30-AMI...........................  Acute Myocardial Infarction (AMI) 30-day          0.8477          0.8673
                                         mortality rate.
MORT-30-HF............................  Heart Failure (HF) 30-day mortality rate          0.8861          0.9042

[[Page 28087]]

 
MORT-30-PN............................  Pneumonia (PN) 30-day mortality rate....          0.8818          0.9021
PSI-90................................  Patient safety for selected indicators            0.4006          0.2754
                                         (composite).
----------------------------------------------------------------------------------------------------------------

d. Adopting Performance Periods and Standards for Future Program Years
    For prior program years, with the exception of the Hospital 
Inpatient VBP Program proposed and final rule, we have proposed and 
finalized policies for the Hospital VBP Program in the IPPS/LTCH PPS 
and OPPS/ASC regulations. However, we do not believe these two 
rulemaking vehicles are ideally suited for additional Hospital VBP 
proposals. While we are aware that it is convenient for the public when 
additional proposals are made in a relatively limited number of 
rulemaking vehicles, we are concerned about the limitations that these 
regulations' schedules place on our ability to propose and finalize 
quality measures, performance periods, and performance standards in a 
timely manner.
    In order to facilitate quality measure adoption for the Hospital 
VBP Program and ensure that hospitals are kept fully aware of the 
performance standards to which we intend to hold them accountable and 
the performance periods during which their performance will be 
measured, we are proposing to update performance periods and 
performance standards for future program years via notice on our Web 
site or another publicly-available Web site. We would establish future 
performance standards for the clinical process of care, outcome, and 
patient experience of care measures using the same methodology that we 
first finalized in the Hospital Inpatient VBP Program final rule (76 FR 
26510 through 26513). We would establish future performance standards 
for the Medicare spending per beneficiary measure using the same 
methodology that we finalized in the FY 2012 IPPS/LTCH PPS final rule 
(76 FR 51654 through 51656). In the case of other types of measures 
whose scoring would not be appropriately described by the methodologies 
outlined above, we intend to propose and finalize additional scoring 
methodologies.
    We believe that this proposal will enable us to adopt measures 
representing the best in medical practice into the Hospital VBP Program 
more quickly and will allow us to establish and announce performance 
standards and performance periods when necessary outside the annual 
IPPS/LTCH PPS and OPPS/ASC rulemaking schedules. We believe this 
flexibility is especially necessary as the Hospital VBP Program 
continues to evolve and incorporate new types of quality measures.
    We welcome public comment on this proposal.
12. Proposed FY 2015 Hospital VBP Program Scoring Methodology
a. General Hospital VBP Program Scoring Methodology
    In the Hospital Inpatient VBP Program final rule, we adopted a 
methodology for scoring clinical process of care, patient experience of 
care, and outcome measures. As noted in that rule, this methodology 
outlines an approach that we believe is well understood by patient 
advocates, hospitals, and other stakeholders because it was developed 
during a lengthy process that involved extensive stakeholder input, and 
was based on a scoring methodology we presented in a report to 
Congress. We also noted in that final rule that we had conducted 
extensive additional research on a number of other important 
methodology issues to ensure a high level of confidence in the scoring 
methodology (76 FR 26514). In addition, we believe that, for reasons of 
simplicity, transparency, and consistency, it is important to score 
hospitals using the same general methodology each year, with 
appropriate modifications to accommodate new domains and measures. We 
finalized a scoring methodology for the Medicare spending per 
beneficiary measure in the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51654 through 51656).
    For the FY 2015 Hospital VBP Program, we are proposing to use these 
same scoring methodologies to score hospital performance. We believe 
these scoring methodologies continue to appropriately capture hospital 
quality as reflected by the finalized quality measure sets. We also 
note that re-adopting the finalized scoring methodology from prior 
program years represents the simplest and most consistent policy for 
providers and the public.
b. Proposed Domain Weighting for the FY 2015 Hospital VBP Program for 
Hospitals That Receive a Score on All Four Proposed Domains
    As we stated in the Hospital Inpatient VBP Program final rule (76 
FR 26491), we believe that domains need not be given equal weight, and 
that over time, scoring methodologies should be weighted more towards 
outcomes, patient experience of care, and functional status measures 
(for example, measures assessing physical and mental capacity, 
capability, well-being and improvement). We took these considerations 
into account when developing the domain weighting proposal outlined 
below.
    As discussed above, we are proposing to add the Efficiency domain 
to the Hospital VBP Program beginning with the FY 2015 program. 
Therefore, we are proposing the following domain weights for the FY 
2015 program for hospitals that receive a score on all four proposed 
domains:

    Proposed Domain Weights for the FY 2015 Hospital VBP Program for
           Hospitals Receiving a Score on All Proposed Domains
------------------------------------------------------------------------
                                                                Weight
                           Domain                             (percent)
------------------------------------------------------------------------
Clinical Process of Care...................................           20
Patient Experience of Care.................................           30
Outcome....................................................           30
Efficiency.................................................           20
------------------------------------------------------------------------

    We believe this domain weighting appropriately reflects our 
priorities for quality improvement in the inpatient hospital setting 
and aligns with the National Quality Strategy's priorities. We believe 
that the proposed domain weighting will continue to improve the link 
between Medicare payments to hospitals and patient outcomes, efficiency 
and cost, and the patient experience. We note that the proposed domain 
weighting places the strongest relative emphasis on outcomes and the 
patient experience, which we view as two critical components of quality 
improvement in the inpatient hospital

[[Page 28088]]

setting. We further note that the proposed domain weighting, for the 
first time, incorporates a measure of efficiency and continues to 
provide substantial weight to clinical processes. We welcome public 
comment on this proposed weighting methodology.
c. Proposed Domain Weighting for Hospitals Receiving Scores on Fewer 
Than Four Domains
    In prior program years, we finalized a policy that hospitals must 
have received domain scores on all finalized domains in order to 
receive a TPS. However, since the Hospital VBP Program has evolved from 
its initial two domains to an expanded measure set with four quality 
domains, we considered whether it was appropriate to continue this 
policy.
    As described further below, we are proposing a higher minimum 
number of cases for the three 30-day mortality measures for FY 2015 
than was finalized for the FY 2014 program in order to improve these 
measures' reliability given the relatively shorter proposed performance 
period described above. However, we are concerned that the relatively 
higher minimum number of cases could result in a substantially larger 
number of hospitals being excluded from the Hospital VBP Program. We 
believe that we should make a concerted effort to include as many 
hospitals as possible in the Program in order to offer quality 
incentives to as many hospitals as possible and encourage quality 
improvement as broadly as possible throughout the health care system 
while maintaining our focus on measure and scoring reliability.
    Therefore, we are proposing that, for the FY 2015 Hospital VBP 
Program and subsequent fiscal years, hospitals with sufficient data to 
receive at least two domain scores (that is, sufficient cases and 
measures to receive a domain score on at least two domains) will 
receive a TPS. We also are proposing that, for hospitals with at least 
two domain scores, TPSs will be reweighted proportionately to the 
scored domains to ensure that the TPS is still scored out of a possible 
100 points and that the relative weights for the scored domains remain 
equivalent to the proposed weighting outlined above. We believe that 
this proposal allows us to include relatively more hospitals in the 
Hospital VBP Program while continuing to focus on reliably scoring 
hospitals on their quality measure performance.
    We welcome public comment on this proposal.
13. Applicability of the Hospital VBP Program to Hospitals
a. Background
    Section 1886(o)(1)(C) of the Act specifies how the Hospital VBP 
Program applies to hospitals. Specifically, the term ``hospital'' is 
defined under section 1886(o)(1)(C)(i) of the Act as a ``subsection (d) 
hospital (as defined in section 1886(d)(1)(B [of the Act])).'' Section 
1886(o)(1)(C)(ii) of the Act sets forth a list of exclusions to the 
definition of the term ``hospital'' with respect to a fiscal year, 
including a hospital that is subject to the payment reduction under 
section 1886(b)(3)(B)(viii)(I) of the Act (the Hospital IQR Program), a 
hospital for which, during the performance period for the fiscal year, 
the Secretary has cited deficiencies that pose immediate jeopardy to 
the health or safety of patients, a hospital for which there are not a 
minimum number of measures that apply to the hospital for the 
applicable performance period for the fiscal year, and a hospital for 
which there are not a minimum number of cases for the measures that 
apply to the hospital for the performance period for the fiscal year.
    In addition, section 1886(o)(1)(C)(iv) of the Act states that in 
the case of a hospital that is paid under section 1814(b)(3) of the 
Act, the Secretary may exempt the hospital from the Hospital VBP 
Program if the State submits an annual report to the Secretary 
describing how a similar program in the State for a participating 
hospital or hospitals achieves or surpasses the measured results in 
terms of patient health outcomes and cost savings established under the 
Hospital VBP Program. We interpret the reference to section 1814(b)(3) 
of the Act to mean those Maryland hospitals that are paid under section 
1814(b)(3) of the Act and that, absent the ``waiver'' specified by 
section 1814(b)(3) of the Act, would have been paid under the IPPS.
b. Proposed Exemption Request Process for Maryland Hospitals
    Acute care hospitals located in the State of Maryland are not 
currently paid under the IPPS in accordance with a special waiver 
provided by section 1814(b)(3) of the Act. In the Hospital Inpatient 
VBP Program final rule (76 FR 26527 through 26530), we finalized our 
policy that the Hospital VBP Program would apply to acute care 
hospitals located in the State of Maryland unless the Secretary 
exercises discretion pursuant to section 1886(o)(1)(C)(iv) of the Act. 
We also finalized a procedure for the State to submit a report pursuant 
to section 1886(o)(1)(C)(iv) of the Act in a timeframe that would allow 
it to be received no later than October 1, 2011, which is the beginning 
of the fiscal year prior to FY 2013.
    We received an FY 2013 exemption request from the Maryland Health 
Services Cost Review Commission (MHSCRC) on September 30, 2011 and the 
Secretary approved the exemption request in December 2011. This report 
included a discussion on how the state program achieved or surpasses 
the measured results in terms of patient health outcomes and cost 
savings established under the Hospital VBP Program. When evaluating the 
MHSCRC's request, we considered the relevant health outcomes for the 
State's hospitals as described in the MHSCRC's request and noted that 
they achieve or surpass the current national results for Hospital VBP 
FY 2013 clinical process of care and HCAHPS dimensions. We also 
assessed closely-related clinical outcomes as measured by quality data 
reported through the Hospital IQR Program. For the FY 2013 Hospital VBP 
Program, however, we did not assess the criterion ``cost savings'' as 
required by the statute, as the FY 2013 Hospital VBP Program does not 
use any efficiency measures and is a budget-neutral program pursuant to 
section 1886(o)(7)(A) of the Act. Maryland hospitals are therefore 
exempt from the FY 2013 Hospital VBP Program.
    Beginning with the FY 2014 program, we are proposing to adopt a new 
procedure for submission of the report in order for a hospital within 
the State to be exempt from the Hospital VBP Program. Under this 
proposed procedure, if the State seeks an exemption with respect to a 
particular program year, it would need to submit a report that meets 
the requirements of section 1886(o)(1)(C)(iv) of the Act in a timeframe 
that allows it to be received by the Secretary on or before November 15 
prior to the effective fiscal year (for example, the report seeking an 
exemption from the FY 2014 program would have to be received by the 
Secretary no later than November 15, 2012). We anticipate notifying the 
State, as well as each hospital for which the State has requested an 
exemption, of our decision whether to grant the request no later than 
90 days following the exemption request deadline.
    We will evaluate each exemption request to see if the State has 
demonstrated that it has implemented a similar program for 
participating hospitals that achieves or surpasses the measured results 
in terms of patient health outcomes and cost savings relative to the 
Hospital VBP Program.

[[Page 28089]]

    We welcome public comment on our proposals.
14. Proposed Minimum Numbers of Cases and Measures for the FY 2015 
Hospital VBP Program
a. Background
    Section 1886(o)(1)(C)(ii)(III) of the Act requires the Secretary to 
exclude for the fiscal year hospitals that do not report a minimum 
number (as determined by the Secretary) of measures that apply to the 
hospital for the performance period for the fiscal year. Section 
1886(o)(1)(C)(ii)(IV) of the Act requires the Secretary to exclude for 
the fiscal year hospitals that do not report a minimum number (as 
determined by the Secretary) of cases for the measures that apply to 
the hospital for the performance period for the fiscal year.
    In the Hospital Inpatient VBP Program final rule (76 FR 26527 
through 26531), we finalized minimum numbers of 10 cases and 4 measures 
in the clinical process of care domain and 100 completed HCAHPS surveys 
for the patient experience of care domain. In the CY 2012 OPPS/ASC 
final rule with comment period (76 FR 74532 through 74534), we 
finalized a minimum number of 10 cases for the three 30-day mortality 
measures. We also finalized a minimum number of 2 measures with respect 
to the Outcome domain. In both rules, we finalized a policy that 
hospitals must have sufficient cases and measures in all domains in 
order to receive a TPS.
b. Proposed Minimum Numbers of Cases and Measures for the FY 2015 
Outcome Domain
    As described further above, we are proposing a 9-month performance 
period for the three 30-day mortality measures for the FY 2015 Hospital 
VBP Program. We have reassessed the previously finalized 10 case 
minimum threshold for the three 30-day mortality measures (76 FR 74533 
through 74534), as well as reexamining the independent analyses by 
Brandeis University and Mathematica Policy Research, when considering 
these three measures' proposed addition. We recognize that the proposed 
9-month performance period for these measures would increase the number 
of hospitals with insufficient cases on the measure (that is, between 
10 and 24) to several hundred hospitals, based on past information. We 
believe that this proposal fulfills our intent to link patient outcomes 
with payment, relative to reliability and seasonality concerns from 
using a 9-month performance period.
    In order to ensure that the mortality measure scores remain 
sufficiently reliable, we are proposing to adopt a 25-case minimum for 
the three 30-day mortality measures for FY 2015. We believe that this 
proposal will ensure relatively more reliable measure data than could 
be obtained with the 10-case minimum as has been finalized for FY 2014 
given the relatively shorter proposed performance period. As described 
above, while this may result in fewer hospitals receiving scores on the 
mortality measures, we have proposed to reallocate domain weighting for 
hospitals with fewer domain scores than the total number of finalized 
domains. By doing so, we believe we are appropriately allowing as many 
hospitals as possible to participate in the Hospital VBP Program while 
also ensuring reliable quality measure and quality domain data.
    We note that this proposed minimum number of cases is higher than 
has been finalized for other types of measures such as clinical process 
of care measures. However, we note that clinical process of care 
measures are not risk-adjusted and are not outcome-based. Because those 
measures do not require statistical adjustment to estimate hospital-
specific differences in case mix, we believe that the relatively 
smaller case minimum is acceptable for clinical process of care 
measures.
    For the AHRQ PSI composite measure, we are proposing to adopt 
AHRQ's methodology, which uses three cases for any of the underlying 
indicators as a case minimum. For the CLABSI measure, we are proposing 
to adopt CDC's minimum case criteria, which calculates a standardized 
infection ratio for a hospital on the CLABSI measure if the hospital 
has 1 predicted infection during the applicable period. We believe that 
the measure stewards' methodologies for constructing reliable measure 
data are most appropriate for use in the Hospital VBP Program. Further 
information on these measures may be found on the QualityNet Web site.
    In the CY 2012 OPPS/ASC final rule with comment period, we 
concluded based on an independent analysis that the minimum number of 
measures that a hospital must report in order to receive a score on the 
outcome domain is two measures. We continue to believe that this 
minimum number is appropriate for the expanded outcome domain because 
adding measure scores beyond the minimum number of measures has the 
effect of enhancing the domain score's reliability. For that reason, we 
are proposing to adopt it for the FY 2015 Hospital VBP Program.
    We welcome public comment on these proposals.
c. Proposed Medicare Spending per Beneficiary Measure Case Minimum
    As required by section 1886(o)(1)(C)(iii) of the Act, we obtained 
an independent analysis to help us determine the appropriate minimum 
number of cases for the Medicare spending per beneficiary measure. For 
this measure, we are proposing to interpret the term ``case'' in 
section 1886(o)(1)(C)(ii)(IV) of the Act as a Medicare spending per 
beneficiary episode. A Medicare spending per beneficiary episode is 
inclusive of all Part A and Part B payments from 3 days prior to a 
subsection (d) hospital admission through 30 days post discharge with 
certain adjustments and exclusions. The independent analysis examines 
the tradeoff between: Increasing the minimum number of episodes, which 
shrinks the confidence interval; and reducing the minimum number of 
episodes, which widens the confidence interval but enables more 
hospitals to receive a Medicare spending per beneficiary measure score. 
Because the distribution of Medicare spending per beneficiary episodes 
is skewed towards higher cost episodes, creating confidence intervals 
using statistical techniques that assume spending is normally and 
symmetrically distributed will not accurately describe the likelihood a 
hospital's true efficiency level falls within the confidence interval 
bounds.
    To account for these statistical issues, the independent analysis 
uses a simulation-based (``non-parametric bootstrap'') methodology to 
measure how the confidence interval of the Medicare spending per 
beneficiary measure changes when the minimum episode threshold 
increases. Medicare spending per beneficiary is measured for an 
``average'' hospital, where the ``average'' hospital case is considered 
one with a Medicare spending per beneficiary episode distribution that 
mimics that of the entire population of Medicare spending per 
beneficiary episodes. This methodology simulates the process of 
randomly drawing Medicare spending per beneficiary episodes from the 
population, and thus approximates the actual shape of the Medicare 
spending per beneficiary measure distribution from which confidence 
intervals are determined. By repeatedly calculating (in this case, 
10,000 times for each minimum episode threshold) a Medicare spending 
per beneficiary measure for this simulated hospital under differing 
assumptions on the number of episodes observed, one

[[Page 28090]]

can create a confidence interval for the Medicare spending per 
beneficiary measure of this ``average'' hospital. The upper and lower 
bounds of the 95 percent confidence interval indicates that 95 percent 
of the time, the hospital's Medicare spending per beneficiary measure 
will fall within this range when the minimum number of cases (the 
minimum episode threshold) is set at different levels. As the minimum 
episode threshold increases, the width of the confidence interval 
becomes narrower, but the number of hospitals receiving a Medicare 
spending per beneficiary measure score decreases.
    In developing our proposal, we considered two options for setting 
the minimum number of cases for the Medicare spending per beneficiary 
measure: (1) Setting the minimum number of cases at 25; and, (2) 
setting the minimum number of cases at 50.
    We focused on these minimums because we believe that either of them 
provides a sufficiently narrow range at the 95 percent confidence 
interval. The independent analysis concludes that if the minimum number 
of cases is set at 25, then 95 percent of the time a hospital with an 
average underlying efficiency level (that is, 1.0) would receive an 
Medicare spending per beneficiary measure score between 0.81 and 1.23. 
Further, a minimum number of 25 cases would enable 97.8 percent of 
hospitals to receive a Medicare spending per beneficiary measure score, 
based on historical data. The analysis also showed that the alternative 
minimum of 50 cases would result in a 95 percent confidence interval 
range of 0.86 to 1.16 and would enable 95.9 percent of hospitals to 
receive a Medicare spending per beneficiary measure score, based on 
historical data.
    After considering the options outlined above, we are proposing to 
use 25 as the minimum number of cases required in order to receive a 
score for the Medicare spending per beneficiary measure. We believe 
that using a minimum number of 25 cases achieves an appropriate balance 
of our interest in allowing the maximum possible number of hospitals 
the opportunity to receive a score on the Medicare spending per 
beneficiary measure and maintaining a sufficiently narrow range for the 
95 percent confidence interval. Additionally, although we are proposing 
to use a minimum of 25 cases for the Medicare spending per beneficiary 
measure, we also seek comment on whether using a minimum of 50 cases 
better reaches our goal of maintaining a meaningful measure of Medicare 
spending across hospitals.
15. Immediate Jeopardy Citations
    Under section 1886(o)(1)(C)(ii)(II) of the Act, a hospital is 
excluded from the Hospital VBP Program if it has been cited by the 
Secretary during the performance period for deficiencies that pose 
immediate jeopardy to the health or safety of patients. In the Hospital 
Inpatient VBP Program final rule (76 FR 26528 through 26530), we 
finalized our interpretation of this provision to mean that any 
hospital that we cite through the Medicare State Survey and 
Certification process for deficiencies during the performance period 
that pose immediate jeopardy to patients will be excluded from the 
Hospital VBP Program for the fiscal year. We also finalized our 
proposal to use the definition of the term ``immediate jeopardy'' that 
appears in 42 CFR 489.3.
    In proposed Sec.  412.160 we are proposing to define ``immediate 
jeopardy'' in the same way as that term is defined in 42 CFR Part 489, 
which governs provider agreements and supplier approval. We believe 
that the language in section 1886(o)(1)(C)(ii)(II) of the Act referring 
to a hospital having been ``cited'' for deficiencies posing an 
immediate jeopardy is a reference to the process by which CMS, through 
agreements with State survey agencies, surveys or inspects hospitals 
for compliance with the hospital conditions of participation at 42 CFR 
Part 482 or Emergency Medical Treatment and Labor Act (EMTALA) 
regulations at Sec.  489.24, and issues deficiency citations for non-
compliance with Federal health, safety and quality standards. The 
survey process is governed by provisions found in 42 CFR Part 488, 
Survey, Certification and Enforcement Procedures. Further, provisions 
at 42 CFR Part 489, Provider Agreements and Supplier Approval, define 
the term ``immediate jeopardy'' at Sec.  489.3; authorize us at Sec.  
489.53(a)(3) to terminate the Medicare provider agreement for the 
hospital's failure to meet the conditions of participation; authorize 
us at Sec.  489.53(b) to terminate the Medicare provider agreement of a 
hospital that fails to meet the EMTALA regulatory requirements; and 
provide at Sec.  489.53(d)(2)(i) for a shortened advance notice to the 
public of the termination when a hospital with an emergency department 
is in violation of EMTALA requirements and the violation poses 
immediate jeopardy. Therefore, we believe that the term ``immediate 
jeopardy'' should be defined in our Hospital VBP Program regulations in 
the same manner as it is defined for the purpose of survey, 
certification, enforcement, and termination procedures.
    In Sec.  412.160, we are proposing to define the phrase ``cited for 
deficiencies that pose immediate jeopardy.'' We are proposing a 
definition in order to avoid potential ambiguities about the terms 
``cited'' and ``deficiencies.'' There are several ways in which a 
hospital might be found to have an immediate jeopardy situation. 
Appendix Q of the State Operations Manual (SOM), Pub. No. 100-07, 
provides guidance to the State survey agencies on our policies 
concerning the identification and citation of immediate jeopardy and 
subsequent enforcement actions. The most common way in which an 
immediate jeopardy situation is identified is when a surveyor or team 
of surveyors is in the process of conducting a survey at the hospital 
and accurately identifies those situations which immediately jeopardize 
the health and safety of patients. Surveyors may be expected, according 
to State protocols, to consult immediately with their supervisors 
before declaring an immediate jeopardy, and in cases involving 
hospitals deemed to meet the conditions of participation based on their 
accreditation, the State must first consult with the CMS Regional 
Office (RO).
    Once an immediate jeopardy is declared, the hospital's management 
is informed and expected to take steps to remove the immediate 
jeopardy, preferably before the survey team concludes the on-site 
portion of its survey. If the hospital does not remove the immediate 
jeopardy while the survey team is on-site, it has 23 days to submit an 
acceptable plan of correction and have an onsite follow-up survey to 
confirm removal. If the hospital fails to remove the immediate jeopardy 
in a timely manner, we may terminate the hospital's Medicare provider 
agreement. There are also situations where a survey team does not 
declare an immediate jeopardy while on-site, but a subsequent 
supervisory or CMS RO review of the survey team's findings identifies 
an immediate jeopardy situation that should have been declared. In such 
cases, the hospital is promptly advised of the immediate jeopardy and 
given 23 days to submit an acceptable plan of correction and have an 
onsite follow-up survey to confirm removal of the immediate jeopardy. 
It can also happen that a supervisory or CMS RO review will conclude 
that the survey documentation does not support a finding of an 
immediate jeopardy, and in such cases no official immediate jeopardy 
citation will be issued.
    It should be noted that removal of an immediate jeopardy is not 
necessarily the same as correction of the hospital's

[[Page 28091]]

noncompliance deficiencies. Removal may be accomplished by an interim 
measure while the hospital works to create a systematic and permanent 
correction of its deficient practices.
    The Form CMS-2567, Statement of Deficiencies and Plan of 
Correction, is issued after each survey of a hospital, even if only to 
indicate that no deficiencies were found during the survey (SOM Section 
2728 and SOM Exhibit 7A, Principles of Documentation, Principle 
<greek-i>1). The CMS-2567 form constitutes the official notice to a 
healthcare facility of the survey findings. Statements made by 
surveyors to the facility while they are on-site are always preliminary 
in nature. After surveyors have exited the facility, they prepare the 
Form CMS-2567 based on their observations and survey documentation. 
Their draft Form CMS-2567 is then subjected to a supervisory review 
and, in the case of hospitals that are deemed to meet the conditions of 
participation via accreditation and are being cited for serious 
noncompliance (that is, condition-level or immediate jeopardy 
citation), a CMS RO review. The Form CMS-2567 is not considered final 
until it is transmitted to the healthcare facility, either by the State 
survey agency or, in certain cases, the CMS RO.
    In the case of a survey where an immediate jeopardy situation was 
found, the Form CMS-2567 must state that the facility was found to have 
immediate jeopardy. This is the case regardless of whether the 
immediate jeopardy was removed while the survey team was still on-site 
at the facility, although on-site removal will be noted if it occurred. 
Furthermore, it is standard survey practice to cite on the Form CMS-
2567 all noncompliance deficiencies identified during a survey even 
when the healthcare facility corrects those deficiencies after they 
have been identified by a surveyor, but before the survey team exits 
the facility (SOM Exhibit 7A, Principles of Documentation, Principle 
<greek-i>4).
    We considered whether it would be reasonable to treat only those 
hospitals that failed to remove immediate jeopardy while a survey team 
was still on-site as having been ``cited for an immediate jeopardy'' 
solely for the purposes of the Hospital VBP Program. However, we 
concluded that this would not be equitable, since there are cases where 
an immediate jeopardy is identified after the survey team has left the 
hospital through a supervisory or CMS RO review, as described above. We 
also concluded this approach would not be consistent with the statutory 
requirement given that the Form CMS-2567 is the official notice to a 
healthcare facility of deficiencies found during a survey and in light 
of the fact that CMS includes references to the identification of an 
immediate jeopardy on the CMS-2567, regardless of when or if it was 
removed by the facility. We have, therefore, concluded that 
``citation'' of an immediate jeopardy within the context of the 
Hospital VBP Program means the identification of an immediate jeopardy 
noted on the CMS-2567 that is issued to the hospital after a survey.
    We also note that section 1886(o)(1)(C)(ii)(II) of the Act refers 
to the citation of plural ``deficiencies'' that pose immediate jeopardy 
and that this requires interpretation of its application to the 
Hospital VBP Program. We use an Automated Survey Processing Environment 
(ASPEN) system to catalog deficient practices identified during a 
survey and to generate the CMS-2567 that is issued to the hospital 
after the survey. To facilitate processing in the ASPEN system, we have 
subdivided the regulations applicable to each type of certified 
healthcare facility into specific ``tags,'' each one of which has 
corresponding interpretive guidelines in the applicable appendix of the 
SOM. Hospital tags are found in Appendix A. The ASPEN system also 
differentiates between ``condition'' and ``standard'' tags for non-long 
term care enforcement, since it is essential to know whether or not 
identified noncompliance is found at the condition-level, that is, 
whether it is considered substantial noncompliance. Each hospital 
condition of participation has its own condition tag. There are also a 
varying number of ``standard'' tags within each condition. The number 
of standard tags identified in the SOM Appendix does not correspond to 
the number of individual ``standards'' required in the regulations; 
usually there are more tags than standards, because standards may 
involve multiple items or requirements under specific conditions of 
participation that lend themselves to separate evaluation.
    While we understand that each tag identified in a CMS-2567 may be 
viewed as a separate deficiency, we also recognize that the division of 
the regulations for each ``condition'' and ``standard'' into individual 
tags was to facilitate the survey and certification process for 
surveyors. Moreover, in general a set of documented deficient practices 
that constitute immediate jeopardy would be cited at least in two tags, 
since there must be a citation at the condition-level to indicate 
substantial noncompliance, along with citation of any pertinent 
standard-level tags, which are subsets of the condition tags. We do not 
believe it was the intent of the statute to count each of these tags 
related to the same set of circumstances or practices as separate 
deficiencies under the Hospital VBP Program.
    We have concluded, therefore, that a more reasonable interpretation 
of the Hospital VBP statute is to view each hospital survey for which 
the CMS-2567 form cited immediate jeopardy as a deficiency. Thus, a 
hospital would have to have been cited on a CMS-2567 for immediate 
jeopardy on at least two surveys during the performance period in order 
to be considered as having multiple deficiencies that pose immediate 
jeopardy. Accordingly, we are proposing to define in our regulations 
the term ``cited for deficiencies that pose immediate jeopardy'' under 
the Hospital VBP Program as meaning that, during the applicable 
performance period, the hospital had more than one survey for which it 
was cited for an immediate jeopardy on the Form CMS-2567, Statement of 
Deficiencies and Plan of Correction.
    As required by the statute, hospitals cited during the performance 
period for multiple deficiencies that pose immediate jeopardy to the 
health or safety of patients would be excluded from the Hospital VBP 
Program for the applicable fiscal year. Because we sometimes adopt 
different performance periods for different measures for purposes of 
the same program year, we are proposing to exclude hospitals cited for 
such deficiencies during any of the finalized performance periods for 
the applicable program year for purposes of that interpretation.
    We welcome public comment on this interpretation of the immediate 
jeopardy exclusion and on our proposals.

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

1. Statutory History
    In accordance with section 1886(m)(5) of the Act, as added by 
section 3004 of the Affordable Care Act, the Secretary established the 
Long-Term Care Hospital Quality Reporting (LTCHQR) Program. Under the 
LTCHQR Program, for rate year 2014 and each subsequent rate year, in 
the case of a long-term care hospital (LTCH) that does not submit data 
to the Secretary in accordance with section 1886(m)(5)(C) of the Act 
with respect to such a rate year, any annual update to a standard 
Federal rate for discharges for the hospital during the rate year, and 
after application of section 1886(m)(3) of the Act, shall be reduced by 
two percentage points.

[[Page 28092]]

    Section 1886(m)(5)(D)(iii) of the Act requires the Secretary to 
publish the selected measures for the LTCHQR Program that will be 
applicable with respect to FY 2014 no later than October 1, 2012.
    Under section 1886(m)(5)(D)(i) of the Act, the quality measures for 
the LTCHQR Program are measures selected by the Secretary that have 
been endorsed by an entity that holds a contract with the Secretary 
under section 1890(a) of the Act, unless an exception under section 
1886(m)(5)(D)(ii) of the Act applies. This contract is currently held 
by the National Quality Forum (NQF). Section 1886(m)(5)(D)(ii) of the 
Act provides that an exception may be made in the case of a specified 
area or medical topic determined appropriate by the Secretary for which 
a feasible and practical measure has not been endorsed by the entity 
that holds a contract with the Secretary under section 1890(a) of the 
Act. In such a case, section 1886(m)(5)(D)(ii) of the Act authorizes 
the Secretary to specify a measure(s) that is not so endorsed, as long 
as due consideration is given to measures that have been endorsed or 
adopted by a consensus organization identified by the Secretary. The 
LTCHQR Program was implemented in section VII.C. of the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51743 through 51756).
2. LTCH Program Measures for the FY 2014 Payment Determination and 
Subsequent Fiscal Years Payment Determinations
a. Proposed Process for Retention of LTCHQR Program Measures Adopted in 
Previous Payment Determinations
    For the LTCHQR Program, we are proposing that once a quality 
measure is adopted, it is retained for use in subsequent fiscal year 
payment determinations, unless otherwise stated. For the purpose of 
streamlining the rulemaking process, we are proposing that when we 
initially adopt a measure for the LTCHQR Program for a payment 
determination, this measure is automatically adopted for all subsequent 
payment determinations or until we propose to remove, suspend, or 
replace the measure. Quality measures may be considered for removal by 
CMS if: (1) Measure performance among LTCHs is so high and unvarying 
that meaningful distinctions in improvements in performance can be 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) a more broadly applicable 
measure (across settings, populations, or conditions) for the 
particular topic is available; (5) a measure that is more proximal in 
time to desired patient outcomes for the particular topic is available; 
(6) if a measure that is more strongly associated with desired patient 
outcomes for the particular topic is available; or (7) collection or 
public reporting of a measure leads to negative unintended consequences 
other than patient harm. For any such removal, the public will be given 
a chance to comment through the annual rulemaking process. However, if 
there is reason to believe continued collection of a measure raises 
potential safety concerns, we will take immediate action to remove the 
measure from LTCHQR Program and not wait for the annual rulemaking 
cycle. Such measures will be promptly removed with LTCHs and the public 
being immediately notified of such a decision through the usual LTCHQR 
Program communication channels, including listening session, memos, 
email notification, and Web posting and their removal formally 
announced in the next annual rulemaking cycle.
    We are inviting public comment on our proposal that once a quality 
measure is adopted, it is retained for use in the subsequent fiscal 
year payment determinations unless otherwise stated.
b. Proposed Process for Adoption of Changes to LTCHQR Program Measures
    As mentioned previously, quality measures selected for the LTCHQR 
Program must be endorsed by the NQF unless they meet the statutory 
criteria for exception. The NQF is a voluntary consensus standard-
setting organization with a diverse representation of consumer, 
purchaser, provider, academic, clinical, and other healthcare 
stakeholder organizations. The NQF was established to standardize 
healthcare quality measurement and reporting through its consensus 
development process (http://www.qualityforum.org/About_NQF/Mission_and_Vision.aspx). The NQF undertakes review of: (a) New quality 
measures and national consensus standards for measuring and publicly 
reporting on performance, (b) regular maintenance processes for 
endorsed quality measures, (c) measures with time limited endorsement 
for consideration of full endorsement, and (d) ad hoc review of 
endorsed quality measures, practices, consensus standards, or events 
with adequate justification to substantiate the review (http://www.qualityforum.org/Measuring_Performance/Ad_Hoc_Reviews/Ad_Hoc_Review.aspx).
    The NQF solicits information from measure stewards for annual 
reviews and in order to review measures for continued endorsement in a 
specific 3-year cycle. In this measure maintenance process, the measure 
steward is responsible for updating and maintaining the currency and 
relevance of the measure and for confirming existing specifications to 
NQF on an annual basis. As part of the ad hoc review process, the ad 
hoc review requester and the measure steward are responsible for 
submitting evidence for review by a NQF Technical Expert panel which, 
in turn, provides input to the Consensus Standards Approval Committee 
which then makes a decision on endorsement status and/or specification 
changes for the measure, practice, or event.
    Through NQF's measure maintenance process, NQF-endorsed measures 
are sometimes updated to incorporate changes that we believe do not 
substantially change the nature of the measure. Examples of such 
changes could be updated diagnosis or procedure codes, changes to 
exclusions to the patient population, definitions, or extension of the 
measure endorsement to apply to other settings. We believe these types 
of maintenance changes are distinct from more substantive changes to 
measures that result in what are considered new or different measures, 
and that they do not trigger the same agency obligations under the 
Administrative Procedure Act. In this proposed rule, we are proposing 
that if the NQF updates an endorsed measure that we have adopted for 
the LTCHQR Program in a manner that we consider to not substantially 
change the nature of the measure, we would use a subregulatory process 
to incorporate those updates to the measure specifications that apply 
to the program. Specifically, we would revise the LTCH Quality 
Reporting Manual so that it clearly identifies the updates and provide 
links to where additional information on the updates can be found. We 
would also post the updates on our LTCH Quality Reporting Web site at: 
http://www.cms.gov/LTCH-Quality-Reporting/. We would provide sufficient 
lead time for LTCH to implement the changes where changes to the data 
collection systems would be necessary.
    We would continue to use the rulemaking process to adopt changes to 
measures that we consider to substantially change the nature of the 
measure. We believe that this proposal adequately balances our need to 
incorporate NQF updates to NQF-endorsed LTHCQR Program measures in

[[Page 28093]]

the most expeditious manner possible, while preserving the public's 
ability to comment on updates that so fundamentally change an endorsed 
measure that it is no longer the same measure that we originally 
adopted. We invite public comment on this proposal.
3. Proposals for the FY 2014 LTCHQR Program
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51743 through 
51756), we adopted three quality measures for the FY 2014 payment 
determination as listed in the following table:

      Previously Finalized Quality Measures for the FY 2014 Payment
                              Determination
------------------------------------------------------------------------
 
------------------------------------------------------------------------
NQF <greek-i>0138............  Urinary Catheter[dash]Associated Urinary
                                Tract Infection [CAUTI] rate per 1,000
                                urinary catheter days, for Intensive
                                Care Unit [ICU] Patients.
NQF <greek-i>0139............  Central Line Catheter-Associated Blood
                                Stream Infection (CLABSI) Rate for ICU
                                and High-Risk Nursery (HRN) Patients.
NQF <greek-i>0678............  Percent of Residents with Pressure Ulcers
                                That are New or Worsened (Short-Stay).
------------------------------------------------------------------------

    The three measures finalized for FY 2014 payment determination were 
NQF-endorsed at the time, although not for the LTCH setting. We also 
stated that we expected the NQF would review some of these measures for 
applicability to the LTCH setting and we anticipated this review might 
result in modifications to one or more of the measures.
    As part of its endorsement maintenance process, under NQF's Patient 
Safety Measures Project (http://www.qualityforum.org/projects/patient_safety_measures.aspx), the NQF reviewed the CAUTI and CLABSI measures 
previously adopted and expanded the scope of endorsement to include 
additional care settings, including LTCHs. The original NQF-endorsed 
numbers were retained for these two expanded measures, but the measures 
were retitled to reflect the expansion of the scope of endorsement: 
<greek-i>0138 Urinary Catheter-Associated Urinary Tract Infection 
[CAUTI] Rate Per 1,000 Urinary Catheter Days, for Intensive Care Unit 
[ICU] Patients is now titled National Health Safety Network (NHSN) 
Catheter-Associated Urinary Tract Infection (CAUTI) Outcome Measure and 
<greek-i>0139 (Central Line Catheter-Associated Blood Stream Infection 
[CLABSI] Rate for ICU and High-Risk Nursery (HRN) Patients is now 
titled National Health Safety Network (NHSN) Central-Line Associated 
Blood Stream Infection (CLABSI) Outcome Measure (http://www.qualityforum.org/News_And_Resources/Press_Releases/2012/NQF_Endorses_Patient_Safety_Measures.aspx).
    These expanded measures allow for the calculation of a standardized 
infection ratio (SIR).\120,121,122,123\ For the remainder of this 
proposed rule, we refer to these measures as the CAUTI measure and 
CLABSI measure, respectively. We are proposing to adopt the changes to 
the NQF-endorsed CAUTI and CLABSI measures that we previously finalized 
for the FY 2014 payment determination, consistent with our stated 
intention to update these measures with changes resulting from NQF's 
review of the measures. Further, we are proposing to adopt the NQF-
endorsed CAUTI measure and CLABSI measure for the FY 2015 payment 
determination and all subsequent fiscal year payment determinations. We 
also are proposing to incorporate any future changes to the CAUTI 
measure and CLABSI measure to the extent these changes are consistent 
with our proposal in section VIII.D.2.b. of this preamble to update 
measures.
---------------------------------------------------------------------------

    \120\ Centers for Disease Control and Prevention. (2012, 
January). Central Line-Associated Bloodstream Infection (CLABSI) 
Event. Retrieved from http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf.
    \121\ National Quality Forum (2012). National Healthcare Safety 
Network (NHSN) Central line-associated Bloodstream Infection 
(CLABSI) Outcome Measure. Retrieved from http://www.qualityforum.org/QPS/0139.
    \122\ Centers for Disease Control and Prevention. (2012, 
January). Catheter Associated Urinary Tract Infection Event. 
Retrieved from: http://www.cdc.gov/nhsn/PDFs/pscManual/7pscCAUTIcurrent.pdf.
    \123\ National Quality Forum (2012). National Healthcare Safety 
Network (NHSN) Catheter Associated Urinary Tract Infection (CAUTI) 
Outcome Measure. Retrieved from http://www.qualityforum.org/QPS/0138.
---------------------------------------------------------------------------

    We are proposing to retain the measure Percent of Residents with 
Pressure Ulcers that are New or Worsened (Short-Stay) (NQF 
<greek-i>0678), as finalized in the FY 2012 IPPS/LTCH PPS final rule 
for the FY 2014 payment determination, for FY 2015 and all subsequent 
fiscal year payment determinations. We also note that the Percent of 
Residents with Pressure Ulcers that are New or Worsened (Short-Stay) 
(NQF <greek-i>0678) measure is undergoing NQF review for expansion in 
the scope of endorsement to include additional care settings, including 
LTCHs and, to the extent that the measure is updated in a manner that 
does not substantially change the nature of the measure, we would 
incorporate the updates consistent with our previous proposal to update 
measures. For the remainder of this proposed rule, we refer to this 
measure as the Pressure Ulcer measure. For more information on the 
history of this measure in the LTCHQR Program, we refer readers to the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51753 through 51756).
    We invite public comment on our proposal to adopt the revised CAUTI 
measure (NQF <greek-i>0138) and CLABSI measure (NQF <greek-i>0139) 
beginning with the FY 2014 payment determination. We also invite public 
comment to retain the Pressure Ulcer measure (NQF <greek-i>0678) (which 
was finalized last year for the FY 2014 payment determination) for the 
FY 2015 payment determination and subsequent fiscal year payment 
determinations, as shown in the following table.

 Proposed Quality Measures To Be Retained for the FY 2014 and Subsequent
                   Fiscal Year Payment Determinations
------------------------------------------------------------------------
 
------------------------------------------------------------------------
NQF <greek-i>0138............  National Health Safety Network (NHSN)
                                Catheter Associated Urinary Tract
                                Infection (CAUTI) Outcome Measure.
NQF <greek-i>0139............  National Health Safety Network (NHSN)
                                Central Line Associated Blood Stream
                                Infection (CLABSI) Outcome Measure.
NQF <greek-i>0678............  Percent of Residents with Pressure Ulcers
                                That are New or Worsened (Short-Stay).
------------------------------------------------------------------------


[[Page 28094]]

    We are proposing to use the same data collection and submission 
methods finalized for these measures (CAUTI, CLABSI and Pressure Ulcer) 
in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51752 through 51756). We 
are proposing that data collection for these measures, if they be 
adopted in the FY 2013 IPPS/LTCH PPS final rule, remain the same for FY 
2014 payment determination and all subsequent fiscal year payment 
determination.
    For the proposed CAUTI measure and CLABSI measure, the measure 
specifications are available on the NQF Web site at: http://www.qualityforum.org/QPS/0138 and http://www.qualityforum.org/QPS/0139, 
respectively. The data collection and reporting requirements for CAUTI 
and CLABSI are available at http://www.cdc.gov/nhsn/PDFs/pscManual/7pscCAUTIcurrent.pdf and http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf, respectively.
    For the Pressure Ulcer measure, the data collection instrument is 
the Long-Term Care Hospital (LTCH) Continuity Assessment Record & 
Evaluation (CARE) Data Set available for download at http://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS1252160.html.\124\ 
Because there are no mandatory standardized data sets being used in 
LTCHs, we created a new data set, the LTCH CARE Data Set, for use in 
LTCHs for data reporting for the Pressure Ulcer measure beginning 
October 1, 2012. This data set incorporates data items contained in 
other, standardized and clinically established pressure ulcer data 
sets, including but not limited to the Minimum Data Set 3.0 (MDS 3.0) 
and CARE data set (Continuity Assessment Records & Evaluation). 
Beginning on October 1, 2012, LTCHs will begin to use a data collection 
document entitled the ``LTCH CARE Data Set'' as the vehicle by which to 
collect the data for the Pressure Ulcer measure for the LTCHQR Program. 
This data set consists of the following components: (1) Pressure ulcer 
documentation; (2) selected covariates related to pressure ulcers; (3) 
patient demographic information; and; (4) a provider attestation 
section.
---------------------------------------------------------------------------

    \124\ The LTCH CARE Data Set, the data collection instrument 
that will be used to submit data on this measure, is currently under 
Paperwork Reduction Act (PRA) review by the Office of Management and 
Budget. It is discussed in a PRA notice that appeared in the 
September 2, 2011 Federal Register (76 FR 54776). The file number 
for the LTCH PRA package is CMS-10409.
---------------------------------------------------------------------------

    The measure specifications for the LTCH CARE Data Set are available 
on our Web site for the LTCHQR Program at http://www.cms.gov/LTCH-Quality-Reporting/. The LTCH CARE Data Set Technical Specifications 
Draft Version 1.00.1 for the Pressure Ulcer measure are available at 
the LTCH Quality Reporting Technical Information Web page http://www.cms.gov/LTCH-Quality-Reporting/05_LTCHTechnicalInformation.asp#TopOfPage.
    For detailed discussions of the history of the LTCHQR Program, 
including the statutory authority and further details on the three 
measures previously finalized for FY 2014 payment determination, we 
refer readers to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51743 
through 51756). We have reproduced portion of the data collection and 
submission timeline finalized for FY 2014 payment determination in the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51743 through 51756) in the 
following table.

 Timeline for Submission of Data for the LTCHQR Program FY 2014 Payment
                              Determination
------------------------------------------------------------------------
                                              Final submission deadline
                                              for data  related to the
 Data collection timeframe: calendar year      LTCH quality reporting
                 (CY) 2012                     program FY 2014 payment
                                                    determination
------------------------------------------------------------------------
Q4 (October 1-December 31, 2012)..........  May 15, 2013.
------------------------------------------------------------------------

    We refer readers to section VIII.D.5. of this preamble for the 
proposed timeline for data submission under the LTCHQR Program for the 
FY 2015 payment determination.
4. Proposed LTCHQR Program Quality Measures for the FY 2016 Payment 
Determinations and Subsequent Fiscal Years Payment Determinations
    a. Considerations in Updating and Expanding Quality Measures under 
the LTCHQR Program for FY 2016 and Subsequent Payment Update 
Determinations
    We believe that development of a LTCHQR Program that is successful 
in promoting the delivery of high quality healthcare services in LTCHs 
is paramount. We seek to adopt measures for the LTCHQR Program that 
promote better, safer, and more efficient care. Our measure development 
and selection activities for the LTCHQR Program take into account 
national priorities, such as those established by the National 
Priorities Partnership (http://www.nationalprioritiespartnership.org/), 
HHS Strategic Plan (http://www.hhs.gov/secretary/about/priorities/priorities.html), and the National Strategy for Quality Improvement in 
Healthcare (http://www.healthcare.gov/center/reports/quality03212011a.html). To the extent practicable, we have sought to 
adopt measures that have been endorsed by a national consensus 
organization, recommended by multi-stakeholder organizations, and 
developed with the input of providers, purchasers/payers, and other 
stakeholders.
    In addition, we consider input from the multi-stakeholder group, 
the Measures Application Partnership (MAP) (http://www.qualityforum.org.map/), in selecting measures for the LTCHQR 
program. Section 1890A(a)(1) of the Act, as added by section 3014(a) of 
the Affordable Care Act, requires the entity with a contract under 
section 1890(a) of the Act, currently NQF, to convene multi-stakeholder 
groups to provide input to the Secretary on the selection of quality 
and efficiency measures. Section 1890A(a)(3) of the Act, as added by 
section 3014(b) of the Affordable Care Act, further requires the entity 
with a contract under section 1890(a) of the Act to transmit the input 
of the multistakeholder groups to the Secretary not later than February 
1 of each year, beginning in 2012. Section 1890A(a)(4) of the Act 
requires the Secretary to take into consideration the input of the 
multi-stakeholder groups in selecting quality and efficiency measures. 
The MAP is the public-private partnership comprised of multi-
stakeholder groups convened by the NQF for the primary purpose of 
providing input on measures as required by section 1890A(a)(3) of the 
Act. The MAP's input on quality and efficiency measures was transmitted 
to the Secretary and is available at (http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=69885). As required by 
section 1890A(a)(4) of the Act, we considered the MAP's recommendations 
in selecting quality and efficiency measures for the LTCHQR Program.
    b. Proposed New LTCHQR Program Quality Measures Beginning with the 
FY 2016 Payment Determination
    For the FY 2016 payment determination and subsequent fiscal year 
payment determinations, in addition to retaining the three previously 
discussed measures (CAUTI measure, CLABSI measure and Pressure Ulcer 
measure), we are proposing to adopt five additional quality measures 
for the LTCHQR Program, see table below. Our proposal to add these five 
measures is part of our effort to promote overarching health care aims 
and goals in an effective and meaningful manner.

[[Page 28095]]

We also seek to minimize the burden of data collection for LTCHs.

  Proposed New Quality Measures for the FY 2016 LTCHQR Program Payment
           Determination and Subsequent Payment Determinations
------------------------------------------------------------------------
          NQF measure ID                        Measure title
------------------------------------------------------------------------
NQF <greek-i>0680.................  Percent of Nursing Home Residents
                                     Who Were Assessed and Appropriately
                                     Given the Seasonal Influenza
                                     Vaccine (Short-Stay).
NQF <greek-i>0682.................  Percent of Residents Assessed and
                                     Appropriately Given the
                                     Pneumococcal Vaccine (Short-Stay).
NQF <greek-i>0431.................  Influenza Vaccination Coverage among
                                     Healthcare Personnel.
NQF <greek-i>0302.................  Ventilator Bundle.
Not NQF endorsed..................  Restraint Rate per 1,000 Patient
                                     Days.
------------------------------------------------------------------------

 (1) Proposed New Quality Measure <greek-i>1 for the FY 2016 Payment 
Determination and Subsequent Fiscal Years Payment Determinations: 
Percent of Nursing Home Residents Who Were Assessed and Appropriately 
Given the Seasonal Influenza Vaccine (Short-Stay) (NQF <greek-i>0680)
    According to the CDC, as of 2011, there are on average over 200,000 
hospitalizations due to influenza every year.\125\ The Agency for 
Healthcare Research and Quality (AHRQ) reports that, in 2004, there 
were more than 37,000 hospitalizations in which influenza was noted 
during the stay. For over 21,000 of these hospitalizations, influenza 
was listed as the primary diagnosis. The aggregate hospital costs for 
these roughly 21,000 hospitalizations were estimated at $146 
million.\126\
---------------------------------------------------------------------------

    \125\ Centers for Medicare & Medicaid Services (2011, May). 
Adult immunization: Overview. Retrieved from https://www.cms.gov/adultImmunizations/.
    \126\ Milenkovic M, Russo CA, Elixhauser A. (2006). Hospital 
stays for influenza, 2004 (Healthcare Cost and Utilization Project 
statistical brief no. 16). Rockville, MD: Agency for Healthcare 
Research and Quality. Retrieved from http://www.hcup-us.ahrq.gov/reports/statbriefs/sb16.pdf.
---------------------------------------------------------------------------

    Although influenza is prevalent among all population groups, the 
rates of death and serious complications related to influenza are 
highest among those age 65 and older and those with medical 
complications that put them at higher risk. The CDC reports that an 
average of 36,000 Americans die annually from influenza and its 
complications, and most of these deaths are among people 65 years of 
age and over.\127\ In 2004, 70,000 deaths were caused by influenza and 
pneumonia, and more than 85 percent of these were among the 
elderly.\128\ Given that many individuals receiving health care 
services in LTCHs are elderly and/or have several medical conditions, 
many LTCH patients are within the target population for the influenza 
vaccination.\129,130\ Healthy People 2010 (Objective 14-29) and Healthy 
People 2020 (Objective IID-12.8) each set a goal of 90 percent of 
adults vaccinated against pneumococcal disease in long-term care 
facilities.\131,132\ However, among adults age 65 years and older, only 
72.1 percent were vaccinated during the 2006-2007 influenza season and 
only 69.6 percent of adults age 65 years and older were vaccinated 
during the 2009-2010 influenza season.\133,134\ According to 
information currently available on the Nursing Home Compare Web site 
(http://www.medicare.gov/NHCompare), the national average for the 
percentage of short-stay residents given the influenza vaccine is 
roughly 82 percent.\135\ No comparable information is currently 
available on patients in the LTCH setting.
---------------------------------------------------------------------------

    \127\ Centers for Medicare & Medicaid Services (2011, May). 
Adult Immunization: Overview. Retrieved from https://www.cms.gov/Immunizations/.
    \128\ Gorina Y, Kelly T, Lubitz J, et al. (2008, 
February).Trends in influenza and pneumonia among older persons in 
the United States. Aging Trends no. 8. Retrieved from http://www.cdc.gov/nchs/data/ahcd/agingtrends/08influenza.pdf.
    \129\ Centers for Disease Control and Prevention. (2008, 
September). Influenza e-brief: 2008-2009 flu facts for policymakers. 
Retrieved from http://www.cdc.gov/washington/pdf/flu_newsletter.pdf.
    \130\ Zorowitz, RD. Stroke Rehabilitation Quality Indicators: 
Raising the Bar in the Inpatient Rehabilitation Facility. Topics in 
Stroke Rehabilitation 2010; 17 (4):294-304.
    \131\ U.S. Department of Health and Human Services, Office of 
Disease Prevention and Health Promotion. (n.d.). Healthy People 2010 
archive. Retrieved from http://www.healthypeople.gov/2010/ 2010/.
    \132\ U.S. Department of Health and Human Services, Office of 
Disease Prevention and Health Promotion. (2011, June). Healthy 
People 2020: Immunization and Infectious Diseases. Retrieved from 
http://www.healthypeople.gov/2020/topicsobjectives2020/overview.aspx?topicid=23.
    \133\ Centers for Disease Control and Prevention. (2008). State 
specific influenza vaccination coverage among adults--United States, 
2006-2007 influenza season. MMWR, 57(38), 1033-1039. Retrieved from 
http://www.cdc.gov/mmwr/preview/mmwrhtml/mm5738a1.htm.
    \134\ Centers for Disease Control and Prevention (2011, May). 
Seasonal influenza (flu): final estimates for 2009-10 seasonal 
influenza and influenza A (H1N1) 2009 monovalent vaccination 
coverage--United States, August 2009 through May 2010. Retrieved 
from http://www.cdc.gov/flu/professionals/vaccination/coverage_0910estimates.htm.
    \135\ Centers for Medicare & Medicaid Services. (2011). Nursing 
Home Compare. Available from http://www.medicare.gov/NHCompare/.
---------------------------------------------------------------------------

    In light of the evidence outlined previously, particularly that 
many individuals receiving care in the LTCH setting are within the 
target population for influenza vaccination, we are proposing NQF 
<greek-i>0680, Percent of Nursing Home Residents Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (Short-Stay), for 
application in the LTCHQR Program for the FY 2016 payment determination 
and subsequent fiscal year payment determinations. We note that this 
measure is currently endorsed for short-stay nursing home residents, 
but believe this measure is highly relevant for the LTCH setting 
because, as stated above, many patients receiving care in the LTCH 
setting are elderly and within the target population for influenza 
vaccination. The MAP supports the direction of this measure and 
believes it is an important aspect of care in LTCHs.\136\
---------------------------------------------------------------------------

    \136\ National Quality Forum (2012) Input on Measures for 
Consideration by HHS for 2012 Rulemaking. Available from http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=69885. pp. 105.
---------------------------------------------------------------------------

    Section 1886(m)(5)(D)(ii) of the Act, the exception authority 
provides that ``[i]n the case of a specified area or medical topic 
determined appropriate by the Secretary for which a feasible and 
practical measure has not been endorsed by the entity with a contract 
under section 1890(a) of the Act, the Secretary may specify a measure 
that is not so endorsed as long as due consideration is given to 
measures that have been endorsed or adopted by a consensus organization 
identified by the Secretary.'' We reviewed NQFs consensus endorsed 
measures and were unable to identify any NQF-endorsed measures for 
influenza vaccination in the LTCH setting. We are unaware of any other 
measures for influenza

[[Page 28096]]

vaccination in the LTCH setting that have been approved by a voluntary 
consensus standards body and endorsed by NQF. We are proposing to adopt 
the NQF-endorsed measure the Percent of Nursing Home Residents Who Were 
Assessed and Appropriately Given the Seasonal Influenza Vaccine (Short-
Stay) (NQF <greek-i>0680) for application in the LTCH setting for the 
LTCHQR Program under the Secretary's authority to select non-NQF 
measures. This proposal is also consistent with the 2008 NQF steering 
committee recommendation that ``in the interest of standardization and 
minimizing the burden for those implementing and using measures, 
measure harmonization is an important consideration in evaluating and 
recommending measures for endorsement.'' \137\ Data on this measure is 
currently collected and reported as part of the Nursing Home Quality 
Initiative.
---------------------------------------------------------------------------

    \137\ National Quality Forum (2008, December). National 
Voluntary Consensus Standards for Influenza and Pneumococcal 
Vaccinations. Available from http://www.qualityforum.org/Publications/2008/12/National_Voluntary_Consensus_Standards_for_Influenza_and_Pneumococcal_Immunizations.aspx.
---------------------------------------------------------------------------

    We are proposing that data for this measure will be collected using 
the same data collection and submission framework that we finalized for 
the FY 2014 payment determination.\138\ We intend to revise the LTCH 
CARE data set to include new items which assess patients' influenza 
vaccination status should this proposed measure be adopted. These items 
will be based on the items from the Minimum Data Set (MDS) 3.0 
items.\139\ The specifications and data elements for this proposed 
measure are available in the MDS 3.0 QM User's Manual available on our 
Web site at: https://www.cms.gov/NursingHomeQualityInits/Downloads/MDS30QM-Manual.pdf.\140\
---------------------------------------------------------------------------

    \138\ The LTCH CARE Data Set, the proposed data collection 
instrument that would be used to submit data on this proposed 
measure, is currently under Paperwork Reduction Act (PRA) review by 
the Office of Management and Budget. It is discussed in a PRA notice 
that appeared in the September 2, 2011 Federal Register (76 FR 
54776). The file number for the LTCH PRA package is CMS-10409.
    \139\ Centers for Medicare & Medicaid Services. MDS 3.0 Item 
Subsets V1.10.4 for the April 1, 2012 Release. Retrieved from 
https://www.cms.gov/NursingHomeQualityInits/30_NHQIMDS30TechnicalInformation.asp.
    \140\ Centers for Medicare and Medicaid Services (2012, March). 
MDS 3.0 Quality Measures User's Manual. V5.0. pp. 15. Retrieved 
from: https://www.cms.gov/NursingHomeQualityInits/Downloads/MDS30QM-Manual.pdf.
---------------------------------------------------------------------------

    By building on the existing reporting and submission infrastructure 
for LTCHs, such as the LTCH CARE Data Set, which will be used for data 
collection beginning October 1, 2012, we intend to reduce the 
administrative burden related to data collection and submission for 
this measure under the LTCHQR Program. We are proposing that the data 
collection would cover the period from October 1 through March 31 of 
each year, which corresponds with how NQF specifies this measure as 
well as other endorsed influenza vaccination measures. We refer readers 
to section VIII.D.6. of this preamble for more information on data 
collection and submission.
    We are inviting public comment on this proposed measure for the FY 
2016 payment determination and subsequent FYs payment determinations.
    (2) Proposed New LTCH Quality Measure <greek-i>2 for the FY 2016 
Payment Determination and Subsequent Fiscal Years Payment 
Determinations: Percent of Residents Assessed and Appropriately Given 
the Pneumococcal Vaccine (Short-Stay) (NQF <greek-i>0682) According to 
the CDC, pneumococcal disease kills more people in the United States 
each year than all other vaccine-preventable diseases combined.\141\ In 
2006, all possible pneumonia diagnoses (including viral, bacterial, and 
unspecified organisms) killed 55,477 people in the United States and 
were responsible for 1,232,999 hospital discharges.\142\
---------------------------------------------------------------------------

    \141\ Centers for Disease Control and Prevention. (2009, March). 
Pneumococcal polysaccharide vaccine: What you need to know. 
Retrieved from http://www.cdc.gov/vaccines/pubs/vis/downloads/vis-ppv.pdf.
    \142\ Centers for Disease Control and Prevention, National 
Center for Health Statistics. (various years 1988-2006). National 
Hospital Discharge Survey. Available from http://www.cdc.gov/nchs/nhds/nhds_publications.htm#nhds.
---------------------------------------------------------------------------

    Older people and those with chronic health conditions are at higher 
risk for pneumococcal disease. In 2011 there were more than 40,000 
cases of invasive pneumococcal disease in the United States, and 
approximately one-third of these occurred among persons ages 65 years 
and older.\143\ A 2011 Medicare Payment Advisory Committee (MedPAC) 
report found that pneumonia is among the top 20 most common Medicare 
Severity Long-Term Care Diagnosis-Related Groups (MS-LTC-DRG).\144\ In 
2005, Medicare paid an average of $6,342 per hospital discharge for 
pneumonia-related short-stay hospitalizations.\145\ Death related to 
pneumonia also affects the elderly at a higher rate. In 2004, 70,000 
deaths were caused by influenza and pneumonia, and more than 85 percent 
of these were amongst the elderly.\146\
---------------------------------------------------------------------------

    \143\ Centers for Disease Control and Prevention. (2011). 
Pneumococcal diseases. In The Pink Book: epidemiology and prevention 
of vaccine preventable diseases (pp. 233-248). Retrieved from: 
http://www.cdc.gov/vaccines/pubs/pinkbook/downloads/pneumo.pdf.
    \144\ Medicare Payment Advisory Committee (MedPac). (2011, 
March) Long-term care hospital services. In Report to the Congress: 
Medicare payment Policy (pp 231-456). Washington, DC. Available from 
http://www.medpac.gov/documents/Mar11_EntireReport.pdf.
    \145\ Health Care Financing Review. Statistical supplement no. 
293. (2007). Baltimore, MD: Centers for Medicare and Medicaid 
Services.
    \146\ Gorina Y, Kelly T, Lubitz J, et al. (2008, February). 
Trends in influenza and pneumonia among older persons in the United 
States. Aging Trends no. 8. Retrieved from http://www.cdc.gov/nchs/data/ahcd/agingtrends/08influenza.pdf.
---------------------------------------------------------------------------

    Individuals in the LTCH setting are at especially high risk of 
contracting pneumonia as a complication of another medical condition, 
such as stroke, previous or recent surgery, or ventilation--all of 
which are conditions for which patients may spend some of their 
recovery time in the LTCH.\147,148,149\
---------------------------------------------------------------------------

    \147\ Fagon JY, Chastre J, Hance AJ, Montravers P, Novara A, 
Gibert C. Nosocomial pneumonia in ventilated patients: a cohort 
study evaluating attributable mortality and hospital stay. Am J Med 
1993;94:281-8.
    \148\ Gorina Y, Kelly T, Lubitz J, et al. (2008, February). 
Trends in influenza and pneumonia among older persons in the United 
States. Aging Trends no. 8. Retrieved from http://www.cdc.gov/nchs/data/ahcd/agingtrends/08influenza.pdf.
    \149\ Centers for Disease Control and Prevention. (2011, June). 
Post-procedure pneumonia (PPP) event. Retrieved from http://www.cdc.gov/nhsn/PDFs/pscManual/10pscPPPcurrent.pdf.
---------------------------------------------------------------------------

    Healthy People 2010 (Objective 14-29f) and Healthy People 2020 
(Objective IID-13.3) each set a goal of 90 percent of adults vaccinated 
against pneumococcal disease in long-term care facilities.\150,151\ 
However, estimated pneumococcal vaccination coverage remains below 50 
percent in recommended high-risk groups.\152\ No comparable information 
is currently available on patients in the LTCH setting.
---------------------------------------------------------------------------

    \150\ U.S. Department of Health and Human Services, Office of 
Disease Prevention and Health Promotion. (n.d.). Healthy People 2010 
archive. Retrieved from http://www.healthypeople.gov/2010/ 2010/.
    \151\ U.S. Department of Health and Human Services, Office of 
Disease Prevention and Health Promotion. (2011, June). Healthy 
People 2020: Immunization and infectious diseases. Retrieved from 
http://www.healthypeople.gov/2020/topicsobjectives2020/overview.aspx?topicid=23.
    \152\ Centers for Disease Control and Prevention, National 
Center for Health Statistics. (various years 1988-2006). National 
Hospital Discharge Survey.
---------------------------------------------------------------------------

    In light of the previously described data which we believe reflects 
the significant impact pneumonia has on Medicare beneficiaries in the 
LTCH setting, we are proposing a quality measure on the pneumococcal 
vaccine. Specifically, we are proposing the measure Percent of 
Residents Assessed and Appropriately Given the Pneumococcal Vaccine 
(Short-Stay) (NQF <greek-i>0682) for application in the

[[Page 28097]]

LTCHQR Program for the FY 2016 payment determination and subsequent 
fiscal year payment determinations. We recognize that the NQF has 
endorsed this measure for short stay nursing home residents but believe 
this measure is highly relevant to LTCHs as described previously. This 
measure reports the percentage of short-stay nursing home residents who 
were assessed and appropriately given the pneumococcal vaccine (PPV) 
during a 12-month reporting period. We are proposing this measure 
because, as stated previously, patients in LTCHs are at high risk of 
contracting pneumonia as a complication of another medical condition. 
The MAP supports the direction of this measure and believes it is an 
important aspect of care in LTCHs.\153\
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    \153\ National Quality Forum (2012) Input on Measures for 
Consideration by HHS for 2012 Rulemaking. Available; http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=69885. pp. 105.
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    As indicated previously, section 1886(m)(5)(D)(ii) of the Act 
provides the Secretary with authority to adopt non-NQF-endorsed 
measures. We reviewed the NQF's consensus-endorsed measures and were 
unable to identify any NQF-endorsed measures for pneumococcal 
vaccination in the LTCH setting. We are unaware of any other measures 
for pneumococcal vaccination in the LTCH setting that have been 
approved by voluntary consensus standards bodies and endorsed by NQF. 
We are proposing to adopt application of the Percent of Residents 
Assessed and Appropriately Given the Pneumococcal Vaccine (Short-Stay) 
(NQF <greek-i>0682) for application in the LTCHQR Program. This 
application is also consistent with the 2008 NQF steering committee 
recommendation that ``in the interest of standardization and minimizing 
the burden for those implementing and using measures, measure 
harmonization is an important consideration in evaluating and 
recommending measures for endorsement.'' \154\ Data for this measure 
are currently collected and reported as part of the Nursing Home 
Quality Initiative.
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    \154\ National Quality Forum (2008, December) National Voluntary 
Consensus Standards for influenza and pneumococcal vaccinations 
rretrieved from http://www.qualityforum.org/Publications/2008/12/National_Voluntary_Consensus_Standards_for_Influenza_and_Pneumococcal_Immunizations.aspx.
---------------------------------------------------------------------------

    The specifications and data elements for this proposed measure are 
available in the MDS 3.0 QM User's Manual available on our Web site at: 
https://www.cms.gov/NursingHomeQualityInits/Downloads/MDS30QM-Manual.pdf.\155\
---------------------------------------------------------------------------

    \155\ Centers for Medicare and Medicaid Services (2012, March). 
MDS 3.0 Quality Measures User's Manual. V5.0. pp. 15. Retrieved 
from: https://www.cms.gov/NursingHomeQualityInits/Downloads/MDS30QM-Manual.pdf.
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    We are proposing that submission of data for this measure will be 
incorporated into the existing data collection and submission framework 
for LTCHs that we adopted for the FY 2014 payment determinations.\156\ 
We intend to revise the LTCH CARE data set to include new items which 
assess patient's pneumococcal vaccination status should this proposed 
measure be adopted. These items will be based on the items from the 
Minimum Data Set (MDS) 3.0 items.\157\
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    \156\ The LTCH CARE Data Set, the proposed data collection 
instrument that would be used to submit data on this proposed 
measure, is currently under Paperwork Reduction Act (PRA) review by 
the Office of Management and Budget. It is discussed in a PRA notice 
that appeared in the September 2, 2011 Federal Register (76 FR 
54776). The file number for the LTCH PRA package is CMS-10409.
    \157\ Centers for Medicare & Medicaid Services. MDS 3.0 Item 
Subsets V1.10.4 for the April 1, 2012 Release. Retrieved from 
https://www.cms.gov/NursingHomeQualityInits/30_NHQIMDS30TechnicalInformation.asp.
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    By building on the existing LTCH reporting and submission 
infrastructure, such as the LTCH CARE data set, which will be used by 
LTCHs for data collection beginning October 1, 2012, we intend to 
reduce the administrative burden related to data collection and 
submission for this measure under the LTCHQR Program. For additional 
information of data collection and submission, we refer readers to 
section VIII.D.6. of this preamble. We invite public comment on this 
proposed measure for the FY 2016 payment determination and subsequent 
fiscal years.
    (3) Proposed New LTCH Quality Measure <greek-i>3 for the FY 2016 
Payment Determination and Subsequent Fiscal Years Payment 
Determinations: Influenza Vaccination Coverage among Healthcare 
Personnel (NQF <greek-i>0431)
    As previously noted, influenza virus infections are a major source 
of preventable mortality in the Medicare population. Between 1976 and 
2007, influenza virus infections resulted in an average of 23,607 
influenza-related deaths with a yearly range of 3,349 to 48,615 deaths, 
with approximately 90 percent of these deaths occurring among persons 
aged 65 or older.\158\ Health care personnel are at risk for both 
acquiring influenza from patients and exposing it to patients, and 
health care personnel often come to work when ill.\159\ One early 
report of health care personnel influenza infections during the 2009 
H1N1 influenza pandemic estimated 50 percent of infected health care 
personnel had contracted the influenza virus from patients or coworkers 
in the healthcare setting.\160\
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    \158\ Thompson MG, Shay DK, Zhou H, et al. Estimates of deaths 
associated with seasonal influenza--United States, 1976-2007. MMWR 
Morb Mortal Wkly Rep. 59(33):1057-1062.
    \159\ Wilde JA, McMillan JA, Serwint J, et al. Effectiveness of 
influenza vaccine in healthcare professionals: A randomized trial. 
JAMA. 1999; 281: 908-913.
    \160\ Harriman K, Rosenberg J, Robinson S, et al. Novel 
influenza A (H1N1) virus infections among health-care personnel--
United States, April-May 2009. MMWR Morb Mortal Wkly Rep. 2009; 
58(23): 641-645.
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    The Advisory Committee on Immunization Practices (ACIP) recommends 
that all health care personnel get an influenza vaccine every year to 
protect themselves and patients.\161\ Even though levels of influenza 
vaccination among health care personnel have slowly increased over the 
past 10 years, less than 50 percent of health care personnel each year 
received the influenza vaccination until the 2009-2010 season, when an 
estimated 62 percent of health care personnel got a seasonal influenza 
vaccination. In the 2010-2011 season, 63.5 percent of health care 
personnel reported influenza vaccination. Healthy People 2020 
(Objective IID-12.9) set a goal of 90 percent for health care personnel 
influenza vaccination.\162\ It is important to measure influenza 
vaccination of health care personnel every season to track progress 
toward this objective and to make sure that health care personnel and 
their patients are protected from influenza.\163\ Increased influenza 
vaccination coverage among health care personnel is expected to result 
in reduced morbidity and mortality related to influenza virus infection 
among patients, aligning with the National Quality Strategy's aims of 
better care and healthy people/communities.
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    \161\ Fiore AE, Uyeki TM, Broder K, et al. Prevention and 
control of influenza with vaccines: Recommendations of the Advisory 
Committee on Immunization Practices (ACIP), 2010. MMWR Recomm Rep. 
2010. 59(08): 1-62.
    \162\ U.S. Department of Health and Human Services, Office of 
Disease Prevention and Health Promotion. (2011, June). Healthy 
People 2020: Immunization and infectious diseases. Retrieved from 
http://www.healthypeople.gov/2020/topicsobjectives2020/overview.aspx?topicid=23.
    \163\ Lindley MC, Zhang J, Euler G. Health care personnel flu 
vaccination (2011, November). Retrieved from http://www.cdc.gov/flu/pdf/professionals/vaccination/1112-healthcare.pdf.
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    In light of the previously described data which we believe reflects 
the significant impact influenza has on Medicare beneficiaries in the 
LTCH setting, we are proposing to adopt an influenza measure. 
Specifically, we are

[[Page 28098]]

proposing to adopt the CDC-developed Influenza Vaccination Coverage 
among Healthcare Personnel (NQF <greek-i>0431) measure for the FY 2016 
payment determination and subsequent fiscal year payment 
determinations. We also note that this measure is undergoing NQF review 
as part of measure maintenance (http://www.qualityforum.org/Projects/n-
r/Population_Health_Prevention/Population_Health__Prevention_
Endorsement_Maintenance__-Phase_1.aspx#t=2&s=&p=3%7C). We are 
proposing to this measure because, as stated previously, it aligns with 
national initiatives. It is also already endorsed for the LTCH care 
setting. This measure has been finalized for reporting in the Hospital 
IQR Program and the Ambulatory Surgical Centers Quality Reporting 
Program. The MAP supports the direction of this measure and believes it 
is an important aspect of care in LTCHs.\164\
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    \164\ National Quality Forum (2012) Input on Measures for 
Consideration by HHS for 2012 Rulemaking. Available; http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=69885. pp. 105.
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    This measure reports on the percentage of health care personnel who 
receive the influenza vaccination. Health care personnel refers to all 
paid and unpaid persons working in health care settings, contractual 
staff not employed by the healthcare facility, and persons not directly 
involved in patient care but potentially exposed to infectious agents 
that can be transmitted to and from health care personnel. This measure 
is applicable to LTCHs (we refer readers to the CDC/NHSN Manual, 
Healthcare Personnel Safety Component Protocol Module, Influenza 
Vaccination and Exposure Management Modules, which is available at the 
CDC Web site at: http://www.cdc.gov/nhsn/PDFs/HSPmanual/HPS_Manual.pdf 
for measure specifications and additional details.
    We are proposing that data collection for this measure would be 
through the CDC/NHSN (http://www.cdc.gov/nhsn/). It is a secure 
Internet based system maintained by CDC, and can be utilized by all 
types of health care facilities in the United States, including LTCHs. 
NHSN collects data via a Web-based tool hosted by the CDC and available 
at: http://www.cdc.nhsn. For FY 2106 and subsequent future fiscal year 
payment determinations, we are proposing that the data collection would 
cover the period from October 1 through March 31 of each year, which 
corresponds with how NQF specifies this measure as well as other 
endorsed influenza vaccination measures.
    CDC/NHSN is also the proposed data collection and submission 
framework for reporting on CAUTI and CLABSI measures for the FY 2015 
payment determination.\165\ Details related to the procedures for using 
the NHSN for data submission and information on definitions, numerator 
data, denominator data, data analyses, and measure specifications for 
the proposed Influenza Vaccination Coverage among Healthcare Personnel 
(NQF <greek-i>0431) measure can be found at http://www.cdc.gov/nhsn/hps_fluVaccExpos.html. By building on the CDC/NHSN reporting and 
submission infrastructure, we intend to reduce the administrative 
burden related to data collection and submission for this measure under 
the LTCHQR Program. For additional information on data collection and 
submission, we refer readers to section VIII.D.6. of this preamble.
---------------------------------------------------------------------------

    \165\ Medicare Program; Hospital Inpatient Prospective Payment 
Systems for Acute Care Hospitals and the Long-Term Care Hospital 
Prospective Payment System and FY 2012 Rates; Hospitals' FTE 
Resident Caps for Graduate Medical Education Payment, Final Rule. 
Federal Register (August 18, 2011; 76 FR 51745-51846). Web. http://www.gpo.gov/fdsys/pkg/FR-2011-08-18/pdf/2011-19719.pdf.
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    We are inviting public comment on this proposed measure for the FY 
2016 payment determination and subsequent fiscal years.
    (4) Proposed New LTCH Quality Measure <greek-i>4 for the FY 2016 
Payment Determination and Subsequent Fiscal Years Payment 
Determinations: Ventilator Bundle (NQF <greek-i>0302)
    In 2009, the most frequently occurring diagnosis in the LTCHs was 
MS-LTC-DRG 207 (Respiratory Diagnosis with Ventilator Support for 96 or 
more Hours).\166\ Ventilator-Associated Pneumonia (VAP) is a costly, 
often deadly infection. A systematic review of VAP found: (1) Between 
10 percent and 20 percent of patients receiving greater than 48 hours 
of ventilation will develop VAP; (2) ill patients who develop VAP are 
twice as likely to die as compared with similar patients without VAP; 
(3) patients with VAP have significantly longer lengths of stay; and 
(4) patients who have VAP incur over $10,000 in additional hospital 
costs.\167\
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    \166\ Medicare Payment Advisory Commission (MedPAC). (2011, 
March). Long-term care hospital services. In Report to the Congress: 
Medicare payment policy (pp. 231-256). Washington, DC: Retrieved 
from http://medpac.gov/documents/Mar11_EntireReport.pdf.
    \167\ Safdar, N., Dezfulian, C., Collard, H., Saint, S. 
``Clinical and Economic Consequences of Ventilator Associated 
Pneumonia''. Critical Care Medicine. 2005: 33(10): 2184-93.
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    In light of the previously described data on VAP which we believe 
reflects the significant impact VAP has on Medicare beneficiaries, our 
measure development contractor introduced the VAP measure for 
discussion at a technical expert panel convened by it on January 31, 
2011. The TEP identified VAP as important for the LTCH setting due to 
the high percentage of patients on ventilators. However, the panel 
noted concerns about measuring the rate of VAP due to lack of a 
consistent definition, concerns of inter-rater reliability, subjective 
interpretation of VAP, and variability in diagnosing VAP.
    Our measure development contractor reviewed this concept again and 
introduced the Ventilator Bundle (NQF <greek-i>0302) developed by 
Institute of Healthcare Improvement for discussion to address some the 
concerns noted previously at a July 7, 2011 TEP meeting. This 
comprehensive ventilator care-bundle process measure is designed to 
facilitate protocols such as weaning, and mitigate ventilator-related 
infections, such as VAP. The NQF-endorsed ventilator bundle measure 
consists of four components: (1) Head of the bed elevation >=30[deg]; 
(2) daily sedation interruption and assessment of readiness to wean; 
(3) peptic ulcer disease (PUD) prophylaxis; and (4) deep vein 
thrombosis (DVT) prophylaxis, The measure steward, the Institute for 
Healthcare Improvement, also recommends a fifth element be added to the 
ventilator bundle-process measure: daily oral care with Chlorhexidine 
(http://www.ihi.org/offerings/MembershipsNetworks/MentorHospitalRegistry/Pages/VentilatorBundle.aspx). A meta-analysis of 
oral decontamination found a statistically significant reduction in VAP 
with use of antiseptic oral decontamination, which supports such an 
addition.\168\
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    \168\ Chan, E., Ruest, A., Meade, M., Cook, D. ``Oral 
decontamination for prevention of pneumonia in mechanically 
ventilated adults: systematic review and meta-analysis''. BMJ. 2007; 
334: 889.
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    We recognize that the Ventilator Bundle (NQF <greek-i>0302) measure 
is currently endorsed for ICU patients in the acute care hospital 
setting; however, we believe this measure is highly relevant for the 
LTCH setting because ventilator patients are a large segment of the 
LTCH patient population and a process measure to reduce VAP is 
important and relevant for the LTCH setting. In addition, the MAP 
supports the direction of this measure, and believes it is an important 
aspect of care in LTCHs, and has identified it as a high

[[Page 28099]]

priority.\169\ Further, we are proposing this measure because it 
supports the National Quality Strategy by supporting better and safer 
care that prevents infection among patients at risk for VAP. Therefore, 
for the above-described reasons, we are proposing Ventilator Bundle NQF 
<greek-i>0302 for application in the LTCH setting.
---------------------------------------------------------------------------

    \169\ National Quality Forum (2012)Input on Measures for 
Consideration by HHS for 2012 Rulemaking. Available; http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=69885. pp. 105.
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    As indicated previously, section 1886(m)(5)(D)(ii) of the Act 
provides the Secretary with authority to adopt non-NQF-endorsed 
measures. We reviewed the NQF's consensus-endorsed measures and were 
unable to identify any NQF-endorsed measures for the ventilator bundle 
in the LTCH setting. We are unaware of any other measures for the 
ventilator bundle in the LTCH setting that have been approved by 
voluntary consensus standards bodies and endorsed by NQF. We are 
proposing to adopt the Ventilator bundle for application in the LTCHQR 
Program. Therefore, under the authority of section 1886(m)(5)(D)(ii) of 
the Act, we are proposing to use the Ventilator Bundle (NQF 
<greek-i>0302) measure for application in the FY 2016 LTCHQR Program 
payment determination and subsequent fiscal year payment 
determinations.
    We further note that this measure is undergoing endorsement 
maintenance review at the NQF under the Patient Safety Measures-
Complications Project (http://www.qualityforum.org/Projects/n-r/Patient_Safety_Measures_Complications/Patient_Safety_Measures_Complications.aspx#t=2&s=&p=).
    We are proposing that data collection and submission of this 
measure will be through the LTCH CARE Data Set. We intend to revise the 
LTCH CARE Data Set to include new items on LTCHs' compliance with each 
element of the ventilator bundle measure if the measure is finalized. 
These items would be based on the data elements of the ventilator 
bundle in use within hospitals implementing the ventilator bundle 
process measure (NQF <greek-i>0302). The specifications and data 
elements for this proposed measure are available at NQF Web site at: 
http://www.qualityforum.org/QPS/302.
    By building on the existing LTCH reporting and submission 
infrastructure, such as the LTCH CARE data set, which will be used by 
LTCHs for data collection beginning October 1, 2012, we intend to 
reduce the administrative burden related to data collection and 
submission for this measure under the LTCHQR Program. For additional 
information of data collection and submission, we refer readers to 
section VIII.D.6. of this preamble.
    We are inviting public comment on this proposed measure for the FY 
2016 payment determination and subsequent fiscal years.
    (5) Proposed New LTCH Quality Measure <greek-i>5 for the FY 2016 
Payment Determination and Subsequent Fiscal Year Payment 
Determinations: Restraint Rate per 1,000 Patient Days
    Restraints are used to control behavior for people who exhibit 
disruptive, aggressive, or dangerous behavior in health care 
settings.<SUP>170,171,172,173</SUP> The negative outcomes of restraints 
may include strangulation, loss of muscle tone, decreased bone density 
(with greater susceptibility for fractures), pressure sores, increased 
infections, decreased mobility, depression, agitation, loss of dignity, 
social isolation, incontinence, constipation, functional decline, 
abnormal changes in body chemistry and muscular function, and in some 
cases, patient death.<SUP>174,175,176,177,178,179,180,181,182,183</SUP> 
The use of physical restraints also often constitutes a 
disproportionate infringement on an individuals' 
autonomy.<SUP>184,185</SUP>
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    \170\ Sullivan-Marx E, Strumpf N, Evans L, et al. Initiation of 
physical restraint in nursing home residents following restraint 
reduction efforts. Res Nurs Health. 1999;22:369-79.
    \171\ Capezuti E, Evans L, Strumpf N, et al. Physical restraint 
use and falls in nursing home residents. J Am Geriatr Soc. 
1996;44:627-33.
    \172\ Castle N, Mor V. Physical restraints in nursing homes: a 
review of the literature since the Nursing Home Reform Act of 1987. 
Med Care Res Rev. 1998;55(2):139-70.
    \173\ Minnick AF, MIon LC, Johnson ME, Catrambone C, Lepzig R. 
Prevalence and variation of physical restraint in the acute care 
setting in the US. J Nurs Scholarsh. 2007; 39(1): 30-37.
    \174\ Castle N, Mor V. Physical restraints in nursing homes: a 
review of the literature since the Nursing Home Reform Act of 1987. 
Med Care Res Rev. 1998;55(2):139-70.
    \175\ Williams C, Finch C. Physical restraints: not fit for 
woman, man, or beast. J Am Geriatr Soc. 1997;45:773-5.
    \176\ Sullivan-Marx E. Achieving restraint-free care of acutely 
confused older adults. J Gerontol Nurs.2001;27(4):56-61.
    \177\ Evans L, Strumpf N, Allen-Taylor S, et al. A clinical 
trial to reduce restraints in nursing homes. J Am Geriatr Soc. 
1997;45(6):675-81.
    \178\ Capezuti E, Maislin G, Strumpf N, et al. Side rail use and 
bed-related fall outcomes among nursing home residents. J Am Geriatr 
Soc. 2002;50(1):90-6.
    \179\ Parker K, Miles S. Deaths caused by bed rails. J Am 
Geriatr Soc. 1997;45:797-802.
    \180\ Feinsod FM, Moore M, Levenson S. Eliminating full-length 
bed rails from long term care facilities. Nurs Home Med. 1997;5:257-
63.
    \181\ Minnick AF, MIon LC, Johnson ME, Catrambone C, Lepzig R. 
Prevalence and variation of physical restraint in the acute care 
setting in the US. J Nurs Scholarsh. 2007; 39(1): 30-37.
    \182\ Mohoney JE. Immobility and falls. Clin Geriatr Med. 1998. 
14 (4): 699-726.
    \183\ Inouye SK, Wagner DR, Acompara D, et al. A predictive 
index for functional decline in hospitalized elderly medical 
patients. J Gen Intern Med. 1993; 8(12):645-652.
    \184\ Gastmans C, Milison K. Use of physical restraint in 
nursing homes: clinical-ethical considerations. J Med Ethics. 
2006;32:148-52.
    \185\ McBrian B. Exercising restraint: clinical, legal and 
ethical considerations for the patient with Alzheimers's disease. 
Accide emeg nurs. 2997 Apr 15 (2):94-100.
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    Research suggests that other clinical interventions are more 
effective than restraints in preventing injuries from falls. 
Interventions involving physiologic care, psychosocial care and 
environmental manipulation, have been shown to be more effective than 
restraints, generally without increasing staff time or overall cost of 
treatment.\186,187,188,189,190,191\
---------------------------------------------------------------------------

    \186\ Capezuti E, Evans L, Strumpf N, et al. Physical restraint 
use and falls in nursing home residents. J Am Geriatr Soc. 
1996;44:627-33.
    \187\ Castle N, Mor V. Physical restraints in nursing homes: a 
review of the literature since the Nursing Home Reform Act of 1987. 
Med Care Res Rev. 1998;55(2):139-70.
    \188\ Minnick AF, MIon LC, Johnson ME, Catrambone C, Lepzig R. 
Prevalence and variation of physical restraint in the acute care 
setting in the US. J Nurs Scholarsh. 2007; 39(1): 30-37.
    \189\ Williams C, Finch C. Physical restraints: not fit for 
woman, man, or beast. J Am Geriatr Soc. 1997;45:773-5.
    \190\ Sullivan-Marx E. Achieving restraint-free care of acutely 
confused older adults. J Gerontol Nurs.2001;27(4):56-61.
    \191\ Evans L, Strumpf N, Allen-Taylor S, et al. A clinical 
trial to reduce restraints in nursing homes. J Am Geriatr S c. 
1997;45(6):675-81.
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    The principle of freedom from physical or pharmacological restraint 
is generally understood and accepted by professional and academic 
organizations. Groups such as the National Citizens' Coalition for 
Nursing Home Reform (NCCNHR), the Alzheimer's Association, and the 
American Physical Therapy Association, as well as numerous nursing 
homes and academic medical research institutions are involved in 
limiting the use of restraints. The Untie the Elderly campaign has been 
working since 1989 to raise public awareness of restraint abuse,\192\ 
and the Advancing Excellence in America's Nursing Homes has recently 
embedded reduction of the use of restraints in nursing homes as part of 
an overall goal to increase resident mobility to help nursing home 
staff address mobility issues including the use of restraints, walking, 
range of motion, transfer, and prevention of falls.\193\
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    \192\ Untie the Elderly Web site; accessed January 21, 2010, at 
http://ute.kendaloutreach.org/Default.aspx.
    \193\ Advancing Excellence in America's Nursing Homes Web site; 
accessed March 24, 2012, at http://www.nhqualitycampaign.org/files/NewGoals_030612.pdf and Physical Restraints Tracking Tool v1.1 
(December, 2011) accessible through http://www.nhqualitycampaign.org/files/campaign_updates.htm#cms.

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[[Page 28100]]

    CMS and other Federal agencies have issued several regulations 
regarding restraint use in healthcare settings. In the 2006 Medicare 
and Medicaid Programs; Hospital Conditions of Participation: Patients' 
Rights final rule (71 FR 71378 through 71428), we stated that the use 
of restraints or seclusion ``may only be imposed to ensure the 
immediate physical safety of the patient, a staff member, or others'' 
(71 FR 71382).\194\ Additionally, in 2010, the Food and Drug 
Administration's Hospital Bed Safety workgroup released clinical 
guidance for limiting the use of bed rails, reflecting concern about 
the safety of restraints.\195\ To better align with our guidelines, The 
Joint Commission updated its standards to establish guidelines limiting 
the use of restraints and seclusion, and clarifying the documentation 
and usage protocols for hospitals in 2009.\196\
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    \194\ CMS Medicare and Medicaid Programs; Hospital Conditions of 
Participation: Patients' Rights final rule. 2006. Available from 
https://www.cms.gov/CFCsAndCoPs/downloads/finalpatientrightsrule.pdf.
    \195\ FDA Hospital Bed Safety Workgroup; accessed January 25, 
2010. Available from: http://www.fda.gov/MedicalDevices/ProductsandMedicalProcedures/MedicalToolsandSupplies/HospitalBeds/default.htm.
    \196\ The Joint Commission. Restraint/Seclusion for hospitals 
that use the joint commission for deemed status purposes. 2009. 
Available from: http://www.jointcommission.org/standards_information/jcfaqdetails.aspx?StandardsFaqId=260&ProgramId=1.
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    Recognizing the importance of a restraint rate measure, our measure 
development contractor convened a technical expert panel to review 
restraint measures for potential use in the LTCHQR. The TEP reviewed 
several NQF-endorsed measures for restraint use, including Restraint 
Prevalence (vest and limb only) (NQF <greek-i>0203) endorsed for short-
term acute care hospitals, HBIPS-2 Hours of Physical Restraint Use (NQF 
<greek-i>0640) endorsed for inpatient psychiatric facilities, HBIPS-3 
Hours of Seclusion Use (NQF <greek-i>0641) endorsed for inpatient 
psychiatric facilities, and Percent of Residents who were Physically 
Restrained (Long-Stay) (NQF <greek-i> 0687) endorsed for residents who 
have been in the nursing home for over 100 days. We note the measures 
are NQF endorsed, although not for the LTCH setting. We submitted NQF 
<greek-i>0687 mentioned above to the MAP for consideration. While the 
MAP supported the direction of this measure, it also advised the 
measure needed to tested in and specified for the LTCH setting. 
Subsequently, we also determined that all four of the above-referenced 
NQF measures were limited in their potential to produce a meaningful 
measurement in the LTCH setting since these measures have look back and 
monitoring periods that are problematic for the LTCH setting.
    Upon further investigation, we identified the ``Restraint Rate per 
1,000 Patient Days'' measure which was developed by the National 
Association of Long Term Hospitals (NALTH) and is a non-core measure 
for The Joint Commission ORYX Initiative. This measure is not NQF 
endorsed but it is currently specified for and is in use by some LTCHs 
who submit data for this measure to the NALTH Health Information 
System. Thus, this measure is specified for and in use for the LTCH 
setting, thereby, this measure is a feasible and practical measure for 
LTCH setting. Therefore we believe it addresses the concerns raised by 
MAP with respect to NQF <greek-i>0687 which is the need for 
specification and use in the LTCH setting
    After review of the previously referenced NQF-endorsed restraint 
measures, we are proposing the Restraint Rate per 1,000 Patient Days 
measure for the FY 2016 LTCHQR Program payment determination and 
subsequent fiscal year payment determinations under the authority in 
section 1886(m)(5)(D)(ii) of the Act. We are proposing to use the 
exception authority because there are no NQF endorsed measures on 
restraints for the LTCH setting. Further, as explained previously, we 
have given due consideration to the existing NQF measures on restraints 
(although not endorsed for the LTCH setting) and we believe they are 
not appropriate for the LTCHQR. We are proposing this measure because 
we believe it is a relevant, scientifically sound, valid, and an 
important measure which is also feasible for data collection in the 
LTCH setting compared to the existing NQF-endorsed restraint measures 
previously discussed. For this proposed measure, the measure 
specifications will be made available on the LTCHQR Program Web site at 
http://www.cms.gov/LTCH-Quality-Reporting/.
    We are proposing that the data collection and submission of this 
measure will be through the LTCH CARE Data Set. This is the same data 
collection and submission framework which we would use to support 
providers for reporting on the Percent of Residents with Pressure 
Ulcers That Are New or Worsened (Short-Stay) (NQF <greek-i>0678) 
measure.\197\
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    \197\ The LTCH CARE Data Set, the data collection instrument 
that will be used to submit data on this measure, is currently under 
Paperwork Reduction Act (PRA) review by the Office of Management and 
Budget. It is discussed in a PRA notice that appeared in the 
September 2, 2011 Federal Register (76 FR 54776). The file number 
for the LTCH PRA package is CMS-10409.
---------------------------------------------------------------------------

    By building on existing data reporting and submission 
infrastructure, we intend to reduce the administrative burden related 
to data collection and submission for this measure under the LTCHQR 
Program. For more information on data collection and submission, we 
refer readers to section VIII.D.6. of this preamble.
    We are inviting public comment on this proposed measure for the FY 
2016 payment determination and subsequent fiscal year payment 
determinations.
5. Proposed Timeline for Data Submission Under the LTCHQR Program for 
the FY 2015 Payment Determination
    For the FY 2015 payment determination, we are proposing to require 
data submission on LTCH discharges occurring from January 1, 2013 
through December 31, 2013 (CY 2013). LTCHs would follow the proposed 
deadlines presented in the table below to complete submission of data 
for each quarter for each proposed measure for the FY 2015 payment 
determination. For each quarter outlined in the table below during 
which LTCHs are required to collect data, we are proposing a final 
submission deadline occurring approximately 135 days after the end of 
each quarter by which all data collected during that quarter must be 
submitted to CMS. We believe that this is a reasonable amount of time 
to allow providers to submit data and make any necessary corrections.

[[Page 28101]]



 Proposed Timeline for Submission of Ltchqr Program Quality Data for the
                      FY 2015 Payment Determination
------------------------------------------------------------------------
                                     Proposed final submission deadline
  Data collection timeframe: CY     for data related to the LTCH Quality
               2013                  Reporting Program FY 2015 payment
                                               determination
------------------------------------------------------------------------
Q1 (January-March 2013)..........  August 15, 2013.
Q2 (April-June 2013).............  November 15, 2013.
Q3 (July-September 2013).........  February 15, 2014.
Q4 (October-December 2013).......  May 15, 2014.
------------------------------------------------------------------------

    We are inviting public comment on this proposed submission timeline 
for the FY 2015 payment determination.
6. Proposed Timeline for Data Submission Under the LTCHQR Program for 
the FY 2016 Payment Determination
    For the FY 2016 payment determination, we are proposing to require 
data submission on LTCH discharges occurring from January 1, 2014 
through December 31, 2014 (CY 2014). We are proposing this timeframe 
because we believe this would provide sufficient time for LTCHs and CMS 
to put processes and procedures in place to meet the additional quality 
reporting requirements. LTCHs would follow the proposed deadlines 
presented in the table below to complete submission of data for each 
quarter. For each quarter outlined in the table below during which 
LTCHs are required to collect data, we are proposing a final deadline 
occurring approximately 45 days after the end of each quarter by which 
all data collected during that quarter must be submitted to CMS. We 
believe that this is a reasonable amount of time to allow providers to 
submit data and make any necessary corrections. We are also proposing 
that similar calendar year collection and submission deadlines would 
apply to future years payment determinations.

 Proposed Timeline for Submission of Ltchqr Program Quality Data for the
    Fy 2016 Payment Determination and Subsequent Fiscal Year Payment
                             Determinations
------------------------------------------------------------------------
                                     Final submission deadlines for the
  Data collection timeframe: CY        LTCHQR Program FY 2016 payment
               2014                            determination
------------------------------------------------------------------------
Q1 (January-March 2014)..........  May 15, 2014.
Q2 (April-June 2014).............  August 15, 2014.
Q3 (July-September 2014).........  November 15, 2014.
Q4 (October-December 2014).......  February 15, 2015.
------------------------------------------------------------------------

    We are inviting public comment on this proposed submission timeline 
for FY 2016 Payment Determination and future year payment 
determinations.
7. Proposed Public Display of Data Quality Measures
    Under section 1886(m)(5)(E) of the Act, the Secretary is required 
to establish procedures for making any quality data submitted by LTCHs 
under section 1886(m)(5)(C) of the Act available to the public. In 
addition, section 1886(m)(5)(E) of the Act requires that such 
procedures shall ensure that a LTCH has the opportunity to review the 
data that is to be made public with respect to its facility, prior to 
such data being made public. In addition, the statute requires that the 
Secretary shall report quality measures that relate to services 
furnished in LTCHs on our Internet Web site. Therefore, the Secretary 
will publicly report quality measure data that is reported under the 
LTCHQR Program. Currently, we are not proposing procedures or timelines 
for public reporting of LTCHQR Program data.

E. Proposed Quality Reporting Requirements for Ambulatory Surgical 
Centers (ASCs)

1. Background
    Section 109(b) of the Medicare Improvements and Extension Act of 
2006 under Division B, Title I of the Tax Relief and Health Care Act of 
2006, Public Law 109-432 (MIEA-TRHCA) amended section 1833(i) of the 
Act by redesignating clause (iv) as clause (v) and adding new clause 
(iv) to paragraph (2)(D) and by adding new paragraph (7). Section 
1833(i)(2)(D)(iv) of the Act authorizes, but does not require, the 
Secretary to implement the revised ASC payment system ``in a manner so 
as to provide for a reduction in any annual update for failure to 
report on quality measures in accordance with paragraph (7).'' 
Paragraph (7) contains subparagraphs (A) and (B). Subparagraph (A) of 
paragraph (7) states the Secretary may provide that an ASC that does 
not submit ``data required to be submitted on measures selected under 
this paragraph with respect to a year'' to the Secretary in accordance 
with this paragraph will incur a 2.0 percentage point reduction to any 
annual increase provided under the revised ASC payment system for such 
year. It also specifies that this reduction applies only with respect 
to the year involved and will not be taken into account in computing 
any annual increase factor for a subsequent year.
    Subparagraph (B) of paragraph (7) states ``[e]xcept as the 
Secretary may otherwise provide,'' the provisions of subparagraphs (B) 
through (E) of paragraph (17) of section 1833(t) of the Act, which 
contain requirements for quality reporting for hospital outpatient 
services, ``shall apply with respect to services of [ASCs] under this 
paragraph in a similar manner to the manner in which they apply under 
such paragraph'' and any reference to a hospital, outpatient setting, 
or outpatient hospital services is deemed a reference to an ASC, the 
setting of an ASC, or services of an ASC, respectively. Pertinent to 
this proposed rule are subparagraphs (B) and (E) of section 1833(t)(17) 
of the Act. Subparagraph (B) of section 1833(t)(17)

[[Page 28102]]

of the Act requires subsection (d) hospitals to ``submit data on 
measures selected under this paragraph to the Secretary in a form and 
manner, and at a time, specified by the Secretary for purposes of this 
paragraph.'' Subparagraph (E) of section 1833(t)(17) of the Act 
requires the Secretary to ``establish procedures for making data 
submitted under this paragraph available to the public.'' Further, 
these procedures shall ensure that hospitals have the opportunity to 
review the data before these data are made public. Additionally, the 
Secretary must ``report quality measures of process, structure, 
outcome, patients' perspectives on care, efficiency, and costs of care 
that relate to services furnished in outpatient settings in hospitals'' 
on CMS' Internet Web site.
    Thus, subsections (i)(7)(B) and (t)(17)(B) of section 1833 of the 
Act, read together, require that ASCs submit quality data in a form and 
manner, and at a time, that the Secretary specifies. Pertinent to this 
proposed rule, subsections (i)(7)(B) and (t)(17)(B) of section 1833 of 
the Act, read together, require the Secretary to establish procedures 
for making data submitted available to the public and to report quality 
measures of process, structure, outcome, patients' perspectives on 
care, efficiency, and cost of care that relate to services furnished in 
ASCs on CMS's Internet Web site. Subsection (i)(7)(B) of section 1833 
of the Act also specifies that these provisions apply except as the 
Secretary may otherwise provide.
    In the CY 2012 OPPS/ASC final rule with comment period, we 
finalized our proposal to implement the ASC Quality Reporting Program 
beginning with the CY 2014 payment determination (76 FR 74492 through 
74517). We adopted claims-based measures for the CY 2014 payment 
determination for services furnished between October 1, 2012 and 
December 31, 2012. For the CY 2015 payment determination, we adopted 
the same claims-based measures as adopted for the CY 2014 payment 
determination and two structural measures. We did not specify the data 
collection period for the claims-based measures for the CY 2015 payment 
determination, but specified that reporting for the structural measures 
would be between July 1, 2013 and August 15, 2013 for services 
furnished between January 1, 2012 and December 31, 2012 using an online 
measure submission Web page available at: http://www.QualityNet.org. 
For the CY 2016 payment determination, we adopted the same claims-based 
and structural measures as adopted for the CY 2015 payment 
determination and one process of care measure. We did not specify the 
data collection period for the claims-based or structural measures, but 
specified that data collection for the process of care measure would be 
via the National Healthcare Safety Network beginning on October 1, 2014 
and continuing through March 31, 2015.
    In the CY 2012 OPPS/ASC final rule with comment period, we 
indicated our intent to issue proposals for administrative 
requirements, data validation and completeness requirements, and 
reconsideration and appeals processes in the FY 2013 IPPS/LTCH PPS 
proposed rule rather than in the CY 2013 OPPS/ASC proposed rule (76 FR 
74515), because the FY 2013 IPPS/LTCH PPS proposed rule is scheduled to 
be finalized earlier and prior to data collection for the CY 2014 
payment determination, which is to begin with services furnished on 
October 1, 2012.
    Below we are issuing proposals for administrative requirements, 
data completeness requirements, extraordinary circumstance waiver or 
extension requests, and a reconsideration process. As discussed below, 
we are not proposing to validate claims-based and structural measures. 
Further, we intend to address appeals of reconsideration decisions in a 
future rulemaking. To be eligible to receive the full annual increase, 
we are proposing that ASCs must comply with the requirements specified 
below for the respective payment determination year.
    We invite public comment on these proposals.

2. Proposed Requirements for Reporting of ASC Quality Data

a. Proposed Administrative Requirements
(1) Proposals Regarding QualityNet Account and Administrator for the 
CYs 2014 and 2015 Payment Determinations
    A QualityNet account is required to submit quality measure data to 
the QualityNet Web site and, in accordance with CMS policy, a 
QualityNet administrator is necessary to set-up a user account for the 
purpose of submitting this information to the QualityNet Web site. The 
main purpose of a QualityNet administrator is to serve as a point of 
contact for security purposes for quality reporting programs. We 
believe from our experience that a QualityNet administrator typically 
fulfills a variety of tasks related to quality reporting, such as 
creating, approving, editing, and terminating QualityNet user accounts 
within an organization, and monitoring QualityNet usage to maintain 
proper security and confidentiality measures. Thus, we highly recommend 
that ASCs have and maintain a QualityNet administrator. However, we are 
not proposing that ASCs be required to do so for the CY 2014 payment 
determination because ASCs are not required to submit data to the 
quality data warehouse for the CY 2014 payment determination (76 FR 
74504) and we do not want to unduly burden ASCs by requiring ASCs to 
have a QualityNet administrator. We note that a QualityNet account is 
not necessary to access information that is posted to the QualityNet 
Web site, such as specifications manuals and educational materials.
    As finalized in the CY 2012 OPPS/ASC final rule with comment period 
(76 FR 74504 through 74509), for the CY 2015 payment determination, we 
require ASCs to submit structural measure data to the QualityNet Web 
page. To enter these data into the CMS data system, we are proposing 
that ASCs will need to identify and register a QualityNet administrator 
who follows the registration process located on the QualityNet Web site 
and submits the information as specified on this site. Because 
submission of structural measure data is not required until the July 1, 
2013 to August 15, 2013 time period, we are proposing that ASCs would 
be required to have a QualityNet administrator at the time facilities 
submit structural measure data in 2013 for the CY 2015 payment 
determination, which is no later than August 15, 2013. ASCs may have a 
QualityNet administrator prior to this date, but we are not proposing 
that ASCs be required to do so.
    We note that there are necessary mailing and processing procedures 
for having a QualityNet administrator assigned by CMS separate from 
completion of the forms by the ASC that can require significant time to 
complete and we strongly caution ASCs to not wait until the deadline to 
apply; instead, we recommend allowing a minimum of 2 weeks, while 
strongly suggesting allowing additional time prior to the deadline to 
submit required documentation in case of unforeseen issues. Because 
ASCs will need a QualityNet administrator only to have the ability to 
set up a user account for the purpose of submitting structural measure 
data once a year, we are proposing that ASCs would not be required to 
maintain a QualityNet administrator after the entry of the structural 
measure data in 2013 for the CY 2015 payment determination. Although we 
highly recommend that ASCs have and maintain a QualityNet 
administrator, we believe that requiring

[[Page 28103]]

an ASC to maintain a QualityNet administrator throughout the year would 
increase the burden on ASCs.
    As a commenter noted in the CY 2012 OPPS/ASC final rule with 
comment period (76 FR 74515), QualityNet accounts are automatically 
deactivated after a 120-day period of inactivity per CMS security 
policy. If an account is deactivated due to inactivity, it can be 
reactivated by contacting the QualityNet Help Desk; contact information 
for the QualityNet Help Desk is located on the QualityNet Web site.
(2) Proposals Regarding Participation Status for the CY 2014 Payment 
Determination and Subsequent Payment Determination Years
    We finalized in the CY 2012 OPPS/ASC final rule with comment period 
a policy to consider an ASC as participating in the ASC Quality 
Reporting Program for the CY 2014 payment determination if the ASC 
includes Quality Data Codes (QDCs) specified for the program on their 
CY 2012 claims relating to the finalized measures (76 FR 74516).
    We are proposing that once an ASC submits any quality measure data, 
it would be considered as participating in the ASC Quality Reporting 
Program. Further, we are proposing that, once an ASC submits any 
quality measure data and is considered to be participating in the 
program, an ASC would continue to be considered participating in the 
program, regardless of whether the ASC continues to submit quality 
measure data, unless the ASC withdraws from the program by indicating 
on a participation form that it is withdrawing, as discussed below. For 
example, if an ASC includes any QDCs on its claims for the CY 2014 
payment determination, it would be considered participating in the ASC 
Quality Reporting Program for the CY 2014 payment determination and for 
every subsequent payment determination unless the ASC withdraws. 
Likewise, if an ASC did not submit any QDCs for the CY 2014 payment 
determination, but submitted quality measure data for the CY 2015 
payment determination, the ASC would be considered participating in the 
ASC Quality Reporting Program starting with the CY 2015 payment 
determination and continuing for subsequent payment determinations 
unless the ASC withdraws from the program.
    We considered whether to propose that an ASC be required to 
complete and submit a notice of participation form for the CY 2015 
payment determination or subsequent payment determination years to 
indicate that the ASC is participating in the program as we require for 
hospitals, but decided against this proposal because we were concerned 
about the burden on ASCs. We believe these proposals will reduce burden 
on ASCs while accomplishing the purpose of notifying CMS of an ASC's 
participation in the ASC Quality Reporting Program.
    We are proposing that any and all quality measure data submitted by 
the ASC while participating in the ASC Quality Reporting Program could 
be made publicly available. This policy would allow us to provide 
information on the quality of care provided to Medicare beneficiaries 
which promotes transparency.
    We are proposing that once an ASC submits quality measure data 
indicating its participation in the ASC Quality Reporting Program an 
ASC must complete and submit an online participation form indicating 
withdrawal to withdraw from the program. This form would be located on 
the QualityNet Web site starting in July 2013. We are proposing that an 
ASC would indicate on the form the initial payment determination year 
to which the withdrawal applies. We are proposing a different process 
for ASCs to withdraw from participation than the process we are 
proposing for an ASC to participate in the ASC Quality Reporting 
Program because of the payment implications of withdrawal. We are 
proposing that, in withdrawing from the program, the ASC would incur a 
2.0 percentage point reduction in its annual payment update for that 
payment determination year and any subsequent payment determination 
year(s) in which it is withdrawn.
    We will not make quality measure data publicly available for that 
payment determination year and any subsequent payment determination 
year(s) for which the ASC is withdrawn from the program.
    We are proposing that an ASC would continue to be deemed withdrawn 
unless the ASC starts submitting quality measure data again. Once an 
ASC starts submitting quality measure data, the ASC would be considered 
participating unless the ASC withdraws, as discussed above. Again, we 
believe that these proposals would reduce the burden on ASCs of having 
to notify CMS as to when they are participating.
    We are proposing that an ASC can withdraw from the program at any 
time up to August 31, 2013 for the CY 2014 payment determination; we 
anticipate that this will be the latest date possible to allow an ASC 
to withdraw before payment determinations affecting CY 2014 payment are 
made. We are proposing that an ASC can withdraw from the program at any 
time up to August 31, 2014 for the CY 2015 payment determination. We 
will propose withdrawal dates for later payment determinations in 
future rulemakings.
    We are proposing that these administrative requirements would apply 
to all ASCs designated as open in the CASPER system before January 1, 
2012 for the CY 2014 payment determination. Since ASCs are not required 
to include QDCs on claims until October 2012 for the CY 2014 payment 
determination, an ASC designated as open in the CASPER system before 
January 1, 2012 would be operating for at least 10 months before having 
to report any data. We believe this would be a sufficient amount of 
time for ASCs to be established to report quality data for the CY 2014 
payment determination.
    For the CY 2015 payment determination, we are proposing that these 
administrative requirements would apply to all ASCs designated as open 
in the CASPER system for at least four months prior to January 1, 2013. 
We believe that this date and length of operations experience would 
provide new ASCs sufficient time before having to meet quality data 
reporting requirements after the program's initial implementation year.
    We invite public comment on these proposals relating to 
administrative requirements.
b. Proposals Regarding Form, Manner, and Timing for Claims-Based 
Measures for CYs 2014 and 2015 Payment Determinations
(1) Background
    In the CY 2012 OPPS/ASC final rule with comment period, we adopted 
claims based measures for the CYs 2014 and 2015 payment determinations 
(76 FR 74504 through 74509). We also finalized that, to be eligible for 
the full CY 2014 ASC annual payment update, an ASC must submit complete 
data on individual quality measures through a claims-based reporting 
mechanism by submitting the appropriate QDCs on the ASC's Medicare 
claims (76 FR 74515 through 74516). Further, we finalized the data 
collection period for the CY 2014 payment determination, as the 
Medicare fee-for-service ASC claims submitted for services furnished 
between October 1, 2012 and December 31, 2012. We did not finalize a 
date by which claims would be processed to be considered for CY 2014 
payment determinations.

[[Page 28104]]

    We are now proposing that claims for services furnished between 
October 1, 2012 and December 31, 2012 would have to be paid by the 
administrative contractor by April 30, 2013 to be included in the data 
used for the CY 2014 payment determination. We believe that this claim 
paid date would allow ASCs sufficient time to submit claims while 
allowing sufficient time for CMS to complete required data analysis and 
processing to make payment determinations and to supply this 
information to administrative contractors.
    We did not finalize a data collection and processing period for the 
CY 2015 payment determination, but intend to do so in the CY 2013 OPPS/
ASC proposed rule.
(2) Proposed Minimum Threshold for Claims-Based Measures Using QDCs
    In the CY 2012 OPPS/ASC final rule with comment period, we 
finalized that data completeness for claims-based measures would be 
determined by comparing the number of claims meeting measure 
specifications that contain the appropriate QDCs with the number of 
claims that would meet measure specifications, but did not have the 
appropriate QDCs on the submitted claim. In other words, the numerator 
will be the total number of claims meeting measure specifications that 
have QDCs and the denominator will be the total number of claims 
meeting measure specifications. We stated our intent to propose how we 
would assess data completeness for claims-based measures in this 
proposed rule (76 FR 74516). For the initial reporting years, we 
believe that a lower threshold for data completeness should be 
established for data collection because ASCs are not familiar with how 
to report quality data under the ASC Quality Reporting Program, and 
because many ASCs are relatively small and they may need more time to 
set up their reporting systems. For the CYs 2014 and 2015 payment 
determinations, we are proposing that the minimum threshold for 
successful reporting be that at least 50 percent of claims meeting 
measure specifications contain QDCs. We believe 50 percent is a 
reasonable minimum threshold based upon the considerations discussed 
above for the initial implementation years of the ASC Quality Reporting 
Program. We intend to propose to increase this percentage for 
subsequent payment determination years as ASCs become more familiar 
with reporting requirements for this quality data reporting program.
    As stated in CY 2012 OPPS/ASC final rule with comment period (76 FR 
74516), ASCs will add the appropriate QDCs on their Medicare Part B 
claim forms, the Form CMS-1500s submitted for payment, to submit the 
applicable quality data. A listing of the codes with long and short 
descriptors is available in transmittal 2425, Change Request 7754 
released March 16, 2012 (http://www.cms.gov/transmittals/downloads/R2425CP.pdf). Details on how to use these codes for submitting 
numerators and denominator information will be available in the ASC 
Quality Reporting Program Specifications Manual located on our Web site 
(http://www.cms.hhs.gov) beginning in April 2012.
    We invite public comment on these proposals relating to form, 
manner, and timing for claims-based measures.
c. ASC Quality Reporting Program Validation of Claims-Based and 
Structural Measures
    We received comments on the CY 2012 OPPS/ASC proposed rule 
requesting that rules for data validation be adopted as soon as 
possible (76 FR 74515). We noted that claims-based and structural 
measures historically have not been validated through independent 
medical record review in our quality reporting programs for either 
hospitals or physicians due to the lack of relevant information in 
medical record documentation for specific data elements of the 
measures, such as use of a safe surgery checklist. Thus, consistent 
with other CMS quality reporting programs, we are not proposing to 
validate claims-based measures (beyond the usual claims validation 
activities conducted by our administrative contractors) and structural 
measures for the ASC Quality Reporting Program.
3. Proposed Extraordinary Circumstances Extension or Waiver for the CY 
2014 Payment Determination and Subsequent Payment Determination Years
    In our experience, there have been times when facilities have been 
unable to submit information to meet program requirements due to 
extraordinary circumstances that are not within their control. It is 
our goal to not penalize such entities for such circumstances and we do 
not want to unduly increase their burden during these times. Therefore, 
we are proposing procedures for extraordinary circumstance extension or 
waiver requests for the submission of information, including but not 
limited to, QDCs submitted on claims, required under the ASC Quality 
Reporting Program.
    In the event of extraordinary circumstances, such as a natural 
disaster, that is not within the control of the ASC, we are proposing 
to adopt a process for an extension or waiver for submitting 
information for meeting program requirements that is similar to the one 
adopted for the Hospital OQR Program because this process has been 
effective for hospitals, and we believe such a process also would be 
effective for ASCs. We are proposing that an ASC would complete a 
request form that would be made available on the QualityNet Web site 
and submit the request to CMS. We are proposing that the following 
information must be noted on the form:
    <bullet> ASC CMS Certification Number (CCN) and related National 
Provider Identifier(s) [NPI(s)];
    <bullet> ASC Name;
    <bullet> Contact information for a person at the ASC with whom CMS 
can communicate about this request, including name, e-mail address, 
telephone number, and mailing address (must include a physical address, 
a post office box address is not acceptable);
    <bullet> ASC's reason for requesting an extension or waiver;
    <bullet> Evidence of the impact of the extraordinary circumstances, 
including but not limited to photographs, newspaper and other media 
articles; and
    <bullet> A date when the ASC would be able to submit required ASC 
Quality Reporting Program information, and a reasonable basis for the 
proposed date.
    We are proposing that the request form would be signed by a person 
who has authority to sign on behalf of the ASC and a request form would 
be required to be submitted within 45 days of the date that the 
extraordinary circumstance occurred.
    Following receipt of such a request, we are proposing that CMS 
would--
    (a) Provide a written acknowledgement using the contact information 
provided in the request, notifying the ASC contact that the ASC's 
request has been received;
    (b) Provide a formal response to the ASC contact using the contact 
information provided in the request notifying the ASC of our decision; 
and
    (c) Complete its review of any request and communicate its response 
within 90 days following CMS's receipt of such a request.
    We are proposing that we would also have discretion to grant 
waivers or extensions to ASCs that have not been formally requested by 
them when we determine that an extraordinary circumstance, such as an 
act of nature (for example, hurricane) affects an entire region or 
locale. We are proposing that,

[[Page 28105]]

if we make the determination to grant a waiver or extension to ASCs in 
a region or locale, we would communicate this decision to ASCs and 
vendors through routine communication channels, including, but not 
limited to, e-mails and notices on the QualityNet Web site.
    We invite public comment on this proposed process for granting 
extraordinary circumstances extensions or waivers for the submission of 
information for the ASC Quality Reporting Program.
4. Proposed ASC Quality Reporting Program Reconsideration Procedures 
for the CY 2014 Payment Determination and Subsequent Payment 
Determination Years
    We have established similar processes by which participating 
hospitals can submit requests for reconsideration of quality reporting 
program payment determinations for the Hospital IQR Program and the 
Hospital OQR Program. We believe these reconsideration processes have 
been effective in the hospital quality reporting programs and such a 
process would be effective for ASC quality reporting. Therefore, we are 
proposing to implement a reconsideration process for the ASC Quality 
Reporting Program modeled after the reconsideration processes we 
implemented for the Hospital IQR and Hospital OQR Programs.
    We are proposing that an ASC seeking reconsideration would be 
required to submit to CMS a Reconsideration Request form that would be 
made available on the QualityNet Web site. We are proposing that the 
request form would be signed by a person who has authority to sign on 
behalf of the ASC and that this form must be submitted by March 17 of 
the affected payment year (for example, for the CY 2014 payment 
determination, the request must be submitted by March 17, 2014).
    We are proposing to use a deadline of March 17 to provide 
sufficient time for an ASC to see the effects of a payment reduction on 
its January claims. Administrative contractors have 30 days to process 
(pay or deny) clean claims. Administrative contractors have 45 days to 
process claims other than clean ones (that is, claims that require the 
contractor to query for more information, look at medical 
documentation, among others) (Claims Processing Manual, Chapter 1, 
Section 80; sections 1869(a)(2), 1816(c)(2) and 1842(c)(2) of the Act). 
We are proposing March 17 because this date is 45 days after an ASC 
would have had the opportunity to provide one full month of services 
(that is, March 17 is 45 days after January 31).
    This Reconsideration Request form would contain the following 
information:
    <bullet> ASC CCN and related NPI(s);
    <bullet> ASC Name;
    <bullet> CMS-identified reason for not meeting the affected payment 
year's ASC Quality Reporting Program requirements as provided in any 
CMS notification to the ASC;
    <bullet> ASC basis for requesting reconsideration. We are proposing 
that the ASC must identify the ASC's specific reason(s) for believing 
it met the affected payment year's ASC Quality Reporting Program 
requirements and should receive the full ASC annual payment update;
    <bullet> Contact information for a person at the ASC with whom CMS 
can communicate about this request, including name, e-mail address, 
telephone number, and mailing address (must include physical address, 
not just a post office box); and
    <bullet> A copy of all materials that the ASC submitted to comply 
with the affected payment year's ASC Quality Reporting Program 
requirements. With regard to information submitted on claims, we are 
proposing ASCs would not be required to submit copies of all submitted 
claims, but instead would focus on the specific claims at issue. Thus, 
ASCs would submit relevant information, which could include copies of 
the actual claims at issue.
    Following receipt of a request for reconsideration, we are 
proposing that we would:
    <bullet> Provide an e-mail acknowledgement, using the contact 
information provided in the reconsideration request, to the ASC contact 
notifying the ASC that the ASC's request has been received; and
    <bullet> Provide a formal response to the ASC contact, using the 
contact information provided in the reconsideration request, notifying 
the ASC of the outcome of the reconsideration process.
    We intend to complete any reconsideration reviews and communicate 
the results of these determinations within 90 days following the 
deadline for submitting requests for reconsideration.
    We intend to issue proposals regarding appeals of ASC Quality 
Reporting Program reconsideration decisions in a future rulemaking.
    We invite public comment on our proposed reconsideration 
procedures.

F. Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program

1. Statutory Authority
    Section 1886(s)(4) of the Act, as added and amended by sections 
3401(f) and 10322(a) of the Affordable Care Act, requires the Secretary 
to implement a quality reporting program for inpatient psychiatric 
hospitals and psychiatric units. Section 1886(s)(4)(A)(i) of the Act 
requires that, for rate year (RY) 2014 and each subsequent rate year, 
the Secretary shall reduce any annual update to a standard Federal rate 
for discharges occurring during such rate year by 2.0 percentage points 
for any inpatient psychiatric hospital or psychiatric unit that does 
not comply with quality data submission requirements with respect to an 
applicable rate year.
    We note that section 1886(s)(4)(A)(i) of the Act uses the term 
``rate year.'' Beginning with the annual update of the inpatient 
psychiatric facility prospective payment system (IPF PPS) that took 
effect on July 1, 2011 (RY 2012), we aligned the IPF PPS update with 
the annual update of the ICD-9-CM codes, which are effective on October 
1 of each year. The change allows for annual payment updates and the 
ICD-9-CM coding update to occur on the same schedule and appear in the 
same Federal Register document, thus making updating rules more 
administratively efficient. To reflect the change to the annual payment 
rate update cycle, we revised the regulations at 42 CFR 412.402 to 
specify that, beginning October 1, 2012, the 12-month period of October 
1 through September 30 is referred to as a fiscal year (76 FR 26435). 
For more information regarding this terminology change, we refer 
readers to the ``Changing the IPF PPS Payment Rate Update Period from a 
Rate Year to a Fiscal Year'' section of the final rule (76 FR 26434 
through 26435). For purposes of the discussion below, the term ``rate 
year'' and ``fiscal year'' both refer to the period beginning October 1 
and ending September 30. To avoid confusion that may be caused by using 
the term ``rate year'' with respect to the inpatient psychiatric 
hospitals and psychiatric units quality reporting program, we will use 
the term ``fiscal year'' rather than ``rate year'' throughout this 
proposed rule, even when we are referring to statutory provisions that 
refer to ``rate year.''
    As provided in section 1886(s)(4)(A)(ii) of the Act, the 
application of the reduction for failure to report under section 
1886(s)(4)(A)(i) of the Act may result in an annual update of less than 
0.0 for a fiscal year,

[[Page 28106]]

and may result in payment rates under section 1886(s)(1) of the Act 
being less than such payment rates for the preceding year. In addition, 
section 1886(s)(4)(B) of the Act requires that the application of the 
reduction to a standard Federal rate update be noncumulative across 
fiscal years. Thus, any reduction applied under section 1886(s)(4)(A) 
of the Act will apply only with respect to the fiscal year rate 
involved and the Secretary shall not take into account such reduction 
in computing the payment amount under the system described in section 
1886(s)(1) of the Act for subsequent years.
    Section 1886(s)(4)(C) of the Act requires that, for FY 2014 
(October 1, 2013 through September 30, 2014) and each subsequent year, 
each psychiatric hospital and psychiatric unit shall submit to the 
Secretary data on quality measures as specified by the Secretary. Such 
data shall be submitted in a form and manner, and at a time, specified 
by the Secretary. Under section 1886(s)(4)(D)(i) of the Act, measures 
selected for the quality reporting program must have been endorsed by 
the entity with a contract under section 1890(a) of the Act. The 
National Quality Forum (NQF) currently holds this contract. The NQF is 
a voluntary, consensus-based, standard-setting organization with a 
diverse representation of consumer, purchaser, provider, academic, 
clinical, and other health care stakeholder organizations. The NQF was 
established to standardize health care quality measurement and 
reporting through its consensus development process. We generally 
prefer to adopt NQF-endorsed measures in our reporting programs with 
some exceptions as provided by law.
    For purposes of the Inpatient Psychiatric Facilities Quality 
Reporting (IPFQR) Program, section 1886(s)(4)(D)(ii) of the Act 
provides that, in the case of a specified area or medical topic 
determined appropriate by the Secretary for which a feasible and 
practical measure has not been endorsed by the entity with a contract 
under section 1890(a) of the Act, the Secretary may specify a measure 
that is not so endorsed as long as due consideration is given to 
measures that have been endorsed or adopted by a consensus organization 
identified by the Secretary. Finally, pursuant to section 
1886(s)(4)(D)(iii) of the Act, the Secretary shall publish the measures 
applicable to the FY 2014 IPFQR Program no later than October 1, 2012.
    Section 1886(s)(4)(E) of the Act requires the Secretary to 
establish procedures for making public the data submitted by inpatient 
psychiatric hospitals and psychiatric units under the quality reporting 
program. Such procedures must ensure that a facility has the 
opportunity to review its data prior to such data being made public. 
The Secretary must report quality measures that relate to services 
furnished by the psychiatric hospitals and units on a CMS Web site.
2. Application of the Payment Update Reduction for Failure to Report 
for FY 2014 Payment Determination and Subsequent Years
    Beginning in FY 2014, section 1886(s)(4)(A)(i) of the Act requires 
the application of a 2.0 percentage point reduction to the applicable 
annual update to a Federal standard rate for those psychiatric 
hospitals and units that fail to comply with the quality reporting 
requirements implemented in accordance with section 1886(s)(4)(C) of 
the Act, as detailed below. The application of the reduction may result 
in an annual update for a fiscal year that is less than 0.0 and in 
payment rates for a fiscal year being less than the payment rates for 
the preceding fiscal year. Pursuant to section 1886(s)(4)(B) of the 
Act, any such reduction is not cumulative and it will apply only to the 
fiscal year involved. We are proposing to add new regulatory text at 42 
CFR 412.424 to codify these requirements.
    We invite public comment on the proposed language for the 
application of the payment reduction to an annual update to a standard 
Federal rate for failure to report for FY 2014 and subsequent years.
3. Covered Entities
    The quality reporting requirements in this proposed rule would 
cover those psychiatric hospitals and psychiatric units that are 
reimbursed under Medicare's IPF PPS (42 CFR 412.404(b)). For more 
information on the application of and exceptions to the IPF PPS 
reimbursement, we refer readers to the ``Overview of the IPF PPS 
Payment Methodology'' section of the November 15, 2004 final rule 
titled ``Medicare Program: Prospective Payment System for Inpatient 
Psychiatric Facilities'' (69 FR 66922 at 66926). In this proposed rule, 
we are using the term ``inpatient psychiatric facility'' (IPF) to refer 
to both inpatient psychiatric hospitals and psychiatric units. This 
usage follows the terminology we have used in the past in our IPF PPS 
regulations (42 CFR 412.402).
4. Proposed Quality Measures
a. Considerations in Selecting Quality Measures
    For purposes of the IPFQR Program, section 1886(s)(4)(D)(i) of the 
Act requires that any measure specified by the Secretary must have been 
endorsed by the entity with a contract under section 1890(a) of the 
Act. The statutory requirements under section 1886(s)(4)(D)(ii) of the 
Act provide an exception that, in the case of a specified area or 
medical topic determined appropriate by the Secretary for which a 
feasible and practical measure has not been endorsed by the entity with 
a contract under section 1890(a) of the Act, the Secretary may specify 
a measure that is not so endorsed as long as due consideration is given 
to measures that have been endorsed or adopted by a consensus 
organization identified by the Secretary.
    In implementing the IPFQR Program, our overarching objective is to 
support the HHS National Quality Strategy's three-part aim of better 
health care for individuals, better health for populations, and lower 
costs for health care (http://www.ahrq.gov/workingforquality/nqs/#aims). Implementation of the IPFQR Program will help achieve the 
three-part aim by creating transparency around the quality of care at 
IPFs to support patient decision-making and quality improvement. Over 
time, the IPFQR Program will help align the goals for quality 
measurement and improvement at IPFs with those of other providers in 
the health system.
    We seek to collect data in a manner that balances the need for 
information related to the full spectrum of quality performance and the 
need to minimize the burden of data collection and reporting. We have 
focused on measures that have high impact and support CMS and HHS 
priorities for improved quality and efficiency of care provided by 
IPFs. We applied the following considerations for the development and 
selection of measures:
    <bullet> Given the availability of well-validated measures and the 
need to balance breadth with minimizing burden, the measures should 
address as fully as possible the six domains of measurement that arise 
from the six priorities of the National Quality Strategy: clinical 
care; person- and caregiver-centered experience and outcomes; safety; 
efficiency and cost reduction; care coordination; and community/
population health.
    <bullet> Public reporting should rely on a mix of standards, 
outcomes, process of care measures, and patient experience of

[[Page 28107]]

care measures, including measures of care transitions and changes in 
patient functional status, with an emphasis on measurement as close to 
the patient-centered outcome of interest as possible.
    <bullet> The measure sets should evolve so that they include a 
focused set of measures appropriate to the IPF provider category that 
reflects the level of care and the most important areas of service and 
measures for such providers as well as measures addressing a core set 
of measure concepts that align quality improvement objectives across 
all provider types and settings.
    <bullet> Measures should address gaps in quality of inpatient 
psychiatric care.
    <bullet> As part of our burden reduction efforts, we continuously 
seek to weigh the relevance and utility of the measures compared to the 
burden on hospitals in submitting data under the IPFQR Program. As 
appropriate, we will align our measures with other Medicare and 
Medicaid programs and may consider the adoption of meaningful use 
standards for health information technology (HIT), so that the 
collection of performance information is part of care delivery.
    <bullet> To the extent practicable, measures used by CMS should be 
nationally endorsed by a multistakeholder organization. Measures should 
be aligned with best practices among other payers and the needs of the 
end users of the measures. We take into account widely accepted 
criteria established in medical literature. We consider suggestions and 
input from technical expert panels (TEPs), convened by CMS contractors, 
which evaluate IPFQR quality measures for importance, scientific 
soundness, usability, and feasibility.
    We also take into account national priorities and HHS Strategic 
Plans and Initiatives:
    <bullet> HHS engaged a wide range of stakeholders to develop the 
National Quality Strategy, as required by the Affordable Care Act, 
which pursues three aims (better care, healthy people, and affordable 
care) that establish a framework with six identifiable priorities 
(http://www.hhs.gov/secretary/about/priorities.html and http://www.ahrq.gov/workingforquality/ngs):
    <bullet><bullet> Ensuring that each person and family is engaged as 
partners in their care.
    <bullet><bullet> Promoting effective communication and coordination 
of care.
    <bullet><bullet> Promoting the most effective prevention and 
treatment practices for the leading causes of mortality, starting with 
cardiovascular disease.
    <bullet><bullet> Working with communities to promote wide use of 
best practices to enable healthy living.
    <bullet><bullet> Making quality care more affordable for 
individuals, families, employers, and governments by developing and 
spreading new health care delivery models.
    <bullet><bullet> Making care safer by reducing harm caused in the 
delivery of care.
    <bullet> We consider recommendations of the Measure Application 
Partnership (MAP) for the inclusion of clinical quality measures 
(http://www.qualityforum.org.map/). The MAP is a public-private 
partnership convened by the NQF for the primary purpose of providing 
input to HHS on selecting performance measures for quality reporting 
programs and pay-for-reporting programs.
    <bullet> HHS is the United States Government's principal department 
for protecting the health of all Americans. HHS accomplishes its 
mission through programs and initiatives. The goals of the HHS 
Strategic Plan for FYs 2010 through 2015 are: Strengthen Health Care; 
Advance Scientific Knowledge and Innovation; Advance the Health, 
Safety, and Well-Being of the American People; Increase Efficiency, 
Transparency, and Accountability of HHS Programs; and Strengthen the 
Nation's Health and Human Services Infrastructure and Workforce (http://www.hhs.gov/secretary/about/priorities.html). HHS will update this 
strategic plan every 4 years and measure its progress in addressing 
specific national problems, needs, or mission-related challenges.
    HHS prioritizes policy and program interventions to address the 
leading causes of death and disability in the United States, including 
heart disease, cancer, stroke, chronic lower respiratory diseases, 
unintentional injuries, and preventable behaviors. Initiatives such as 
the HHS Action Plan to Reduce Healthcare-Associated Infections in 
clinical settings and the Partnership for Patients exemplify these 
programs.
    <bullet> CMS Strategic Plan--CMS strives: (1) To ensure measures 
for different Medicare and Medicaid programs are aligned with priority 
quality goals, measure specifications are aligned across settings, and 
outcome measures are used whenever possible; and (2) to move towards 
the collection of quality measures from electronic health records 
(EHRs) as appropriate.
    We invite public comments on the considerations used for the 
development and selection of the proposed quality measures for the 
IPFQR Program.
b. Proposed Quality Measures Beginning With FY 2014 Payment 
Determination and Subsequent Years
    We are proposing to adopt six quality measures for FY 2014 and 
subsequent fiscal years. In selecting the proposed quality measures 
discussed below, we strive to achieve several objectives. First, we 
believe the measures we are proposing relate to the general aims of 
better care, better health, and lower cost and address the six domains 
of quality measurement as fully as possible. Second, we believe the 
measures are tailored to the needs of improved quality in IPFs; thus, 
the measures selected are those most relevant to IPFs. Third, we 
believe the measures promote alignment of quality improvement 
objectives across provider settings. Finally, we believe the measures 
are minimally burdensome to IPFs.
    We recognize that any quality reporting program will impose certain 
data collection and reporting requirements on participating facilities. 
However, we believe that the proposed measures minimize the collection 
and reporting burden on IPFs because, under Medicare's IPF conditions 
of participation (CoPs) (42 CFR 482.61), IPFs must maintain documentary 
evidence of detailed treatment approaches and aftercare considerations. 
Further, under 42 CFR 482.21, IPFs are required to develop, implement, 
and maintain an effective, ongoing, hospital-wide data-driven quality 
assessment and performance improvement (QAPI) program as well as 
documentary evidence of such program for purposes of demonstrating 
their operation to CMS. More importantly, Sec.  482.21 requires that 
IPFs measure, analyze, and track certain quality indicators, including 
adverse patient events, and other aspects of performance that enable 
the hospital to assess processes of care, hospital services, and 
operations as part of their QAPI Program. Because the proposed IPFQR 
Program measures cover processes that IPFs are currently recording as 
Medicare CoPs, we do not believe that reporting on the proposed 
measures would impose a significant burden on IPFs. We note that over 
one-quarter of IPFs \198\ are also already reporting data needed to 
calculate the proposed measures to The Joint Commission (TJC) for 
purposes of TJC accreditation. Thus, the IPFQR Program

[[Page 28108]]

will impose little additional burden for those IPFs.
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    \198\ Out of the 1,741 existing IPFs, 450 are currently 
reporting the proposed measures to TJC. This equates to 
approximately 26 percent of IPFs that already report the measures on 
a regular basis.
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    After considering the recommendations and feedback from content 
area experts and multiple stakeholders, we are proposing, for the FY 
2014 payment determination and subsequent years, six NQF-endorsed, 
Hospital-Based Inpatient Psychiatric Services (HBIPS) measures, which 
have been developed by and are maintained by TJC for purposes of 
assessing the quality of inpatient psychiatric services. These measures 
are: (1) HBIPS-2: Hours of Physical Restraint Use (NQF <greek-i>0640); 
(2) HBIPS-3: Hours of Seclusion Use (NQF <greek-i>0641); (3) HBIPS-4: 
Patients Discharged on Multiple Antipsychotic Medications (NQF 
<greek-i>0552); (4) HBIPS-5: Patients Discharged on Multiple 
Antipsychotic Medications with Appropriate Justification (NQF 
<greek-i>0560); (5) HBIPS-6: Post-Discharge Continuing Care Plan 
Created (NQF <greek-i>0557); and (6) HBIPS-7: Post-Discharge Continuing 
Care Plan Transmitted to Next Level of Care Provider Upon Discharge 
(NQF <greek-i>0558).\199\ These six proposed process measures are NQF-
endorsed and were recommended by the MAP \200\ for inclusion in the 
IPFQR Program. The six proposed measures align with three of the six 
priorities of the National Quality Strategy: patient safety, promoting 
effective prevention and treatment practices (clinical quality of 
care), and promoting effective communication and coordination of care. 
Technical specifications for these measures can currently be found on 
the Web site of TJC, the measure steward, at: http://www.manual.jointcommission.org/releases/TJC2012B/HospitalBasedInpatientPsychiatricServices.html.
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    \199\ The Joint Commission has developed seven Hospital-Based 
Inpatient Psychiatric Services (HBIPS) measures. Only six of these 
seven measures are proposed for the FY 2014 payment determination; 
HBIPS-1 is not proposed.
    \200\ Measure Application Partnership, Pre-Rulemaking Final 
Report: Input on Measures under Consideration by HHS for 2012 
Rulemaking, pages 95-96, Available at: http://www.qualityforum.org/map/.
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    As noted earlier, these six HBIPS measures are currently in use by 
an estimated 450 TJC-accredited IPFs, thereby posing minimal collection 
burden for these facilities. We note that an estimated 1,100 
facilities, which do not routinely report to TJC, will incur some data 
collection burden. In addition, summary analyses of current measure 
results provided to CMS by TJC demonstrate variation in performance 
among the facilities currently reporting results for these measures, 
suggesting continued opportunity for quality improvement.
    Section 1886(s)(4)(D)(i) of the Act requires that quality measures 
selected for the IPFQR Program be endorsed by the entity with a 
contract under section 1890(a) of the Act. As discussed earlier, the 
current holder of this contract is NQF. The measures are currently NQF-
endorsed for reporting overall performance rates and rates for four age 
groups (children, adolescents, adults, and older adults). We are 
proposing to require reporting of data for all four age groups for 
which the measures are currently endorsed. More details regarding this 
proposal are included in section VIII.F.7. of this preamble. In 
addition to aligning with previous collection and reporting of these 
measures by TJC, our proposal reflects the feedback provided by the 
subject-matter TEP convened by the CMS measure development contractor 
for this program and focus groups of hospitals and vendors involved in 
providing inpatient psychiatric services.
    We are proposing to collect aggregate data rather than patient 
level data for FY 2014 and subsequent years in recognition of the 
considerable burden to providers not accustomed to reporting patient 
level data. Hospitals are free to use our paper abstraction tool and 
utilize commonly available software, like spreadsheets, to enter and 
compute measure rates. We intend to provide a template using a commonly 
available spreadsheet format used by many hospitals which will be 
available on the QualityNet Web site (http://www.qualitynet.org/). 
Further, IPFs are free to procure services from TJC vendors to assist 
them with data collection. However, we note that we do not require the 
use of TJC vendors. Proposals for collection requirements and 
submission timeframes are included in section VIII.F.7. of this 
preamble. The six proposed measures for FY 2014 and subsequent years 
are described in more detail below.
(1) HBIPS-2 (Hours of Physical Restraint Use)
    The use of physical restraints increases a patient's risk of 
physical injury as well as psychological harm.\201,202\ This 
intervention is intended for use only if a patient is in imminent 
danger to him/herself or others and if less restrictive interventions 
have failed. It is not intended to address staff shortages or to be 
used as a form of discipline or coercion. The President's New Freedom 
Commission on Mental Health \203\ explicitly recommends the reduction 
of restraint use to improve quality of care. A measure designed to 
reduce the use of restraints will also help achieve the National 
Quality Strategy's goal to improve patient safety and reduce the risk 
of harm from care.
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    \201\ Evans, D., Wood, J., & Lambert, L. (2003). Patient injury 
and physical restraint devices: A systematic review. Journal of 
Advanced Nursing, 41: 274-282.
    \202\ New Freedom Commission on Mental Health, Achieving the 
Promise: Transforming Mental Health Care in America. Final Report. 
DHHS Pub. No. SMA-03-3832. Rockville, MD: 2003.
    \203\ New Freedom Commission on Mental Health, Achieving the 
Promise: Transforming Mental Health Care in America. Final Report. 
DHHS Pub. No. SMA-03-3832. Rockville, MD: 2003.
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    In addition to initiatives to reduce the use of restraints, the 
subject-matter TEP convened by our measure development contractor 
identified patient safety as an important measure concept and 
recommended the use of HBIPS-2 (Hours of Physical Restraint Use) for 
use in a national IPF quality reporting program. HBIPS-2 is a process 
measure that is reported as the total number of hours of physical 
restraint (HBIPS-2) use for all patients admitted to an inpatient 
psychiatric facility. We believe that fewer reported hours of physical 
restraint use suggest higher quality of care because reduced restraint 
time lowers patient risk for physical injury and psychological harm.
    The numerator is defined as the total number of hours that all 
psychiatric inpatients were maintained in physical restraint. The 
denominator is defined as the number of psychiatric inpatient hours 
overall. Total leave days are excluded from the denominator.
    In addition to meeting the statutory requirements as provided in 
section 1886(s)(4)(D) of the Act, we believe HBIPS-2 also meets a 
number of additional considerations we take into account when proposing 
quality measures for the IPFQR Program. The measure assesses the 
quality of care provided for inpatient psychiatric patients at the 
facility level. Approximately 450 IPFs are already collecting the 
measure for purposes of TJC accreditation. HBIPS-2 received support 
from the MAP and is aligned with the National Quality Strategy priority 
for providing safer care.
    We invite public comments on the inclusion of the proposed quality 
measure HBIPS-2, Hours of Physical Restraint Use, in the IPFQR program 
beginning with the FY 2014 payment determination. Proposals for 
collection requirements and submission timeframes are included in 
section VIII.F.7. of this preamble.
(2) HBIPS-3 (Hours of Seclusion Use)
    The use of seclusion increases a patient's risk of physical injury 
as well

[[Page 28109]]

as psychological harm.\204,205\ This intervention is intended for use 
only if a patient is in imminent danger to him/herself or others and if 
less restrictive interventions have failed. It is not intended to 
address staff shortages or to be used as a form of discipline or 
coercion. The President's New Freedom Commission on Mental Health 
explicitly recommends the reduction of seclusion use to improve quality 
of care.\206\ Measures designed to reduce the use of seclusion will 
also help achieve the National Quality Strategy's goal to improve 
patient safety and reduce the risk of harm from care.
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    \204\ Holmes, D., Kennedy, S.L., & Perron, A. (2004). The 
mentally ill and social exclusion: a critical examination of the use 
of seclusion from the patient's perspective. Issues in Mental Health 
Nursing, 25: 559-578.
    \205\ New Freedom Commission on Mental Health, Achieving the 
Promise: Transforming Mental Health Care in America. Final Report. 
DHHS Pub. No. SMA-03-3832. Rockville, MD: 2003.
    \206\ New Freedom Commission on Mental Health, Achieving the 
Promise: Transforming Mental Health Care in America. Final Report. 
DHHS Pub. No. SMA-03-3832. Rockville, MD: 2003.
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    The subject-matter TEP convened by our measure development 
contractor identified patient safety as an important measure concept 
and recommended the use of HBIPS-3 (Hours of Seclusion Use) for use in 
a national IPF quality reporting program. HBIPS-3 is a process measure 
that is reported as the total number of hours of seclusion use for all 
patients admitted to an IPF. We believe that fewer reported hours of 
seclusion use suggest higher quality of care because reducing seclusion 
time lowers patient risk for physical injury and psychological harm.
    The numerator is defined as the total number of hours all 
psychiatric inpatients were held in seclusion. The denominator is 
defined as the number of psychiatric inpatient hours overall. Total 
leave days are excluded from the denominator.
    In addition to meeting the statutory requirements as provided in 
section 1886(s)(4)(D) of the Act, we believe HBIPS-3 also meets a 
number of additional considerations we take into account when proposing 
quality measures for the IPFQR Program. The measure assesses the 
quality of care provided for inpatient psychiatric patients at the 
facility level. Approximately 450 IPFs are already collecting the 
measure for purposes of TJC accreditation. HBIPS-3 received support 
from the MAP and is aligned with the National Quality Strategy priority 
for providing safer care.
    We invite public comment on the inclusion of the proposed quality 
measure HBIPS-3, Hours of Seclusion Use, in the IPFQR Program beginning 
with the FY 2014 payment determination. Proposals for collection 
requirements and submission timeframes are included in section 
VIII.F.7. of this preamble.
(3) HBIPS-4 (Patients Discharged on Multiple Antipsychotic Medications)
    An estimated 30 percent to 50 percent of patients in IPFs are 
treated with two or more antipsychotic medications, which can lead to 
serious side effects. Among patients without a history of treatment 
failure on a single antipsychotic, there is insufficient evidence to 
conclude that patients experience better outcomes if they are 
prescribed multiple antipsychotics compared to a single antipsychotic. 
Given the risk of side effects, stakeholders such as the National 
Association of State Mental Health Program Directors have called for 
the reduction of unnecessary use of multiple antipsychotics.\207\ The 
American Psychiatric Association recommends the use of multiple 
antipsychotics only if a patient has had failed attempts on single 
antipsychotics. In efforts to promote effective treatment practices, a 
National Quality Strategy priority, we are proposing to include the 
process measure HBIPS-4, Patients Discharged on Multiple Antipsychotic 
Medications, in the FY 2014 IPFQR Program. The MAP and the subject-
matter TEP convened by our measure development contractor support the 
inclusion of this measure in the IPFQR Program.
---------------------------------------------------------------------------

    \207\ National Association of State Mental Health Program 
Directors. Technical report on polypharmacy. Alexandria, VA: 2001. 
Retrieved from http://www.nasmhpd.org/general_files/publications/med_directors_pubs/Polypharmacy.PDF.
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    TJC designed HBIPS-4 as part of a paired set with HBIPS-5 
(described below), meaning they were developed to be used together. 
HBIPS-4 is collected on all patients admitted to an IPF and is reported 
as the rate of patients discharged on multiple antipsychotics. We 
believe that lower rates are indicative of higher quality of care 
because reducing the use of multiple antipsychotics reduces the 
potential risks of harmful side effects to patients. However, there is 
no expectation that zero percent is the desired outcome because it is 
recognized that in some circumstances, use of multiple antipsychotics 
may be appropriate.
    The numerator is defined as psychiatric inpatients discharged on 
two or more routinely scheduled antipsychotic medications. The 
denominator is defined as all psychiatric inpatient discharges. The 
measure excludes patients who died, patients with an unplanned 
departure resulting in discharge due to elopement, and patients with an 
unplanned departure resulting in discharge due to failing to return 
from leave.
    Taken together, HBIPS-4 and HBIPS-5 are intended to help reduce 
unnecessary use of multiple antipsychotics and to promote better 
clinical outcomes and reduced side effects for patients.
    In addition to meeting the statutory requirements as provided in 
section 1886(s)(4)(D) of the Act, we believe HBIPS-4 also meets a 
number of additional considerations we take into account when proposing 
quality measures for the IPFQR Program. The measure assesses the 
quality of care provided for inpatient psychiatric patients at the 
facility level. Approximately 450 IPFs already are collecting and 
reporting the measure for purposes of TJC accreditation. HBIPS-4 
received support from the MAP and is aligned with the National Quality 
Strategy priority for promoting effective prevention and treatment 
practices.
    We invite public comment on the inclusion of the proposed quality 
measure HBIPS-4, Patients Discharged on Multiple Antipsychotic 
Medications, in the IPFQR Program beginning with the FY 2014 payment 
determination. Proposals for collection requirements and submission 
timeframes are included in section VIII.F.7. of this preamble.
(4) HBIPS-5 (Patients Discharged on Multiple Antipsychotic Medications 
with Appropriate Justification)
    In efforts to promote effective treatment practices, a National 
Quality Strategy priority, we are proposing to include the process 
measure HBIPS-5, Patients Discharged on Multiple Antipsychotic 
Medications with Appropriate Justification, in the FY 2014 IPFQR 
Program. The MAP and the subject-matter TEP convened by our measure 
development contractor support the inclusion of this measure in the 
IPFQR Program.
    TJC designed HBIPS-5 as part of a paired set with HBIPS-4, meaning 
they were developed to be used together. HBIPS-5 is collected on those 
patients discharged on multiple antipsychotics and is reported as the 
rate of patients discharged on multiple antipsychotics with appropriate 
justification. This measure was designed in recognition that there is a 
subsample of patients for whom multiple antipsychotic use may be 
appropriate. TJC has identified the following justifications as 
appropriate reasons for discharging a patient on

[[Page 28110]]

multiple antipsychotics: (1) The medical record contains documentation 
of a history of a minimum of three failed trials of monotherapy; (2) 
the medical record contains documentation of a recommended plan to 
taper to monotherapy or documentation of a plan to decrease the dosage 
of one or more antipsychotic medications while increasing the dosage of 
another antipsychotic medication to a level that manages the patient's 
symptoms with one antipsychotic medication (that is, cross-taper); and 
(3) the medical record contains documentation of augmentation of 
Clozapine. Higher rates on HBIPS-5 indicate higher quality of care 
because documenting the reasons for assigning two or more 
antipsychotics suggests that careful consideration of the benefits of 
this course of treatment were weighed against the potential patient 
side effects.
    The numerator statement is defined as psychiatric inpatients 
discharged on two or more routinely scheduled antipsychotic medications 
with appropriate justification. The denominator is defined as 
psychiatric inpatients discharged on two or more routinely scheduled 
antipsychotic medications. The measure excludes patients who died, 
patients with an unplanned departure resulting in discharge due to 
elopement, patients with an unplanned departure resulting in discharge 
due to failing to return from leave, and patients with a length of stay 
less than or equal to 3 days.
    Taken together, we believe that HBIPS-4 and HBIPS-5 will help 
reduce unnecessary use of multiple antipsychotics and will lead to 
better clinical outcomes and reduced side effects for patients.
    In addition to meeting the statutory requirements as provided in 
section 1886(s)(4)(D) of the Act, we believe HBIPS-5 also meets a 
number of additional considerations we take into account when proposing 
quality measures for the IPFQR Program. The measure assesses the 
quality of care provided for inpatient psychiatric patients at the 
facility level. Approximately 450 IPFs are already collecting and 
reporting the measure for purposes of TJC accreditation. HBIPS-5 
received support from the MAP and is aligned with the National Quality 
Strategy priority for promoting effective prevention and treatment 
practices.
    We invite public comment on the inclusion of the proposed quality 
measure HBIPS-5, Patients Discharged on Multiple Antipsychotic 
Medications with Appropriate Justification, in the IPFQR Program 
beginning with the FY 2014 payment determination. Proposals for 
collection requirements and submission timeframes are included in 
section VIII.F.7. of this preamble.
(5) HBIPS-6 (Post-Discharge Continuing Care Plan Created)
    When patients are discharged from the hospital, they may benefit 
from communication of information regarding the care they received or 
recommendations for their continued care. For a seamless transition 
from one treatment setting to another, providers that receive patients 
from inpatient settings need to know information regarding the 
patient's treatment during hospitalization, recommendations for post-
discharge care, and any medications the patient was discharged on. A 
discharge plan facilitates this transition of information from one 
setting to another and has been shown to have positive effects on 
readmissions.
    The promotion of effective care coordination is a National Quality 
Strategy priority. We are proposing process measure HBIPS-6, Post-
Discharge Continuing Care Plan Created, to promote care coordination 
for patients in inpatient psychiatric settings. TJC designed HBIPS-6 as 
part of a paired set with HBIPS-7; they were developed to be used 
together. HBIPS-6 measures whether a post-discharge continuing care 
plan is created. However, the creation of a care plan does not 
necessarily mean the plan is communicated to the patient's next 
provider. Therefore, HBIPS-7 measures whether a post-discharge 
continuing care plan is created and transmitted to the next level of 
care provider. Together, these two measures can assist facilities in 
determining where breakdowns in care processes occur. Quality care 
under HBIPS-6 is indicated by patients who are discharged with a 
continuing care plan that includes the reason for the hospitalization, 
the principal discharge diagnosis, discharge medications, and the next 
level of care recommendations. HBIPS-6 is collected on all patients 
admitted to IPFs. We believe that higher rates on this measure suggest 
better quality of care because greater numbers of post-discharge plans 
indicate greater opportunities for improved patient-provider and 
provider-provider communication, thus leading to improved patient care 
and health.
    The numerator is defined as psychiatric inpatients for whom the 
post-discharge continuing care plan is created and contains all of the 
following: Reason for hospitalization, principal discharge diagnosis, 
discharge medications, and next level of care recommendations. The 
denominator is defined as all psychiatric inpatient discharges. 
Populations excluded from the denominator include patients who died, 
patients with an unplanned departure resulting in discharge due to 
elopement, patients or their guardians who refused aftercare, patients 
or guardians who refused to sign authorization to release information, 
and patients with an unplanned departure resulting in discharge due to 
failing to return from leave.
    In addition to meeting the statutory requirements as provided in 
section 1886(s)(4)(D) of the Act, we believe HBIPS-6 also meets a 
number of additional considerations we take into account when proposing 
quality measures for the IPFQR Program. It is appropriate to facility-
level assessment of quality of care provided by IPFs. Approximately 450 
IPFs are already collecting and reporting the measure for purposes of 
TJC accreditation. HBIPS-6 received support from the MAP and is aligned 
with the National Quality Strategy priority for promoting better care 
coordination.
    We invite public comment on the inclusion of the proposed quality 
measure HBIPS-6, Post-Discharge Continuing Care Plan Created, in the 
IPFQR Program beginning with the FY 2014 payment determination. 
Proposals for collection requirements and submission timeframes are 
included in section VIII.F.7. of this preamble.
(6) HBIPS-7 (Post-Discharge Continuing Care Plan Transmitted to the 
Next Level of Care Provider Upon Discharge)
    The promotion of effective care coordination is a National Quality 
Strategy priority. We are proposing process measure HBIPS-7, Post-
Discharge Continuing Care Plan Transmitted to Next Level of Care 
Provider upon Discharge, to promote care coordination for patients in 
inpatient psychiatric settings. TJC designed HBIPS-7 as part of a 
paired set with HBIPS-6; they were developed to be used together. While 
the creation of a discharge care plan (as measured in HBIPS-6) is an 
important part of providing coordinated care, simply creating the plan 
does not ensure that the necessary information is transferred to the 
patient's next provider. HBIPS-7 measures both aspects of coordinated 
care--the creation of a discharge plan and the transmittal of that plan 
to the next provider. Together, these two measures can assist 
facilities in determining where breakdowns in care processes occur. As 
specified by TJC, the discharge plan should be transmitted by the fifth 
post-discharge day. This measure is collected on all patients admitted 
to IPFs. We believe

[[Page 28111]]

that higher rates on this measure suggest better quality care because 
the greater the number of post-discharge plans created and transmitted, 
the greater opportunities for improved patient-provider and provider-
provider communication and understanding of what is necessary to 
improve patient health.
    The numerator is defined as psychiatric inpatients for whom the 
post-discharge continuing care plan was transmitted to the next level 
of care. The denominator statement is defined as all psychiatric 
inpatient discharges. Populations excluded from the denominator include 
patients who died, patients with an unplanned departure resulting in 
discharge due to elopement, patients who refused (or whose guardians 
refused) aftercare, patients who refused to sign (or whose guardians 
refused to sign) authorization to release information, and patients 
with an unplanned departure resulting in discharge due to failing to 
return from leave.
    In addition to meeting the statutory requirements as provided in 
section 1886(s)(4)(D) of the Act, we believe HBIPS-7 also meets a 
number of additional considerations we take into account when proposing 
quality measures for the IPFQR Program. The measure assesses the 
quality of care provided for inpatient psychiatric patients at the 
facility level. Approximately 450 IPFs are already collecting and 
reporting the measure for purposes of TJC accreditation. HBIPS-7 
received support from the MAP and is aligned with the National Quality 
Strategy priority for promoting better care coordination.
    We invite public comment on the inclusion of the proposed quality 
measure HBIPS-7, Post-Discharge Continuing Care Plan Transmitted to 
Next Level of Care Provider upon Discharge, in the IPFQR Program 
beginning with the FY 2014 payment determination. Proposals for 
collection requirements and submission timeframes are included in 
section VIII.F.7. of this preamble.
    In summary, we are proposing to include six quality measures to be 
reported in aggregate form for FY 2014 and subsequent years. These six 
measures are shown in the table below. Measures adopted for the IPFQR 
Program would remain in the quality program for all subsequent years 
unless specifically stated otherwise (for example, through removal or 
replacement). Proposals for collection requirements and submission 
timeframes for these measures are included in section VIII.F.7. of this 
preamble.

                       Proposed Quality Measures Beginning With the FY 2014 IPFQR Program
----------------------------------------------------------------------------------------------------------------
   National quality strategy priority      NQF No.           Measure ID                Measure description
----------------------------------------------------------------------------------------------------------------
Patient Safety..........................       0640  HBIPS-2...................  Hours of Physical Restraint
                                                                                  Use.
                                               0641  HBIPS-3...................  Hours of Seclusion Use.
Clinical Quality of Care................       0552  HBIPS-4...................  Patients Discharged on Multiple
                                                                                  Antipsychotic Medications.
                                               0560  HBIPS-5...................  Patients Discharged on Multiple
                                                                                  Antipsychotic Medications with
                                                                                  Appropriate Justification.
Care Coordination.......................       0557  HBIPS-6...................  Post-Discharge Continuing Care
                                                                                  Plan Created.
                                               0558  HBIPS-7...................  Post-Discharge Continuing Care
                                                                                  Plan Transmitted to Next Level
                                                                                  of Care Provider Upon
                                                                                  Discharge.
----------------------------------------------------------------------------------------------------------------

c. Maintenance of Technical Specifications for Quality Measures
    We will provide a user manual that will contain links to measure 
specifications, data abstraction information, data submission 
information, a data submission mechanism known as the Web-based Measure 
Tool, and other information necessary for IPFs to participate in the 
IPFQR Program. This manual will be posted on the QualityNet Web site 
at: https://www.QualityNet.org. We will maintain the technical 
specifications for the quality measures by updating this manual 
periodically and including detailed instructions for hospitals to use 
when collecting and submitting data on the required measures. These 
updates will be accompanied by notifications to IPFQR Program 
participants, providing sufficient time between the change and 
effective dates in order to allow users to incorporate changes and 
updates to the measure specifications into data collection systems.
    Many of the quality measures used in different Medicare and 
Medicaid reporting programs are NQF-endorsed. As part of its regular 
maintenance process for NQF-endorsed performance measures, the NQF 
requires measure stewards to submit annual measure maintenance updates 
and undergo maintenance of endorsement review every 3 years. In the 
measure maintenance process, the measure steward (owner/developer) is 
responsible for updating and maintaining the currency and relevance of 
the measure and will confirm existing or minor specification changes to 
NQF on an annual basis. NQF solicits information from measure stewards 
for annual reviews, and it reviews measures for continued endorsement 
in a specific 3-year cycle.
    Through NQF's measure maintenance process, NQF-endorsed measures 
are sometimes updated to incorporate changes that we believe do not 
substantially change the nature of the measure. Examples of such 
changes could be updated diagnosis or procedure codes, changes to 
exclusions to the patient population, definitions, or extension of the 
measure endorsement to apply to other settings. We believe these types 
of maintenance changes are distinct from more substantive changes to 
measures that result in what are considered new or different measures, 
and that they do not trigger the same agency obligations under the 
Administrative Procedure Act. In this proposed rule, we are proposing 
that if the NQF updates an endorsed measure that we have adopted for 
the IPFQR Program in a manner that we consider to not substantially 
change the nature of the measure, we would use a subregulatory process 
to incorporate those updates to the measure specifications that apply 
to the program. Specifically, we would revise the Specifications Manual 
so that it clearly identifies the updates and provide links to where 
additional information on the updates can be found. We also would post 
the updates on the CMS QualityNet Web site at https://www.QualityNet.org. We would provide sufficient lead time for IPFs to 
implement the changes where changes to the data collection systems 
would be necessary.
    We would continue to use the rulemaking process to adopt changes to 
measures that we consider to substantially change the nature of the 
measure. We believe that this proposal

[[Page 28112]]

adequately balances our need to incorporate NQF updates to NQF-endorsed 
IPFQR Program measures in the most expeditious manner possible, while 
preserving the public's ability to comment on updates that so 
fundamentally change an endorsed measure that it is no longer the same 
measure that we originally adopted. We invite public comment on this 
proposal.
5. Possible New Quality Measures for Future Years
    We seek to develop a comprehensive set of quality measures to be 
available for widespread use for informed decision-making and quality 
improvement in the inpatient psychiatric setting. Therefore, through 
future rulemaking, we intend to propose new measures that will help us 
further our goal of achieving better health care and improved health 
for Medicare beneficiaries who obtain inpatient psychiatric services, 
through the widespread dissemination and use of performance 
information. Additionally, we are considering initiating a call for 
future measures to solicit input to assess the following measure 
domains: Clinical quality of care; care coordination; patient safety; 
patient and caregiver experience of care; population/community health; 
and efficiency. This approach will enhance better psychiatric care 
while bringing the IPFQR Program in line with other established quality 
reporting and performance improvement programs such as the Hospital IQR 
Program, the Hospital OQR Program, the ESRD QIP, and other CMS quality 
programs.
    We welcome public comment on considerations of additional measure 
topics for the IPFQR Program in future rulemaking.
6. Public Display Requirements for the FY 2014 Payment Determination 
and Subsequent Years
    Section 1886(s)(4)(E) of the Act requires the Secretary to 
establish procedures for making the data submitted under the IPFQR 
Program available to the public. Such procedures shall ensure that an 
IPF has the opportunity to review the data that is to be made public 
with respect to the psychiatric hospital or unit prior to such data 
being made public. The data collected will be displayed on our Web 
site. Under these requirements, for each payment determination year, we 
are proposing to publicly display the submitted data on our Web site 
beginning in the first quarter of the calendar year following the 
respective payment determination year. Before the data are publicly 
displayed, we are proposing that IPFs will have the opportunity to 
preview their data between September 20 and October 19 of the 
respective payment determination year (refer to the following table).

                            Proposed Public Display for FY 2014, FY 2015, and FY 2016
----------------------------------------------------------------------------------------------------------------
                                                                                                 Public display
  Payment determination year  (fiscal year)                30-day preview period                (calendar year)
----------------------------------------------------------------------------------------------------------------
FY 2014.....................................  September 20, 2013-October 19, 2013............               2014
FY 2015.....................................  September 20, 2014-October 19, 2014............               2015
FY 2016.....................................  September 20, 2015-October 19, 2015............               2016
----------------------------------------------------------------------------------------------------------------

    We believe this timeframe allows for sufficient time for both IPFs 
and CMS to correct any potential mistakes and fulfill the preview 
requirement in section 1886(s)(4)(E) of the Act.
    We welcome public comment on the proposed preview and public 
display procedures for FY 2014 and subsequent years.
7. Form, Manner, and Timing of Quality Data Submission for the FY 2014 
Payment Determination and Subsequent Years
a. Background
    Section 1886(s)(4)(C) of the Act requires that, for the FY 2014 
payment determination and each subsequent year, each IPF submit to the 
Secretary data on quality measures as specified by the Secretary. Such 
data shall be submitted in a form and manner, and at a time, specified 
by the Secretary. As required by section 1886(s)(4)(A) of the Act, for 
any IPF that fails to submit quality data in accordance with section 
1886(s)(4)(C) of the Act, the Secretary will reduce any annual update 
to a standard Federal rate for discharges occurring during such fiscal 
year by 2.0 percentage points. The complete data submission 
requirements, submission deadlines, and data submission mechanism known 
as the Web-Based Measure Tool will be posted on the QualityNet Web site 
at: http://www.qualitynet.org/. The Web-Based Measure Tool is an 
Internet database for IPFs to submit their aggregate data. We are 
proposing that IPFs submit data in accordance with the specifications 
for the appropriate proposed reporting periods to the Web-Based 
Measures Tool found in the IPF section on the QualityNet Web site 
(http://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.
b. Proposed Procedural Requirements for the FY 2014 Payment 
Determination and Subsequent Years
    In order to participate in the IPFQR Program for the FY 2014 
payment determination and subsequent years, we are proposing that IPFs 
must comply with the procedural requirements outlined below. We have 
aligned these procedural requirements with the Hospital IQR Program to 
avoid imposing additional burden on providers and to increase 
efficiencies by virtue of allowing providers to use similar submission 
requirements across programs. We are proposing that facilities must do 
the following:
    <bullet> Register with QualityNet before the IPF begins reporting, 
regardless of the method used for submitting the data.
    <bullet> Identify a QualityNet Administrator who follows the 
registration process located on the QualityNet Web site (http://www.qualitynet.org/).
    <bullet> Complete a Notice of Participation (NOP). IPFs that wish 
to participate in the IPFQR Program must complete an online NOP. 
Submission of an NOP is an indication that the IPF agrees to 
participate in the IPFQR Program and public reporting of their measure 
rates. The timeframe for completing the NOP is between January 1 and 
August 15 before each respective payment determination year. 
Accordingly, for the FY 2014 payment determination year, we are 
proposing that the timeframe for completing the NOP would be between 
January 1, 2013 and August 15, 2013.
    <bullet> Any IPF that receives a new CMS Certification Number (CCN) 
on or after the beginning of the respective payment

[[Page 28113]]

determination year and wishes to participate in the IPFQR Program but 
has not otherwise submitted a NOP using the new CCN must submit a 
completed NOP no later than 180 days from the date identified as the 
open date (that is, the Medicare acceptance date) on the approved CMS 
Quality Improvement Evaluation System to participate in the IPFQR 
Program.
    <bullet> Withdrawals from the IPFQR Program will be accepted no 
later than August 15 before the beginning of each respective payment 
determination year. We believe the August 15 deadline will give us 
sufficient time to update payment determinations for each respective 
year. Accordingly, we are proposing that the withdrawal period for the 
FY 2014 payment determination year be between January 1, 2013 and 
August 15, 2013. If in a given payment determination year, an IPF 
withdraws from the program, it will receive a reduction of 2.0 
percentage points to that year's applicable percentage increase. Once 
an IPF has submitted a NOP, it is considered to be an active IPFQR 
participant until such time as the IPF submits a withdrawal form to 
CMS.
    <bullet> We will determine if an IPF has complied with our data 
submission requirements by validating each IPF's CCN and their 
aggregated data submission on the QualityNet Web site.
    <bullet> IPFs must submit the aggregated numerator and denominator 
data for all age groups, for all measures, to avoid the 2.0 percentage 
point reduction.
    As previously noted, we believe that this proposed aggregated data 
collection mode using a Web page will reduce burden to IPFs. We 
anticipate that IPFs already reporting de-identified patient level data 
to TJC would be able to easily aggregate and report these data on a 
secure Web page to CMS.
    We welcome public comment on the proposed procedural requirements 
for the FY 2014 payment determination and subsequent years.
c. Proposed Reporting and Submission Requirements for the FY 2014 
Payment Determination
    IPFs choosing to participate in the IPFQR Program must meet the 
specific data collection and submission requirements as described on 
the QualityNet Web site (http://www.qualitynet.org/) and TJC's 
Specifications Manual for Joint Commission National Quality Measures 
(Specifications Manual) at: http://www.manual.jointcommission.org/releases/TJC2012B/HospitalBasedInpatientPsychiatricServices.html. We 
note that the Specifications Manual is updated at least twice a year 
(and may be updated more often as necessary), and IPFs are responsible 
for using the requirements in the most recent manual. The most current 
version can be found on the Web site at: https://manual.jointcommission.org/bin/view/Manual/WebHome. We are proposing 
that IPFs submit aggregate data on the measures on an annual basis, 
beginning FY 2014. As noted earlier, IPFs must submit the data to the 
Web-Based Measures Tool found in the Inpatient Psychiatric Facility 
section on the QualityNet Web site. However, the data input forms on 
the QualityNet Web site for such submission will require aggregate data 
for each separate quarter. Therefore, IPFs will need to track and 
maintain quarterly records for their data.
    For the FY 2014 payment determination, we are proposing that IPFs 
report on the proposed measures for services provided between Q4 of CY 
2012 and Q1 of CY 2013. These two quarters' data constitute the 
expected data available to CMS when we assess reporting compliance. The 
6-month timeframe will allow us to establish a full calendar year of 
reporting by FY 2016 as discussed below. We are proposing that IPFs 
submit their aggregated data between July 1, 2013 and August 15, 2013. 
The following table summarizes this information.

                        Proposed Quality Reporting and Submission Timeframes for FY 2014
----------------------------------------------------------------------------------------------------------------
 Payment determination (fiscal     Proposed reporting period for
             year)               services provided (calendar year)        Proposed data submission timeframe
----------------------------------------------------------------------------------------------------------------
FY 2014.......................  Q4 2012 (October 1, 2012-December
                                 31, 2012).
                                Q1 2013 (January 1, 2013-March 31,   July 1, 2013-August 15, 2013.
                                 2013).
----------------------------------------------------------------------------------------------------------------

    We welcome public comment on the proposed reporting and data 
submission requirements for the FY 2014 payment determination.
d. Proposed Reporting and Submission Requirements for the FY 2015 and 
FY 2016 Payment Determinations
    We are proposing that IPFs report on measures for services provided 
in Q2, Q3, and Q4 of CY 2013 for the FY 2015 payment determination and 
in Q1, Q2, Q3, and Q4 of CY 2014 for the FY 2016 payment determination. 
For FY 2014 and FY 2015, we are proposing that IPFs report data on the 
proposed measures for inpatient psychiatric services provided for 6 and 
9 months, respectively, to move towards data reporting of services 
provided within a full calendar year (12 months) by FY 2016. We have 
summarized this proposal in the following table.

       Proposed Quality Reporting and Submission Timeframes for FY 2015 and FY 2016 Payment Determinations
----------------------------------------------------------------------------------------------------------------
 Payment determination (fiscal     Proposed reporting period for
             year)               services provided (calendar year)        Proposed data submission timeframe
----------------------------------------------------------------------------------------------------------------
FY 2015.......................  Q2 2013 (April 1, 2013-June 30,      July 1, 2014-August 15, 2014.
                                 2013).
                                Q3 2013 (July 1, 2013-September 30,
                                 2013).
                                Q4 2013 (October 1, 2013-December
                                 31, 2013).
FY 2016.......................  Q1 2014 (January 1, 2014-March 31,   July 1, 2015-August 15, 2015.
                                 2014).
                                Q2 2014 (April 1, 2014-June 30,
                                 2014).
                                Q3 2014 (July 1, 2014-September 30,
                                 2014).
                                Q4 2014 (October 1, 2014-December
                                 31, 2014).
----------------------------------------------------------------------------------------------------------------


[[Page 28114]]

    The reporting of data within the timeframes outlined previously 
will allow us to align the IPFQR Program with other quality reporting 
programs that base their data reporting on a calendar year.
    We welcome public comment on the proposed reporting and data 
submission requirements for the FY 2015 and FY 2016 payment 
determinations.
e. Proposed Population, Sampling, and Minimum Case Threshold for FY 
2014 and Subsequent Years
    We are proposing that participating IPFs must meet specific 
population, sample size, and minimum reporting case threshold 
requirements as specified in TJC's Specifications Manual. The 
Specifications Manual is updated at least twice a year (and may be 
updated more often as necessary), and IPFs must follow the requirements 
in the most recent manual. The most current version can be found on the 
Web site at: https://manual.jointcommission.org/bin/view/Manual/WebHome.
    We are proposing that the target population for the proposed 
measures include all patients, not solely Medicare beneficiaries. We 
believe it is important to require IPFs to submit measures on all 
patients because quality improvement is of industry-wide importance and 
should not be focused exclusively on a certain subset of patients. We 
are proposing that IPFs use the applicable sample size requirements 
found in the Specifications Manual. We note that the Specifications 
Manual gives providers the option of sampling their data quarterly or 
monthly. We note that the Specifications Manual does not require 
sampling procedures for measures HBIPS-2 and HBIPS-3. Therefore, IPFs 
are required to submit data on all cases for these two measures.
    The Specifications Manual uses the term ``minimum required stratum 
sample size'' to refer to the required sample size for a given initial 
patient population stratum.\208\ To comply with our proposed reporting 
requirements, if the initial patient population stratum size is below a 
certain number of cases,\209\ for measures HBIPS-4, HBIPS-5, HBIPS-6, 
and HBIPS-7, IPFs must submit all applicable measure data rather than 
sample data. More details on sampling procedures are located in the 
Specifications Manual available at the Web site: https://manual.jointcommission.org/bin/view/Manual/WebHome.
---------------------------------------------------------------------------

    \208\ For example, for initial population stratum size of 211-
877, the most current version of the Specifications Manual requires 
a minimum stratum sample size of 20 percent of the initial 
population stratum size. If the initial population size is 44-220, 
the minimum required stratum sample size is 44.
    \209\ In the most current version of the Specifications Manual 
this number is 44.
---------------------------------------------------------------------------

    IPFs that have no data to report for a given measure must enter 
zero for the population and sample counts. For example, an IPF that has 
no hours of physical restraint use (HBIPS-2) to report for a given 
quarter is still required to submit a zero for its quarterly aggregate 
population and sample count for HBIPS-2 in order to meet the reporting 
requirement. We believe it is important for IPFs to submit data on all 
measures even when the population size for a given measure is zero or 
small because it provides us with the opportunity to identify, assess, 
and evaluate the baseline for the number of cases for each measure in 
future years. This will also assist us in determining the minimum case 
threshold for future years in the rule. In cases where the measure 
rates are calculated based on low caseloads, when the submitted data 
are publicly displayed on the QualityNet Web site, we are proposing to 
clearly note that the affected measure rates were calculated based on 
low caseloads that may affect the result.
    We invite public comment on the proposed population, sampling, and 
case thresholds and welcome any comments on methods and approaches for 
future years.
f. Proposed Data Accuracy and Completeness Acknowledgement Requirements 
for the FY 2014 Payment Determination and Subsequent Years
    We are proposing to require IPFs to acknowledge their data accuracy 
and completeness once annually using a QualityNet Web site Web page. To 
affirm that the data provided to meet the FY 2014 IPFQR Program data 
submission requirement is accurate and complete to the best of a 
facility's knowledge, an IPF would be required to submit the Data 
Accuracy and Completeness Acknowledgment (DACA) form. We would provide 
a link to this form once IPFs have completed entry of all aggregated 
measure data. Data submission would not be complete until the IPF 
submits the DACA form. We are proposing that the deadline for 
submission of both measure data and the DACA form would be no later 
than August 15 prior to the applicable IPFQR Program payment 
determination year.
    For the FY 2014 payment determination, for which participating IPFs 
are required to report data for discharges occurring between Q4 of CY 
2012 and Q1 of CY 2013, we are proposing to make the submission 
deadline for the DACA no later than August 15, 2013. We are proposing 
that the DACA submission deadlines for FY 2015 and FY 2016 would be 
August 15 of CY 2014 and CY 2015, respectively. We are proposing August 
15 as the DACA submission deadline for several reasons. First, 
requiring IPFs to acknowledge their data's accuracy and completeness by 
August 15 of the year before the respective payment determination year 
provides us with sufficient time to ensure compliance with the program 
by October 1, the start of the fiscal year, and, therefore, with 
sufficient time to calculate and apply the annual payment update. 
Second, we believe that it is reasonable to make the deadline for DACA 
the same as the data submission deadline in order to reduce reporting 
burden to hospitals. Lastly, using August 15 as the DACA deadline 
allows us to align our data acknowledgment deadline with other quality 
reporting programs, such as the Hospital IQR Program. The table below 
summarizes this information.

    Proposed Data Accuracy and Completeness Acknowledgment (DACA) Deadlines for FY 2014, FY 2015, and FY 2016
                                             Payment Determinations
----------------------------------------------------------------------------------------------------------------
                                       Proposed reporting period for
 Payment determination  (fiscal year)   services provided  (calendar    Proposed data accuracy and completeness
                                                   year)                       acknowledgement deadline
----------------------------------------------------------------------------------------------------------------
FY 2014..............................  Q4 2012 (October 1, 2012-      August 15, 2013.
                                        December 31, 2012).
                                       Q1 2013 (January 1, 2013-
                                        March 31, 2013).
FY 2015..............................  Q2 2013 (April 1, 2013-June    August 15, 2014.
                                        30, 2013).
                                       Q3 2013 (July 1, 2013-
                                        September 30, 2013).
                                       Q4 2013 (October 1, 2013-
                                        December 31, 2013).
FY 2016..............................  Q1 2014 (January 1, 2014-      August 15, 2015.
                                        March 31, 2014).

[[Page 28115]]

 
                                       Q2 2014 (April 1, 2014-June
                                        30, 2014).
                                       Q3 2014 (July 1, 2014-
                                        September 30, 2014).
                                       Q4 2014 (October 1, 2014-
                                        December 31, 2014).
----------------------------------------------------------------------------------------------------------------

    We invite public comment on our proposed DACA requirements.
8. Reconsideration and Appeals Procedures for the FY 2014 Payment 
Determination and Subsequent Years
    In the event an IPF believes that its annual payment update has 
been incorrectly reduced for failure to report under the IPFQR Program, 
we are proposing a reconsideration process whereby IPFs can request a 
reconsideration of their payment update reduction. We are proposing to 
institute an annual reconsideration process similar to the Hospital IQR 
program (74 FR 43892). We would not utilize reconsideration policies 
and procedures related to the Hospital IQR Validation requirement 
because the IPFQR does not currently propose an annual validation 
requirement for IPFs. For FY 2014 and subsequent years, we are 
proposing that the deadline for IPFs to submit a request for 
reconsideration of their payment determination would be 30 days from 
the date identified on the payment determination notification letter. 
While we want to ensure that IPFs have an opportunity to request 
reconsiderations when warranted, we also need to balance this goal with 
our need to complete the reconsideration process in a timely manner and 
with the IPFs' need to obtain final decisions on their requests in a 
timely manner. We believe that a 30-day timeframe best achieves this 
balance.
    We believe that requiring providers to submit a request for 
reconsideration prior to filing an appeal before the Provider 
Reimbursement Review Board (PRRB) is more efficient for both CMS and 
IPFs because it decreases the number of appeals by resolving issues 
earlier in the process. We are proposing that, together with a request 
for reconsideration, an IPF must submit all documentation and evidence 
that supports its request for reconsideration. The documentation should 
include copies of any communication, such as emails, that the IPF 
believes demonstrates its compliance with the program requirements, as 
well as any other records that may support the IPF's rationale for 
seeking reconsideration. We are proposing to codify the reconsideration 
procedures that IPFs must follow at new Sec.  412.434 under 42 CFR Part 
412, Subpart N. Under these procedures, an IPF must submit to CMS, no 
later than 30 days from the date identified on the IPFQR Program 
payment determination notification letter provided to the IPF, a 
Reconsideration Request form containing the following information:
    <bullet> The IPF's CMS Certification Number (CCN).
    <bullet> The name of the IPF.
    <bullet> Contact information for the IPF's chief executive officer 
and QualityNet system administrator, including each individual's name, 
email address, telephone number, and physical mailing address.
    <bullet> A summary of the reason(s), as set forth in the IPFQR 
Program Annual Payment Update Notification Letter, that CMS concluded 
the IPF did not meet the requirements of the IPFQR Program.
    <bullet> A detailed explanation of why the IPF believes that it 
complied with the requirements of the IPFQR Program for the applicable 
fiscal year.
    <bullet> Any evidence that supports the IPF's reconsideration 
request, such as e-mails and other documents.
    Following receipt of a request for reconsideration, we will 
provide--
    <bullet> An email acknowledgment, using the contact information 
provided in the reconsideration request, to the CEO and the QualityNet 
Administrator that the request has been received; and
    <bullet> 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 receipt of the reconsideration request.
    We are proposing that IPFs must submit a request for 
reconsideration, as described previously, and receive a decision on 
that request from CMS before they can file an appeal with the PRRB. If 
dissatisfied with the decision rendered at the reconsideration level, 
IPFs can appeal the decision with the PRRB under 42 CFR Part 405, 
Subpart R. We are proposing to codify this requirement at new Sec.  
412.434(c).
    We intend to work with our Medicare administrative contractors to 
process updated IPF claims in an expeditious manner to pay IPFs when 
our annual payment update reduction decision is overturned in 
reconsideration or PRRB review. The timeframe for updating payment 
through retroactive claims processing widely varies, and is dependent 
on the number of IPFs, the number of affected claims, and the advance 
time needed by the Medicare administrative contractor.
    We invite public comment on the proposed procedures for 
reconsideration and appeals.
9. Proposed Waivers From Quality Reporting Requirements for the FY 2014 
Payment Determination and Subsequent Years
    In our experience with other quality reporting and/or performance 
programs, we have noted occasions when providers have been unable to 
submit required quality data due to extraordinary circumstances that 
are not within their control (for example, natural disasters). It is 
our goal to avoid penalizing IPFs in such circumstances or to unduly 
increase their burden during these times. Therefore, we are proposing 
that, for FY 2014 and subsequent years, IPFs may request and we may 
grant waivers with respect to the reporting of required quality data 
when extraordinary circumstances beyond the control of the facility may 
warrant. When waivers are granted, IPFs will not incur payment 
reductions for failure to comply with the requirements of the IPFQR 
Program.
    Under the proposed process, in the event of extraordinary 
circumstances not within the control of the IPF, such as a natural 
disaster, the IPF may request a reporting extension or a complete 
waiver of the requirement to submit quality data for one or more 
quarters. Such facilities would submit a request form to CMS that would 
be made available on the QualityNet Web site. The following information 
should be noted on the form:
    <bullet> The IPF's CCN;
    <bullet> The IPF's name;

[[Page 28116]]

    <bullet> Contact information for the IPF's CEO and any other 
designated personnel, including name, email address, telephone number, 
and mailing address (the address must be a physical address, not a post 
office box);
    <bullet> The IPF's reason for requesting an extension or waiver;
    <bullet> Evidence of the impact of extraordinary circumstances, 
including but not limited to photographs, newspaper and other media 
articles; and
    <bullet> A date when the IPF will again be able to submit IPFQR 
Program data, and a justification for the proposed date.
    We are proposing that the request form must be signed by the IPF's 
CEO, and must be submitted within 30 days of the date that the 
extraordinary circumstances occurred. Following receipt of the request 
form, we would: (1) Provide a written acknowledgement, using the 
contact information provided in the request, to the CEO and any 
additional designated IPF personnel, notifying them that the IPF's 
request has been received; and (2) provide a formal response to the CEO 
and any additional designated IPF personnel, using the contact 
information provided in the request, notifying them of our decision.
    This proposal does not preclude us from granting waivers or 
extensions to IPFs that have not requested them when we determine that 
an extraordinary circumstance, such as an act of nature (for example, a 
hurricane or other natural disaster that could reasonably affect a 
facility's ability to compile or report data), affects an entire region 
or locale. If we make the determination to grant a waiver or extension 
to IPFs in a region or locale, we are proposing to communicate this 
decision through routine communication channels to IPFs and vendors, by 
means of memoranda, emails, and notices on the QualityNet Web site, 
among other means.
    We invite public comment on this proposal.
10. Electronic Health Records (EHRs)
    Although for initial reporting, the opportunity to utilize EHRs for 
automatic data collection is not applicable because the proposed 
measures will be submitted as aggregate data, we encourage IPFs to take 
steps towards adoption of EHRs (also referred to as electronic medical 
records) that will allow for reporting of clinical quality data from 
EHRs directly to a CMS repository. We encourage IPFs that are 
implementing, upgrading, or developing EHR systems to ensure that the 
technology obtained, upgraded, or developed conforms to standards 
adopted by HHS. Although the IPFQR Program is in its initial 
implementation stages, we suggest that IPFs take due care and be 
diligent to ensure that their EHR systems accurately capture quality 
data and that, ideally, such systems provide point-of-care decision 
support that promotes optimal levels of clinical performance.
    In the future, we will 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.
    We welcome public comment on the adoption of EHRs for the IPFQR 
Program in the future.

IX. MedPAC Recommendations and Other Related Studies and Reports for 
the IPPS and the LTCH PPS

A. MedPAC Recommendations for the IPPS for FY 2013

    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 2012 ``Report 
to the Congress: Medicare Payment Policy'' and have given the 
recommendations in the report consideration in conjunction with the 
policies set forth in this proposed rule. MedPAC recommendations for 
the IPPS for FY 2013 are addressed in Appendix B to this proposed rule.
    For further information relating specifically to the MedPAC reports 
or to obtain a copy of the reports, contact MedPAC at (202) 653-7226, 
or visit MedPAC's Web site at: http://www.medpac.gov.

B. Studies and Reports on Reforming the Hospital Wage Index

1. Secretary's Report to Congress on Wage Index Reform
    Section 3137(b) of the Affordable Care Act requires the Secretary 
of Health and Human Services to submit to Congress a report that 
includes a plan to comprehensively reform the Medicare wage index 
applied under section 1886(d) of the Act relating to the IPPS. In 
developing the plan, the Secretary was directed to take into 
consideration the goals for reforming the wage index that were set 
forth by MedPAC in its June 2007 report entitled ``Report to Congress: 
Promoting Greater Efficiency in Medicare.'' This report is available on 
via the Internet at: http://www.medpac.gov/documents/jun07_entirereport.pdf, and was discussed in the FY 2009 IPPS final rule (73 
FR 48567 through 48574), the FY 2010 IPPS/RY 2010 LTCH PPS final rule 
(74 FR 43824 and 43825), and the FY 2011 IPPS/LTCH PPS final rule (75 
FR 50158 and 50159.
    In developing the Report to Congress required by section 3137(b) of 
the Affordable Care Act, CMS contracted with Acumen L.L.C. (Acumen) to 
review the June 2007 MedPAC report and recommend a methodology for an 
improved Medicare wage index system. (The Acumen reports are available 
via the Internet on the Web site at: http://www.acumenllc.com/reports/cms. After consultation with relevant parties during the development of 
the plan (which included an April 12, 2011 special wage index reform 
open door forum, along with a review of electronically submitted 
comments and concerns), the Secretary submitted a ``Report to 
Congress--Plan to Reform the Medicare Hospital Wage Index'') that 
describes the concept of a Commuting Based Wage Index (CBWI) as a 
potential replacement to the current Medicare wage index methodology. 
The following is a summary of the highlights of the report. The 
complete report can be accessed on the CMS Web site at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Wage-Index-Reform.html.
    As discussed in section III.B. of the preamble of this proposed 
rule, the current wage index methodology relies on labor markets that 
are based on statistical area definitions (Core-Based Statistical Areas 
(CBSAs)) established by the Office of Management and Budget (OMB). 
Hospitals are grouped by geographic location into either an urban labor 
market (that is, a metropolitan statistical area (MSA) or metropolitan 
division) or a statewide rural labor market (any area of a State that 
is not defined as urban). The current system establishes wage indexes 
for hospital labor market areas, not for individual hospitals. Many 
parties have argued that these definitions, in many instances, are not 
reflective of the true cost of labor for any given hospital, 
particularly for hospitals located on the periphery of labor markets or 
at labor market boundaries. Multiple exceptions and adjustments have 
been put into place in attempts to correct perceived inequities. 
However, many of these exceptions and adjustments may create or further 
exacerbate distortions in labor market values. The issue of ``cliffs,'' 
or significant differences in wage index values between proximate 
hospitals, can often be attributed to one hospital

[[Page 28117]]

benefiting from such an exception and adjustment when another hospital 
cannot.
    On April 11, 2012, the Secretary submitted to Congress a report, 
``Plan to Reform the Medicare Hospital Wage Index.'' This broad-based 
plan for reforming the hospital wage index included a fundamental 
change in the description and definition of labor market areas. The 
concept, referred to as the commuting based wage index (CBWI), would 
improve upon Medicare's existing wage index method by using commuting 
data to define hospital labor market areas. The CBWI is based on data 
on the number of hospital workers commuting from home to work to define 
a hospital's labor market. To derive the CBWI, commuting flows would be 
used to identify the specific areas (for example, zip code or census 
tracts) from which a hospital hires its workers and to determine the 
proportion of its workers hired from each area. A CBWI system could use 
either current hospital cost report data or other alternative sources, 
such as the Bureau of Labor Statistics (BLS) Occupational Employment 
Survey data, to calculate labor market area average wage values. While 
the current wage index system aggregates wage data within geographic 
CBSA-based areas where hospitals are located, the CBWI would aggregate 
wage data based upon where the hospital workers reside.
    Once the hiring proportions by area and area wage levels are 
determined, the hospital's benchmark wage level would be calculated as 
the weighted average of these two elements. This value would then be 
divided by the national average. This calculation would result in a 
hospital-specific value, which reflects wage levels in the areas from 
which a hospital hires, accounting for variation in the proportion of 
workers hired from each area.
    Using more precisely-defined labor markets, the CBWI values can 
vary for hospitals within the same CBSA or county and, thus, more 
precisely reflect wage differences within and across CBSA boundaries 
and address intra-area variation more precisely than the current 
system. Although the CBWI would allow wage index values to vary within 
a CBSA, the CBWI is less likely to produce large differences--or 
``cliffs''--between wage index values for nearby hospitals in adjacent 
CBSA because nearby hospitals likely hire workers from areas in similar 
proportions.
    Acumen found in its analysis that the CBWI system would more 
closely reflect hospitals' actual wages than the current CBSA-based 
system and the MedPAC proposal. As MedPAC suggested in its proposal, 
the exceptions and adjustments to the wage index system are the primary 
cause of the often significant ``cliffs'' between wage indexes of 
nearby hospitals. We believe the CBWI has the potential to reduce the 
need for exceptions and adjustments and further manipulation of wage 
index values (as is central to the MedPAC proposal) to prevent these 
``cliffs'' between labor market areas.
    The Report to Congress detailed several findings relevant to 
implementation of a CBWI:
    <bullet> Because the CBWI accounts for specific differences in 
hospitals' geographic hiring patterns, it would yield wage index values 
that more closely correlate to actual labor costs than either the 
current wage index system (with or without geographic reclassification) 
or a system that attempts to reduce wage index differences across 
geographic boundaries, such as MedPAC's proposed wage index based on 
Bureau of Labor Statistics (BLS) data for health care industry workers.
    <bullet> While a CBWI could be constructed with the most recent 
Census commuting data, were the CBWI to be adopted, a more up-to-date 
reporting system for collecting commuting data from hospitals would 
have to be established so that the wage index calculations would 
accurately reflect the commuting patterns of hospital employees. We 
believe that creating a system of more up-to-date commuting data could 
be achieved with a modest addition to the current reporting 
requirements.
    <bullet> Concerns about a CBWI leading to hospitals altering hiring 
patterns and distorting labor markets do not appear to be worse than 
under the current system and could be managed with minimal policy 
adjustments.
    <bullet> As current statutory provisions governing the Medicare 
wage index and exceptions to that wage index were designed for the 
current MSA-based wage index system, their applicability would need to 
be reviewed if a CBWI were to be adopted.
    <bullet> The Medicare statute has traditionally applied payment 
changes in a budget neutral manner. If a CBWI were to be adopted in a 
budget neutrally manner, payments for some providers would increase 
while payments for other providers would decrease.
    The Secretary was directed to ``consult with relevant affected 
parties'' during the development of the plan. In a special Medicare 
wage index open door forum held on April 12, 2011, hospital and 
hospital association representatives presented several concerns, which 
included issues with commuting data availability, the continuation of 
certain exceptions and adjustment policies, and the impacts of the CBWI 
upon other nonhospital payment systems. Several commenters expressed 
concern that a CBWI could encourage providers to alter or manipulate 
hiring practices in order to improve wage index calculations. However, 
based upon our findings and analysis, we believe it is dubious whether 
any alteration of a hospital's employment patterns would improve its 
competitive advantage over other hospitals that employ workers in the 
same area. We also share a concern expressed by multiple commenters 
regarding whether a CBWI should be applied to other nonhospital payment 
systems. Currently, several other payment systems are based upon the 
Medicare pre-reclassified hospital wage index. It is not clear whether 
it would be advantageous, or even possible, to apply a CBWI to these 
provider types.
2. Institute of Medicine (IOM) Study on Medicare's Approach to 
Measuring Geographic Variations in Hospitals' Wage Costs
    In addition to submitting the aforementioned Report to Congress, in 
April 2010, the Secretary commissioned the Institute of Medicine (IOM) 
to evaluate Medicare's approach for measuring geographic variation in 
the wage costs faced by hospitals. The IOM's Phase I report, published 
in September 2011, is available via the Internet at: http://iom.edu/Reports/2011/Geographic-Adjustment-in-Medicare-Payment-Phase-I-Improving-Accuracy.aspx. In that report, IOM's Committee on Geographic 
Adjustment Factors in Medicare Payment proposed a set of 
recommendations for modifying the hospital wage index in both the 
method used in its construction and the data used in its calculation.
    In constructing the wage index, the IOM recommends altering the 
current labor market definitions to account for the out-commuting 
patterns of health care workers who travel to a place of employment in 
an MSA other than the one in which they live. The IOM's recommendation 
is based on its theory that county-to-MSA commuting patterns reveal the 
degree of integration of labor markets across geographically drawn 
boundaries (that is, MSAs) and a commuting-based smoothing adjustment 
to the wage index would more accurately measure the market wage each 
hospital faces. The IOM model uses workers' out-commuting patterns to 
smooth wage index values for hospitals in different counties, similar

[[Page 28118]]

to the out-migration adjustment used in the current wage index system. 
The IOM also suggests that using out-commuting shares in the smoothing 
adjustment creates an index based on the wage levels of workers living 
in that area in which a hospital is located, as opposed to wage levels 
of workers employed in that area, as in the CBWI model. In calculating 
its smoothed wage index, the IOM uses the following four steps:
    <bullet> Step 1--Compute a wage index for each MSA, adhering to 
Medicare's current approach for calculating the average hourly wage 
(AHW) paid by all IPPS hospitals located in the MSA (this step 
replicates the current pre-reclassification wage index).
    <bullet> Step 2--Compute an area wage for each county equal to a 
weighted average of MSA-level AHWs, where the weight for each MSA 
measures the share of all hospital workers living in the county who 
commute to hospitals located in that MSA.
    <bullet> Step 3--Assign all hospitals located in the county a 
hospital wage index value equal to the county area wage index.
    <bullet> Step 4--Normalize wage indices to ensure budget 
neutrality, similar to the approach currently implemented by Medicare.
    In addition, the IOM's wage index model uses hourly wage data from 
the BLS Occupational Employment Survey rather than from hospital cost 
reports. The IOM also recommends measuring hourly wages using data for 
all health care workers rather than only hospital workers and using a 
fuller set of occupations incorporated in the hospital wage index 
occupational mix adjustment. The IOM suggests that BLS data would 
reduce administrative burdens placed upon hospitals and, by broadening 
the array of reported occupations from what is currently covered in the 
hospital cost report, would achieve more accurate labor markets 
definitions and reduce year-to-year volatility. The IOM encourages CMS 
to establish an ongoing agreement with the BLS to use occupational 
survey data specific to health care workers to calculate average hourly 
wage values. The IOM suggests, for instance, that the 5-year American 
Community Survey is a potential source of the necessary commuting 
information, assuming CMS can arrange to obtain certain nonpublic 
``micro-data'' from the BLS.
    Preliminary findings demonstrate that the IOM hospital wage index 
method would result in the reduction in wage index ``cliffs,'' and 
would diminish the need to maintain current wage index exceptions and 
adjustments. The IOM also recommends that the hospital wage values 
should be applied to other nonhospital health care providers, shifting 
to a single measurement of geographic variation to be used in multiple 
Medicare provider payment systems. However, we believe that, by 
creating a wage index that measures the wage level only of workers who 
live near a hospital rather than of all workers who could potentially 
work at the hospital (including those who live far away from the 
hospital), IOM's approach may have some problematic implications. 
First, some of the wage information used by the IOM index is based on 
workers employed outside of the hospital's pertinent labor market. 
Second, the IOM index neglects market-relevant information regarding 
the wages of workers employed at the hospital who live outside the 
county of the hospital's location. If the in-commuting workers come 
from high wage areas, this information should contribute to increasing 
the hospital's wage index values. Likewise, if such workers live in low 
wage areas, they should contribute to decreasing the hospital's wage 
index values.
    We are aware of numerous concerns from hospital and hospital 
association representatives regarding whether the BLS Occupational 
Employment Survey data is an acceptable source for hospital wage index 
calculations. (We refer readers to a discussion of the BLS occupational 
survey data in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 
43824 and 43825.) While the IOM proposal suggested a more refined use 
of BLS data than did the previous MedPAC recommendation, there may be 
significant operational challenges in accessing and compiling health 
care sector specific wage, occupational mix, and commuting data from 
the available datasets. Additional research would be required to 
determine whether the IOM recommendation for applying its hospital wage 
index to nonhospital providers would be appropriate.
    To assist readers in understanding key concepts and differences in 
the wage index methodologies we discussed earlier in this section, we 
are presenting below a chart that includes a comparison of the CBWI, 
the IOM hospital wage index approaches, and MedPAC's recommendation 
from its June 2007 Report to Congress.

----------------------------------------------------------------------------------------------------------------
                                  Current wage index          IOM               MedPAC               CBWI
----------------------------------------------------------------------------------------------------------------
                                             Labor Market Definition
----------------------------------------------------------------------------------------------------------------
Labor Market Area...............  MSAs or             MSAs or             Blend of county     Creates separate
                                   Metropolitan        Metropolitan        and MSA labor       but linked labor-
                                   Divisions/rural     Divisions/rural     market              market for each
                                   ``rest of State''   ``rest of State''   definitions (50/    hospital using
                                   areas.              areas.              50).                small geographic
                                                                                               areas (for
                                                                                               example, zip
                                                                                               codes).
Commuting Adjustment............  Section 505 Out-    Adjusts hospitals'  None..............  Uses in-commuting
                                   Commuting           wage index values                       patterns relevant
                                   Adjustment.         based on the out-                       for individual
                                                       commuting                               hospitals to
                                                       patterns of                             weight benchmark
                                                       health care                             wages constructed
                                                       workers.                                for small
                                                                                               geographic areas.

[[Page 28119]]

 
Other Adjustments...............  Multiple            IOM proposes three  Smoothing           None.
                                   Reclassifications   smoothing           algorithm uses
                                   and/or Floors       specifications:     iterative process
                                   (for example,      (1) Apply to all     to eliminate
                                   Frontier State      counties;.          large differences
                                   floor, Lugar       (2) Apply only to    in index values
                                   counties, MGCRB,    counties to which   across county
                                   and Section 508     at least 10         boundaries.
                                   reclassifications   percent of
                                   and special         workers commute;.
                                   exceptions).       (3) Apply only to
                                                       counties to which
                                                       at least 10
                                                       percent of
                                                       workers commute
                                                       and hospital wage
                                                       index is higher
                                                       than home-county
                                                       hospital wage
                                                       index..
----------------------------------------------------------------------------------------------------------------
                                           Measurement of Worker Wages
----------------------------------------------------------------------------------------------------------------
Wage Data Source................  Hospital cost       BLS Occupational    BLS Occupational    Any source of
                                   reports.            Employment Survey.  Employment Survey.  establishment
                                                                                               wage data could
                                                                                               potentially be
                                                                                               used (for
                                                                                               example, hospital
                                                                                               cost reports, BLS
                                                                                               Occupational
                                                                                               Employment
                                                                                               Survey).
Industry Sectors Used to Measure  Hospitals.........  Health care sector  All Industries      The CBWI could be
 Wages.                                                                    (for example,       implemented using
                                                                           hospitals, other    any industry
                                                                           health care, and    sector.
                                                                           nonhealth care
                                                                           sectors).
Occupational Mix................  Occupational mix    Occupational mix    Occupational mix    Occupational mix
                                   adjustment based    adjustment based    adjustment based    adjustment based
                                   on occupational     on all              on 30 occupations   on all
                                   categories of       occupations.        with the highest    occupations
                                   nurses reported                         wage share in the   available in the
                                   on cost reports.                        hospital industry.  wage data source
                                                                                               selected.
----------------------------------------------------------------------------------------------------------------
                                             Other Provider Settings
----------------------------------------------------------------------------------------------------------------
Wage Index for Nonhospital        Pre-floor, pre-     Use identical       No recommendation.  Considerations
 Providers.                        reclassification    hospital wage                           include:
                                   version of the      index                                  (1) Collect
                                   current hospital    methodology,                            commuting data
                                   wage index.         except create an                        for each provider
                                  A version of this    industry-specific                       type and apply
                                   index with an       occupational mix                        CBWI;
                                   occupational mix    adjustment for                         (2) Apply CBWI
                                   adjustment has      each provider                           framework, but
                                   also been used      type.                                   use hospital wage
                                   for payments for                                            and commuting
                                   other specialized                                           data; or
                                   hospital                                                   (3) Measure using
                                   inpatient                                                   a weighted
                                   services.                                                   average of nearby-
                                                                                               hospital CBWI
                                                                                               values.
----------------------------------------------------------------------------------------------------------------

X. Proposed Quality Improvement Organization (QIO) Regulation Changes 
Related to Provider and Practitioner Medical Record Deadlines and 
Claims Denials

    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51648 through 
51649), we finalized changes to the utilization and quality control 
review regulation at 42 CFR 476.78 to require providers to submit 
medical records relating to services they have furnished in a shorter 
timeframe than the standard 30 calendar days in certain situations. 
Medical records must be submitted within 21 calendar days of serious 
reportable events or where other circumstances, as deemed by the 
Quality Improvement Organization (QIO), warrant earlier receipt of all 
required medical information. The changes were part of our effort to 
improve the QIO work, such as quality improvement assistance, 
beneficiary (or beneficiary representative) requested QIO quality of 
care reviews, and QIO medical necessity reviews to achieve the 
following three aims: (1) Improving individual care; (2) improving 
health care for populations; and (3) lowering costs through improvement 
efforts.
    While these changes will enhance QIOs' efforts to effectively carry 
out their responsibilities in a timely manner, QIOs have historically 
experienced difficulty in obtaining medical information in a timely 
manner from providers and even more difficulty obtaining this 
information in a timely manner from practitioners. Without this 
information, QIOs are unable to carry out their review 
responsibilities. This is particularly problematic in cases in which 
Medicare beneficiaries may be awaiting a QIO's decision, for example, 
responses to complaints about the quality of care received. Although 
the regulations at 42 CFR Part 476 refer to practitioners' 
responsibilities in certain instances, Sec.  476.78, which relates to 
the submission of medical information, addresses only the obligations 
of providers and not practitioners. No similar provisions exist within 
the QIO program regulations (that is, 42 CFR parts 475 through 480) 
that establish timeframes for the submission of medical information by 
practitioners. Moreover, Sec.  476.90 addresses steps that

[[Page 28120]]

a QIO may take when providers or practitioners fail to cooperate with 
the QIO, including the QIO's authority to deny claims for the failure 
to respond to a QIO's request for information under paragraph (b) of 
Sec.  476.90. However, Sec.  476.90(b) limits the QIO's authority to 
deny claims to providers, and no similar provision exists for 
practitioners. In fact, a QIO's only recourse against practitioners is 
contained in Sec.  476.90(a), which conveys a QIO's authority to 
recommend sanctions against practitioners, as well as providers, for 
the failure to present evidence of the medical necessity for or the 
quality of the care provided to a Medicare beneficiary. While 
recommending that sanctions be pursued against a practitioner is an 
option for QIOs, this is only appropriate when egregious circumstances 
exist, as described in 42 CFR 1004.30.
    The responsibility of practitioners and providers to supply 
information to QIOs for use in completing their review activities is 
implicit throughout the QIO program statute. Most notably, section 
1154(a)(7)(C) of the Act makes reference to the QIO's obligation to 
examine the pertinent records of any practitioner or provider of 
Medicare services if the QIO has the responsibility of reviewing those 
services. Section 1156(a) of the Act explicitly addresses the 
obligation of providers and practitioners to provide information to the 
QIO. It requires providers and practitioners to support the services or 
items they have furnished with evidence of their medical necessity and 
quality. Providers and practitioners must provide this evidence to the 
QIO in the form and fashion and at such time as may reasonably be 
required by a QIO in exercising its duties and responsibilities. A 
practitioner's or provider's failure to provide this evidence could 
result in the QIO reporting this failure to the Inspector General. One 
of the QIO's responsibilities, as described in section 1154(a)(2) of 
the Act, is to determine whether payment shall be made for Medicare 
services, based on its determination of whether a provider's or 
practitioner's services were reasonable and medically necessary, met 
professionally recognized quality standards, and/or were provided in 
the appropriate setting. It is not possible for a QIO to make a 
determination that services met these standards and that payment would 
be appropriate without the medical records it needs to conduct these 
reviews.
    In light of the issues discussed above, in this proposed rule, we 
are proposing several changes to the regulations at Sec. Sec.  476.1, 
476.78, and 476.90 to more clearly convey the responsibilities of 
providers and practitioners in submitting medical information and to 
specify the QIO's authority should the information not be received.
    <bullet> We are proposing to add a definition of ``providers'' 
under Sec.  476.1 to clearly denote that certain requirements in Part 
476 apply to health care facilities, institutions, and organizations 
involved in the delivery of health care services to Medicare 
beneficiaries.
    <bullet> We are proposing to change the section heading of Sec.  
476.78 from ``Responsibilities of health care facilities'' to 
``Responsibilities of providers and practitioners''. In addition, we 
are proposing to add references to ``practitioners'' in Sec.  
476.78(b)(2) so that the 21-day and 30-day timeframes for submittal of 
information apply equally to practitioners and providers. We also are 
proposing one minor technical change to Sec.  476.78 that is unrelated 
to the application of timeframes to providers or practitioners. We are 
proposing to remove the sentence, ``QIOs pay providers paid under the 
prospective payment system for the costs of photocopying records 
required by the QIO in accordance with the payment rate determined 
under the methodology described in paragraph (c) of this section and 
for first-class postage for mailing the records to the QIO'', because 
it is merely a reference to paragraph (c) of Sec.  476.78. Because the 
sentence does not provide substantive information, we believe it can be 
deleted without losing any of the necessary content of the paragraph.
    <bullet> We are proposing changes to Sec.  476.90 that will provide 
improved instructions to QIOs when attempting to resolve issues 
associated with practitioners and providers that fail to submit medical 
information within the timeframes set forth in Sec.  476.78. These 
proposed changes include: Changing the section heading from ``Lack of 
cooperation by a health care facility or practitioner'' to ``Lack of 
cooperation by a provider or practitioner''; incorporating the broader 
term ``provider'' (as reflected in our proposed change to Sec.  476.1) 
within Sec.  476.90, as well as references to ``practitioners'', where 
appropriate. We note that we are proposing to add references to 
``practitioners'' in Sec.  476.90(a)(2) to denote that the QIO's 
authority includes the ability to make financial liability 
determinations for both providers and practitioners, and we are 
proposing to add the word ``may'' to clarify that the QIO has the 
discretion to report a provider's or practitioner's failure to provide 
evidence of the medical necessity or quality of care provided to the 
Inspector General. In addition, we are proposing modifications to Sec.  
476.90 (b) to denote that QIOs will also deny claims if practitioners 
fail to submit medical information as requested. We have based this 
proposed change on the fact that a QIO cannot make a determination 
about whether payment shall be made on the basis of its reviews, as 
described in section 1154(a)(2) of the Act, if the QIO does not have 
the medical records it needs to determine that payment would be 
appropriate. We also are proposing to add new language to Sec.  
476.90(b) to convey the right of providers and practitioners to request 
a reconsideration by the QIO of its decision to deny the claim based on 
the failure to receive the medical information, and that no further 
appeal rights exist beyond the QIO.
    <bullet> We are proposing to make a technical correction to a 
cross-reference to ``Sec.  474.30(c)'' that appears in Sec.  
476.90(a)(1). This cross-reference is to the Office of Inspector 
General regulations that convey the obligations of providers and 
practitioners; these regulations are now located in 42 CFR 1004.10(c).
    We are inviting public comment on our proposals, including the 
definition of ``providers'', the timeframes for practitioners and 
providers to follow in submitting medical information, the QIO's 
authority when medical information is not received, as well as the 
technical corrections.

XI. 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.

[[Page 28121]]

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 2009 Medicare cost reports used to create 
the proposed FY 2013 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.L. of the preamble of this proposed 
rule.

------------------------------------------------------------------------
    Processing year           Wage data year          PPS fiscal year
------------------------------------------------------------------------
             2012                     2009                    2013
             2011                     2008                    2012
             2010                     2007                    2011
             2009                     2006                    2010
             2008                     2005                    2009
             2007                     2004                    2008
------------------------------------------------------------------------

    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
    Periods Available: FY 2007 through FY 2013 IPPS Update.
2. CMS Occupational Mix Data Public Use File
    This file contains the 2010 occupational mix survey data to be used 
to compute the occupational mix adjustment wage indexes. Multiple 
versions of this file are created each year. For a complete schedule on 
the release of different versions of this file, we refer readers to the 
wage index schedule in section III.L. of the preamble of this proposed 
rule.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
    Period Available: FY 2013 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:
    <bullet> Notice of proposed rulemaking published in the Federal 
Register.
    <bullet> Final rule published in the Federal Register.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
    Period Available: FY 2013 IPPS Update.
4. Other Wage Index Files
    CMS releases other wage index analysis files after each proposed 
and final rule.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp#TopOfPage.
    Periods Available: FY 2005 through FY 2013 IPPS Update.
5. FY 2012 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 2013 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: Quarterly Update.
8. CMS Medicare Case-Mix Index File
    This file contains the Medicare case-mix index by provider number 
as published in each year's update of the Medicare hospital inpatient 
prospective payment system. The case-mix index is a measure of the 
costliness of cases treated by a hospital relative to the cost of the 
national average of all Medicare hospital cases, using DRG/MS-DRG 
weights as a measure of relative costliness of cases. Two versions of 
this file are created each year. They support the following:
    <bullet> Notice of proposed rulemaking published in the Federal 
Register.
    <bullet> 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 2013.
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.
    <bullet> Notice of proposed rulemaking.
    <bullet> Final rule.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage
    Periods Available: FY 2005 through FY 2013 IPPS Update
10. IPPS Payment Impact File
    This file contains data used to estimate payments under Medicare's 
hospital impatient prospective payment systems for operating and 
capital-related costs. The data are taken from various sources, 
including the Provider-Specific File, Minimum Data Sets, and prior 
impact files. The data set is abstracted from an internal file used for 
the impact analysis of the changes to the prospective payment systems 
published in the Federal Register. Two versions of this file are 
created each year. They support the following:
    <bullet> Notice of proposed rulemaking.
    <bullet> Final rule.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/HIF/list.asp#TopOfPage.
    Periods Available: FY 1994 through FY 2013 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:
    <bullet> Notice of proposed rulemaking published in the Federal 
Register.
    <bullet> Final rule published in the Federal Register.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.

[[Page 28122]]

    Periods Available: FY 2005 through FY 2013 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:
    <bullet> Notice of proposed rulemaking published in the Federal 
Register.
    <bullet> Final rule published in the Federal Register.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
    Period Available: FY 2013 IPPS Update.
13. Hospital Readmissions Reduction Program File
    This file contains information on the calculation of the Hospital 
Readmissions Reduction Program payment adjustment. Variables include 
the proxy excess readmission ratios for acute myocardial infarction, 
pneumonia and heart failure and the proxy readmissions payment 
adjustment for each provider included in the program.
    The file supports the following:
    <bullet> Notice of proposed rulemaking published in the Federal 
Register.
    <bullet> Final rule published in the Federal Register.
    Media: Internet at: http://www.cms.hhs.gov/AcuteInpatientPPS/FFD/list.asp#TopOfPage.
    Period Available: FY 2013 IPPS Update.
    For further information concerning these data tapes, contact the 
CMS Public Use Files Hotline at (410) 786-3691.
    Commenters interested in discussing any data used in constructing 
this proposed rule should contact Nisha Bhat at (410) 786-5320.

B. Collection of Information Requirements

1. Statutory Requirement for Solicitation of Comments
    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of 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:
    <bullet> The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> 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. ICRs for Add-On Payments for New Services and Technologies
    Section II.I.1. of the preamble of this proposed rule discusses 
add-on payments for new services and technologies. Specifically, this 
section states that applicants for add-on payments for new medical 
services or technologies for FY 2014 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, 2011, 2012, and 
2013, we received 1, 4, 5, 3, 3, and 5 applications, respectively.
3. ICRs for the Occupational Mix Adjustment to the Proposed FY 2013 
Index (Hospital Wage Index Occupational Mix Survey)
    Section II.F. of the preamble of this proposed rule discusses the 
occupational mix adjustment to the proposed FY 2013 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.
4. Hospital Applications for Geographic Reclassifications by the MGCRB
    Section III.H.3. of the preamble of this proposed rule discusses 
proposed 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 was previously approved 
under OMB control number 0938-0573. However, the information collection 
expired on December 31, 2011. We are currently seeking to reinstate the 
information collection and, as required by the PRA, will announce 
public notice and comment periods in the Federal Register separate from 
this notice of proposed rulemaking.

[[Page 28123]]

5. ICRs for Application for GME Resident Slots
    The information collection requirements associated with the 
preservation of resident cap positions from closed hospitals, addressed 
under section IV.I.4. of this preamble, are not subject to the 
Paperwork Reduction Act (44 U.S.C. Chapter 35), as stated in section 
5506 of the Affordable Care Act.
6. ICRs for the Hospital Inpatient Quality Reporting (IQR) Program
    The Hospital Inpatient Quality Reporting (IQR) Program (formerly 
referred to as the Reporting Hospital Quality Data for Annual Payment 
(RHQDAPU) Program) was originally established to implement section 
501(b) of the MMA, Public Law 108-173. This program expanded our 
voluntary Hospital Quality Initiative. The Hospital IQR Program 
originally consisted of a ``starter set'' of 10 quality measures. The 
collection of information associated with the original starter set of 
quality measures was previously approved under OMB control number 0938-
0918. We are currently seeking reinstatement of the information 
collection previously approved under that control number. However, we 
will be combining the proposed information collection requirements 
discussed below and addressed in section VIII.A. of this preamble, with 
the Hospital IQR Program PRA package that was previously approved under 
0938-1022. This proposed rule will serve as the required 60-day Federal 
Register notice to solicit public comments. We welcome public comments 
on both the plan to combine the PRA packages and the proposed 
information collection requirements in this proposed rule.
    We added additional quality measures to the Hospital IQR Program 
and submitted an information collection request to OMB for approval. 
This expansion of the Hospital IQR measures was part of our 
implementation of section 5001(a) of the DRA. Section 
1886(b)(3)(B)(viii)(III) of the Act, as added by section 5001(a) of the 
DRA, requires that the Secretary expand the ``starter set'' of 10 
quality measures that were established by the Secretary as of November 
1, 2003, to include measures ``that the Secretary determines to be 
appropriate for the measurement of the quality of care furnished by 
hospitals in inpatient settings.'' The burden associated with these 
reporting requirements was previously approved under OMB control number 
0938-1022.
    For the FY 2015 payment determination, we intend to seek OMB 
approval for a revised information collection request using the same 
OMB control number (0938-1022). In the revised request, we are 
proposing to add one chart-abstracted measure (Elective Delivery Prior 
to 39 Weeks Gestation), one survey-based measure, and three claims-
based measures. In addition, we are proposing to remove one chart-
abstracted measure (SCIP-VTE-1: Surgery patients with recommended 
venous thromboembolism prophylaxis) and 16 claims-based measures.
    In addition, in this request, for FY 2016 payment determinations, 
we are proposing to add one structural measure. We estimate that the 
proposed changes to our FY 2015 and FY 2016 payment determination 
measure set will result in a total collection burden to IPPS hospitals 
of approximately 6,273,199 hours per year.
    With respect to the proposed new chart-abstracted measure for the 
FY 2015 payment determination, we are proposing to add the chart-
abstracted measure, Elective Delivery Prior to 39 Completed Weeks 
Gestation: Percentage of Babies Electively Delivered Prior to 39 
Completed Weeks Gestation. Hospitals would be required to submit data 
on patients who have elective vaginal deliveries or elective cesarean 
sections at >=37 and <39 weeks of gestation completed. We estimate that 
IPPS hospitals will incur an additional 117,474 burden hours resulting 
from the proposed addition of this measure. We estimate that hospitals 
will submit data on approximately 1,006,917 cases annually for this 
measure, and it will require, on average, 7 minutes to abstract the 
information from medical records for each case to calculate these 
measures.
    The one proposed additional survey measure would be added to the 
existing HCAHPS survey. Burden for the HCAHPS data collection is 
currently approved through OMB control number 0938-0981.
    The structural measure we are proposing for the FY 2016 payment 
determination, the Safe Surgery Checklist Use, would require hospitals 
to report their yes/no response regarding use of a safe surgery 
checklist. We estimate that it would take the 3,300 hospitals 
approximately 2 minutes each to answer this question each year, 
resulting in an estimated total increase of 110 hours for the total 
burden to hospitals each year.
    We also are proposing to add three new claims-based measures for 
the FY 2015 payment determination. We do not believe that these claims-
based measures would create any additional burden for hospitals because 
they would be collected and calculated by CMS based on the Medicare FFS 
claims the hospitals have already submitted to CMS.
    We believe that the overall burden on hospitals will be reduced to 
some extent by the proposed removal of one chart abstracted measure, 
SCIP-VTE-1: Surgery Patients with Recommended Venous Thromboembolism 
Prophylaxis, beginning with the FY 2015 payment determination. In 
addition, in this proposed rule, beginning with the FY 2015 payment 
determination, we are proposing to remove 16 claims-based measures. We 
estimate that the proposed removal of the SCIP-VTE-1- measure will 
reduce the total burden to hospitals by a total of 150,000 hours.
7. ICRs for PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) 
Program
    As discussed in section VIII.B. of this preamble, pursuant to 
section 1866(k) of the Act, for purposes of FY 2014 and each subsequent 
fiscal years, a hospital described in section 1886(d)(1)(B)(v) of the 
Act shall submit data in accordance with section 1866(k)(2) of the Act 
with respect to such fiscal year. To comply with the statutory mandate, 
we are implementing the PCHQR Program in our sustained efforts to 
improving the quality of care for inpatient cancer patients. It is our 
aim and goal to facilitate high quality of care in a manner that is 
effective and meaningful, while remaining mindful of reporting burden 
posed on the PCHs. Therefore, we intend to reduce and avoid duplicative 
reporting efforts, whenever possible, by leveraging existing 
infrastructure.
    For the FY 2014 program year, we are proposing five NQF-endorsed 
quality measures developed by the CDC and the American College of 
Surgeons' Commission on Cancer (ACoS/CoC).

------------------------------------------------------------------------
          Measure steward                     Quality measures
------------------------------------------------------------------------
ACoS/CoC..........................  Adjuvant Chemotherapy is considered
                                     or administered within 4 months
                                     (120 days) of surgery to patients
                                     under the age of 80 with AJCC Stage
                                     III (lymph node positive) colon
                                     cancer (NQF<greek-i>0223).

[[Page 28124]]

 
                                    Combination Chemotherapy is
                                     considered or administered within 4
                                     months (120 days) of diagnosis for
                                     women under 70 with AJCC T1c, or
                                     Stage II or III hormone receptor
                                     negative Breast Cancer (NQF<greek-
                                     i>0559).
                                    Adjuvant Hormonal Therapy (NQF<greek-
                                     i>0220).
CDC...............................  National Healthcare Safety Network
                                     (NHSN) Central Line-Associated
                                     Bloodstream Infection (CLABSI)
                                     Outcome Measure (NQF<greek-i>0139).
                                    National Healthcare Safety Network
                                     (NHSN)Catheter-Associated Urinary
                                     Tract Infection (CAUTI) Outcome
                                     Measure (NQF<greek-i>0138).
------------------------------------------------------------------------

    We estimate that 11 PCHs will submit data on approximately 27,273 
cases annually for these measures, and it will require, on average, 2.5 
hours to abstract the information from medical records for each case to 
calculate these measures.
    Although PCHs have not reported on quality measures to CMS, they 
have some familiarity with and experience in reporting of quality data. 
More specifically, out of the 11 existing PCHs, 10 are currently 
reporting the proposed cancer-specific measures to the ACoS/CoC. This 
equates to 91 percent of PCHs that already report the measures on a 
regular basis. Likewise, a majority of the PCHs have been submitting 
data to the CDC. We believe the fact that the majority of the PCHs have 
demonstrated the ability to report the measures indicates the proposed 
regulation do not significantly impact PCHs.
    Furthermore, we estimate that reporting aggregated-level data 
through the CDC and the CMS contractor will not be costly to PCHs. In 
our burden calculation, we have included the time used for chart 
abstraction and for training personnel on collection of chart-
abstracted data, aggregation of the data, as well as training for 
submitting the aggregate-level data through these entities (CDC and the 
CMS contractor). We estimate that the annual hourly burden to each PCH 
for the collection, submission, and training of personnel for 
submitting all quality measures is approximately 6293.5 hours in a year 
for each PCH. The average hourly burden to each PCH is approximately 
524 hours per month. This proposed rule would affect all PCHs 
participating in Medicare. The facilities would have to register with 
QualityNet and take the proper training in order to be adequately 
prepared to use the QualityNet system to submit the Notice of 
Participation form. The anticipated burden to these providers consists 
of the following: (1) The initial registration with the CDC, CMS 
contractor, and CMS QualityNet; (2) training of the appropriate staff 
members on how to use the QualityNet reporting program; (3) the time 
required for collection and aggregation of data; and (4) the time 
required for entry of the data to the CDC and the CMS contractor 
database by the PCH's representative.
    We believe the fact that the majority of the PCHs have demonstrated 
the ability to report the measures indicates the proposed regulation do 
not significantly impact PCHs. We are proposing the following approach 
for data reporting. First, patient-level data would be submitted by the 
PCHs to the CDC for the proposed HAI measures and to the CMS contractor 
for the proposed cancer-specific measures. Second, the NHSN and CMS 
contractor will submit aggregated and calculated measure rates to CMS.
    We are proposing to implement some procedural requirements to meet 
the statutory mandate by setting requirements and align with current 
quality reporting programs. These procedural requirements would involve 
submission of data to comply with the PCHQR Program requirement.
8. ICRs for the Hospital Value-Based Purchasing (VBP) Program
    In section VIII.C. of the preamble of this proposed rule, we 
discuss our proposal to add requirements for the FY 2015 Hospital VBP 
Program. Specifically, we are proposing to add two additional clinical 
process of care measures--AMI-10: Statin Prescribed at Discharge and 
SCIP-Inf-10: Surgery Patients with Perioperative Temperature 
Management--and two additional outcomes measures--an AHRQ Patient 
Safety Indicators composite measure and CLABSI: Central Line-Associated 
Blood Stream Infection. We also are proposing to add a measure of 
Medicare Spending per Beneficiary in the Efficiency domain. All of 
these measures are required for the Hospital IQR program; therefore, 
their inclusion in the Hospital VBP Program does not result in any 
additional burden because the Hospital VBP Program uses data that are 
required for the Hospital IQR Program.
9. ICRs for the Long-Term Care Hospital Quality Reporting (LTCHQR) 
Program
    The FY 2012 IPPS/LTCH PPS final rule (76 FR 51743 through 51756) 
adopted three quality measures for the FY 2014 Payment Determination: 
(1) Urinary Catheter Associated Urinary Tract Infection [CAUTI] rate 
per 1, 000 urinary catheter days, for Intensive Care Unit [ICU] 
Patients (NQF<greek-i>0138); (2) Central Line Catheter-Associated Blood 
Stream Infection (CLABSI) Rate for ICU and High-Risk Nursery (HRN) 
Patients (NQF<greek-i>0139); and (3) Percent of Residents with Pressure 
Ulcers That are New or Worsened (Short-Stay) (NQF <greek-i>0678). The 
three measures finalized for the FY 2014 payment determination were 
NQF-endorsed at the time, although not for the LTCH setting. We also 
stated the NQF was expected to review some of these measures for 
applicability to the LTCH setting, and we anticipated this review may 
result in modifications to any such measures.
    As part of its endorsement maintenance process, under NQF's Patient 
Safety Measures Project (http://www.qualityforum.org/projects/patient_safety_measures.aspx), the NQF reviewed the CAUTI and CLABSI measures 
previously adopted and expanded the scope of endorsement to include 
additional care settings, including LTCHs. The original NQF-endorsed 
numbers were retained for these two expanded measures, but the measures 
were retitled to reflect the expansion of the scope of endorsement. The 
NQF <greek-i>0138 Urinary Catheter-Associated Urinary Tract Infection 
[CAUTI] Rate Per 1,000 Urinary Catheter Days measure is now titled as 
National Health Safety Network (NHSN) Catheter Associated Urinary Tract 
Infection (CAUTI) Outcome Measure. The NQF <greek-i>0139 (Central Line 
Catheter-Associated Blood Stream Infection [CLABSI] Rate for ICU and 
High Risk Nursery (HRN) Patients is now titled National Health Safety 
Network (NHSN) Central Line Associated Blood Stream Infection (CLABSI) 
Outcome Measure (http://www.qualityforum.org/News_And_Resources/Press_Releases/2012/NQF_Endorses_Patient_Safety_Measures.aspx). 
These expanded measures allow for the calculation of standardized 
infection

[[Page 28125]]

ratio (SIR).<SUP>210,211,212,213</SUP> We are proposing that the CAUTI 
and CLABSI measures be adopted in their expanded form for the FY 2014 
payment determination and all subsequent fiscal year payment 
determinations.
---------------------------------------------------------------------------

    \210\ Centers for Disease Control and Prevention. (2012, 
January). Central Line-Associated Bloodstream Infection (CLABSI) 
Event. Retrieved from http://www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABScurrent.pdf.
    \211\ National Quality Forum (2012). National Healthcare Safety 
Network (NHSN) Central line-associated Bloodstream Infection 
(CLABSI) Outcome Measure. Retrieved from http://www.qualityforum.org/QPS/0139.
    \212\ Centers for Disease Control and Prevention. (2012, 
January). Catheter Associated Urinary Tract Infection Event. 
Retrieved from: http://www.cdc.gov/nhsn/PDFs/pscManual/7pscCAUTIcurrent.pdf.
    \213\ National Quality Forum (2012). National Healthcare Safety 
Network (NHSN) Catheter Associated Urinary Tract Infection (CAUTI) 
Outcome Measure. Retrieved from http://www.qualityforum.org/QPS/0138.
---------------------------------------------------------------------------

    We also are proposing in the preamble of this proposed rule to 
retain the measure Percent of Residents with Pressure Ulcers that are 
New or Worsened (Short-Stay) (NQF <greek-i>0678), adopted in the FY 
2012 IPPS/LTCH PPS final rule for the FY 2014 payment determination for 
all subsequent fiscal year payment determinations. We further noted 
that the Percent of Residents with Pressure Ulcers that are New or 
Worsened (Short-Stay) (NQF <greek-i>0678) measure is undergoing NQF 
review for expansion in the scope of endorsement to include additional 
care settings, including the LTCHs.
    In addition, we are proposing five additional quality measures for 
use in the LTCHQR Program which would affect the FY 2016 LTCHQR Program 
payment determination. These measures are: (1) Percent of Nursing Home 
Residents Who Were Assessed and Appropriately Given the Seasonal 
Influenza Vaccine (Short-Stay) (NQF <greek-i>0680); (2) Percentage of 
Residents Assessed and Appropriately Given the Pneumococcal Vaccine 
(short-stay) (NQF <greek-i>0682); (3) Influenza Vaccination Coverage 
among Healthcare Personnel (NQF <greek-i>0431); (4) Ventilator Bundle 
(NQF <greek-i>0302); and (5) Restraint Rate per 1000 Patient Days (not 
NQF-endorsed).
    The information needed for the three proposed measures, NHSN 
Catheter-Associated Urinary Tract Infection (CAUTI) Outcome Measure, 
NHSN Central line- associated Bloodstream Infection (CLABSI) Outcome 
Measure, and Influenza Vaccination Coverage among Healthcare Personnel, 
would be collected via the CDC/NHSN (http://www.cdc.gov/nhsn/). We are 
proposing that LTCHs report data on these measures according to measure 
specifications of these NQF-endorsed measures.
    The NHSN is a secure, Internet-based surveillance system that is 
maintained and managed by CDC. Many LTCHs already submit data to the 
NHSN either voluntarily or as part of mandatory State reporting 
requirements for HAIs. There are currently 442 LTCHs in operation in 
the United States and, according to CDC, 80 of these LTCHs already 
submit HAI data to NHSN. For these LTCHs, we believe the burden related 
to complying with the requirements of the proposed quality reporting 
program would be reduced because of familiarity with the NHSN 
submission process.
    Further, the initial setup and acclimation to the NHSN system will 
have already occurred through the implementation of the of the NHSN 
Catheter-Associated Urinary Tract Infection (CAUTI) Outcome Measure and 
the NHSN Central Line- Associated Bloodstream Infection (CLABSI) 
Outcome Measure for the FY 2014 LTCHQR Program payment determination to 
the extent they are adopted in the FY 2013 IPPS/LTCH PPS final rule. 
Even though these measures have been recently reviewed by the NQF and 
expanded to post-acute care settings, including LTCHs, there has been 
no change in the way that the data for these measures is to be 
collected and reported to NHSN. Likewise, there has been no change in 
the registration and training requirements for providers that are new 
to the NHSN reporting system. In addition, LTCH providers will begin to 
use the NHSN system to report CAUTI and CLABSI data on October 1, 2012, 
to the extent they are adopted in the FY 2013 IPPS/LTCH PPS final rule. 
By the time that any new measures that are proposed above have been 
finalized and reporting of same begins, LTCH providers should be very 
familiar and comfortable with the NHSN reporting system. Thus, by that 
time, the additional burden related to the reporting of any additional 
measures should they be finalized in the FY 2013 IPPS/LTCH PPS final 
rule.
    The burden associated with these proposed quality measures is the 
time and effort associated with collecting and submitting the data 
concerning CAUTI, CLABSI, and Influenza Vaccination Coverage among 
Healthcare Personnel to NHSN for LTCHs that are not currently reporting 
such data. As we have stated above, for LTCHs that already submit data 
regarding these measures to NHSN, we believe there should be little, if 
any, additional burden. For LTCHs that submit data to NHSN for other 
HAIs, but not data for these three proposed measures, there may be some 
added burden. However, we believe that this burden would be 
significantly decreased because these LTCHs will already be enrolled in 
the NHSN system for the submission of measures for the FY 2014 LTCHQR 
payment determination, provided the proposed CAUTI and CLABSI measures 
are finalized, and will be already familiar with the NHSN data 
submission process.
    There are currently 442 LTCHs in the United States paid under the 
LTCH PPS. We estimate that each LTCH would submit approximately 12 NHSN 
submissions (6 CAUTI events and 6 CLABSI events) per month (144 events 
per LTCH annually). This equates to a total of approximately 63,648 
submissions of HAI data to NHSN from all LTCHs per year. We estimate 
that each NHSN assessment would take approximately 25 minutes to 
complete. This time estimate consists of 10 minutes of clinical (for 
example, nursing time) needed to collect the clinical data and 15 
minutes of clerical time necessary to enter the data into the NHSN 
database. Based on this estimate, we expect each LTCH would expend 300 
minutes (5 hours) per month and 60 hours per year reporting to NHSN. 
Therefore, the total estimated annual hourly burden to all LTCHs in the 
United States for reporting to NHSN is 26,520 hours.
    The estimated cost per submission is estimated at $12.07. These 
costs are estimated using an hourly wage for a registered nurse of 
$41.59 and a medical billing clerk/data entry person of $20.57 (U.S. 
Bureau of Labor Statistics data). Therefore, we estimate that the 
annual cost per each LTCH provider would be $1,739 and the total yearly 
cost to all LTCHs for the submission of CAUTI and CLABSI data to NHSN 
would be $768,497 \214\ While these proposed requirements would be 
subject to the Paperwork Reduction Act, we believe the associated 
burden hours are accounted for in the information collection request 
currently approved, OCN 0920-0666.
---------------------------------------------------------------------------

    \214\ Nursing Time--24 hours @ $41.59 per hour = $998.16; 
$998.16 x 442 LTCHs = approximately $441,187.
    Admin Time--36 hours @ $20.57 per hour = $740.52; $740.52 x 442 
LTCHs = approximately $327,310.
    TOTAL = $441,187 + $327,310 = $768,497.
---------------------------------------------------------------------------

    We analyzed the information collection requirements for the FY 2014 
LTCHQR Program quality reporting measure ``Percent of Residents with 
Pressure Ulcers that are New or Worsened (NQF <greek-i>0678)'' in the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51781).

[[Page 28126]]

    With respect to the remaining four proposed measures, Percent of 
Nursing Home Residents Who Were Assessed and Appropriately Given the 
Seasonal Influenza Vaccine, Percentage of Residents Assessed and 
Appropriately Given the Pneumococcal Vaccine (short-stay); Ventilator 
Bundle, and Restraint Rate per 1,000 Patient Days, we are proposing 
that we would post the specification for the measures, at a later date, 
on our Web site along with the specific data elements necessary to be 
collected. We are proposing to do so because, at this time, we have not 
completed development of the information collection instrument that 
LTCHs will use to submit the data for these measures. Because the forms 
are still under development, we cannot make a complete burden estimate 
at this time. We are proposing that reporting and submission of these 
four measures be incorporated into the existing data collection and 
submission framework, the LTCH CARE Data Set. This is the same data 
collection and submission framework that will be used by CMS to support 
providers for reporting on the Percent of Residents with Pressure 
Ulcers That Are New or Worsened measure.\215\
---------------------------------------------------------------------------

    \215\ The LTCH CARE Data Set, the data collection instrument 
that will be used to submit data on this measure, is currently under 
Paperwork Reduction Act (PRA) review by the Office of Management and 
Budget. It is discussed in a PRA Notice which appeared in the 
Federal Register on September 2, 2011 (Volume 76, Issue 171). The 
file number for the LTCH PRA package is CMS-10409.
---------------------------------------------------------------------------

    By building upon preexisting resources for data collection and 
submission, we intend to foster alignment between measures that helps 
to reduce the administrative burden related to data collection and 
submission. We anticipate that the initial setup and acclimation to the 
data collection by the LTCH CARE Data Set will have already occurred 
with the adoption of the Pressure Ulcer measure for the LTCHQR Program 
for the FY 2014 payment determination. Therefore, we believe the 
transition to reporting the four proposed measures via the LTCH CARE 
Data Set may be less burdensome.
    The delivery of high quality care in the LTCH setting is 
imperative. We believe that collecting quality data on all patients in 
the LTCH setting supports CMS' mission to ensure quality care for 
Medicare beneficiaries. Collecting data on all patients provides the 
most robust and accurate reflection of quality in the LTCH setting.
    At this time, we have not completed development of the information 
collection instrument that LTCHs would have to submit to comply with 
the aforementioned reporting requirements regarding the measures 
proposed for data collection by the LTCH CARE Data Set for the FY 2016 
LTCHQR payment determination. Because the forms are still under 
development, we cannot make a complete burden estimate at this time. 
Once the forms are available, we will prepare and submit the required 
Paperwork Reduction Act (PRA) package which will fully set forth the 
anticipated burden to LTCH providers as a result of the new data items 
(questions) that need to be added to the LTCH CARE Data Set. The PRA 
process provides for the publication of two PRA notices in the Federal 
Register which are followed by 60 and 30 day comment periods 
respectively. The PRA notice and comment process is similar to that 
provided for with the proposed and final rule notice and comment 
process. Therefore, even if it is not possible, at this time, for CMS 
to provide all of the necessary burden estimate information related to 
the new measures that we are proposing to add to the LTCHQR Program, 
stakeholders will still be afforded opportunities to submit public 
comments in accordance with the PRA rules and guidelines.
10. ICRs for the Ambulatory Surgical Center (ASC) Quality Reporting 
Program
    In section VIII.E. of the preamble of this proposed rule, we 
discuss the proposed requirements for the ASC Quality Reporting Program 
for payment determinations affecting CY 2014 and subsequent years. In 
section XIV.K. of the CY 2012 OPPS/ASC final rule with comment period 
(76 FR 74492 through 74517), we finalized our proposal to implement a 
quality reporting program for ASCs beginning with the CY 2014 payment 
determination. We refer readers to the CY 2012 OPPS/ASC final rule with 
comment period (76 FR 74554) for a detailed discussion of the ASC 
Quality Reporting Program collection of information requirements for 
the claims-based and structural measures for the CY 2014 and CY 2015 
payment determinations.
    In the CY 2012 OPPS/ASC final rule with comment period (76 FR 
74516), we finalized our proposal to consider an ASC to be 
participating in the ASC Quality Reporting Program for the CY 2014 
payment determination if the ASC includes Quality Data Codes (QDCs) 
specified for the program on their CY 2012 claims relating to the 
finalized measures.
    For the CY 2015 payment determination and subsequent payment 
determination years, we are proposing that once an ASC submits any 
quality measure data, it would be considered to be participating in the 
ASC Quality Reporting Program. Once an ASC submits quality measure data 
indicating its participation in the ASC Quality Reporting Program, in 
order to withdraw, an ASC must complete and submit an online form 
indicating that it is withdrawing from the quality reporting program.
    For the CY 2015 payment determination and subsequent payment 
determination years, if the ASC submits quality measure data, there is 
no additional action required by the ASC to indicate participation in 
the program. The burden associated with the requirements to withdraw 
from the program is the time and effort associated with accessing, 
completing, and submitting the online form. Based on the number of 
hospitals that have withdrawn from the Hospital OQR Program over the 
past 4 years, we estimate that 2 ASCs would withdraw per year and that 
an ASC would expend 30 minutes to access and complete the form, for a 
total burden of 1 hour per year.
    For the CY 2015 payment determination, we are proposing to require 
ASCs to identify and register a QualityNet administrator in order to 
set up accounts necessary to enter structural measure data. We estimate 
that, based upon previous experience with the Hospital OQR Program, it 
would take an ASC 10 hours to obtain, complete, and submit an 
application for a QualityNet administrator and then set up the 
necessary accounts for structural measure data entry. We estimate the 
total burden to meet these requirements to be 51,750 hours (10 hours x 
5,175 ASCs). We previously discussed the burden associated with the 
data entry of structural measure information for the ASC Quality 
Reporting Program in the CY 2012 OPPS/ASC final rule with comment 
period (76 FR 74554).
    We are proposing to adopt a process for an extension or waiver for 
submitting information required under the program due to extraordinary 
circumstances that are not within the ASC's control. We are proposing 
that an ASC would complete a request form that would be available on 
the QualityNet Web site, supply requested information, and submit the 
request. The burden associated with these requirements is the time and 
effort associated with gathering required information as well as 
accessing, completing, and submitting the form. Based on the number of 
hospitals that have submitted a request for an extension or waiver from 
the Hospital OQR Program over the past 4 years, we estimate that 1 ASC 
per

[[Page 28127]]

year would request an extension or waiver and that an ASC would expend 
2 hours to gather required information as well as access, complete, and 
submit the form, for a total burden of 2 hours per year.
    We also are proposing a reconsideration process that would apply to 
the CY 2014 payment determination and subsequent payment determination 
years under the ASC Quality Reporting Program. While there is burden 
associated with an ASC filing a reconsideration request, the 
regulations at 5 CFR 1320.4 for the Paperwork Reduction Act of 1995 
exclude collection activities during the conduct of administrative 
actions such as redeterminations, reconsiderations, and/or appeals.
    We are requesting public comments on these information collection 
requirements.
11. ICRs for the Inpatient Psychiatric Facilities Quality Reporting 
(IPFQR) Program
    In section VIII.F. of the preamble of this proposed rule, we 
discuss the implementation of the Inpatient Psychiatric Facilities 
Quality Reporting (IPFQR) Program.
    Historically, IPFs have not been required to report quality data to 
CMS. However, they have been required to report quality measures to 
other entities such as TJC or State survey and certification 
organizations. Therefore, although IPFs have not reported on quality 
measures to CMS, they have some familiarity with and experience in 
reporting of quality data. More specifically, out of the 1,741 existing 
IPFs, 450 are currently reporting the proposed measures to TJC. This 
equates to 26.02 percent of IPFs that already report the measures on a 
regular basis. The fact that over one-quarter of the IPFs have 
demonstrated the ability to report the measures indicates the proposed 
regulation would not significantly impact IPFs.
    Furthermore, we estimate that reporting aggregated-level data on 
QualityNet will not be costly to IPFs. In our burden calculation, we 
have included the time used for chart abstraction and for training 
personnel on collection of chart-abstracted data, aggregation of the 
data, as well as training for submitting the aggregate-level data 
through QualityNet. We estimate that the annual hourly burden to each 
IPF for the collection, submission, and training of personnel for 
submitting all quality measures is approximately 821 hours in a year 
for each IPF. The average hourly burden to each IPF is approximately 68 
hours per month.
    This proposed rule would affect all IPFs participating in Medicare. 
The facilities would have to register with QualityNet and take the 
proper training in order to be adequately prepared to use the 
QualityNet system to submit the data. The anticipated burden to these 
providers consists of the following: (1) The initial registration of 
the facility with QualityNet; (2) training of the appropriate staff 
members on how to use the QualityNet reporting program; (3) the time 
required for collection and aggregation of data; and (4) the time 
required for entry of the data into the QualityNet database by the 
IPF's representative.
    This proposed rule would affect all IPFs that currently do not 
already report data to CMS. These facilities will have to register with 
CMS and take the proper training in order to be adequately prepared to 
use the CMS QualityNet System for data submission.
    Those IPFs that already report quality measures to the TJC will be 
minimally affected because the abstraction methods, population, 
sampling, and reporting approaches are similarly adopted by CMS. 
Therefore, IPFs that report the proposed IPFQR Program quality measures 
will experience a minimum burden.
    We are requesting public comments on these information collection 
requirements.
    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-1588-P
    Fax: (202) 395-6974; or
    Email: <a href="/cdn-cgi/l/email-protection#450a0c17041a363027282c36362c2a2b052a28276b202a356b222a33"><span class="__cf_email__" data-cfemail="e9a6a0bba8b69a9c8b84809a9a808687a986848bc78c8699c78e869f">[email protected]</span></a>

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.

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 424

    Health facilities, Medicare, Reporting and recordkeeping 
requirements.

42 CFR Part 476

    Health care, Health professional, Health record, Peer Review 
Organization (PRO), Penalties, Privacy, 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 412.1 is amended by adding new paragraphs (a)(5) and 
(a)(6) to read as follows:


Sec.  412.1  Scope of part.

    (a) * * *
    (5) This part implements section 1886(q) of the Act, which provides 
that, effective for discharges from an ``applicable hospital'' 
beginning on or after October 1, 2012, payments to those hospitals 
under section 1886(d) of the Act will be reduced to account for certain 
excess readmissions, under the Hospital Readmissions Reduction Program. 
This reduction will be made through an adjustment to the hospital's 
base operating DRG payment amounts under the prospective payment system 
for inpatient operating costs.
    (6) This part implements section 1886(o)(1)(B) of the Act, which 
directs the Secretary to begin to make value-based incentive payments 
under the Hospital Value-Based Purchasing Program to hospitals for 
discharges

[[Page 28128]]

occurring on or after October 1, 2012, through an adjustment to the 
base operating DRG payment amounts under the prospective payment system 
for inpatient operating costs.
* * * * *
    3. Section 412.64 is amended by--
    a. Revising paragraph (d)(1)(iv).
    b. Revising the introductory text of paragraph (h)(4).
    c. Revising paragraph (h)(4)(v).
    d. Adding a new paragraph (h)(4)(vi).
    The revisions and addition read as follows:


Sec.  412.64  Federal rates for inpatient operating costs for Federal 
fiscal year 2005 and subsequent fiscal years.

* * * * *
    (d) * * *
    (1) * * *
    (iv) For fiscal years 2012 and 2013, the percentage increase in the 
market basket index less a multifactor productivity adjustment (as 
determined by CMS) and less 0.1 percentage point for prospective 
payment hospitals (as defined in Sec.  413.40(a) of this subchapter) 
for hospitals in all areas.
* * * * *
    (h) * * *
    (4) For discharges on or after October 1, 2004 and before October 
1, 2013, CMS establishes a minimum wage index for each all-urban State, 
as defined in paragraph (h)(5) of this section. This minimum wage index 
value is computed using the following methodology.
* * * * *
    (v) The product determined under paragraph (h)(4)(iv) of this 
section is the minimum wage index value for the State, except as 
provided under paragraph (h)(4)(vi) of this section;
    (vi) For discharges on or after October 1, 2012 and before October 
1, 2013, the minimum wage index value for the State is the higher of 
the value determined under paragraph (h)(4)(iv) of this section or the 
value computed using the following alternative methodology:
    (A) CMS estimates a percentage representing the average percentage 
increase in wage index for hospitals receiving the rural floor due to 
such floor.
    (B) For each all-urban State, CMS makes a onetime determination of 
the lowest hospital wage index in the State (including all adjustments 
to the hospital's wage index, except for the rural floor, the rural 
floor budget neutrality, and the outmigration adjustment) and increases 
this wage index by the percentage determined under paragraph 
(h)(4)(vi)(A) of this section, the result of which establishes the 
alternative minimum wage index value for the State.
* * * * *
    4. Section 412.92 is amended by--
    a. Revising paragraph (b)(2)(i).
    b. Adding paragraph (b)(2)(v).
    b. Adding paragraph (b)(3)(iv).
    The revision and additions read as follows:


Sec.  412.92  Special treatment: Sole community hospitals.

* * * * *
    (b) * * *
    (2) * * * (i) Sole community hospital status is effective 30 days 
after the date of CMS' written notification of approval, except as 
provided in paragraph (b)(2)(v) of this section.
* * * * *
    (v) If a hospital that is classified as an MDH under Sec.  412.108 
applies for classification as a sole community hospital because its 
status under the MDH program expires with the expiration of the MDH 
program, and that hospital's sole community hospital status is 
approved, the effective date of approval of sole community hospital 
status is the day following the expiration date of the MDH program if 
the hospital--
    (A) Applies for classification as a sole community hospital prior 
to 30 days before the expiration of the MDH program; and
    (B) Requests that sole community hospital status be effective with 
the expiration of the MDH program.
    (3) * * *
    (iv) A sole community hospital must report to the fiscal 
intermediary or MAC any factor or information that could have affected 
its initial classification as a sole community hospital. If CMS 
determines that a sole community hospital has failed to comply with 
this requirement, CMS may cancel the hospital's classification as a 
sole community hospital effective with the date the hospital failed to 
meet the criteria for such classification, consistent with the 
provisions of Sec.  405.1885 of this chapter.
* * * * *
    5. Section 412.105 is amended by revising paragraph (b)(4) to read 
as follows:


Sec.  412.105  Special treatment: Hospitals that incur indirect costs 
for graduate medical education programs.

* * * * *
    (b) * * *
    (4) Beds otherwise countable under this section used for outpatient 
observation services, skilled nursing swing-bed services, or inpatient 
hospice services.
* * * * *
    6. Section 412.140 is amended by revising paragraphs (a)(3)(i), 
(b), and (d)(2) to read as follows:


Sec.  412.140  Participation, data submission, and validation 
requirements under the Hospital Inpatient Quality Review (IQR) Program.

    (a) * * *
    (3) * * *
    (i) A hospital that would like to participate in the program for 
the first time (and to which paragraph (a)(3)(ii) of this section does 
not apply), or that previously withdrew from the program and would now 
like to participate again, must submit to CMS a completed Notice of 
Participation Form by December 31 of the calendar year preceding the 
first quarter of the calendar year in which data submission is required 
for any given fiscal year.
* * * * *
    (b) Withdrawal from the Hospital IQR Program. A subsection (d) 
hospital may withdraw from the Hospital IQR Program by submitting to 
CMS a withdrawal form that can be found in the secure portion of the 
QualityNet Web site. The hospital must submit the withdrawal form by 
May 15 prior to the start of the payment year affected. For example, if 
a hospital seeks to withdraw from the FY 2015 payment determination, 
the hospital must submit the withdrawal form to CMS by May 15, 2014.
* * * * *
    (d) * * *
    (2) A hospital meets the validation requirement with respect to a 
fiscal year if it achieves a passing score, as determined by CMS, on 
applicable measure sets.
* * * * *
    7. Subpart I is added to read as follows:

SUBPART I--ADJUSTMENTS TO THE BASE OPERATING DRG PAYMENT AMOUNTS 
UNDER THE PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT OPERATING COSTS

Sec.
412.150 Basis and scope of subpart.

Payment Adjustments Under the Hospital Readmissions Reduction Program

412.152 Definitions for the Hospital Readmissions Reduction Program.
412.154 Payment adjustments under the Hospital Readmissions 
Reduction Program.
412.155-412.159 [Reserved]

[[Page 28129]]

Incentive Payments Under the Hospital Value-Based Purchasing Program

412.160 Definitions for the Hospital Value-Based Purchasing Program.
412.162 Process for reducing the base operating DRG payment amount 
and applying the value-based incentive payment amount adjustment 
under the Hospital Value-Based Purchasing (VBP) Program.
412.163 Process for posting hospital-specific performance 
information under the Hospital Value-Based Purchasing (VBP) Program.
412.164 Measures selection under the Hospital Value-Based Purchasing 
(VBP) Program.
412.165 Performance standards under the Hospital Value-Based 
Purchasing (VBP) Program.
412.166 Performance scoring under the Hospital Value-Based 
Purchasing (VBP) Program.
412.167 Appeal under the Hospital Value-Based Purchasing (VBP) 
Program.
412.168-412.169 [Reserved]

SUBPART I--ADJUSTMENTS TO THE BASE OPERATING DRG PAYMENT AMOUNTS 
UNDER THE PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT OPERATING COSTS


Sec.  412.150  Basis and scope of subpart.

    (a) Section 1886(q) of the Act requires the Secretary to establish 
a Hospital Readmissions Reduction program, under which payments to 
applicable hospitals are reduced in order to account for certain excess 
readmissions, effective for discharges beginning on October 1, 2012. 
The rules for determining the payment adjustment under the Hospital 
Readmission Reductions Program are specified in Sec. Sec.  412.152 and 
412.154.
    (b) Section 1886(o) of the Act requires the Secretary to establish 
a Value-Based Purchasing (VBP) Program for inpatient hospitals 
(Hospital VBP Program), which requires CMS to make value-based 
incentive payments to hospitals that meet performance standards for 
applicable performance periods, effective for discharges beginning on 
October 1, 2012. The rules for determining the payment adjustment under 
the Hospital Value-Based Purchasing Program are specified in Sec. Sec.  
412.160 through 412.167.

Payment Adjustments Under the Hospital Readmissions Reduction Program


Sec.  412.152  Definitions for the Hospital Readmissions Reduction 
Program.

    As used in this section and in Sec.  412.154, the following 
definitions apply:
    Aggregate payments for all discharges is, for a hospital for the 
applicable period, the sum of the base operating DRG payment amounts 
for all discharges for all conditions from such hospital for such 
applicable period.
    Aggregate payments for excess readmissions is, for a hospital for 
the applicable period, the sum, for the applicable conditions, of the 
product for each applicable condition of:
    (1) The base operating DRG payment amount for the hospital for the 
applicable period for such condition;
    (2) The number of admissions for such condition for the hospital 
for the applicable period; and
    (3) The excess readmission ratio for the hospital for the 
applicable period minus 1.
    Applicable condition is a condition or procedure selected by the 
Secretary among conditions and procedures for which:
    (1) Readmissions represent conditions or procedures that are high 
volume or high expenditures; and
    (2) Measures of such readmissions have been endorsed by the entity 
with a contract under section 1890 and such endorsed measures have 
exclusions for readmissions that are unrelated to the prior discharge 
(such as a planned readmission or transfer to another applicable 
hospital).
    Applicable hospital is a hospital described in section 
1886(d)(1)(B) of the Act or a hospital in Maryland that is paid under 
section 1814(b)(3) of the Act and that, absent the waiver specified by 
section 1814(b)(3) of the Act, would have been paid under the hospital 
inpatient prospective payment system.
    Applicable period is, with respect to a fiscal year, the 3-year 
period (specified by the Secretary) from which data are collected in 
order to calculate excess readmission ratios and adjustments under the 
Hospital Readmissions Reduction Program.
    Base operating DRG payment amount is the wage-adjusted DRG 
operating payment plus any applicable new technology add-on payments 
under subpart F of this part. This amount is determined without regard 
to any payment adjustments under the Hospital Value-Based Purchasing 
Program, as specified under Sec.  412.162. This amount does not include 
any additional payments for indirect medical education under Sec.  
412.105, the treatment of a disproportionate share of low-income 
patients under Sec.  412.106, outliers under subpart F of this part, 
and a low volume of discharges under Sec.  412.101.
    Excess readmissions ratio is a hospital-specific ratio for each 
applicable condition for an applicable period, which is the ratio (but 
not less than 1.0) of risk-adjusted readmissions based on actual 
readmissions for an applicable hospital for each applicable condition 
to the risk-adjusted expected readmissions for the applicable hospital 
for the applicable condition.
    Floor adjustment factor is the value that the readmissions 
adjustment factor cannot be less than for a given fiscal year. The 
floor adjustment factor is set at 0.99 for FY 2013, 0.98 for FY 2014, 
and 0.97 for FY 2015 and subsequent fiscal years.
    Readmission is the case of an individual who is discharged from an 
applicable hospital, the admission of the individual to the same or 
another applicable hospital within a time period of 30 days from the 
date of such discharge.
    Readmissions adjustment factor is equal to the greater of:
    (1) 1 minus the ratio of the aggregate payments for excess 
readmissions to aggregate payments for all discharges; or
    (2) The floor adjustment factor.
    Wage-adjusted DRG operating payment is the applicable average 
standardized amount adjusted for resource utilization by the applicable 
MS-DRG relative weight and adjusted for differences in geographic costs 
by the applicable area wage index (and by the applicable cost-of-living 
adjustment for hospitals located in Alaska and Hawaii).


Sec.  412.154  Payment adjustments under the Hospital Readmissions 
Reduction Program.

    (a) Scope. This section sets forth the requirements for determining 
the payment adjustments under the Hospital Readmissions Reduction 
Program for applicable hospitals to account for excess readmissions in 
the hospital.
    (b) Payment adjustment. (1) General. To account for excess 
readmissions, except as provided for in paragraph (d) of this section, 
an applicable hospital's base operating DRG payment amount is adjusted 
for each discharge occurring during the fiscal year. The payment 
adjustment for each discharge is determined by subtracting the product 
of the base operating DRG payment amount (as defined in Sec.  412.152) 
for such discharge by the hospital's readmission payment adjustment 
factor for the fiscal year (determined under paragraph (e) of this 
section) from the base operating DRG payment amount for such discharge.
    (2) Special treatment for sole community hospitals. In the case of 
a sole community hospital that receives payments under Sec.  412.92(d) 
based on the hospital-specific rate, the difference between the 
hospital-specific rate

[[Page 28130]]

payment and the Federal rate payment determined under subpart D of this 
part is not affected by this payment adjustment.
    (c) Methodology to calculate the readmissions payment adjustment 
factor. A hospital's readmission payment adjustment factor is the 
higher of the ratio described in paragraph (c)(1) of this section or 
the floor adjustment factor set forth in paragraph (c)(2) of this 
section.
    (1) Ratio. The ratio is equal to 1 minus the ratio of the aggregate 
payments for excess readmissions as defined in Sec.  412.152 and the 
aggregate payments for all discharges as defined in Sec.  412.152.
    (2) Floor adjustment factor. The floor adjustment factor is:
    (i) For FY 2013, 0.99;
    (ii) For FY 2014, 0.98; and
    (iii) For FY 2015 and subsequent fiscal years, 0.97.
    (d) Hospitals paid under section 1814(b)(3) of the Act (certain 
Maryland hospitals). The Secretary will consider whether to exempt 
Maryland hospitals that are paid under section 1814(b)(3) of the Act 
and that, absent the provisions of section 1814(b)(3) of the Act, would 
be paid under section 1886(d) of the Act from the Hospital Readmissions 
Reduction Program, provided that the State submits an annual report to 
the Secretary describing how a similar program to reduce hospital 
readmissions in that State achieves or surpasses the measured results 
in terms of health outcomes and cost savings for the Hospital 
Readmissions Reduction Program as applied to hospitals described in 
section 1886(d)(1)(B) of the Act.
    (1) CMS will establish criteria for evaluation of Maryland's annual 
report to the Secretary to determine whether Maryland will be exempted 
from the program for a given fiscal year.
    (2) Maryland's annual report to the Secretary and request for 
exemption from the Hospital Readmissions Reduction Program must be 
resubmitted and reconsidered annually.
    (e) Limitations on review. There is no administrative or judicial 
review under this subpart of the following:
    (1) The determination of base operating DRG payment amounts.
    (2) The methodology for determining the adjustment factor under 
paragraph (c) of this section, including the excess readmissions ratio, 
aggregate payments for excess readmissions, and aggregate payments for 
all discharges.
    (3) The applicable period.
    (4) The applicable conditions.
    (f) Reporting of hospital-specific information. CMS will make 
information available to the public regarding readmissions rates of 
each applicable hospital (as defined in Sec.  412.152) under the 
Hospital Readmissions Reduction Program.
    (1) To ensure that an applicable hospital has the opportunity to 
review and submit corrections for its excess readmission ratios for the 
applicable conditions for a fiscal year that are used to determine its 
readmissions payment adjustment factor under paragraph (c) of this 
section, CMS will provide each applicable hospital with confidential 
hospital-specific reports and discharge level information used in the 
calculation of its excess readmission ratios.
    (2) Applicable hospitals will have a period of 30 days after 
receipt of the information provided in paragraph (f)(1) of this section 
to review and submit corrections for the excess readmission ratios for 
each applicable condition that are used to calculate the readmissions 
payment adjustment factor under paragraph (c) of this section for the 
fiscal year.
    (3) The administrative claims data used to calculate an applicable 
hospital's excess readmission ratios for the applicable conditions for 
a fiscal year are not subject to review and correction under paragraph 
(f)(1) of this section.
    (4) CMS will post the excess readmission ratios for the applicable 
conditions for a fiscal year for each applicable hospital on the 
Hospital Compare Web site (http://www.hospitalcompare.hhs.gov).


Sec. Sec.  412.155-412.159  [Reserved]

Incentive Payments Under the Hospital Value-Based Purchasing Program


Sec.  412.160  Definitions for the Hospital Value-Based Purchasing 
Program.

    As used in this section and in Sec. Sec.  412.162 through 412.167:
    Achievement threshold means the median performance level among all 
hospitals on a measure during the baseline period or performance 
period, as applicable, for each measure for a fiscal year.
    Applicable percent means the following:
    (1) For FY 2013, 1.0 percent;
    (2) For FY 2014, 1.25 percent;
    (3) For FY 2015, 1.50 percent;
    (4) For FY 2016, 1.75 percent; and
    (5) For FY 2017 and subsequent fiscal years, 2.0 percent.
    Base operating DRG payment amount means the following:
    (1) With respect to a subsection (d) hospital (as defined in 
section 1886(d)(1)(B) of the Act), the wage-adjusted DRG operating 
payment plus any applicable new technology add-on payments under 
subpart F of this part. This amount is determined without regard to any 
payment adjustments under the Hospital Readmissions Reduction Program, 
as specified under Sec.  412.154. This amount does not include any 
additional payments for indirect medical education under Sec.  412.105, 
the treatment of a disproportionate share of low-income patients under 
Sec.  412.106, outliers under subpart F of this part, or a low volume 
of discharges under Sec.  412.101.
    (2) With respect to a Medicare-dependent, small rural hospital that 
receives payments under Sec.  412.108(c) or a sole community hospital 
that receives payments under Sec.  412.92(d), the wage-adjusted DRG 
operating payment plus any applicable new technology add-on payments 
under subpart F of this part. This amount does not include any 
additional payments for indirect medical education under Sec.  412.105, 
the treatment of a disproportionate share of low-income patients under 
Sec.  412.106, outliers under subpart F of this part, or a low volume 
of discharges under Sec.  412.101. This amount also does not include 
the difference between the hospital-specific payment rate and the 
Federal payment rate determined under subpart D of this part.
    (3) With respect to a hospital that is paid under section 
1814(b)(3) of the Act, the payment amount under section 1814(b)(3) of 
the Act.
    Benchmark means the arithmetic mean of the top decile of 
performance among all hospitals on a measure during the baseline period 
or performance period, as applicable, for each measure for a fiscal 
year.
    Cited for deficiencies that pose immediate jeopardy means that, 
during the applicable performance period, the Secretary cited the 
hospital for immediate jeopardy on at least two surveys using the Form 
CMS-2567, Statement of Deficiencies and Plan of Correction.
    Domain means a category of quality measures given weighting for 
purposes of performance scoring as a component of the Total Performance 
Score.
    Domain score means the points awarded to a hospital for scored 
measures in a domain.
    Hospital means a hospital described in section 1886(d)(1)(B) of the 
Act, but does not include a hospital, with respect to a fiscal year, 
for which one or more of the following applies:
    (1) The hospital is subject to the payment reduction under section 
1886(b)(3)(B)(viii)(I) of the Act for the fiscal year;

[[Page 28131]]

    (2) The hospital was cited for deficiencies that pose immediate 
jeopardy by the Secretary during the performance period for the fiscal 
year;
    (3) There are not a minimum number of measures that apply to the 
hospital for the performance period for the fiscal year; or
    (4) There are not a minimum number of cases for the measures that 
apply to the hospital for the performance period for the fiscal year.
    Immediate jeopardy has the same meaning as that term is defined in 
Sec.  489.3 of this chapter.
    Improvement threshold means an individual hospital's performance 
level on a measure during the baseline period for a fiscal year.
    Performance period means the time period during which data are 
collected for the purpose of calculating hospital performance on 
measures under the Hospital VBP Program.
    Performance standards are the levels of performance that hospitals 
must achieve in order to earn points under the Hospital VBP Program.
    Total Performance Score means the numeric score ranging from 0 to 
100 awarded to each hospital based on its performance under the 
Hospital VBP Program with respect to a fiscal year.
    Value-based incentive payment percentage means the percentage of 
the total base operating DRG payment amount for each discharge that a 
hospital has earned, based on its Total Performance Score, the 
applicable percent, and the exchange function slope, with respect to a 
fiscal year.
    Value-based payment adjustment factor is calculated by subtracting 
the applicable percent from the value-based incentive payment 
percentage, converting the result to a number, and adding one.
    Wage-adjusted DRG operating payment is the applicable average 
standardized amount adjusted for resource utilization by the applicable 
MS-DRG relative weight and adjusted for differences in geographic costs 
by the applicable area wage index (and by the applicable cost-of-living 
adjustment for hospitals located in Alaska and Hawaii).


Sec.  412.162  Process for reducing the base operating DRG payment 
amount and applying the value-based incentive payment amount adjustment 
under the Hospital Value-Based Purchasing (VBP) Program.

    (a) General. If a hospital meets or exceeds the performance 
standards that apply to the Hospital VBP Program for a fiscal year, CMS 
will make value-based incentive payments to the hospital under the 
requirements and conditions specified in this section.
    (b) Value-based incentive payment amount. (1) Available amount. The 
value-based incentive payment amount for a discharge is the portion of 
the payment amount that is attributable to the Hospital VBP Program. 
The total amount available for value based incentive payments to all 
hospitals is equal to the total amount of base-operating DRG payment 
reductions, as estimated by the Secretary, according to section 
1886(o)(6)(C)(ii)(I) of the Act.
    (2) Calculation of the value-based incentive payment amount. The 
value-based incentive payment is determined by multiplying the base 
operating DRG payment amount and the value-based incentive payment 
percentage.
    (3) Calculation of the he value-based incentive payment percentage. 
The value-based incentive payment percentage is calculated as the 
product of: The applicable percent as specified in paragraph (d) of 
this section, the hospital's Total Performance Score divided by 100, 
and the exchange function slope.
    (c) Methodology to calculate the value-based incentive payment 
adjustment factor. (1) General. The base operating DRG payment amount 
payment amount for each discharge is adjusted under the Hospital VBP 
Program by multiplying the base operating DRG payment amount by the 
value-based incentive payment adjustment factor.
    (2) Calculation Methodology. The value-based incentive payment 
adjustment factor for each discharge is determined by subtracting the 
applicable percent as specified in paragraph (d) of this section from 
the value-based incentive payment percentage and then adding that 
difference to one.
    (d) Hospitals paid under section 1814 of the Act (Maryland 
hospitals). (1) The Secretary may exempt Maryland hospitals from the 
requirements of the Hospital VBP Program for a fiscal year if the State 
submits an annual report to the Secretary describing how a similar 
program in the State for a participating hospital or hospitals achieves 
or surpasses the measured results in terms of patient health outcomes 
and cost savings established under the Hospital VBP Program.
    (e) Limitations on review. There is no administrative or judicial 
review of the following:
    (1) The methodology used to determine the amount of the value-based 
incentive payment under section 1886(o)(6) of the Act and the 
determination of such amount.
    (2) The determination of the amount of funding available for value-
based incentive payments under section 1886(o)(7)(A) of the Act and the 
payment reduction under section 1886(o)(7)(B)(i) of the Act.
    (3) The establishment of the performance standards under section 
1886(o)(3) of the Act and the performance period under section 
1886(o)(4) of the Act.
    (4) The measures specified under section 1886(b)(3)(B)(viii) of the 
Act and the measures selected under section 1886(o)(2) of the Act.
    (5) The methodology developed under section 1886(o)(5) of the Act 
that is used to calculate hospital performance scores and the 
calculation of such scores.
    (6) The validation methodology that is specified under section 
1886(b)(3)(B)(viii)(XI) of the Act.


Sec.  412.163  Process for posting hospital-specific performance 
information under the Hospital Value-Based Purchasing (VBP) Program.

    (a) CMS will make information available to the public regarding the 
performance of each hospital (as defined in Sec.  412.160(h) of the 
subpart) under the Hospital VBP Program.
    (b) To ensure that a hospital has the opportunity to review and 
submit corrections for the information to be made public under this 
section, CMS will provide each hospital with confidential hospital-
specific reports and discharge level information used in the 
calculation of its performance with respect to each measure, condition, 
and domain, and the calculation of its Total Performance Score.
    (c) Hospitals will have a period of 30 days after CMS provides the 
information specified in paragraph (b) of this section to review and 
submit corrections for the information.
    (d) CMS will post the information specified in paragraph (b) for 
each hospital on the Hospital Compare Web site.


Sec.  412.164  Measures selection under the Hospital Value-Based 
Purchasing (VBP) Program.

    (a) CMS will select measures, other than measures of readmissions, 
for purposes of the Hospital VBP Program. Such measures will be a 
subset of the measures specified under section 1886(b)(3)(B)(viii) of 
the Act (the Hospital Inpatient Quality Reporting Program).
    (b) CMS will post data on each measure on the Hospital Compare Web 
site for at least 1 year prior to the beginning of a performance period 
for the measure under the Hospital VBP Program.

[[Page 28132]]

Sec.  412.165  Performance standards under the Hospital Value-Based 
Purchasing (VBP) Program.

    (a) Points awarded based on hospital performance. (1) CMS will 
award points to hospitals for performance on each measure for which the 
hospital reports the applicable minimum number of cases during the 
applicable performance period.
    (2) CMS will award from 1 to 9 points for achievement to each 
hospital whose performance on a measure during the applicable 
performance period meets or exceeds the achievement threshold but is 
less than the benchmark for that measure.
    (3) CMS will award from 0 to 9 points for improvement to each 
hospital whose performance on a measure during the applicable 
performance period exceeds the improvement threshold but is less than 
the benchmark for that measure.
    (4) CMS will award 10 points to a hospital whose performance on a 
measure during the applicable performance period meets or exceeds the 
benchmark for that measure.
    (b) [Reserved]


Sec.  412.166  Performance scoring under the Hospital Value-Based 
Purchasing (VBP) Program.

    The hospital's Total Performance Score for a program year is 
calculated as follows:
    (a) CMS will calculate a domain score for a hospital when it 
reports the minimum number of measures in the domain.
    (b) CMS will sum all points awarded for each measure in a domain to 
calculate an unweighted domain score.
    (c) CMS will normalize the domain scores to ensure that the domain 
score is expressed as a percentage of points earned out of 100.
    (d) CMS will weight the domain scores with the finalized domain 
weights for each fiscal year.
    (e) The sum of the weighted domain scores is the hospital's Total 
Performance Score for the fiscal year.


Sec.  412.167  Appeal under the Hospital Value-Based Purchasing (VBP) 
Program.

    (a) A hospital may appeal the following issues:
    (1) CMS' decision to deny a hospital's correction request that the 
hospital submitted under the review and corrections process;
    (2) Whether the achievement/improvement points were calculated 
correctly;
    (3) Whether CMS properly used the higher of the achievement/
improvement points in calculating the hospital's measure/dimension 
score;
    (4) Whether CMS correctly calculated the domain scores, including 
the normalization calculation;
    (5) Whether CMS used the proper lowest dimension score in 
calculating the hospital's HCAHPS consistency points;
    (6) Whether CMS calculated the HCAHPS consistency points correctly;
    (7) Whether the correct domain scores were used to calculate the 
Total Performance Score;
    (8) Whether each domain was weighted properly;
    (9) Whether the weighted domain scores were properly summed to 
arrive at the Total Performance Score; and,
    (10) Whether the hospital's open/closed status (including mergers 
and acquisitions) is properly specified in CMS' systems.
    (b) Appeals must be submitted within 30 days of CMS' decision to 
deny a corrections request under Sec.  412.163 or within 30 days of the 
conclusion of the review and corrections period, as applicable, and 
must contain the following information:
    (1) Hospital's CMS Certification Number (CCN).
    (2) Hospital name.
    (3) Hospital's basis for requesting an appeal. This must identify 
the hospital's specific reason(s) for appealing the hospital's Total 
Performance Score or performance assessment with respect to the 
performance standards.
    (4) CEO contact information, including name, email address, 
telephone number, and mailing address (must include the physical 
address, not just the post office box).
    (5) QualityNet System Administrator contact information, including 
name, email address, telephone number, and mailing address (must 
include the physical address, not just the post office box).
    (c) Limitations on review. There is no administrative or judicial 
review of the following:
    (1) The methodology used to determine the amount of the value-based 
incentive payment under section 1886(o)(6) of the Act and the 
determination of such amount.
    (2) The determination of the amount of funding available for value-
based incentive payments under section 1886(o)(7)(A) of the Act and the 
payment reduction under section 1886(o)(7)(B)(i) of the Act.
    (3) The establishment of the performance standards under section 
1886(o)(3) of the Act and the performance period under section 
1886(o)(4) of the Act.
    (4) The measures specified under section 1886(b)(3)(B)(viii) of the 
Act and the measures selected under section 1886(o)(2) of the Act.
    (5) The methodology developed under section 1886(o)(5) of the Act 
that is used to calculate hospital performance scores and the 
calculation of such scores.
    (6) The validation methodology that is specified under section 
1886(b)(3)(B)(viii)(XI) of the Act.


Sec. Sec.  412.168-412.169  [Reserved]

    8. Section 412.424 is amended by adding a new paragraph (d)(1)(vi) 
to read as follows:


Sec.  412.424  Methodology for calculating the Federal per diem payment 
amount.

* * * * *
    (d) * * *
    (1) * * *
    (vi) Applicable percentage change for fiscal year 2014 payment 
determination and for subsequent years. (A) In the case of an inpatient 
psychiatric facility that is paid under the prospective payment system 
in Sec.  412.1(a)(2) that does not submit quality data to CMS, in the 
form and manner and at a time specified by CMS, the applicable annual 
update to a Federal standard rate is reduced by 2.0 percentage points.
    (B) Any reduction in the applicable annual update to a Federal 
standard rate will apply only to the fiscal year involved and will not 
be taken into account in computing the annual payment update for a 
subsequent year.
* * * * *
    9. Section 412.434 is added to subpart N to read as follows:


Sec.  412.434  Reconsideration and appeals procedures of Inpatient 
Psychiatric Facilities Quality Reporting (IPFQR) Program decisions.

    (a) An inpatient psychiatric facility may request reconsideration 
of a decision by CMS that the inpatient psychiatric facility has not 
met the requirements of the IPFQR Program for a particular fiscal year. 
An inpatient psychiatric facility must submit a reconsideration request 
to CMS no later than 30 days from the date identified on the IPFQR 
Program Annual Payment Update Notification Letter provided to the 
inpatient psychiatric facility.
    (b) A reconsideration request must contain the following 
information:
    (1) The inpatient psychiatric facility's CMS Certification Number 
(CCN);
    (2) The name of the inpatient psychiatric facility;
    (3) Contact information for the inpatient psychiatric facility's 
chief executive officer and QualityNet system administrator, including 
each individual's name, email address, telephone number, and physical 
mailing address;

[[Page 28133]]

    (4) A summary of the reason(s), as set forth in the IPFQR Program 
Annual Payment Update Notification Letter, that CMS concluded the 
inpatient psychiatric facility did not meet the requirements of the 
IPFQR Program;
    (5) A detailed explanation of why the inpatient psychiatric 
facility believes that it complied with the requirements of the IPFQR 
Program for the applicable fiscal year; and
    (6) Any evidence that supports the inpatient psychiatric facility's 
reconsideration request, such as emails and other documents.
    (c) An inpatient psychiatric facility that is dissatisfied with a 
decision made by CMS on its reconsideration request may file an appeal 
with the Provider Reimbursement Review Board under part 405, subpart R 
of this chapter.

    10. Section 412.523 is amended by--
    a. Adding a new paragraph (c)(3)(ix).
    b. Revising paragraph (d)(3).
    The addition and revision read as follows:


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

* * * * *
    (c) * * *
    (3) * * *
    (ix) For long-term care hospital prospective payment system fiscal 
year beginning October 1, 2012, and ending September 30, 2013. (A) The 
standard Federal rate for the long-term care hospital prospective 
payment system beginning October 1, 2012, and ending September 30, 
2013, is the standard Federal rate for the previous long-term care 
hospital prospective payment system fiscal year updated by 2.1 percent, 
and further adjusted, as appropriate, as described in paragraph (d) of 
this section.
    (B) With respect to discharges occurring on or after October 1, 
2012 and before December 29, 2012, payments are based on the standard 
Federal rate in paragraph (c)(3)(ix)(A) of this section without regard 
to the adjustment provided for under paragraph (d)(3)(ii) of this 
section.
* * * * *
    (d) * * *
    (3) (i) General. The Secretary reviews payments under this 
prospective payment system and may make a one-time prospective 
adjustment to the long-term care hospital prospective payment system 
rates no earlier than December 29, 2012, so that the effect of any 
significant difference between the data used in the original 
computations of budget neutrality for FY 2003 and more recent data to 
determine budget neutrality for FY 2003 is not perpetuated in the 
prospective payment rates for future years.
    (ii) Adjustment to the standard Federal rate. The standard Federal 
rate determined in paragraph (c)(3) of this section is permanently 
reduced by 3.75 percent to account for the estimated difference between 
projected aggregate payments in FY 2003 made under the prospective 
payment system implemented under this subpart and the projected 
aggregate payments that would have been made in FY 2003 under Part 413 
of this chapter without regard to the implementation of the prospective 
payment system implemented under this subpart, excluding the effects of 
sections 1886(b)(2)(E) and (b)(3)(J) of the Act. This adjustment is 
transitioned over 3 years beginning in FY 2013.
    (iii) Special rule for certain discharges occurring during FY 2013. 
The adjustment applied under paragraph (d)(3)(ii) of this section is 
not applicable when making payments under this subpart for discharges 
occurring on or after October 1, 2012, and on or before December 28, 
2012.
* * * * *
    11. Section 412.529 is amended by revising paragraph (d)(4)(i)(C) 
to read as follows:


Sec.  412.529  Special payment provisions for short-stay outliers.

* * * * *
    (d) * * *
    (4) * * *
    (i) * * *
    (C) The payment amount specified under paragraph (d)(4)(i)(B) of 
this section may not exceed the full amount comparable to what would 
otherwise be paid under the hospital inpatient prospective payment 
system determined under paragraph (d)(4)(i)(A) of this section.
* * * * *
    12. Section 412.534 is amended by--
    a. In the following paragraphs, removing the date ``October 1, 
2012'' and adding in its place the date ``October 1, 2013'':
    1. Paragraph (c)(1) heading;
    2. Paragraph (c)(1)(i);
    3. Paragraph (c)(1)(ii);
    4. Paragraph (c)(2) heading;
    5. Paragraph (d)(1) heading;
    6. Paragraph (d)(1)(i);
    7. Paragraph (d)(2) heading;
    8. Paragraph (e)(1) heading;
    9. Paragraph (e)(1)(i); and
    10. Paragraph (e)(2) heading.
    b. Revising the heading of paragraph (c)(3).
    c. Revising the heading of paragraph (d)(3).
    d. Revising the heading of paragraph (e)(3).
    e. Revising paragraph (h)(4).
    f. Revising paragraph (h)(5).
    The revisions read as follows:


Sec.  412.534  Special payment provisions for long-term care hospitals 
within hospitals and satellites of long-term care hospitals.

* * * * *
    (c) * * *
    (3) For cost reporting periods beginning on or after July 1, 2007 
and before July 1, 2012 and for cost reporting periods beginning on or 
after October 1, 2012 and before October 1, 2013. * * *
    (d) * * *
    (3) For cost reporting periods beginning on or after July 1, 2007 
and before July 1, 2012 and for cost reporting periods beginning on or 
after October 1, 2012 and before October 1, 2013. * * *
    (e) * * *
    (3) For cost reporting periods beginning on or after July 1, 2007 
and before July 1, 2012 and for cost reporting periods beginning on or 
after October 1, 2012 and before October 1, 2013. * * *
    (h) * * *
    (4) For a long-term care hospital described in Sec.  
412.23(e)(2)(i) that meets the criteria in Sec.  412.22(f), the 
policies set forth in this paragraph (h) and in Sec.  412.536 do not 
apply for discharges occurring in cost reporting periods beginning on 
or after July 1, 2007 and before July 1, 2012 and for cost reporting 
periods beginning on and after October 1, 2012 and before October 1, 
2013.
    (5) For a long-term care hospital or satellite facility that, as of 
December 29, 2007, was co-located with an entity that is a provider-
based, off-campus location of a subsection (d) hospital which did not 
provide services payable under section 1886(d) of the Act at the off-
campus location, the policies set forth in this paragraph (h) and in 
Sec.  412.536 of this part do not apply for discharges occurring in 
cost reporting periods beginning on or after July 1, 2007 and before 
July 1, 2012 and for cost reporting periods beginning on or after 
October 1, 2012 and before October 1, 2013.
    13. Section 412.536 is amended by revising the introductory text of 
paragraph (a)(2) to read as follows:


Sec.  412.536  Special payment provisions for long-term care hospitals 
and satellites of long-term care hospitals that discharged Medicare 
patients admitted from a hospital not located in the same building or 
on the same campus as the long-term care hospital or satellite of the 
long-term care hospital.

    (a) * * *

[[Page 28134]]

    (2) For cost reporting periods beginning on or after July 1, 2007 
and before July 1, 2012, and for cost reporting periods beginning on or 
after October 1, 2012 and before October 1, 2013, the policies set 
forth in this section are not applicable to discharges from:
* * * * *

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

    14. 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).

    15. Section 413.24 is amended by revising paragraph (a) to read as 
follows:


Sec.  413.24  Adequate cost data and cost finding.

    (a) Principle. Providers receiving payment on the basis of 
reimbursable cost must provide adequate cost data. This must be based 
on their financial and statistical records which must be capable of 
verification by qualified auditors. The cost data must be based on an 
approved method of cost finding and on the accrual basis of accounting, 
except for--
    (1) Governmental institutions which operate on a cash basis method 
of accounting. Cost data based on such basis of accounting will be 
acceptable, subject to appropriate treatment of capital expenditures.
    (2) Costs of qualified defined benefit pension plans shall be 
reported on a cash basis method of accounting, as described at Sec.  
413.100(c)(2)(vii)(D) for cost reporting periods beginning on or after 
October 1, 2011.
* * * * *
    16. Section 413.79 is amended by--
    a. Revising paragraph (e)(1).
    b. Revising paragraph (f)(7)(i)(B).
    c. Redesignating paragraphs (n)(2)(ii) and (n)(2)(iii) as 
paragraphs (n)(2)(iii) and paragraph (n)(2)(iv), respectively.
    d. Adding new paragraph (n)(2)(ii).
    e. Revising redesignated paragraphs (n)(2)(iii) and (n)(2)(iv).
    The revisions and addition read as follows:


Sec.  413.79  Direct GME payments: Determination of the weighted number 
of FTE residents.

* * * * *
    (e) * * *
    (1) If a hospital had no allopathic or osteopathic residents in its 
most recent cost reporting period ending on or before December 31, 
1996, and it establishes a new medical residency training program on or 
after January 1, 1995, the hospital's unweighted FTE resident cap under 
paragraph (c) of this section may be adjusted based on the product of 
the highest number of FTE residents in any program year during the 
third year of the first program's existence for all new residency 
training programs and the number of years in which residents are 
expected to complete the program based on the minimum accredited length 
for the type of program. The adjustment to the cap may not exceed the 
number of accredited slots available to the hospital for the new 
program. If a hospital that had no allopathic or osteopathic residents 
in its most recent cost reporting period ending on or before December 
31, 1996, begins training residents in a new program for the first time 
on or after October 1, 2012, the hospital's unweighted FTE resident cap 
under paragraph (c) of this section may be adjusted based on the 
product of the highest number of FTE residents in any program year 
during the fifth academic year of the first program's existence for all 
new residency training programs and the number of years in which 
residents are expected to complete the program based on the minimum 
accredited length for the type of program. The adjustment to the cap 
may not exceed the number of accredited slots available to the hospital 
for the new program.
    (i) If the residents are spending an entire program year (or years) 
at one hospital and the remainder of the program at another hospital, 
the adjustment to each respective hospital's cap is equal to the 
product of the highest number of FTE residents in any program year 
during the third year of the first program's existence and the number 
of years in which residents are expected to complete the program based 
on the minimum accredited length for the type of program and the number 
of years the residents are training at each respective hospital. If a 
hospital begins training residents in a new program for the first time 
on or after October 1, 2012, and if the residents are spending an 
entire program year (or years) at one hospital and the remainder of the 
program at another hospital, the adjustment to each respective new 
teaching hospital's cap is equal to the product of two amounts. The 
first amount is the product of the highest total number of FTE 
residents in any program year during the fifth year of the first 
program's existence at all of the participating hospitals involved and 
the number of years in which residents are expected to complete the 
program, based on the minimum accredited length for the type of 
program. The second amount is the ratio of the number of FTE residents 
in the new program that the hospital may count over the entire 5-year 
period to the total number of FTE residents that all of the 
participating hospitals may count over the entire 5-year period.
    (ii) Prior to the implementation of the hospital's adjustment to 
its FTE cap beginning with the fourth year of the hospital's residency 
program(s), the hospital's cap may be adjusted during each of the first 
3 years of the hospital's new residency program using the actual number 
of residents participating in the new program. The adjustment may not 
exceed the number of accredited slots available to the hospital for 
each program year. If a hospital begins training residents in a new 
program for the first time on or after October 1, 2012, prior to the 
implementation of the hospital's adjustment to its FTE cap beginning 
with the sixth year of the hospital's residency program(s), the 
hospital's cap may be adjusted during each of the first 5 years of the 
hospital's new residency program using the actual number of FTE 
residents participating in the new program. The adjustment may not 
exceed the number of accredited slots available to the hospital for 
each program year.
    (iii) Except for rural hospitals, the cap will not be adjusted for 
new programs established more than 3 years after the first program 
begins training residents. If a hospital begins training residents in a 
new program for the first time on or after October 1, 2012, except for 
rural hospitals, the cap will not be adjusted for new programs 
established more than 5 years after the first program begins training 
residents.
    (iv) Effective for affiliation agreements entered into on or after 
October 1, 2005, an urban hospital that qualifies for an adjustment to 
its FTE cap under paragraph (e)(1) of this section is permitted to be 
part of a Medicare GME affiliated group for purposes of establishing an 
aggregate FTE cap only if the adjustment that results from the 
affiliation is an increase to the urban hospital's FTE cap.
    (v) A rural hospital that qualifies for an adjustment to its FTE 
cap under paragraph (e)(1) of this section is permitted to be part of a 
Medicare GME

[[Page 28135]]

affiliated group for purposes of establishing an aggregate FTE cap.
* * * * *
    (f) * * *
    (7) * * *
    (i) * * *
    (B) Specify the effective period of the emergency Medicare GME 
affiliation agreement (which must, in any event, terminate at the 
conclusion of four academic years following the academic year in which 
the section 1135 emergency period began).
* * * * *
    (n) * * *
    (2) * * *
    (ii) A hospital that receives an increase in the otherwise 
applicable FTE resident cap under paragraph (n)(1) of this section must 
fill at least half of its section 5503 slots in at least one of the 
following timeframes or lose its section 5503 slots under paragraph 
(n)(2)(iv) of this section: Its first 12-month cost reporting period of 
the 5-year period; and/or its second 12-month cost reporting period of 
the 5-year period; and/or its third 12-month cost reporting period of 
the 5-year period. Such a hospital that receives an increase in the 
otherwise applicable FTE resident cap under paragraph (n)(1) of this 
section also must fill all of the slots it received by its final cost 
reporting period beginning during the timeframe of July 1, 2011 through 
June 30, 2016, or under paragraph (n)(2)(iv) of this section, lose all 
of its section 5503 slots after June 30, 2016.
    (iii) CMS may determine whether a hospital has met the requirements 
under paragraphs (n)(2)(i) and (n)(2)(ii) of this section during the 5-
year period of July 1, 2011, through June 30, 2016, in such manner and 
at such time as CMS determines appropriate, including at the end of 
such 5-year period.
    (iv) In a case where the Medicare contractor determines that a 
hospital did not meet the requirements under paragraphs (n)(2)(i) and 
(n)(2)(ii) of this section in a cost reporting period within the 5-year 
time period, the Medicare contractor will reduce the otherwise 
applicable FTE resident cap of the hospital by the amount by which such 
limit was increased under paragraph (n)(1) of this section from the 
earliest cost reporting period that is reopenable in which it would be 
determined that the hospital did not meet the requirements.
* * * * *
    17. Section 413.100 is amended by adding a new paragraph 
(c)(2)(vii)(D) to read as follows:


Sec.  413.100  Special treatment of certain accrued costs.

* * * * *
    (c) * * *
    (2) * * *
    (vii) * * *
    (D) Exception: Qualified defined benefit pension plans, which are 
funded deferred compensation arrangements, shall be reported on a cash 
accounting basis as follows:
    (1) The allowable pension cost shall be equal to the amount of 
actual pension contributions funded during the hospital's current 
Medicare cost reporting period, plus any contributions funded in a 
prior period and carried forward, subject to the limit under paragraph 
(c)(2)(vii)(D)(2) of this section.
    (2) Except as provided in paragraph (c)(2)(vii)(D)(3) of this 
section, the allowable pension cost shall not exceed 150 percent of the 
average contribution(s) funded during the three consecutive Medicare 
cost reporting periods that produce the highest average 
contribution(s), out of the five most recent Medicare cost reporting 
periods (ending with the current cost reporting period). Contributions 
in excess of the limit may be carried forward to future period(s). In 
the case of a newly adopted pension plan, the 5-year look-back period 
and/or the 3-year averaging period will be limited to the number of 
cost reporting periods the provider sponsored a qualified defined 
benefit pension plan.
    (3) A waiver of the limit imposed under paragraph (c)(2)(vii)(D)(2) 
of this section may be granted for a specific Medicare cost reporting 
period for all or a portion of the contributions in excess of the limit 
imposed under paragraph (c)(2)(vii)(D)(2) of this section if it is 
determined that such excess costs are reasonable and necessary for that 
period.
* * * * *

PART 424--CONDITIONS FOR MEDICARE PAYMENT

    18. The authority citation for Part 424 continues to read as 
follows:

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

    19. Section 424.30 is revised to read as follows:


Sec.  424.30  Scope.

    This subpart sets forth the requirements, procedures, and time 
limits for claiming Medicare payments. Claims must be filed in all 
cases except when services are furnished on a prepaid capitation basis 
by an MA organization, or through cost settlement with a health 
maintenance organization (HMO), a competitive medical plan (CMP), a 
health care prepayment plan (HCPP), or a demonstration. However, claims 
must be filed by hospitals seeking IME payment under Sec.  412.105(g) 
of this chapter, and/or direct GME payment under Sec.  413.76(c) of 
this chapter, and/or nursing or allied health education payment under 
Sec.  413.87 of this chapter associated with services furnished on a 
prepaid capitation basis by an MA organization. Hospitals that must 
report patient data for services furnished on a prepaid capitation 
basis by an MA organization, or through cost settlement with a health 
maintenance organization (HMO), a competitive medical plan (CMP), a 
health care prepayment plan (HCCP), or a demonstration, for purposes of 
the DSH payment adjustment under Sec.  412.106 of this chapter are 
required to file claims by submitting no pay bills for such patients. 
Special procedures for claiming payment after the beneficiary has died 
and for certain bills paid by organizations are set forth in subpart E 
of this part.

PART 476--UTILIZATION AND QUALITY CONTROL REVIEW

    20. The authority citation for Part 476 continues to read as 
follows:

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

    21. Section 476.1 is amended by adding a definition of ``Provider'' 
in alphabetical order, to read as follows:


Sec.  476.1  Definitions.

* * * * *
    Provider means a health care facility, institution, or 
organization, including but not limited to a hospital, involved in the 
delivery of health care services for which payment may be made in whole 
or in part under Title XVIII of the Act.
* * * * *
    22. Section 476.78 is amended by revising the section heading and 
the introductory text of paragraph (b)(2) to read as follows:


Sec.  476.78  Responsibilities of providers and practitioners.

* * * * *
    (b) * * *
    (2) Providers and practitioners must provide patient care data and 
other pertinent data to the QIO at the time the QIO is collecting 
review information that is required for the QIO to make its 
determinations. When the QIO does postadmission, preprocedure review,

[[Page 28136]]

the provider must provide the necessary information before the 
procedure is performed, unless it must be performed on an emergency 
basis. Providers and practitioners must--
* * * * *
    23. Section 476.90 is revised to read as follows:


Sec.  476.90  Lack of cooperation by a provider or practitioner.

    (a) If a provider or practitioner refuses to allow a QIO to enter 
and perform the duties and functions required under its contract with 
CMS, the QIO may--
    (1) Determine that the provider or practitioner has failed to 
comply with the requirements of 42 CFR 1004.10(c) and report the matter 
to the HHS Inspector General; or
    (2) Issue initial denial determinations for those claims it is 
unable to review, make the determination that financial liability will 
be assigned to the provider or practitioner, and may report the matter 
to the HHS Inspector General.
    (b) If a QIO gives a provider or practitioner sufficient notice and 
a reasonable amount of time to respond to a request for information 
about a claim, and if the provider or practitioner does not respond in 
a timely manner, the QIO will deny the claim. A provider or 
practitioner may request that the QIO reconsider its decision to deny 
the claim. No further appeal rights are available.

PART 489--PROVIDER AGREEMENTS AND SUPPLIER APPROVAL

    24. The authority citation for Part 489 is revised to read as 
follows:

    Authority:  Secs. 1102, 1819, 1820(e), 1861, 1864(m), 1866, 
1869, 1871 and section 1886(o) of the Social Security Act (42 U.S.C. 
1302, 1395i-3, 1395x, 1395aa(m), 1395cc, 1395ff, 1395hh, and 
1395ww(o)).

    25. Section 489.5 is added to read as follows:


Sec.  489.5  Definitions for purposes of the Hospital Value-Based 
Purchasing Program.

    For purposes of the Hospital Value-Based Purchasing Program 
established under section 1886(o) of the Act--
    (a) Cited for deficiencies that pose immediate jeopardy means that, 
during the applicable performance period, the hospital had more than 
one survey by the State survey agency for which it was cited for an 
immediate jeopardy on the Form CMS 2567, Statement of Deficiencies and 
Plan of Correction.
    (b) Immediate jeopardy has the same meaning as the definition at 
Sec.  489.3.

(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 2, 2012.
Marilyn Tavenner
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: April 13, 2012,
Kathleen Sebelius,
Secretary, Department of Health and Human Services.

    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, 2012 and Proposed Payment Rates for 
LTCHs Effective for Discharges Occurring on or After October 1, 2012

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 2013 for 
acute care hospitals. We also are setting forth the proposed rate-
of-increase percentages for updating the target amounts for certain 
hospitals excluded from the IPPS for FY 2013. We note that, because 
certain hospitals excluded from the IPPS are paid on a reasonable 
cost basis subject to a rate-of-increase ceiling (and not by the 
IPPS), these hospitals are not affected by the figures for the 
standardized amounts, offsets, and budget neutrality factors. 
Therefore, in this proposed rule, we are proposing the rate-of-
increase percentages for updating the target amounts for certain 
hospitals excluded from the IPPS that are effective for cost 
reporting periods beginning on or after October 1, 2012.
    In addition, we are setting forth a description of the methods 
and data we used to determine the proposed standard Federal rate 
that would be applicable to Medicare LTCHs for FY 2013.
    In general, except for SCHs 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.
    We note that, as discussed in section IV.G. of the preamble of 
this proposed rule, section 3124 of the Affordable Care Act extended 
the MDH program from the end of FY 2011 (that is, for discharges 
occurring before October 1, 2011) to the end of FY 2012 (that is, 
for discharges occurring before October 1, 2012). (Under prior law, 
the MDH program was to be in effect through the end of FY 2011 
only.) Therefore, due to the expiration of the MDH program beginning 
with FY 2013, we are not including MDHs in our proposal to update 
the hospital-specific rates for FY 2013.
    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 2013. 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 2013. 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 2013. 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 2013. 
The tables to which we refer in the preamble of this proposed rule 
are listed in section VI. of this Addendum and are available via the 
Internet.

II. Proposed Changes to Prospective Payment Rates for Hospital 
Inpatient Operating Costs for Acute Care Hospitals for FY 2013

    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 2013.
    In summary, the standardized amounts set forth in Tables 1A, 1B, 
and 1C that are listed and published in section VI. of this Addendum 
(and available via the Internet) reflect--
    <bullet> 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.
    <bullet> 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.
    <bullet> Proposed updates of 2.1 percent for all areas (that is, 
the FY 2013 estimate of the

[[Page 28137]]

market basket rate-of-increase of 3.0 percent less an adjustment of 
0.8 percentage point for multifactor productivity and less 0.1 
percentage point), as required by section 1886(b)(3)(B)(i) of the 
Act, as amended by sections 3401(a) and 10319(a) of the Affordable 
Care Act. For hospitals that fail 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, pursuant to 
section 1886(b)(3)(B)(viii) of the Act, the proposed update is 0.1 
percent (that is, the FY 2013 estimate of the market basket rate-of-
increase of 3.0 percent, less 2.0 percentage points for failure to 
submit data under the Hospital IQR Program, less an adjustment of 
0.8 percentage point for multifactor productivity, and less 0.1 
percentage point).
    <bullet> A proposed update of 2.1 percent to the Puerto Rico-
specific standardized amount (that is, the FY 2013 estimate of the 
market basket rate-of-increase of 3.0 percent less an adjustment of 
0.8 percentage point for multifactor productivity and less 0.1 
percentage point), in accordance with section 1886(d)(9)(C)(i) of 
the Act, as amended by section 401(c) of Public Law 108-173, which 
sets the update to the Puerto Rico-specific standardized amount 
equal to the applicable percentage increase set forth in section 
1886(b)(3)(B)(i) of the Act.
    <bullet> 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.
    <bullet> An adjustment to ensure the wage index changes are 
budget neutral, as provided for under section 1886(d)(3)(E)(i) of 
the Act. We note that section 1886(d)(3)(E)(i) of the Act requires 
that when we compute such budget neutrality, we assume that the 
provisions of section 1886(d)(3)(E)(ii) of the Act (requiring a 62 
percent labor-related share in certain circumstances) had not been 
enacted.
    <bullet> 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 2012 budget neutrality 
factor and applying a revised factor.
    <bullet> An adjustment to ensure the effects of the rural 
community hospital demonstration required under section 410A of 
Public Law 108-173, as amended by sections 3123 and 10313 of Public 
Law 111-148, which extended the demonstration for an additional 5 
years are budget neutral, as required under section 410A(c)(2) of 
Public Law 108-173.
    <bullet> An adjustment to remove the FY 2012 outlier offset and 
apply an offset for FY 2013, as provided for in section 
1886(d)(3)(B) of the Act.
    <bullet> As discussed below and in section II.D. of the preamble 
to this proposed rule, an adjustment to meet the requirements of 
sections 7(b)(1)(A) and 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 the 
effect of documentation and coding that did not reflect real changes 
in case-mix for discharges occurring during FY 2008, FY 2009. We are 
also proposing an adjustment to the standardized amounts to offset 
the estimated amount of the increase in aggregate payments) due to 
the effect of documentation and coding that did not reflect real 
changes in case-mix for discharges occurring during FY 2010.
    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 2012, for FY 2013, we 
are proposing to continue to apply the rural floor budget neutrality 
adjustment to hospital wage indices rather than the standardized 
amount. Consistent with section 3141 of the Affordable Care Act, 
instead of applying a State level rural floor budget neutrality 
adjustment on the wage index, we are proposing to apply a uniform, 
national budget neutrality adjustment to the proposed FY 2013 wage 
index for the rural floor. We note that, as finalized in the FY 2012 
IPPS/LTCH PPS final rule, we extended the imputed floor through FY 
2013 (76 FR 51593). Therefore, for this proposed rule, we are 
continuing to include the imputed floor in calculating the uniform, 
national rural floor budget neutrality adjustment to the wage 
indices. Thus, the imputed floor is reflected in the proposed FY 
2013 wage index. Additionally, while we are proposing an alternative 
temporary methodology for computing the imputed floor index in 
section II.G.2. of the preamble of this proposed rule, we did not 
include this proposed alternative in our calculation of rural floor 
budget neutrality because of its negligible impact, although we 
intend to include it in the calculation if the policy is finalized.
    We note that, in the FY 2012 IPPS/LTCH PPS final rule (76 FR 
51788 through 51790), we finalized an adjustment of 1.1 percent to 
the standardized amount (that is, a factor of 1.011) in light of the 
Cape Cod decision. The adjustment is a one-time permanent adjustment 
that is left permanently on the standardized amount.

A. Calculation of the Proposed Adjusted Standardized Amount

1. Standardization of Base-Year Costs or Target Amounts

    In general, the national standardized amount is based on per 
discharge averages of adjusted hospital costs from a base period 
(section 1886(d)(2)(A) of the Act), updated and otherwise adjusted 
in accordance with the provisions of section 1886(d) of the Act. For 
Puerto Rico hospitals, the Puerto Rico-specific standardized amount 
is based on per discharge averages of adjusted target amounts from a 
base period (section 1886(d)(9)(B)(i) of the Act), updated and 
otherwise adjusted in accordance with the provisions of section 
1886(d)(9) of the Act. The September 1, 1983 interim final rule (48 
FR 39763) contained a detailed explanation of how base-year cost 
data (from cost reporting periods ending during FY 1981) were 
established for urban and rural hospitals in the initial development 
of standardized amounts for the IPPS. The September 1, 1987 final 
rule (52 FR 33043 and 33066) contains a detailed explanation of how 
the target amounts were determined and how they are used in 
computing the Puerto Rico rates.
    Sections 1886(d)(2)(B) and 1886(d)(2)(C) of the Act require us 
to update base-year per discharge costs for FY 1984 and then 
standardize the cost data in order to remove the effects of certain 
sources of cost variations among hospitals. These effects include 
case-mix, differences in area wage levels, cost-of-living 
adjustments for Alaska and Hawaii, IME costs, and costs to hospitals 
serving a disproportionate share of low-income patients.
    In accordance with section 1886(d)(3)(E) of the Act, the 
Secretary estimates, from time-to-time, the proportion of hospitals' 
costs that are attributable to wages and wage-related costs. In 
general, the standardized amount is divided into labor-related and 
nonlabor-related amounts; only the proportion considered to be the 
labor-related amount is adjusted by the wage index. Section 
1886(d)(3)(E) of the Act requires that 62 percent of the 
standardized amount be adjusted by the wage index, unless doing so 
would result in lower payments to a hospital than would otherwise be 
made. (Section 1886(d)(9)(C)(iv)(II) of the Act extends this 
provision to the labor-related share for hospitals located in Puerto 
Rico.)
    For FY 2013, we are proposing to continue to use a labor-related 
share of 68.8 percent for discharges occurring on or after October 
1, 2012, 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 proposing to apply 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 
proposing to apply the wage index to a labor-related share of 68.8 
percent of the national standardized amount. For FY 2013, 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 that are listed and published in section VI. of 
the Addendum to this proposed rule and are available via Internet.

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 2013 national and Puerto Rico 
standardized amounts irrespective of whether a hospital is located 
in an urban or rural location.

[[Page 28138]]

3. Updating the Average Standardized Amount

    Section 1886(b)(3)(B) of the Act specifies the applicable 
percentage increase used to update the standardized amount for 
payment for inpatient hospital operating costs. As discussed in 
section IV.H. of the preamble of this proposed rule, in accordance 
with section 1886(b)(3)(B) of the Act, as amended by section 3401(a) 
of the Affordable Care Act, we are proposing to reduce the proposed 
FY 2013 applicable percentage increase (which is based on the first 
quarter 2012 forecast of the FY 2006-based IPPS market basket) by 
the multifactor productivity (MFP) adjustment (the 10-year moving 
average of MFP for the period ending FY 2013) of 0.8 percent, which 
is calculated based on IHS Global Insight, Inc.'s (IGI's) first 
quarter 2012 forecast. In addition, in accordance with section 
1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and 
10319(a) of the Affordable Care Act, we are further proposing to 
update the standardized amount for FY 2013 by the estimated market 
basket percentage increase less 0.1 percentage point for hospitals 
in all areas. Sections 1886(b)(3)(B)(xi) and (xii) of Act, as added 
and amended by sections 3401(a) and 10319(a) the Affordable Care 
Act, further state that these adjustments may result in the 
applicable percentage increase being less than zero. The percentage 
increase in the market basket reflects the average change in the 
price of goods and services comprising routine, ancillary, and 
special care unit hospital inpatient services. Based on IGI's 2012 
first quarter forecast of the hospital market basket increase (as 
discussed in Appendix B of this proposed rule), the most recent 
forecast of the hospital market basket increase for FY 2013 is 3.0 
percent. Thus, for FY 2013, the proposed update to the average 
standardized amount is 2.1 percent for hospitals in all areas (that 
is, the FY 2013 estimate of the market basket rate-of-increase of 
3.0 percent less an adjustment of 0.8 percentage point for 
multifactor productivity and less 0.1 percentage point). For 
hospitals that do not submit quality data pursuant to section 
1886(b)(3)(B)(viii) of the Act, the estimated proposed update to the 
operating standardized amount is 0.1 percent (that is, the FY 2013 
estimate of the market basket rate-of-increase of 3.0 percent, less 
2.0 percentage points for failure to submit data under the IQR 
program, less an adjustment of 0.8 percentage point for multifactor 
productivity, and less 0.1 percentage point) The proposed 
standardized amounts in Tables 1A through 1C that are published in 
section VI. of this Addendum and available via the Internet reflect 
these differential amounts.
    Section 401(c) of Public Law 108-173 amended section 
1886(d)(9)(C)(i) of the Act and states that, for discharges 
occurring in a fiscal year (beginning with FY 2004), the Secretary 
shall compute an average standardized amount for hospitals located 
in any area of Puerto Rico that is equal to the average standardized 
amount computed under subclause (I) for FY 2003 for hospitals in a 
large urban area (or, beginning with FY 2005, for all hospitals in 
the previous fiscal year) increased by the applicable percentage 
increase under subsection (b)(3)(B) for the fiscal year involved. 
Therefore, the proposed update to the Puerto Rico-specific operating 
standardized amount is subject to the applicable percentage increase 
set forth in section 1886(b)(3)(B)(i) of the Act, as amended by 
sections 3401(a) and 10319(a) of the Affordable Care Act (that is, 
the same update factor as for all other hospitals subject to the 
IPPS). Accordingly, we are proposing an applicable percentage 
increase to the Puerto Rico-specific standardized amount of 2.1 
percent.
    Although the update factors for FY 2013 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 
2013 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 2013 
standardized amount to remove the effects of the FY 2012 geographic 
reclassifications and outlier payments before applying the proposed 
FY 2013 updates. We then apply budget neutrality offsets for 
outliers and geographic reclassifications to the standardized amount 
based on proposed FY 2013 payment policies.
    We do not remove the prior year's budget neutrality adjustments 
for reclassification and recalibration of the DRG weights and for 
updated wage data because, in accordance with sections 
1886(d)(4)(C)(iii) and 1886(d)(3)(E) of the Act, estimated aggregate 
payments after updates in the DRG relative weights and wage index 
should equal estimated aggregate payments prior to the changes. If 
we removed the prior year's adjustment, we would not satisfy these 
conditions.
    Budget neutrality is determined by comparing aggregate IPPS 
payments before and after making changes that are required to be 
budget neutral (for example, changes to DRG classifications, 
recalibration of the DRG relative weights, updates to the wage 
index, and different geographic reclassifications). We include 
outlier payments in the simulations because they may be affected by 
changes in these parameters.
    In order to appropriately estimate aggregate payments in our 
modeling, we make several inclusions and exclusions so that the 
appropriate universe of claims and charges are included. We discuss 
IME Medicare Advantage payment amounts, fee-for-service only claims, 
and charges for antihemophilic blood factor and organ acquisition 
below.
    First, consistent with our methodology established in the FY 
2011 IPPS/LTCH PPS final rule (75 FR 50422 through 50433), because 
IME Medicare Advantage payments are made to IPPS hospitals under 
section 1886(d) of the Act, we believe these payments must be part 
of these budget neutrality calculations. However, we note that it is 
not necessary to include Medicare Advantage IME payments in the 
outlier threshold calculation or the outlier offset to the 
standardized amount because the statute requires that outlier 
payments be not less than 5 percent nor more than 6 percent of total 
``operating DRG payments,'' which does not include IME and DSH 
payments. We refer the reader to the FY 2011 IPPS/LTCH PPS final 
rule for a complete discussion on our methodology of identifying and 
adding the total Medicare Advantage IME payment amount to the budget 
neutrality adjustments.
    Second, consistent with the methodology in the FY 2012 IPPS/LTCH 
PPS final rule, in order to ensure that we capture only fee-for-
service claims, we are only including claims with a ``Claim Type'' 
of 60 (which is a field on the MedPAR file that indicates a claim is 
a fee-for-service claim).
    Third, consistent with our methodology established in the FY 
2011 IPPS/LTCH PPS final rule (75 FR 50422-50423), we examined the 
MedPAR and removed pharmacy charges for antihemophilic blood factor 
(which are paid separately under the IPPS) with an indicator of 
``3'' for blood clotting with a revenue code of ``0636'' from the 
covered charge field for the budget neutrality adjustments. We also 
removed organ acquisition charges from the covered charge field for 
the budget neutrality adjustments because organ acquisition is a 
pass-through payment not paid under the IPPS.
    Section 3021 of the Affordable Care Act, codified at section 
1115A of the Social Security Act, authorizes CMS to test innovative 
payment and service delivery models with the goal of reducing 
Medicare program expenditures while preserving or enhancing the 
quality of care furnished to individuals. Because initiatives 
established under this authority could result in IPPS hospitals 
receiving a payment different from what they otherwise would receive 
under the IPPS, we believe it is important to identify how these 
initiatives are addressed in the context of our budget neutrality 
calculations.
    The Bundled Payments for Care Improvement (BPCI) initiative, 
developed by CMS' Center for Medicare and Medicaid Innovation under 
the authority of section 3021 of the Affordable Care Act (codified 
at section 1115A of the Act), will test four payment models that 
link payments for multiple services during an episode of care. On 
August 23, 2011, CMS invited providers to apply to help develop and 
test four models of bundling payments under the BPCI. We refer the 
reader to section IV.H.4. of the preamble to this proposed rule for 
a discussion on the BPCI initiative. We note that under Models 1, 2, 
and 4, participating IPPS hospitals could receive a payment for all 
or selected IPPS claims under the BPCI that differs from payments 
they would otherwise receive under the IPPS. We also note that Model 
3 addresses payments for related readmissions and postacute care 
services. Therefore, we believe it is not necessary to propose to 
address the treatment of any data for participating hospitals in 
Model 3.
    For purposes of computing the budget neutrality calculations to 
compute the average standardized amount, we intend to include all 
applicable data from subsection (d) hospitals participating in BPCI 
models 1,

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2, and 4 in our IPPS payment modeling and ratesetting calculations 
(which includes recalibration of the MS-DRG weights, ratesetting, 
calculation of the budget neutrality factors, and the impact 
analysis). In essence, we would continue to treat these hospitals 
the same as prior fiscal years for purposes of the FY 2013 (and 
subsequent years) IPPS payment modeling and ratesetting process 
without regard to a hospital's participation within these three 
bundled payment models (that is, we would treat these hospitals as 
if they are not be participating in Model 1, Model 2, or Model 4 
under the BPCI initiative). We believe it is appropriate to include 
all applicable data from these subsection(d) hospitals in our IPPS 
payment modeling and ratesetting calculations because these 
hospitals are still receiving IPPS payments under section 1886(d) of 
the Act (in addition to the reconciliation payment the hospital may 
receive under Model 2 of the BPCI initiative). Moreover, the 
Secretary has the authority to make appropriate adjustments for 
payment amounts at section 1886(d)(5)(I)(i) of the Act to include 
all applicable data from these ``subsection(d)'' hospitals in our 
IPPS ratesetting calculations. We believe it is appropriate to use 
the Secretary's authority under section 1886(d)(5)(I)(i) of the Act 
to include all IPPS short term acute care hospitals and their data 
within the IPPS ratesetting calculations since excluding these 
hospitals would diminish the number of providers used to determine 
the IPPS rates which could cause fluctuations to the IPPS rates and 
could produce instability to the IPPS rates.
    The Affordable Care Act established the Hospital Readmissions 
Reduction Program and the Hospital Value-Based Purchasing Program 
which adjust payments to certain IPPS hospitals beginning with 
discharges on or after October 1, 2012. Because the adjustments made 
under these programs affect the estimation of aggregate IPPS 
payments, we believe it is appropriate to include adjustments for 
these programs within our budget neutrality calculations. We discuss 
the treatment of these two programs in the context of budget 
neutrality adjustments below.
    Section 3025 of the Affordable Care Act, as amended by section 
10309 of the Affordable Care Act, added a new subsection (q) to 
section 1886 of the Act. Section 1886(q) of the Act establishes the 
``Hospital Readmissions Reduction Program'' effective for discharges 
from an ``applicable hospital'' beginning on or after October 1, 
2012, under which payments to those hospitals under section 1886(d) 
of the Act will be reduced to account for certain excess 
readmissions. Under the Hospital Readmissions Reduction Program at 
section 1886(q) of the Act, payments for discharges from an 
``applicable hospital'' will be in an amount equal to the product of 
the ``base operating DRG payment amount'' and an ``adjustment 
factor'' that accounts for excess readmissions for the hospital for 
the fiscal year, for discharges beginning on October 1, 2012. (The 
statute also specifies that hospitals that receive any applicable 
add-on payments for IME, DSH, outliers and low-volume hospitals 
provided for under sections 1886(d)(5)(A), (d)(5)(B), (d)(5)(F), and 
(d)(12) of the Act, respectively, are not affected by the adjustment 
for excess readmissions under the Hospital Readmissions Reduction 
Program.) In other words, payment under section 1886(q) is the base 
operating DRG payment amount multiplied by the adjustment factor, in 
addition to any outliers, IME, DSH, or low-volume payment adjustment 
the hospital may otherwise receive. We refer readers to section 
IV.A. of the preamble of this proposed rule for full details of our 
proposal implementing the Hospital Readmissions Reduction Program 
for FY 2013, including definitions of the ``base operating DRG 
payment amount.'' Under current law, the Hospital Readmissions 
Reduction Program under section 1886(q) of the Act is not budget 
neutral.
    Section 1886(o) of the Act requires the Secretary to establish a 
hospital value-based purchasing program under which value-based 
incentive payments are made in a fiscal year to hospitals that meet 
performance standards established for a performance period for such 
fiscal year to payments for hospital discharges occurring on or 
after October 1, 2012. As specified under section 1886(o)(7)(B)(i) 
of the Act, the cost of these value-based incentive payments are 
funded by a reduction applied to each eligible hospital's base-
operating DRG payment amount, for each discharge occurring in the 
fiscal year, beginning with FY 2013. For FY 2013, the reduction 
amount is equal to 1.00 percent, As required by section 
1886(o)(7)(A) of the Act, the total amount of allocated funds 
available for value-based incentive payments is equal to the total 
amount of estimated base-operating DRG payment reductions (that is, 
1.0 percent of eligible hospitals' base-operating DRG payment amount 
for FY 2013). We refer the reader to section VIII.C. of the preamble 
of this proposed rule for full details of our proposal implementing 
the Hospital VBP Program for FY 2013, including definitions of the 
``base operating DRG payment amount.''
    Unlike the Hospital Readmissions Reduction Program (where an 
adjustment factor is applied to reduce the base operating DRG 
payment amount for excess readmissions), the Hospital VBP Program 
has no effect on overall payments. As mentioned above, for FY 2013, 
the funding pool for value-based incentive payments is 1.0 percent 
of eligible hospitals' base-operating DRG payment which is equal to 
the total amount of estimated base-operating DRG payment reductions. 
In other words, the funding pool that CMS sets aside for the 
Hospital VBP Program is then equally redistributed by applying the 
hospital VBP adjustment. However, both the hospital readmissions 
payment adjustment (reduction) and the hospital VBP adjustment 
(redistribution) are applied on a claim by claim basis by adjusting, 
as applicable, the base operating DRG payment amount for individual 
IPPS hospitals which affects the overall sum of aggregate payments 
on each side of the comparison within the budget neutrality 
calculations. For example, when we calculate the budget neutrality 
factor for DRG reclassification and recalibration of the relative 
weights, we compare (section II.4.a. of this Addendum contains for 
full details) aggregate payments estimated using the prior year's 
GROUPER and weights to estimated payments using the new grouper and 
weights. Other factors, such as the DSH and IME payment adjustments, 
are the same on both sides of the comparison because we are only 
seeking to ensure that aggregate payments do not increase or 
decrease as a result of the proposed changes of DRG reclassification 
and recalibration. In order to properly sum aggregate payments on 
each side of the comparison, we would need to apply the hospital 
readmissions payment adjustment and the hospital VBP adjustment on 
each side of the comparison. Therefore, to assure that aggregate 
payments are estimated correctly in light of the effects of the 
Hospital Readmissions Reduction Program and Hospital VBP Program, we 
are proposing that we would apply the readmissions payment 
adjustment and the Hospital VBP payment adjustment on both sides of 
our comparison of aggregate payments when determining all budget 
neutrality factors described in section II.A.4. of this Addendum.
    For this proposed rule, for the purpose of modeling the proposed 
aggregate payments for excess readmissions and the proposed 
readmissions adjustment factors, we are using excess readmission 
ratios for the applicable hospitals from the 3-year period of July 
1, 2007 to June 30, 2010 (the 3-year period preceding the FY 2013 
``applicable period'' of July 1, 2008 to June 30, 2011 that was 
finalized in last year's rulemaking (76 FR 51671 through 51672), 
because the underlying data from this period have already be 
available to the public on the Hospital Compare Web site (as of July 
2011). The data from the 3-year applicable period of July 1, 2008 to 
June 30, 2011, for FY 2013 have not been through the review and 
correction process required by section 1886(q)(6) of the Act (as 
proposed in section IV.A.3.d. of the preamble of this proposed 
rule). For the final rule, we intend to use excess readmission 
ratios based on admissions for the finalized applicable period of 
July 1, 2008 to June 30, 2011, to calculate the aggregate payments 
for excess readmissions and ultimately to calculate the readmissions 
payment adjustment factors, as applicable hospitals will have had 
the opportunity to review and correct these data before the data are 
made public under our proposal set forth in this rule regarding the 
reporting of hospital-specific readmission rates consistent with 
section 1886(q)(6) of the Act.

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.H. 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

[[Page 28140]]

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 2013, we are proposing to adjust 100 percent 
of the wage index factor for occupational mix. We describe the 
occupational mix adjustment in section III.F. of the preamble of 
this proposed rule.
    For FY 2013, 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 2011 discharge data to simulate payments 
and compared aggregate payments using the FY 2012 labor-related 
share percentages, the FY 2012 relative weights, and the FY 2012 
pre-reclassified wage data and applied the estimated readmissions 
payment adjustment and estimated VBP payment adjustment to aggregate 
payments using the FY 2012 labor-related share percentages, the 
proposed FY 2013 relative weights, and the FY 2012 pre-reclassified 
wage data and applied the same estimated readmissions payment and 
estimated VBP adjustments. Based on this comparison, we computed a 
proposed budget neutrality adjustment factor equal to 0.998546. As 
discussed in section IV. of this Addendum, we also are proposing to 
apply the DRG reclassification and recalibration budget neutrality 
factor of 0.998546 to the hospital-specific rates that are effective 
for cost reporting periods beginning on or after October 1, 2012.
    In order to meet the statutory requirements that we do not take 
into account the labor-related share of 62 percent when computing 
wage index budget neutrality, it was necessary to use a three-step 
process to comply with the requirements that 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 0.998546 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 proposed budget neutrality factor for wage 
index and labor-related share changes, we used FY 2011 discharge 
data to simulate payments and compared aggregate payments using 
proposed FY 2013 relative weights and FY 2012 pre-reclassified wage 
indices, applied the FY 2012 labor-related share of 68.8 percent to 
all hospitals (regardless of whether the hospital's wage index was 
above or below 1.0) and applied the estimated readmissions payment 
adjustment and estimated VBP payment adjustment when estimating 
aggregate payments using the proposed FY 2013 relative weights and 
the proposed FY 2013 pre-reclassified wage indices, applied the 
proposed labor-related share for FY 2013 of 68.8 percent to all 
hospitals (regardless of whether the hospital's wage index was above 
or below 1.0) and applied the same estimated readmissions payment 
adjustment and estimated VBP payment adjustment. 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 2012 to FY 2013. By applying this methodology, we determined 
a proposed budget neutrality factor of 1.000563 for changes to the 
wage index. Finally, we multiplied the proposed DRG reclassification 
and recalibration budget neutrality factor of 0.998546 (derived in 
the first step) by the proposed budget neutrality factor of 1.000563 
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 0.999108.

b. Reclassified Hospitals--Budget Neutrality Adjustment

    Section 1886(d)(8)(B) of the Act provides that, effective with 
discharges occurring on or after October 1, 1988, certain rural 
hospitals are deemed urban. In addition, section 1886(d)(10) of the 
Act provides for the reclassification of hospitals based on 
determinations by the MGCRB. Under section 1886(d)(10) of the Act, a 
hospital may be reclassified for purposes of the wage index.
    Under section 1886(d)(8)(D) of the Act, the Secretary is 
required to adjust the standardized amount to ensure that aggregate 
payments under the IPPS after implementation of the provisions of 
sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the Act are equal 
to the aggregate prospective payments that would have been made 
absent these provisions. We note that the wage index adjustments 
provided under section 1886(d)(13) of the Act are not budget 
neutral. Section 1886(d)(13)(H) of the Act provides that any 
increase in a wage index under section 1886(d)(13) shall not be 
taken into account ``in applying any budget neutrality adjustment 
with respect to such index'' under section 1886(d)(8)(D) of the Act. 
To calculate the proposed budget neutrality factor for FY 2013, we 
used FY 2011 discharge data to simulate payments and compared total 
IPPS payments with proposed FY 2013 relative weights, proposed FY 
2013 labor-related share percentages, and proposed FY 2013 wage data 
prior to any reclassifications under sections 1886(d)(8)(B) and (C) 
and 1886(d)(10) of the Act and applied the estimated readmissions 
payment adjustment and the estimated VBP payment adjustment to total 
IPPS payments with proposed FY 2013 relative weights, proposed FY 
2013 labor-related share percentages, and proposed FY 2013 wage data 
after such reclassifications and applied the same estimated 
readmissions payment adjustment and the estimated VBP payment 
adjustment. Based on these simulations, we calculated a proposed 
adjustment factor of 0.991436 to ensure that the effects of these 
provisions are budget neutral, consistent with the statute.
    The proposed FY 2013 budget neutrality adjustment factor is 
applied to the standardized amount after removing the effects of the 
FY 2012 budget neutrality adjustment factor. We note that the 
proposed FY 2013 budget neutrality adjustment reflects proposed FY 
2013 wage index reclassifications approved by the MGCRB or the 
Administrator.

c. Rural Floor and Imputed Floor Budget Neutrality Adjustment

    As noted above, as discussed in section III.G. 2.b. of the 
preamble of this proposed rule, in the FY 2012 final rule, we 
extended the imputed floor through FY 2013. We make an adjustment to 
the wage index to ensure that aggregate payments to hospitals 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 not affected. In addition, we note in section 
III.G.2.b. of the preamble of this proposed rule, we are proposing 
an alternative temporary methodology for computing the imputed floor 
index. We did not apply this proposed alternative in our calculation 
of the proposed uniform, national rural floor budget neutrality 
adjustment to the wage indices because the projected impact of this 
proposal is less than $5 million and, therefore, would have a 
negligible impact on the adjustment. If this proposed alternative 
methodology policy is finalized, we intend to include it in the 
calculation of the uniform, national rural floor budget neutrality 
adjustment in the final rule. Consistent with section 3141 of the 
Affordable Care Act and as discussed in section III.G. of the 
preamble of this proposed rule, the budget neutrality adjustment for 
the rural and imputed floors is a national adjustment to the wage 
index.
    Since FY 2012, there is one hospital in rural Puerto Rico. 
Therefore, similar to our

[[Page 28141]]

calculation in the FY 2012 IPPS/LTCH final rule (76 FR 51593), for 
FY 2013, we are proposing to calculate a national rural Puerto Rico 
wage index (used to adjust the labor-related share of the national 
standardized amount for hospitals in Puerto Rico which receive 75 
percent of the national standardized amount) and a rural Puerto 
Rico-specific wage index (which is used to adjust the labor-related 
share of the Puerto Rico-specific standardized amount for hospitals 
in Puerto Rico that receive 25 percent of the Puerto Rico-specific 
standardized amount). Because this rural Puerto Rico hospital still 
has no established wage data, our calculation is based on the policy 
adopted in the FY 2008 IPPS final rule with comment period (72 FR 
47323). A complete discussion on the computation of the rural Puerto 
Rico wage index can be found in the FY 2012 final rule.
    To calculate the proposed national rural floor and imputed floor 
budget neutrality factor and Puerto Rico-specific rural floor budget 
neutrality adjustment factor, we used FY 2011 discharge data and 
proposed FY 2013 post-reclassified national and Puerto Rico-specific 
wage indices to simulate IPPS payments. First, we compared the 
national and Puerto Rico-specific simulated payments without the 
national rural floor and imputed floor and Puerto Rico-specific 
rural floor applied to national and Puerto Rico-specific simulated 
payments with the national rural floor and imputed floor and Puerto 
Rico-specific rural floor applied to determine the proposed national 
rural budget neutrality adjustment factor of 0.992243 and the 
proposed Puerto Rico-specific budget neutrality adjustment factor of 
0.990686. The national adjustment was applied to the national wage 
indices to produce a national rural floor budget neutral wage index 
and the Puerto Rico-specific adjustment was then applied to the 
Puerto Rico-specific wage indices to produce a Puerto Rico-specific 
rural floor budget neutral wage index.

d. Proposed Case-Mix Budget Neutrality Adjustment

    Below we summarize the proposed adjustments to the FY 2013 rates 
to account for the effect of changes in documentation and coding 
that do not reflect real changes in case-mix. We refer the reader to 
section II.D. of the preamble to this proposed rule for a complete 
discussion (including our historical adjustments to the rates) on 
our proposals to eliminate the estimated effect of changes in 
documentation and coding that do not reflect real changes in case-
mix.

(1) Prospective Adjustments for Documentation and Coding in FY 2008 and 
FY 2009 Authorized by Section 7(b)(1)(A) of Public Law 110-90 and 
Section 1886(d)(3)(vi) of the Act

    Section 7(b)(1)(A) of Public Law 110-90 requires that, if the 
Secretary determines that implementation of the MS-DRG system 
resulted in changes in documentation and coding that did not reflect 
real changes in case-mix for discharges occurring during FY 2008 or 
FY 2009 that are different than the prospective documentation and 
coding adjustments applied under section 7(a) of Public Law 110-90, 
the Secretary shall make an appropriate adjustment under section 
1886(d)(3)(A)(vi) of the Act. Section 1886(d)(3)(A)(vi) of the Act 
authorizes adjustments to the average standardized amounts for 
subsequent fiscal years in order to eliminate the effect of such 
coding or classification changes.
    For FY 2013, we are proposing a -1.9 percent adjustment to the 
standardized amount to complete the adjustment required under 
section 7(b)(1)(A) of Public Law 110-90. We refer the reader to 
section II.D. of the preamble to this proposed rule for a complete 
discussion on our historical adjustments and our proposed FY 2013 
adjustment to the standardized amount pursuant to section 7(b)(1)(A) 
of Pub. L. 110-90.

(2) Prospective Adjustments for Documentation and Coding in FY 2010 
Authorized by Section 1886(d)(3)(vi) of the Act

    Section 1886(d)(3)(A)(vi) of the Act authorizes adjustments to 
the average standardized amounts if the Secretary determines such 
adjustments to be necessary for any subsequent fiscal years in order 
to eliminate the effect of coding or classification changes that do 
not reflect real changes in case mix. After review of comments and 
recommendations received from MedPAC, we analyzed claims data in FY 
2010 to determine whether any additional adjustment would be 
required to ensure that the introduction of MS-DRGs was implemented 
in a budget neutral manner. As discussed in section II.D. of the 
preamble of this proposed rule, our analysis showed a documentation 
and coding effect in FY 2010 of 0.8 percent, and we are proposing an 
additional -0.8 percent adjustment to account for the effects of 
documentation and coding that did not reflect an increase in case-
mix severity in FY 2010.

(3) Recoupment or Repayment Adjustment for Documentation and Coding in 
FY 2008 and FY 2009 Authorized by Section 7(b)(1)(B) of Public Law 110-
90

    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 2008 and FY 2009 (including interest) 
resulting from the difference between the estimated actual 
documentation and coding effect and the documentation and coding 
adjustments applied under section 7(a) of Public Law 110-90. This 
determination must be based on a retrospective evaluation of claims 
data. As discussed in section II.D.5. of the preamble of this 
proposed rule, we determined that an aggregate adjustment of -5.8 
percent in FYs 2011 and 2012 would be necessary in order to meet 
these statutory requirements.
    In the FY 2011 IPPS/LTCH PPS final rule, for FY 2011, we made an 
adjustment to the standardized amount of -2.9 percent, representing 
approximately half of the required adjustment. For FY 2012, in 
accordance with the timeframes set forth by section 7(b)(1)(B) of 
Pub. L. 110-90, and consistent with the discussion in the FY 2011 
IPPS/LTCH PPS final rule, we completed the recoupment adjustment by 
implementing the remaining -2.9 percent adjustment, in addition to 
removing the effect of the -2.9 percent adjustment to the 
standardized amount finalized for FY 2011 (76 FR 51489 and 51498). 
Therefore, the required recoupment for overpayments due to 
documentation and coding effects on discharges occurring in FYs 2008 
and 2009 has been completed within the required statutory 
timeframes. However, to avoid continuing the -2.9 percent adjustment 
finalized in FY 2012, we are proposing for FY 2013 to make a final 
+2.9 percent adjustment to the standardized amount. This adjustment 
removes the onetime -2.9 percent adjustment implemented in FY 2012.

(4) Documentation and Coding Adjustment to the Puerto Rico-Specific 
Standardized Amount

    As discussed in section II.D.9. of the preamble of this proposed 
rule, in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50071 through 
50073), using the same methodology we applied to estimate 
documentation and coding changes under IPPS for non-Puerto Rico 
hospitals, our best estimate, based on the then most recently 
available data (FY 2009 claims paid through March 2010), was that 
for documentation and coding changes that occurred over FY 2008 and 
FY 2009, a cumulative adjustment of -2.6 percent was required to 
eliminate the full effect of the documentation and coding changes on 
future payments from the Puerto Rico-specific rate. In FY 2011, as 
finalized in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50071 
through 50073), we applied an adjustment of -2.6 percent to the 
Puerto Rico-specific rate. Therefore, because the Puerto Rico-
specific rate received a full prospective adjustment of -2.6 percent 
in FY 2011, in section II.D.9. of the preamble of this proposed 
rule, we are proposing to make no further adjustment for FY 2013. 
For a complete discussion on our proposed policy, we refer readers 
to section II.D.9. of the preamble of this proposed rule.
    We note that, based upon our analysis of FY 2010 claims data; we 
found no significant additional effect of documentation and coding 
that would warrant any additional adjustment to the Puerto Rico-
specific rate.

e. Rural Community Hospital Demonstration Program Adjustment

    As discussed in section IV.K. of the preamble to this proposed 
rule, section 410A of Public Law 108-173 originally required the 
Secretary to establish a demonstration that modifies reimbursement 
for inpatient services for up to 15 small rural hospitals. Section 
410A(c)(2) of Pub. L. 108-173 requires that ``[i]n conducting the 
demonstration program under this section, the Secretary shall ensure 
that the aggregate payments made by the Secretary do not exceed the 
amount which the Secretary would have paid if the demonstration 
program under this section was not implemented.''
    Sections 3123 and 10313 of the Affordable Care Act extended the 
demonstration for an additional 5-year period, and allowed up to 30 
hospitals to participate in 20 States with low population densities 
determined by the Secretary. (In determining which States to include 
in the expansion, the Secretary is

[[Page 28142]]

required to use the same criteria and data that the Secretary used 
to determine the States for purposes of the initial 5-year period.) 
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51700 through 51705), 
in order to achieve budget neutrality, we adjusted the national IPPS 
rates by an amount sufficient to account for the added costs of this 
demonstration as described in section IV.K. of that final rule. In 
other words, we applied budget neutrality across the payment system 
as a whole rather than merely across the participants of this 
demonstration, consistent with past practice. We stated that we 
believe that the language of the statutory budget neutrality 
requirement permits the agency to implement the budget neutrality 
provision in this manner. The statutory language requires that 
``aggregate payments made by the Secretary do not exceed the amount 
which the Secretary would have paid if the demonstration * * * was 
not implemented,'' but does not identify the range across which 
aggregate payments must be held equal.
    For FY 2013, for the 23 hospitals participating in the 
demonstration project, we are proposing to adjust the national IPPS 
rates according to the methodology set forth elsewhere in this 
proposed rule. For this proposed rule, the estimated amount for the 
adjustment to the national IPPS rates for FY 2013 is $35,077,708. 
Accordingly, to account for the estimated costs of the demonstration 
for the specific time periods as explained in detail in section 
IV.K. of the preamble of this proposed rule, for FY 2013, we 
computed a proposed factor of 0.999629 for the rural community 
hospital demonstration program budget neutrality adjustment that 
would be applied to the IPPS standardized rate.
    We note that if updated data become available prior to the FY 
2013 final rule, we are proposing to use them, to the extent 
appropriate, to estimate the costs of the demonstration program in 
FY 2013. Therefore, this estimated budget neutrality offset amount 
may change in the final rule depending on the availability of 
updated data. In addition, if settled cost reports for all of the 
demonstration hospitals that participated in the applicable fiscal 
year (2007, 2008, 2009, or 2010) are available prior to the FY 2013 
IPPS/LTCH PPS final rule, we are proposing to incorporate into the 
FY 2013 budget neutrality offset amount the difference between the 
final cost of the demonstration in any of these years (as described 
previously) and the budget neutrality offset amount applicable to 
such year as finalized in the respective year's IPPS final rule.

f. 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 2013 is 80 percent, the 
same marginal cost factor we have used since FY 1995 (59 FR 45367).
    In accordance with section 1886(d)(5)(A)(iv) of the Act, outlier 
payments for any year are projected to be not less than 5 percent 
nor more than 6 percent of total operating DRG payments plus outlier 
payments. We note that the statute requires outlier payments to be 
not less than 5 percent nor more than 6 percent of total ``operating 
DRG payments'' (which does not include IME and DSH payments) plus 
outlier payments. When setting the outlier threshold, we compute the 
5.1 percent target by dividing the total operating outlier payments 
by the total operating DRG payments plus outlier payments. We do not 
include any other payments such as IME and DSH within the outlier 
target amount. Therefore, it is not necessary to include Medicare 
Advantage IME payments in the outlier threshold calculation. Section 
1886(d)(3)(B) of the Act requires the Secretary to reduce the 
average standardized amount by a factor to account for the estimated 
proportion of total DRG payments made to outlier cases. Similarly, 
section 1886(d)(9)(B)(iv) of the Act requires the Secretary to 
reduce the average standardized amount applicable to hospitals 
located in Puerto Rico to account for the estimated proportion of 
total DRG payments made to outlier cases. More information on 
outlier payments may be found on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/04_outlier.asp#TopOfPage.

(1) Proposed FY 2013 Outlier Fixed-Loss Cost Threshold

    For FY 2013, 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 2013, 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 2013 outlier threshold, we simulated 
payments by applying proposed FY 2013 rates and policies using cases 
from the FY 2011 MedPAR files. Therefore, in order to determine the 
proposed FY 2013 outlier threshold, we inflated the charges on the 
MedPAR claims by 2 years, from FY 2011 to FY 2013.
    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 2010 in combination with the first quarter of FY 2011 
(July 1, 2010 through December 31, 2010) to the last quarter of FY 
2011 in combination with the first quarter of FY 2012 (July 1, 2011 
through December 31, 2011). This rate-of-change was 6.8 percent 
(1.068003) or 14.06 percent (1.140630) over 2 years. As we have done 
in the past, we established the proposed FY 2013 outlier threshold 
using hospital CCRs from the December 2011 update to the Provider-
Specific File (PSF)--the most recent available data at the time of 
this proposed rule.
    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 2013, 
we are proposing to continue to use the same methodology to 
calculate the CCR adjustment by using the FY 2011 operating cost per 
discharge increase in combination with the actual FY 2011 operating 
market basket percentage increase determined by IHS Global Insight, 
Inc. (IGI), as well as the charge inflation factor described above 
to estimate the adjustment to the CCRs. (We note that the FY 2011 
actual (otherwise referred to as ``final'') operating market basket 
percentage increase reflects historical data, whereas the published 
FY 2011 operating market basket update factor was based on IGI's 
2010 second quarter forecast with historical data through the first 
quarter of 2010. We also note that while the FY 2011 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 2011 published capital market basket update 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 2013, we determined the 
adjustment by taking the percentage increase in the operating costs 
per discharge from FY 2009 to FY 2010 (1.0160) from the cost report 
and dividing it by the final operating market basket percentage 
increase from FY 2010 (1.0210). 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 2007 to FY 2008 percentage increase of operating costs per 
discharge of 1.0505 divided by the FY 2008 final operating market 
basket percentage

[[Page 28143]]

increase of 1.0400, the FY 2008 to FY 2009 percentage increase of 
operating costs per discharge of 1.0295 divided by the FY 2009 final 
operating market basket percentage increase of 1.0260). For FY 2013, 
we averaged the differentials calculated for FY 2008, FY 2009, and 
FY 2010, which resulted in a mean ratio of 1.0029. We multiplied the 
3-year average of 1.0029 by the FY 2011 final operating market 
basket percentage increase of 1.0270, which resulted in an operating 
cost inflation factor of 2.99 percent or 1.029948. We then divided 
the operating cost inflation factor by the 1-year average change in 
charges (1.068003) and applied an adjustment factor of 0.964368 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 2009 to FY 2010 (1.0102) from the cost 
report and dividing it by the final capital market basket percentage 
increase from FY 2010 (1.010). 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 2007 to FY 2008 percentage increase of capital costs per 
discharge of 1.0809 divided by the FY 2008 final capital market 
basket percentage increase of 1.0150, the FY 2008 to FY 2009 
percentage increase of capital costs per discharge of 1.0499 divided 
by the FY 2009 final capital market basket percentage increase of 
1.0150). For FY 2013, we averaged the differentials calculated for 
FY 2008, FY 2009, and FY 2010, which resulted in a mean ratio of 
1.0332. We multiplied the 3-year average of 1.0332 by the FY 2011 
final capital market basket percentage increase of 1.0120, which 
resulted in a capital cost inflation factor of 4.56 percent or 
1.045567. We then divided the capital cost inflation factor by the 
1-year average change in charges (1.068003) and applied an 
adjustment factor of 0.978993 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 2013, we applied the proposed FY 2013 
rates and policies using cases from the FY 2011 MedPAR files in 
calculating the proposed outlier threshold.
    As discussed in section III.B.3. of the preamble to the FY 2011 
IPPS/LTCH PPS final rule (75 FR 50160 and 50161) and in section 
III.G.3. of the preamble of this proposed rule, in accordance with 
section 10324(a) of the Affordable Care Act, beginning in FY 2011, 
we created a wage index floor of 1.00 for all hospitals located in 
States determined to be frontier States. We noted that the frontier 
State floor adjustments will be calculated and applied after rural 
and imputed floor budget neutrality adjustments are calculated for 
all labor market areas, in order to ensure that no hospital in a 
frontier State will receive a wage index lesser than 1.00 due to the 
rural and imputed floor adjustment. In accordance with section 
10324(a) of the Affordable Care Act, the frontier State adjustment 
will not be subject to budget neutrality, and will only be extended 
to hospitals geographically located within a frontier State. 
However, for purposes of estimating the proposed outlier threshold 
for FY 2013, it was necessary to apply this provision by adjusting 
the wage index of those eligible hospitals in a frontier State when 
calculating the outlier threshold that results in outlier payments 
being 5.1 percent of total payments for FY 2013. If we did not take 
into account this provision, our estimate of total FY 2013 payments 
would be too low, and, as a result, our proposed outlier threshold 
would be too high, such that estimated outlier payments would be 
less than our projected 5.1 percent of total payments.
    Our estimate of the cumulative effect of changes in 
documentation and coding due to the adoption of the MS-DRGs of 5.4 
percent from FY 2008 and FY 2009 and 0.8 percent from FY 2010 is 
already included within the claims data (FY 2011 MedPAR files) used 
to calculate the proposed FY 2013 outlier threshold. We currently 
estimate that there would be no continued changes in documentation 
and coding in FYs 2011 and 2012. Therefore, the cumulative effect of 
documentation and coding that has occurred is already reflected 
within the FY 2011 MedPAR claims data, and we do not believe there 
is any need to inflate FY 2011 claims data for any additional case-
mix growth projected to have occurred since FY 2010.
    In addition, 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 note 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.
    As described in sections IV.A. and VIII.B., respectively, of the 
preamble of this proposed rule, section 1886(q) and 1886(o) of the 
Act establish the Hospital Readmissions Reduction Program and the 
Hospital VBP Program. We do not believe it is appropriate to include 
the hospital VBP payment adjustment and the readmissions payment 
adjustment in the outlier threshold calculation or the outlier 
offset to the standardized amount. Specifically, consistent with our 
proposed definition of the base operating DRG payment amount for the 
Hospital Readmissions Reduction Program under proposed Sec.  412.152 
and the Hospital VBP Program (that is, the wage-adjusted DRG 
operating payment amount) under proposed Sec.  412.160, outlier 
payments under section 1886(d)(5)(F) of the Act are not affected by 
these payment adjustments. Therefore, outlier payments would 
continue to be calculated based on the unadjusted base DRG payment 
amount (as opposed to using the operating base DRG payment amount 
adjusted by the hospital readmissions payment adjustment and the 
hospital VBP adjustment). Consequently, we are proposing to exclude 
the hospital VBP payment adjustment and the readmissions payment 
adjustment from the calculation of the outlier fixed-loss cost 
threshold.
    Using this methodology, we are proposing an outlier fixed-loss 
cost threshold for FY 2013 equal to the prospective payment rate for 
the DRG, plus any IME and DSH payments, and any add-on payments for 
new technology, plus $27,425.
    We note that the proposed FY 2013 outlier fixed-loss cost 
threshold represents a $5,040 (or 22.5 percent) increase from the 
final FY 2012 final outlier fixed-loss cost threshold of $22,385. 
Since FY 2009, the outlier fixed-loss cost threshold has been 
between $20,185 and $23,140. Therefore, we are concerned about this 
large increase in the outlier fixed-loss cost threshold from FY 
2012.
    We further note that the 2-year charge inflation factor of 14.06 
percent applied to the FY 2011 MedPAR claims used to compute the FY 
2013 outlier fixed-loss cost threshold is higher than the 2-year 
charge inflation factor of 7.94 percent applied to the FY 2010 
MedPAR claims used to compute the FY 2012 final outlier fixed-loss 
cost threshold. We believe that a large increase in the charge 
inflation factor for FY 2013 (from FY 2012) increased projected 
total outlier payments. With an increase in projected outlier 
payments, in order for CMS to meet the 5.1 percent target, it would 
be necessary to reduce the amount of outlier payments by raising the 
outlier fixed-loss cost threshold. Therefore, in addition to being 
concerned about the large increase in the fixed-loss threshold 
proposed for FY 2013 compared to FY 2012, we are concerned about 
this large charge inflation increase and how it potentially affected 
the proposed FY 2013 outlier fixed-loss cost threshold. As described 
above, to determine the 1-year average annualized rate-of-change in 
charges per case, we currently use a methodology that compares the 
average charge per case from the most recent 6-month period of

[[Page 28144]]

MedPAR data that are available to the same 6-month period of MedPAR 
data from the prior year. We adopted this methodology in the FY 2005 
IPPS final rule (69 FR 49277) as a result of the special 
circumstances surrounding the revisions to the outlier payment 
methodology at that time. In that rule, we stated that we would 
continue to consider other methodologies for determining charge 
inflation when calculating the outlier threshold in the future. We 
welcomed comment on possible modifications to our current 
methodologies, including the possibility of looking at a larger time 
period beyond 6 months to determine the average charge per case to 
measure the charge inflation factor.
    In addition, as pointed out by commenters in last year's final 
rule (76 FR 51793 through 51795), CMS has not met the 5.1 percent 
target for some time and the commenters have recommended 
enhancements to the methodology to improve the calculation of the 
outlier fixed-loss cost threshold. Commenters have focused on CMS 
underestimating actual outlier payments. Since FY 2009, we have used 
the same methodology to calculate the outlier fixed-loss cost 
threshold. While we have been reluctant to make changes to our 
methodology, as discussed below, our estimate for FY 2011 is that 
outlier payments will be approximately 4.7 percent of actual total 
DRG payments and for FY 2012 outlier payments will be approximately 
6.0 percent of actual total DRG payments. While these estimates 
differ--with one being under the target and one above the target--
they draw attention to the potential for improving our estimation 
methodology so that we meet the 5.1 percent target. We welcome 
public comment on ways to enhance the accuracy of our methodology of 
the calculation of the FY 2013 outlier fixed-loss cost threshold, 
especially additional analyses that could inform potential technical 
improvements.

(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 2013 would 
result in outlier payments that will equal 5.1 percent of operating 
DRG payments and 5.99 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 2013 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 based on the proposed FY 2013 outlier threshold 
are as follows:

------------------------------------------------------------------------
                                             Operating
                                           standardized       Capital
                                              amounts      federal rate
------------------------------------------------------------------------
National................................        0.948992        0.940035
Puerto Rico.............................        0.953161        0.923900
------------------------------------------------------------------------

    We are proposing to apply the outlier adjustment factors to the 
proposed FY 2013 rates after removing the effects of the FY 2012 
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, we calculate operating 
and capital CCR ceilings and assign a statewide average CCR for 
hospitals whose CCRs exceed 3.0 standard deviations from the mean of 
the log distribution of CCRs for all hospitals. Based on this 
calculation, for hospitals for which the fiscal intermediary or MAC 
computes operating CCRs greater than 1.137 or capital CCRs greater 
than 0.158, or hospitals for which the fiscal intermediary or MAC is 
unable to calculate a CCR (as described at Sec.  412.84(i)(3) of our 
regulations), statewide average CCRs are used to determine whether a 
hospital qualifies for outlier payments. Table 8A listed in section 
VI. of this Addendum (and available only via the Internet) contains 
the proposed statewide average operating CCRs for urban hospitals 
and for rural hospitals for which the fiscal intermediary or MAC is 
unable to compute a hospital-specific CCR within the above range. 
Effective for discharges occurring on or after October 1, 2012, 
these statewide average ratios would replace the ratios posted on 
the Internet at http://www.cms.gov/AcuteInpatientPPS/FR2012/list.asp#TopOfPage. Table 8B listed in section VI. of this Addendum 
(and available via the Internet) contains the proposed comparable 
statewide average capital CCRs. Again, the CCRs in Tables 8A and 8B 
would be used during FY 2013 when hospital-specific CCRs based on 
the latest settled cost report are either not available or are 
outside the range noted above. Table 8C listed in section VI. of 
this Addendum (and available via the Internet) contains the proposed 
statewide average total CCRs used under the LTCH PPS as discussed in 
section V. of this Addendum.
    We finally note that we published a manual update (Change 
Request 3966) to our outlier policy on October 12, 2005, which 
updated Chapter 3, Section 20.1.2 of the Medicare Claims Processing 
Manual. The manual update covered an array of topics, including 
CCRs, reconciliation, and the time value of money. We encourage 
hospitals that are assigned the statewide average operating and/or 
capital CCRs to work with their fiscal intermediary or MAC on a 
possible alternative operating and/or capital CCR as explained in 
Change Request 3966. Use of an alternative CCR developed by the 
hospital in conjunction with the fiscal intermediary or MAC can 
avoid possible overpayments or 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. Additionally, as mentioned above, we published an 
additional manual update (Change Request 7192) to our outlier policy 
on December 3, 2010 which also updated Chapter 3, Section 20.1.2 of 
the Medicare Claims Processing Manual. The manual update outlines 
the outlier reconciliation process for hospitals and Medicare 
contractors. To download and view the manual instructions on outlier 
reconciliation, we refer readers to the CMS Web site: http://www.cms.hhs.gov/manuals/downloads/clm104c03.pdf.

(3) FY 2011 and FY 2012 Outlier Payments

    In the FY 2012 IPPS final rule (76 FR 51795 through 51796), we 
stated that, based on available data, we estimated that actual FY 
2011 outlier payments would be approximately 4.7 percent of actual 
total DRG payments. This estimate was computed based on simulations 
using the FY 2010 MedPAR file (discharge data for FY 2010 claims). 
That is, the estimate of actual outlier payments did not reflect 
actual FY 2011 claims, but instead reflected the application of FY 
2011 rates and policies to available FY 2010 claims.
    Our current estimate, using available FY 2011 claims data, is 
that actual outlier payments for FY 2011 were approximately 4.7 
percent of actual total DRG payments. Thus, the data indicate that, 
for FY 2011, the percentage of actual outlier payments relative to 
actual total payments is lower than we projected for FY 20110. 
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 2011 are equal to 5.1 percent of total DRG 
payments.
    We currently estimate that actual outlier payments for FY 2012 
will be approximately 6.0 percent of actual total DRG payments, 
approximately 0.9 percentage points higher than the 5.1 percent we 
projected when setting the outlier policies for FY 2012. This 
estimate of 6.0 percent is based on simulations using the FY 2011 
MedPAR file (discharge data for FY 2011 claims).

5. Proposed FY 2013 Standardized Amount

    The adjusted standardized amount is divided into labor-related 
and nonlabor-related portions. Tables 1A and 1B listed and published 
in section VI. of this Addendum (and available via the Internet) 
contain the proposed national standardized amounts that we are 
proposing to apply to all hospitals, except hospitals located in 
Puerto Rico, for FY 2013. The proposed Puerto Rico-specific amounts 
are shown in Table 1C listed and published in section VI. of this 
Addendum (and available via the Internet). The 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

[[Page 28145]]

1B is 62 percent. In accordance with sections 1886(d)(3)(E) and 
1886(d)(9)(C)(iv) of the Act, we are proposing to apply a labor-
related share of 62 percent, unless application of that percentage 
would result in 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 the proposed standardized 
amounts reflecting the applicable percentage increase of 2.1 percent 
for FY 2013, and a proposed update of 0.1 percent 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 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 2013 are set forth in Table 1C listed 
and published in section VI. of this Addendum (and available via the 
Internet). This table also includes the proposed Puerto Rico 
standardized amounts. The labor-related share applied to the Puerto 
Rico specific standardized amount is the labor-related share of 62.1 
percent, or 62 percent, depending on which provides higher payments 
to the hospital.(Section 1886(d)(9)(C)(iv) of the Act, as amended by 
section 403(b) of 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 
2012 national standardized amount. The second column shows the 
proposed changes from the FY 2012 standardized amounts for hospitals 
that satisfy the quality data submission requirement and therefore 
receive the full proposed update of 2.1 percent. The third column 
shows the proposed changes for hospitals receiving the proposed 
reduced update of 0.1 percent. The first row of the table shows the 
updated (through FY 2012) average standardized amount after 
restoring the FY 2012 offsets for outlier payments, demonstration 
budget neutrality, the geographic reclassification budget neutrality 
and the retrospective documentation and coding adjustment under 
section 7(b)(1)(B) of Public Law 110-90. The DRG reclassification 
and recalibration wage index budget neutrality factors are 
cumulative. Therefore, those FY 2012 factors are not removed from 
this table.

  Comparison of FY 2012 Standardized Amounts to the Proposed FY 2013 Standardized Amount With Full and Reduced
                                                     Update
----------------------------------------------------------------------------------------------------------------
                                                                            Reduced update      Reduced update
                                   Full update (2.1    Full update (2.1     (0.1 percent);      (0.1 percent);
                                    percent); wage      percent); wage       wage index is    wage index is less
                                   index is greater   index is less than     greater than      than or equal to
                                      than 1.0000     or equal to 1.0000        1.0000              1.0000
----------------------------------------------------------------------------------------------------------------
FY 2012 Base Rate, after          Labor: $4,060.65..  Labor: $3,659.31..  Labor: $4,060.65..  Labor: $3,659.31.
 removing geographic              Nonlabor:           Nonlabor:           Nonlabor:           Nonlabor:
 reclassification budget           $1,841.46.          $2,242.80.          $1,841.46.          $2,242.80.
 neutrality, demonstration
 budget neutrality, cumulative
 FY 2008 and FY 2009
 documentation and coding
 adjustment, FY 2012
 documentation and coding
 recoupment, and outlier offset
 (based on the
 labor[dash]related share
 percentage for FY 2012).
Proposed FY 2013 Update Factor..  1.021.............  1.021.............  0.001.............  0.001.
Proposed FY 2013 DRG              0.999108..........  0.999108..........  0.999108..........  0.999108.
 Recalibration and Wage Index
 Budget Neutrality Factor.
Proposed FY 2013                  0.991436..........  0.991436..........  0.991436..........  0.991436.
 Reclassification Budget
 Neutrality Factor.
Proposed FY 2013 Rural            0.999629..........  0.999629..........  0.999629..........  0.999629.
 Demonstration Budget Neutrality
 Factor.
Proposed FY 2013 Outlier Factor.  0.948992..........  0.948992..........  0.948992..........  0.948992.
Documentation and coding          0.9405............  0.9405............  0.9405............  0.9405.
 adjustments required under
 sections 7(b)(1)(A) and
 7(b)(1)(B) of Pub. L. 110-90.
Proposed Rate for FY 2013.......  Labor: $3,664.03..  Labor: $3,301.88..  Labor: $3,592.26..  Labor: $3,237.21.
                                  Nonlabor:           Nonlabor:           Nonlabor:           Nonlabor:
                                   $1,661.59.          $2,023.74.          $1,629.04.          $1,984.09.
----------------------------------------------------------------------------------------------------------------

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

    Tables 1A through 1C, as published in section VI. of this 
Addendum (and available via the Internet), contain the proposed 
labor-related and nonlabor-related shares that we used to calculate 
the proposed prospective payment rates for hospitals located in the 
50 States, the District of Columbia, and Puerto Rico for FY 2013. 
This section addresses two types of adjustments to the standardized 
amounts that are made in determining the prospective payment rates 
as described in this Addendum.

1. Proposed Adjustment for Area Wage Levels

    Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require 
that we make an adjustment to the labor-related portion of the 
national and Puerto Rico prospective payment rates, respectively, to 
account for area differences in hospital wage levels. This 
adjustment is made by multiplying the labor-related portion of the 
adjusted standardized amounts by the appropriate wage index for the 
area in which the hospital is located. In section III. of the 
preamble of this proposed rule, we discuss the data and methodology 
for the proposed FY 2013 wage index.

2. Proposed Adjustment for Cost-of-Living in Alaska and Hawaii

    Section 1886(d)(5)(H) of the Act provides discretionary 
authority to the Secretary to make ``such adjustments * * * as the 
Secretary deems appropriate'' to take into account the unique 
circumstances of hospitals located in Alaska and Hawaii. Higher 
labor-related costs for these two States are taken into account in 
the adjustment for area wages described above. To account for higher 
nonlabor-related costs for these two States, we multiply the 
nonlabor-related portion of the standardized amount for hospitals in 
Alaska and Hawaii by an adjustment factor. For FY 2011 and in prior 
fiscal years, we used the most recent cost-of-living adjustment 
(COLA) factors obtained from the U.S. Office of Personnel Management 
(OPM) Web site at http://www.opm.gov/oca/cola/rates.asp to update 
this nonlabor portion.
    Sections 1911 through 1919 of the Nonforeign Area Retirement 
Equity Assurance Act, as contained in subtitle B of title XIX of the 
National Defense Authorization Act (NDAA) for Fiscal Year 2010 (Pub. 
L. 111-84, October 28, 2009), transitions the Alaska and Hawaii 
COLAs to locality pay. Under section 1914 of Public Law 111-84, 
locality pay is being phased in

[[Page 28146]]

over a 3-year period beginning in January 2010 with COLA rates 
frozen as of the date of enactment, October 28, 2009, and then 
proportionately reduced to reflect the phase-in of locality pay. As 
we discussed in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51797), 
we did not believe it was appropriate to use the 2010 or 2011 
reduced factors for adjusting the nonlabor-related portion of the 
standardized amount for hospitals in Alaska and Hawaii for Medicare 
payment purposes. Therefore, for FY 2012, we continued to use the 
same COLA factors (published by OPM) that we used to adjust payments 
in FY 2011 (which were based on OPM's 2009 COLA factors) to adjust 
the nonlabor-related portion of the standardized amount for 
hospitals located in Alaska and Hawaii.
    We believe it was appropriate to use ``frozen'' COLA factors to 
adjust payments in FY 2012 while we explored alternatives for 
updating the COLA adjustment in the future. In this proposed rule, 
for FY 2013, we are now proposing to continue to use the same 
``frozen'' COLA factors used in FY 2012 and to update the COLA 
factors for Alaska and Hawaii beginning in FY 2014 based on a 
comparison of the growth in the Consumer Price Indices (CPIs) for 
Anchorage, Alaska, and Honolulu, Hawaii, relative to the growth in 
the CPI for the average U.S. city as published by the Bureau of 
Labor Statistics (BLS). Specifically, for FY 2014, we would update 
the COLA factors published by OPM that we used to adjust payments in 
FY 2011 (which are based on OPM's 2009 COLA factors) as these are 
the last COLA factors OPM published prior to transitioning from 
COLAs to locality pay. Because BLS publishes CPI data for only 
Anchorage and Honolulu, we are proposing to use the comparison of 
the growth in the overall CPI relative to the growth in the CPI for 
those cities to update the COLA adjustment factors for all areas in 
Alaska and Hawaii, respectively. We believe that the relative price 
differences between these cities and the U.S. (as measured by the 
CPIs mentioned above) are appropriate proxies for the relative price 
differences between the ``other areas'' of Alaska and Hawaii and the 
U.S.
    BLS publishes the CPI for All Items for Anchorage, Honolulu, and 
for the average U.S. city. However, we are proposing to create 
reweighted CPIs for each of the respective areas to reflect the 
underlying composition of the IPPS market basket nonlabor-related 
share. The current composition of the CPI for All Items for all of 
the respective areas is approximately 40 percent commodities and 60 
percent services. However, the IPPS nonlabor-related share is 
compromised of approximately 60 percent commodities and 40 percent 
services. Therefore, we are proposing to create reweighted indexes 
for Anchorage, Honolulu, and the average U.S. city using the 
respective CPI commodities index and CPI services index using the 
60/40 share obtained from the IPPS market basket. We believe this 
proposed methodology is appropriate because we would continue to 
make a COLA adjustment for hospitals located in Alaska and Hawaii by 
multiplying the nonlabor-related portion of the standardized amount 
by a COLA factor. We note that OPM's COLA factors were calculated 
with a statutorily mandated cap of 25 percent, and since at least 
1984, we have exercised our discretionary authority to adjust Alaska 
and Hawaii payments by incorporating this cap. In keeping with this 
historical policy, our proposal for FY 2014 would continue to use 
such a cap, as our proposal is based on OPM's COLA factors (updated 
by the proposed methodology described above).
    Lastly, we are proposing to update the COLA factors based on our 
proposed methodology every 4 years, at the same time as the update 
to the labor-related share of the IPPS market basket. The labor-
related share of the IPPS market basket is currently not scheduled 
to be updated until FY 2014. Accordingly, under this proposal, we 
would begin applying this proposed methodology to update the COLA 
factors to adjust the nonlabor-related portion of the standardized 
amount for hospitals located in Alaska and Hawaii for FY 2014. At 
the time of development of the FY 2014 proposed rule, we expect to 
have CPI data available through 2012. Therefore, the proposed FY 
2014 COLA factors for Alaska and Hawaii would be based on the 2009 
OPM COLA factors updated through 2012 by the comparison of the 
growth in the reweighted CPIs for Anchorage, Alaska, and Honolulu, 
Hawaii, relative to the growth in the reweighted CPI for the average 
U.S. city.
    However, in this proposed rule, for FY 2013, we are proposing to 
use the same COLA factors used to adjust payments in FY 2012 (as 
originally used to adjust payments in FY 2011, which are based on 
OPM's 2009 COLA factors) to adjust the nonlabor-related portion of 
the standardized amount for hospitals located in Alaska and Hawaii. 
The table below shows the COLA factors that we are proposing to use 
for FY 2013:

 Table of Proposed 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 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
  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
------------------------------------------------------------------------

D. Calculation of the Proposed Prospective Payment Rates

General Formula for Calculation of the Prospective Payment Rates for FY 
2012

    In general, the operating prospective payment rate for all 
hospitals paid under the IPPS located outside of Puerto Rico, except 
SCHs, for FY 2013 equals the Federal rate. (As noted above, due to 
the expiration of the MDH program, beginning with FY 2013, we are 
not including MDHs in our proposal to update the hospital-specific 
rates for FY 2013.)
    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 2013 equals the 
higher of the applicable Federal rate, or the hospital-specific rate 
as described below. The prospective payment rate for hospitals 
located in Puerto Rico for FY 2013 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 hospitals submitting quality data; update including 
a -2.0 percent adjustment for hospitals that did not submit these 
data).
    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 (Table 5 listed in 
section VI. of this Addendum and available via the Internet).
    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 the formula 
described in section IV.D. of the preamble of this proposed rule. 
Finally, the base operating DRG payment amount may be further 
adjusted by the hospital readmissions payment adjustment and the 
hospital VBP adjustment as described under sections 1886 (q) and 
1886(o) of the Act.

[[Page 28147]]

2. Hospital-Specific Rate (Applicable Only to SCHs)

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. 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).
    We note that, in the FY 2012 IPPS/LTCH final rule (76 FR 51799), 
we finalized an adjustment of 0.9 percent to the hospital-specific 
rate (that is, a factor of 1.009) to remove the effects of the rural 
floor from the hospital-specific rates for FYs 1998 through 2005. 
The adjustment is a onetime permanent adjustment to the hospital-
specific rates.

b. Updating the FY 1982, FY 1987, FY 1996 and FY 2006 Hospital-Specific 
Rate for FY 2013

    Section 1886(b)(3)(B)(iv) of the Act provides that the 
applicable percentage increase applicable to the hospital-specific 
rates for SCHs equals the applicable percentage increase set forth 
in section 1886(b)(3)(B)(i) of the Act (that is, the same update 
factor as for all other hospitals subject to the IPPS). Because the 
Act sets the update factor for SCHs equal to the update factor for 
all other IPPS hospitals, the update to the hospital specific rates 
for SCHs is subject to the amendments to section 1886(b)(3)(B) of 
the Act made by sections 3401(a) and 10319(a) of the Affordable Care 
Act. Accordingly, the proposed applicable percentage increase to the 
hospital-specific rates applicable to SCHs is 2.1 percent (that is, 
the FY 2013 estimate of the market basket rate-of-increase of 3.0 
percent less an adjustment of 0.8 percentage point for multifactor 
productivity and less 0.1 percentage point) for hospitals that 
submit quality data or 0.1 percent (that is, the FY 2013 estimate of 
the market basket rate-of-increase of 3.0 percent, less 2.0 
percentage points for failure to submit data under the Hospital IQR 
Program, less an adjustment of 0.8 percentage point for multifactor 
productivity, and less 0.1 percentage point) for hospitals that fail 
to submit quality data. For a complete discussion of the applicable 
percentage increase applicable to the hospital-specific rates for 
SCHs, we refer readers to section IV.B. of the preamble of this 
proposed rule.
    In addition, because SCHs use the same MS-DRGs as other 
hospitals when they are paid based in whole or in part on the 
hospital-specific rate, the hospital-specific rate is adjusted by a 
budget neutrality factor to ensure that changes to the DRG 
classifications and the recalibration of the DRG relative weights 
are made in a manner so that aggregate IPPS payments are unaffected. 
Therefore, a SCH's hospital-specific rate is adjusted by the 
proposed DRG reclassification and recalibration budget neutrality 
factor of 0.998546, as discussed in section III. of this Addendum. 
The resulting rate is used in determining the payment rate an SCH 
would receive for its discharges beginning on or after October 1, 
2012.

c. Documentation and Coding Adjustment to the FY 2013 Hospital-Specific 
Rate for SCHs

    As discussed in section II.D. of the preamble of this proposed 
rule, because hospitals paid based in whole or in part on the 
hospital-specific rate (that is, SCHs and former MDHs) 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. Therefore, as discussed in the FY 
2011 IPPS/LTCH PPS final rule (75 FR 50426) and in section II.D. of 
the preamble of this proposed rule, 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 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 we discuss in section II.D. of the preamble of this proposed 
rule, we have determined that a cumulative adjustment of -5.4 
percent is required to eliminate the full effect of changes in 
documentation and coding that occurred in FY 2008 and FY 2009 on 
future payments to SCHs. Currently, we have made cumulative 
adjustments to the hospital-specific rates to account for 4.9 
percent of the 5.4 percent effect of changes in documentation and 
coding that occurred in FY 2008 and FY 2009. (For FY 2011, we 
established a prospective adjustment of -2.9 percent to the 
hospital-specific rates, and, for FY 2012, we established a 
prospective adjustment to the hospital-specific rates of -2.0 
percent.) In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51499), we 
indicated that, because the -2.0 percent adjustment we made in FY 
2012 did not reflect the entire remaining requirement adjustment 
amount of -2.5 percent, an additional -0.5 percent adjustment to the 
hospital-specific rates would be required in future rulemaking.
    In this proposed rule, we are proposing a -0.5 percent 
prospective adjustment to the hospital-specific rate to account for 
the remainder of the 5.4 percent effect of documentation and coding 
that occurred in FY 2008 and FY 2009. We continue to believe that 
hospitals paid based on their hospital-specific rate (that is, SCHs) 
had the same opportunity to benefit for improvements in 
documentation and coding that did not reflect an increase in patient 
severity, and we continue to believe that any resulting adjustments 
should be applied similarly to all subsection (d) hospitals, when 
possible.
    As discussed in section II.D., after review of comments and 
recommendations received from MedPAC, we analyzed claims data in FY 
2010 to determine whether any additional adjustment (beyond the 
estimated 5.4 percent for FYs 2008 and 2009 discussed above) to the 
hospital-specific rate would be required to ensure that the 
introduction of MS-DRGs was implemented in a budget neutral manner. 
We analyzed FY 2010 claims data (for this proposed rule, we analyzed 
FY 2010 claims paid through December 2011), and determined that 
there is an additional documentation and coding effect of 0.8 
percent.
    Consistent with our proposal for IPPS hospitals based upon a 
review of FY 2010 claims data using the same methodology, we also 
are proposing an additional -0.8 percent adjustment to the hospital-
specific rates to account for documentation and coding that did not 
reflect an actual increase in case-mix in FY 2010. We believe that a 
full prospective adjustment is the most appropriate means to take 
into account the effect of documentation and coding changes on 
payments, while maintaining equity as much as possible between 
different IPPS hospitals paid using the MS-DRG. Therefore, as 
discussed in more detail the preamble to this proposed rule, we are 
proposing a combined adjustment of -1.3 percent (-0.5 percent + -0.8 
percent) to the hospital-specific rates, accounting for all 
documentation and coding effects observed between FY 2008 though FY 
2010.

3. General Formula for Calculation of Prospective Payment Rates for 
Hospitals Located in Puerto Rico Beginning on or After October 1, 2012, 
and Before October 1, 2013

    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 published in section 
VI. of this Addendum and available via the Internet).
    Step 2--Multiply the labor-related portion of the standardized 
amount by the applicable Puerto Rico-specific wage index.
    Step 3--Add the amount from Step 2 and the nonlabor-related 
portion of the standardized amount.

[[Page 28148]]

    Step 4--Multiply the amount from Step 3 by the applicable MS-DRG 
relative weight (Table 5 listed in section VI. of this Addendum and 
available via the Internet).
    Step 5--Multiply the result in Step 4 by 25 percent.

b. National 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 listed in section VI. of this Addendum and 
available via the Internet).
    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 is then 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 2013

    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 used to 
determine the proposed capital Federal rate for FY 2013, which will 
be effective for discharges occurring on or after October 1, 2012.
    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) also 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 exceptions under Sec.  412.348. (We note that, as 
discussed in below in section III.A.4. of this Addendum, there is no 
longer a need for an exceptions payment adjustment factor.) Section 
412.308(c)(4)(ii) requires that the capital standard Federal rate be 
adjusted so that the effects of the annual DRG reclassification and 
the recalibration of DRG weights and changes in the geographic 
adjustment factor (GAF) are budget neutral.
    Section 412.374 provides for blended payments to hospitals 
located in Puerto Rico under the IPPS for acute care hospital 
inpatient capital-related costs. Accordingly, under the capital PPS, 
we compute a separate payment rate specific to hospitals located in 
Puerto Rico using the same methodology used to compute the national 
Federal rate for capital-related costs. In accordance with section 
1886(d)(9)(A) of the Act, under the IPPS for acute care hospital 
operating costs, hospitals located in Puerto Rico are paid for 
operating costs under a special payment formula. Effective October 
1, 2004, in accordance with section 504 of Pub. L. 108-173, the 
methodology for operating payments made to hospitals located in 
Puerto Rico under the IPPS was revised to make payments based on a 
blend of 25 percent of the applicable standardized amount specific 
to Puerto Rico hospitals and 75 percent of the applicable national 
average standardized amount. In conjunction with this change to the 
operating blend percentage, effective with discharges occurring on 
or after October 1, 2004, we also revised the methodology for 
computing capital payments to hospitals located in Puerto Rico to be 
based on a blend of 25 percent of the Puerto Rico capital rate and 
75 percent of the national capital Federal rate (69 FR 49185).

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

    In the discussion that follows, we explain the factors that we 
used to determine the proposed capital Federal rate for FY 2013. In 
particular, we explain why the proposed FY 2013 capital Federal rate 
increases approximately 0.7 percent, compared to the FY 2012 capital 
Federal rate. As discussed in the impact analysis in Appendix A of 
this proposed rule, we estimate that capital payments per discharge 
will decrease 0.2 percent during that same period. Because capital 
payments constitute about 10 percent of hospital payments, a percent 
change in the capital Federal rate yields only about a 0.1 percent 
change in actual payments to hospitals.

1. Projected Capital Standard Federal Rate Update

a. Description of the Update Framework

    Under 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 2013 under that 
framework is 1.3 percent based on the best data available at this 
time. The proposed update factor under that framework is based on a 
projected 1.3 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 2011 DRG reclassification and recalibration, 
and a forecast error correction of 0.0 percent. As discussed below 
in section III.C. of this Addendum, we continue to believe that the 
CIPI is the most appropriate input price index for capital costs to 
measure capital price changes in a given year. We also explain the 
basis for the FY 2013 CIPI projection in that same section of this 
Addendum. We note that, as discussed in section V.C. of the preamble 
of this proposed rule, we are proposing to apply a -0.8 percent 
adjustment to the capital rate in FY 2013 to account for the 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 2013.
    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:
    <bullet> The average resource use of Medicare patients changes 
(``real'' case-mix change);
    <bullet> Changes in hospital documentation and coding of patient 
records result in higher weight DRG assignments (``coding 
effects''); and
    <bullet> 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).)
    For FY 2013, we are projecting a 0.5 percent total increase in 
the case-mix index. We estimated that the real case-mix increase 
will also equal 0.5 percent for FY 2013. The proposed net adjustment 
for change in case-mix is the difference between the projected real 
increase in case-mix and the projected total increase in case-mix. 
Therefore, the proposed net adjustment for case-mix change in FY 
2013 is 0.0 percentage point.

[[Page 28149]]

    The capital update framework also contains an adjustment for the 
effects of DRG reclassification and recalibration. This adjustment 
is intended to remove the effect on total payments of prior year's 
changes to the DRG classifications and relative weights, in order to 
retain budget neutrality for all case-mix index-related changes 
other than those due to patient severity of illness. Due to the lag 
time in the availability of data, there is a 2-year lag in data used 
to determine the adjustment for the effects of DRG reclassification 
and recalibration. For example, we have data available to evaluate 
the effects of the FY 2011 DRG reclassification and recalibration as 
part of our update for FY 2013. We estimate that FY 2011 DRG 
reclassification and recalibration resulted in no change in the 
case-mix when compared with the case-mix index that would have 
resulted if we had not made the reclassification and recalibration 
changes to the DRGs. Therefore, we are proposing to make a 0.0 
percent adjustment for reclassification and recalibration in the 
update framework for FY 2013.
    The capital update framework also contains an adjustment for 
forecast error. The input price index forecast is based on 
historical trends and relationships ascertainable at the time the 
update factor is established for the upcoming year. In any given 
year, there may be unanticipated price fluctuations that may result 
in differences between the actual increase in prices and the 
forecast used in calculating the update factors. In setting a 
prospective payment rate under the framework, we make an adjustment 
for forecast error only if our estimate of the change in the capital 
input price index for any year is off by 0.25 percentage point or 
more. There is a 2-year lag between the forecast and the 
availability of data to develop a measurement of the forecast error. 
A forecast error of 0.0 percentage point was calculated for the 
proposed FY 2013 update. That is, current historical data indicate 
that the forecasted FY 2011 CIPI (1.2 percent) used in calculating 
the FY 2011 update factor is the same as the actual realized price 
increases (1.2 percent). Because we estimate forecast error for the 
FY 2011 CIPI, we are proposing to make a 0.0 percent adjustment for 
forecast error in the update for FY 2013.
    Under the capital IPPS update framework, we also make an 
adjustment for changes in intensity. Historically, we calculated 
this adjustment using the same methodology and data that were used 
in the past under the framework for operating IPPS. The intensity 
factor for the operating update framework reflected how hospital 
services are utilized to produce the final product, that is, the 
discharge. This component accounts for changes in the use of 
quality-enhancing services, for changes within DRG severity, and for 
expected modification of practice patterns to remove non-cost-
effective services. Our intensity measure is based on a 5-year 
average.
    We calculate case-mix constant intensity as the change in total 
cost per discharge, adjusted for price level changes (the CIPI for 
hospital and related services) and changes in real case-mix. Without 
reliable estimates of the proportions of the overall annual 
intensity increases that are due, respectively, to ineffective 
practice patterns and the combination of quality-enhancing new 
technologies and complexity within the DRG system, we assume that 
one-half of the annual increase is due to each of these factors. The 
capital update framework thus provides an add-on to the input price 
index rate of increase of one-half of the estimated annual increase 
in intensity, to allow for increases within DRG severity and the 
adoption of quality-enhancing technology.
    In this proposed rule, we are proposing to continue to use 
Medicare-specific intensity measure that is based on a 5-year 
adjusted average of cost per discharge for FY 2013 (we refer readers 
to the FY 2011 IPPS/LTCH PPS final rule (75 FR 50436) for a full 
description of our Medicare-specific intensity measure). 
Specifically, for FY 2013, we are proposing to use an intensity 
measure that is based on an average of cost per discharge data from 
the 5-year period beginning with FY 2005 and extending through FY 
2010. Based on these data, we estimated that case-mix constant 
intensity declined during FYs 2005 through 2010. In the past, when 
we found intensity to be declining, we believed a zero (rather than 
negative) intensity adjustment was appropriate. Consistent with this 
approach, because we estimate that intensity declined during that 5-
year period, we believe it is appropriate to continue to apply a 
zero intensity adjustment for FY 2013. Therefore, we are proposing 
to make a 0.0 percent adjustment for intensity in the update for FY 
2013.
    Above, we described the basis of the components used to develop 
the proposed 1.3 percent capital update factor under the capital 
update framework for FY 2013 as shown in the table below.

     Proposed CMS FY 2013 Update Factor to the Capital Federal Rate
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Capital Input Price Index.......................................     1.3
Intensity.......................................................     0.0
Case-Mix Adjustment Factors:
  Real Across DRG Change........................................    -0.5
  Projected Case-Mix Change.....................................     0.5
                                                                 -------
    Subtotal....................................................     1.3
Effect of FY 2011 Reclassification and Recalibration............     0.0
Forecast Error Correction.......................................     0.0
                                                                 -------
    Total Update................................................     1.3
------------------------------------------------------------------------

b. Comparison of CMS and MedPAC Update Recommendation

    In its March 2012 Report to Congress, MedPAC did not make a 
specific update recommendation for capital IPPS payments for FY 
2013. (MedPAC's Report to the Congress: Medicare Payment Policy, 
March 2012, Chapter 3.)

2. Outlier Payment Adjustment Factor

    Section 412.312(c) establishes a unified outlier payment 
methodology for inpatient operating and inpatient capital-related 
costs. A single set of thresholds is used to identify outlier cases 
for both inpatient operating and inpatient capital-related payments. 
Section 412.308(c)(2) provides that the standard Federal rate for 
inpatient capital-related costs be reduced by an adjustment factor 
equal to the estimated proportion of capital-related outlier 
payments to total inpatient capital-related PPS payments. The 
outlier thresholds are set so that operating outlier payments are 
projected to be 5.1 percent of total operating IPPS DRG payments.
    For FY 2012, we estimated that outlier payments for capital 
would equal 6.18 percent of inpatient capital-related payments based 
on the capital Federal rate in FY 2012. Based on the thresholds as 
set forth in section II.A. of this Addendum, we estimate that 
outlier payments for capital-related costs will equal 6.00 percent 
for inpatient capital-related payments based on the proposed capital 
Federal rate in FY 2013. Therefore, we are proposing to apply an 
outlier adjustment factor of 0.9400 in determining the capital 
Federal rate for FY 2013. Thus, we estimate that the percentage of 
capital outlier payments to total capital Federal rate payments for 
FY 2013 will be somewhat lower than the percentage for FY 2012. This 
decrease in estimated capital outlier payments is primarily due to 
the proposed increase in the outlier threshold used to identify 
outlier cases for both inpatient operating and inpatient capital-
related payments, which is discussed in section II.A. of this 
Addendum. That is, because the outlier threshold used to identify 
outlier cases is higher, cases will receive lower outlier payments 
and fewer cases will qualify for outlier payments.
    The outlier reduction factors are not built permanently into the 
capital rates; that is, they are not applied cumulatively in 
determining the capital Federal rate. The proposed FY 2013 outlier 
adjustment of 0.9400 is a 0.19 percent change from the FY 2012 
outlier adjustment of 0.9382. Therefore, the proposed net change in 
the outlier adjustment to the capital Federal rate for FY 2013 is 
1.0019 (0.9400/0.9382). Thus, the proposed outlier adjustment will 
increase the FY 2013 capital Federal rate by 0.19 percent compared 
with the FY 2012 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.

[[Page 28150]]

    To determine the proposed factors for FY 2013, we compared 
(separately for the national capital rate and the Puerto Rico 
capital rate) estimated aggregate capital Federal rate payments 
based on the FY 2012 MS-DRG classifications and relative weights and 
the FY 2012 GAF to estimated aggregate capital Federal rate payments 
based on the FY 2012 MS-DRG classifications and relative weights and 
the proposed FY 2013 GAFs. To achieve budget neutrality for the 
changes in the national GAFs, based on calculations using updated 
data, we are proposing to apply an incremental budget neutrality 
adjustment of 1.0006 for FY 2013 to the previous cumulative FY 2012 
adjustment of 0.9905, yielding an adjustment of 0.9911, through FY 
2013. For the Puerto Rico GAFs, we are proposing to apply an 
incremental budget neutrality adjustment of 1.0044 for FY 2013 to 
the previous cumulative FY 2012 adjustment of 1.0043, yielding a 
cumulative adjustment of 1.0087 through FY 2013.
    We then compared estimated aggregate capital Federal rate 
payments based on the FY 2012 DRG relative weights and the proposed 
FY 2013 GAFs to estimate aggregate capital Federal rate payments 
based on the cumulative effects of the proposed FY 2013 MS-DRG 
classifications and relative weights and the proposed FY 2013 GAFs. 
The proposed incremental adjustment for DRG classifications and 
proposed changes in relative weights is 0.9996 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 2012 are 0.9907 nationally 
and 1.0083 for Puerto Rico. We note that all the values are 
calculated with unrounded numbers.
    The methodology used to determine the recalibration and 
geographic adjustment factor (GAF/DRG) budget neutrality adjustment 
is similar to the methodology used in establishing budget neutrality 
adjustments under the IPPS for operating costs. One difference is 
that, under the operating IPPS, the budget neutrality adjustments 
for the effect of geographic reclassifications are determined 
separately from the effects of other changes in the hospital wage 
index and the DRG relative weights. Under the capital IPPS, there is 
a single GAF/DRG budget neutrality adjustment factor (the national 
capital rate and the Puerto Rico capital rate are determined 
separately) for changes in the GAF (including geographic 
reclassification) and the 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 2012, we established a GAF/DRG budget neutrality factor 
of 1.0004 (76 FR 51803). For FY 2013, we are proposing to establish 
a GAF/DRG budget neutrality factor of 1.0002. The GAF/DRG budget 
neutrality factors are built permanently into the capital rates; 
that is, they are applied cumulatively in determining the capital 
Federal rate. This follows the requirement that estimated aggregate 
payments each year be no more or less than they would have been in 
the absence of the annual DRG reclassification and recalibration and 
changes in the GAFs. The incremental change in the adjustment from 
FY 2012 to FY 2013 is 1.0002. The proposed cumulative change in the 
capital Federal rate due to this adjustment is 0.9907 (the product 
of the incremental factors for FYs 1995 through 2012 and the 
proposed incremental factor of 1.0002 for FY 2013). (For a listing 
of the DRG and GAF budget neutrality adjustment factors, we refer 
readers to section V. of the Addendum to the FY 2012 IPPS/LTCH PPS 
final rule (76 FR 51803).)
    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 
2013 geographic reclassification decisions made by the MGCRB 
compared to FY 2012 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.
    Since FY 2002, an adjustment for regular exception payments was 
no longer necessary in determining the 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, in FY 2002 and 
subsequent fiscal years, no payments are made under the regular 
exceptions provision (66 FR 39949). Furthermore, as discussed in the 
FY 2012 IPPS/LTCH PPS final rule (76 FR 51804), there are no longer 
any remaining hospitals eligible to receive a special exceptions 
payment under Sec.  412.348(g) because they have reached the 
limitation on the period for exception payments under Sec.  
412.348(g)(7). Therefore, beginning with FY 2012, there is no longer 
a need for an exceptions payment adjustment factor.

5. Proposed Capital Standard Federal Rate for FY 2013

    For FY 2012, we established a capital Federal rate of $421.42 
(76 FR 51804). We are proposing to establish an update of 1.3 
percent in determining the FY 2013 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, consistent with section 
1886(d)(3)(A)(vi) of the Act and section 7(b) of Pub. L. 110-90, we 
are proposing to make an additional 0.8 percent reduction to the 
national capital Federal payment rate in FY 2013 to account for 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 
0.9404 in determining the proposed FY 2013 capital Federal rate 
(that is, the existing -0.6 percent adjustment in FY 2008 plus the -
0.9 percent adjustment in FY 2009, plus the -2.9 percent adjustment 
for FY 2011, plus the -1.0 percent adjustment for FY 2012, plus the 
proposed -0.8 percent adjustment for FY 2013, computed as 1 divided 
by (1.006 x 1.009 x 1.029 x 1.010 x 1.008). (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 1.3 
percent update and other budget neutrality factors discussed above, 
we are proposing to establish a national capital Federal rate of 
$424.42 for FY 2013. The proposed national capital Federal rate for 
FY 2013 was calculated as follows:
    <bullet> The proposed FY 2013 update factor is 1.0130, that is, 
the proposed update is 1.3 percent.
    <bullet> The proposed FY 2013 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 1.0002.
    <bullet> The proposed FY 2013 outlier adjustment factor is 
0.9400.
    <bullet> The proposed cumulative adjustment factor for FY 2013 
applied to the national capital Federal rate for changes in 
documentation and coding under the MS-DRGs is 0.9404.
    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 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. (As 
discussed in section III.A.4. of this Addendum, there is no longer a 
need for an exceptions payment adjustment factor in determining the 
capital Federal rate.)
    We are providing the following chart that shows how each of the 
proposed factors and adjustments for FY 2013 affects the computation 
of the proposed FY 2013 national capital Federal rate in comparison 
to the FY 2012 national capital Federal rate. The proposed FY 2013 
update factor has the effect of increasing the capital Federal rate 
by 1.3 percent compared to the FY 2012 capital Federal rate. The 
proposed GAF/DRG budget neutrality factor has the effect of 
increasing the capital Federal rate by 0.02 percent. The proposed FY 
2013 outlier adjustment factor has the effect of increasing the 
proposed capital Federal rate by 0.19 percent compared to the FY 
2012 capital Federal rate. The proposed factor for changes in 
documentation and coding under the MS-DRGs for FY 2013 has the net 
effect of decreasing the proposed FY 2013 national capital Federal 
rate by 0.08 percent as compared to the FY 2012 national capital 
Federal rate. The combined effect of all the proposed changes would 
increase the proposed national capital Federal rate by approximately 
0.7 percent compared to the FY 2012 national capital Federal rate.

[[Page 28151]]



 Comparison of Factors and Adjustments: FY 2012 Capital Federal Rate and
                  Proposed FY 2013 Capital Federal Rate
------------------------------------------------------------------------
                                          Proposed              Percent
                               FY 2012    FY 2013     Change     change
------------------------------------------------------------------------
Update Factor \1\...........     1.0150     1.0130     1.0130       1.30
GAF/DRG Adjustment Factor         1.004     1.0002     1.0002       0.02
 \1\........................
Outlier Adjustment Factor        0.9382     0.9400     1.0019       0.19
 \2\........................
MS-DRG Documentation and            \3\        \4\     0.9921      -0.79
 Coding Adjustment Factor...     0.9479     0.9404
Capital Federal Rate \5\....    $421.42    $424.42     1.0071       0.71
------------------------------------------------------------------------
\1\ The update factor and the GAF/DRG budget neutrality factors are
  built permanently into the capital rates. Thus, for example, the
  incremental change from FY 2012 to FY 2013 resulting from the
  application of the proposed 1.0002 GAF/DRG budget neutrality factor
  for FY 2013 is a net change of 1.0002.
\2\ The outlier reduction factor is not built permanently into the
  capital rate; that is, the factor is not applied cumulatively in
  determining the capital rate. Thus, for example, the net change
  resulting from the application of the FY 2013 outlier adjustment
  factor is 0.9404/0.9382, or 1.0019.
\3\ The documentation and coding adjustment factor includes the -0.6
  percent in FY 2008, -0.9 percent in FY 2009, no additional reduction
  in FY 2010, the -2.9 percent in FY 2011 and the -1.0 percent in FY
  2012.
\4\ The documentation and coding adjustment factor includes the -0.6
  percent in FY 2008, -0.9 percent in FY 2009, no additional reduction
  in FY 2010, the -2.9 percent in FY 2011, the -1.0 percent in FY 2012,
  and the proposed -0.8 percent in FY 2013.
\5\ Sum of percent change may not sum due to rounding.

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, 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 budget neutrality 
adjustments for the proposed national GAF and for the proposed 
Puerto Rico GAF, and the proposed budget neutrality factor for 
proposed MS-DRG reclassifications and recalibration (which is the 
same nationally and for Puerto Rico) is discussed above in section 
III.A.3. of this Addendum.
    In computing the payment for a particular Puerto Rico hospital, 
the Puerto Rico portion of the capital rate (25 percent) is 
multiplied by the Puerto Rico-specific GAF for the labor market area 
in which the hospital is located, and the national portion of the 
capital rate (75 percent) is multiplied by the national GAF for the 
labor market area in which the hospital is located (which is 
computed from national data for all hospitals in the United States 
and Puerto Rico).
    For FY 2012, the special capital rate for hospitals located in 
Puerto Rico was $203.86 (76 FR 51805). As discussed in section 
V.C.3. of the preamble of this proposed rule, we are not proposing 
to make any additional adjustments for the effect of documentation 
and coding that did not reflect real changes in case-mix to the 
capital Puerto Rico-specific rate for FY 2013. Therefore, with the 
changes we are proposing to make to the other factors used to 
determine the proposed capital rate, the proposed FY 2013 special 
capital rate for hospitals in Puerto Rico is $206.82.

B. Calculation of the Proposed Inpatient Capital-Related 
Prospective Payments for FY 2013

    For purposes of calculating payments for each discharge during 
FY 2013, 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 
2013 are in section II.A. of this Addendum. For FY 2013, 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 proposed fixed-loss amount of 
$27,425.
    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 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/RY 
2010 LTCH PPS final rule (74 FR 44021), 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 2013

    Based on the latest forecast by IHS Global Insight, Inc. (first 
quarter of 2012), we are forecasting the FY 2006-based CIPI to 
increase 1.3 percent in FY 2013. This reflects a projected 1.8 
percent increase in vintage-weighted depreciation prices (building 
and fixed equipment, and movable equipment), and a projected 1.9 
percent increase in other capital expense prices in FY 2013, 
partially offset by a projected 2.2 percent decline in vintage-
weighted interest expenses in FY 2013. The weighted average of these 
three

[[Page 28152]]

factors produces the proposed 1.3 percent increase for the FY 2006-
based CIPI as a whole in FY 2013.

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.)
    In this proposed rule, we are proposing that the FY 2013 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 2013 IPPS operating market basket, in accordance 
with applicable regulations at Sec.  413.40. In this proposed rule, 
the estimated percentage increase in the FY 2013 IPPS operating 
market basket is estimated to be 3.0 percent. We also are proposing 
to use the most recent data available to determine the estimated 
percentage increase for the FY 2013 IPPS operating market basket. 
Based on IHS Global Insight, Inc.'s first quarter 2012 forecast, 
with historical data through the 2011 fourth quarter, the IPPS 
operating market basket update is 3.0 percent for FY 2013. 
Therefore, for cancer and children's hospitals and RNHCIs, the 
proposed FY 2013 rate-of-increase percentage that would be applied 
to the FY 2012 target amounts in order to determine the proposed FY 
2013 target amount is 3.0 percent.
    IRFs, IPFs, and LTCHs were previously paid under the reasonable 
cost methodology. However, the statute was amended to provide for 
the implementation of prospective payment systems for IRFs, IPFs, 
and LTCHs. In general, the prospective payment systems for IRFs, 
IPFs, and LTCHs provide transitioning periods of varying lengths of 
time during which a portion of the prospective payment is based on 
cost-based reimbursement rules under 42 CFR Part 413 (certain 
providers do not receive a transitioning period or may elect to 
bypass the transition as applicable under 42 CFR Part 412, Subparts 
N, O, and P.) We note that all of the various transitioning periods 
provided for under the IRF PPS, the IPF PPS, and the LTCH PPS have 
ended. The IRF PPS, the IPF PPS, and the LTCH PPS are updated 
annually. We refer readers to section 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 FY 2013. 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 2013

A. Proposed LTCH PPS Standard Federal Rate for FY 2013

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 2013.
    Under 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 annually by a factor to adjust for the most 
recent estimate of the increases in prices of an appropriate market 
basket of goods and services for LTCHs. We established this policy 
of annually updating the standard Federal rate because, at that 
time, we believed that was the most appropriate method for updating 
the LTCH PPS standard Federal rate for years after the initial 
implementation of the LTCH PPS in FY 2003. Thus, 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.
    In determining the annual update to the standard Federal rate 
for RY 2007, based on our ongoing monitoring activity, we believed 
that, rather than solely using the most recent estimate of the LTCH 
PPS market basket update as the basis of the annual update factor, 
it was appropriate to adjust the standard Federal rate to account 
for the effect of documentation and coding in a prior period that 
was unrelated to patients' severity of illness (71 FR 27818). 
Accordingly, we established under Sec.  412.523(c)(3)(iii) that the 
annual update to the standard Federal rate for RY 2007 was zero 
percent based on the most recent estimate of the LTCH PPS market 
basket at that time, offset by an adjustment to account for changes 
in case-mix in prior periods due to the effect of documentation and 
coding that were unrelated to patients' severity of illness. For RY 
2008 through FY 2011, we also made an adjustment for the effect of 
documentation and coding that was unrelated to patients' severity of 
illness in establishing the annual update to the standard Federal 
rate as set forth in the regulations at Sec. Sec.  412.523(c)(3)(iv) 
through (c)(3)(vii). For FY 2012, we updated the standard Federal 
rate by the most recent estimate of the LTCH PPS market basket at 
that time, including additional statutory adjustments required by 
section 1886(m)(3)(A) of the Act.
    Section 1886(m)(3)(A) of the Act, as added by section 3401(c) of 
the Affordable Care Act, specifies that, for rate year 2010 and each 
subsequent rate year, any annual update to the standard Federal rate 
shall be reduced:
    <bullet> For rate year 2010 through 2019, by the other 
adjustment specified in section 1886(m)(3)(A)(ii) and (m)(4) of the 
Act; and
    <bullet> For rate year 2012 and each subsequent year, by the 
productivity adjustment described in section 1886(b)(3)(B)(xi)(II) 
of the Act (which we refer to as ``the multifactor productivity 
(MFP) adjustment'') as discussed in section VII.D.2.d. of the 
preamble of this proposed rule.
    Section 1886(m)(3)(B) of the Act provides that the application 
of paragraph (3) of section 1886(m) of the Act may result in the 
annual update being less than zero for a rate year, and may result 
in payment rates for a rate year being less than such payment rates 
for the preceding rate year. (As noted in section VII.D.2.d. of the 
preamble of this proposed rule, the annual update to the LTCH PPS 
occurs on October 1 and we have adopted the term ``fiscal year'' 
(FY) rather than ``rate year'' (RY) under the LTCH PPS beginning 
October 1, 2010. Therefore, for purposes of clarity, when discussing 
the annual update for the LTCH PPS, including the provisions of the 
Affordable Care Act, we use the term ``fiscal year'' rather than 
``rate year'' for 2011 and subsequent years.)
    For FY 2012, consistent with our historical practice, we 
established an update to the LTCH PPS standard Federal rate based on 
the full estimated LTCH PPS market basket increase of 2.9 percent, 
the 1.1 percentage point reductions required by sections 
1886(m)(3)(A)(i) and (m)(4)(C) of the Act. Accordingly, at Sec.  
412.523(c)(3)(viii) of the regulations, we established an annual 
update of 1.8 percent to the standard Federal rate for FY 2012 (76 
FR 51769 through 51771 and 51807).
    In this proposed rule, for FY 2013, as discussed in greater 
detail in section VII.D.2. of the preamble of this proposed rule, we 
are proposing to establish an annual update to the LTCH PPS standard 
Federal rate based on the full estimated increase in the proposed 
LTCH PPS market basket, less the MFP adjustment consistent with 
section 1886(m)(3)(A)(i) of the Act and less the 0.1 percentage 
point required by sections 1886(m)(3)(A)(ii) and (m)(4)(C) of the 
Act. Specifically, in this proposed rule, based on the best 
available data, we are proposing an annual update to the standard 
Federal rate of 2.1 percent, which is based on the full estimated 
increase in the proposed LTCH PPS market basket of 3.0 percent, less 
the proposed MFP adjustment of 0.8 percentage point consistent with 
section 1886(m)(3)(A)(i) of the Act and less the 0.1 percentage 
point required by sections 1886(m)(3)(A)(ii) and (m)(4)(C) of the 
Act.

[[Page 28153]]

2. Development of the Proposed FY 2013 LTCH PPS Standard Federal Rate

    We continue to believe that the annual update to the LTCH PPS 
standard Federal rate should be based on the most recent estimate of 
the increase in the LTCH PPS market basket, including any statutory 
adjustments. Consistent with our historical practice, we are 
proposing to apply the annual update to the LTCH PPS standard 
Federal rate from the previous year. In determining the proposed 
standard Federal rate for FY 2013, we also are proposing to make 
certain regulatory adjustments. Specifically, we are proposing to 
make a one-time prospective adjustment to the standard Federal rate 
under Sec.  412.523(d)(3), as discussed in greater detail in section 
VII.E.4. of the preamble of this proposed rule (which would not be 
applicable to payments for discharges occurring prior to December 
29, 2012, consistent with the statute.) In addition, in determining 
the proposed FY 2013 standard Federal rate, we are proposing to 
apply a budget neutrality adjustment for the proposed changes to the 
area wage adjustment (that is, proposed changes to the wage data and 
labor-related share) in accordance with Sec.  412.523(d)(4).
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51769 through 
51771 and 51807), we established an annual update to the LTCH PPS 
standard Federal rate of 1.8 percent for FY 2012 based on the full 
estimated LTCH PPS market basket increase of 2.9 percent, less the 
MFP adjustment of 1.0 percentage point consistent with section 
1886(m)(3)(A)(i) of the Act and less the 0.1 percentage point 
required by sections 1886(m)(3)(A)(ii) and(m)(4)(C) of the Act. 
Accordingly, at Sec.  412.523(c)(3)(viii), we established an annual 
update to the standard Federal rate for FY 2012 of 1.8 percent. That 
is, we applied an update factor of 1.018 to the FY 2011 Federal rate 
of $39,599.95 to determine the FY 2012 standard Federal rate. 
Furthermore, for FY 2012, we applied an area wage level budget 
neutrality factor of 0.99775 to the standard Federal rate to ensure 
that any changes to the area wage level adjustment (that is, the 
annual update of the wage index values and labor-related share) 
would not result in any change (increase or decrease) in estimated 
aggregate LTCH PPS payments. Consequently, we established a standard 
Federal rate for FY 2012 of $40,222.05 (calculated as $39,599.95 x 
1.018 x 0.99775), which is applicable to LTCH PPS discharges 
occurring on or after October 1, 2011, through September 30, 2012.
    In this proposed rule, for FY 2013, as noted above and as 
discussed in greater detail in section VII.D.2. of the preamble of 
this proposed rule, consistent with our historical practice, we are 
proposing to establish an annual update to the proposed LTCH PPS 
standard Federal rate of 2.1 percent, based on the full estimated 
increase in the proposed LTCH PPS market basket of 3.0 percent less 
the proposed MFP adjustment of 0.8 percentage point consistent with 
section 1886(m)(3)(A)(i) and less the 0.1 percentage point required 
by sections 1886(m)(3)(A)(ii) and(m)(4)(C) of the Act. Furthermore, 
as discussed in section VII.E.4. of the preamble of this proposed 
rule, in determining the proposed standard Federal rate for FY 2013, 
we are proposing to make a one-time prospective adjustment to the 
standard Federal rate under Sec.  412.523(d)(3) (which would not be 
applicable to payments for discharges occurring prior to December 
29, 2012, consistent with the statute).
    In this proposed rule, under proposed Sec.  
412.523(c)(3)(ix)(A), we are proposing to apply a factor of 1.021 to 
the FY 2012 standard Federal rate of $40,222.05 (as established in 
the FY 2012 IPPS/LTCH PPS final rule (76 FR 51807)) to determine the 
proposed FY 2013 standard Federal rate. In addition, as discussed in 
section VII.E.4. of the preamble of this proposed rule, the standard 
Federal rate would be further adjusted by the proposed one-time 
prospective adjustment factor for FY 2013 of 0.98734 under proposed 
Sec.  412.523(d)(3)(ii). However, consistent with the statute, we 
are proposing at Sec.  412.523(c)(3)(ix)(B) that, for payments for 
discharges occurring on or after October 1, 2012, and before 
December 29, 2012, payments are based on the standard Federal rate 
in paragraph (c)(3)(ix)(A) of this section without regard to the 
one-time prospective adjustment provided for under proposed Sec.  
412.523(d)(3)(ii). In addition, as discussed in greater detail in 
section V.B.5. of this Addendum, for FY 2013, we are proposing to 
apply an area wage level budget neutrality factor of 0.99903 to the 
standard Federal rate to ensure that any changes to the area wage 
level adjustment (that is, the proposed annual update of the wage 
index values and labor-related share) would not result in any change 
(increase or decrease) in estimated aggregate LTCH PPS payments. 
Consequently, in this proposed rule, under proposed Sec.  
412.523(c)(3)(ix)(A), we are proposing to establish a standard 
Federal rate for FY 2013 of $40,507.48 (calculated as $40,222.05 x 
1.021 x 0.98734 x 0.99903). Furthermore, consistent with section 
114(c)(4) of the MMSEA, as amended by sections 3106(a) and 10312 of 
the Affordable Care Act, the proposed one-time prospective 
adjustment to the standard Federal rate for FY 2013 of 0.98734 would 
not apply to payments for discharges occurring before December 29, 
2012. Therefore, payment for discharges occurring on or after 
October 1, 2012 and on or before December 28, 2012, would not 
reflect that proposed adjustment and instead would be paid based on 
a standard Federal rate of $41,026.88 (calculated as $40,507.48 
divided by 0.98734).

B. Proposed Adjustment for Area Wage Levels Under the LTCH PPS for 
FY 2013

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. For additional information on the development and initial 
implementation of the area wage level 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. Geographic Classifications/Labor Market Area Definitions

    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 (67 FR 56015 through 56019). Specifically, 
the application of the LTCH PPS area wage level 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.
    Currently, the labor market area definitions used under the LTCH 
PPS are based on the Executive OMB's CBSA designations, which are 
based on 2000 Census data (as adopted in the RY 2006 LTCH PPS final 
rule (70 FR 24184 through 24185)). We adopted this policy 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 currently used for acute care hospitals under the IPPS 
at Sec.  412.64(b) (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).) Each year, we update the LTCH PPS CBSA-based labor 
market area definitions to reflect any changes OMB has made to the 
CBSA designations (73 FR 26812 through 26814; 74 FR 44023 through 
44204; and 75 FR 50444 through 50445).
    In OMB Bulletin No. 10-2, issued on December 1, 2009, OMB 
announced that the CBSA changes in that bulletin would be the final 
update prior to the 2010 Census of Population and Housing. We 
adopted those changes under the LTCH PPS for FY 2011 in the FY 2011 
IPPS/LTCH PPS final rule (75 FR 50444 through 50445), and adopted 
their continued use for FY 2012 in the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51808). In 2013, OMB plans to announce new area 
delineations based on its 2010 standards (75 FR 37246) and the 2010 
Census data. Therefore, in this proposed rule, for FY 2013 wage 
index, we are proposing to continue to use the same labor market 
areas that we adopted for FY 2012 (76 FR 51808).

3. Proposed LTCH PPS Labor-Related Share

    Under the adjustment for differences in area wage levels at 
Sec.  412.525(c), the labor-

[[Page 28154]]

related share of a LTCH's Federal prospective payment is adjusted by 
the applicable wage index for the labor market area in which the 
LTCH is located. The LTCH PPS labor-related share currently 
represents the sum of the labor-related portion of operating costs 
(Wages and Salaries, Employee Benefits, Professional Fees: Labor-
Related, Administrative and Business Support Services, and All 
Other: Labor-Related Services) and a labor-related portion of 
capital costs using the applicable LTCH PPS market basket.
    For FY 2012, we revised and rebased the market basket used under 
the LTCH PPS by adopting the newly created FY 2008-based 
rehabilitation, psychiatric, and long-term care hospital (RPL) 
market basket. Accordingly, the current LTCH PPS labor-related share 
is based on the relative importance of the labor-related share of 
operating costs and capital costs of the RPL market basket based on 
FY 2008 data, as those were the best available data at that time 
that reflected the cost structure of LTCHs. For FY 2012, in the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51766 through 51769 and 51808), 
we established a labor-related share of 70.199 percent based on the 
best available data at that time for the FY 2008-based RPL market 
basket for FY 2012. (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).)
    As discussed in section VII.C. of the preamble of this proposed 
rule, we are proposing to revise and rebase the market basket used 
under the LTCH PPS by adopting the newly created FY 2009-based LTCH-
specific market basket. Consistent with this proposal, we are 
proposing to determine the labor-related share for FY 2013 as the 
sum of the proposed FY 2013 relative importance of each labor-
related cost category of the proposed FY 2009-based LTCH-specific 
market basket. Consistent with the current labor-related share 
determined from the relative importance of each labor-related cost 
category of the FY 2008-based RPL market basket, we are proposing to 
determine the LTCH PPS labor-related share for FY 2013 based on the 
relative importance of the labor-related share of operating costs 
(Wages and Salaries, Employee Benefits, Professional Fees: Labor-
Related, Administrative and Business Support Services, and All 
Other: Labor-Related Services) and the labor-related share of 
capital costs of the proposed LTCH-specific market basket based on 
FY 2009 data, as we believe these are currently the best data 
available to reflect the cost structure of LTCHs.
    In this proposed rule, we are proposing a labor-related share 
under the LTCH PPS for FY 2013 based on IGI's first quarter 2012 
forecast of the proposed FY 2009-based LTCH-specific market basket 
for FY 2013, as these are the most recent available data at this 
time that reflect the cost structure of LTCHs. As discussed in 
greater detail in section VII.C.3.f. of this preamble, the sum of 
the proposed relative importance for FY 2013 for operating costs 
(Wages and Salaries, Employee Benefits, Professional Fees: Labor-
Related, Administrative and Business Support Services, and All-
Other: Labor-Related Services) is 58.978 percent and the proposed 
labor-related share of capital costs is 4.239 percent. Therefore, in 
this proposed rule, 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 63.217 percent (58.978 percent 
plus 4.239 percent) under the LTCH PPS for FY 2013, which would be 
effective for discharges occurring on or after October 1, 2012, and 
through September 30, 2013. Consistent with our historical practice 
of using the best data available, we also are proposing that if more 
recent data become available to determine the labor-related share 
used under the LTCH PPS for FY 2013, we would use those data for 
determining the FY 2013 LTCH PPS labor-related share in the final 
rule. (For additional details on the development of the proposed 
LTCH PPS labor-related share for FY 2013, we refer readers to 
section VII.C.3.f. of the preamble of this proposed rule.)

4. Proposed LTCH PPS Wage Index for FY 2013

    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 
area wage level 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 FY 2012 LTCH PPS final rule (76 FR 51808 through 51809), 
we calculated the FY 2012 LTCH PPS wage index values using the same 
data used for the FY 2012 acute care hospital IPPS (that is, data 
from cost reporting periods beginning during FY 2008), without 
taking into account geographic reclassification under sections 
1886(d)(8) and 1886(d)(10) of the Act, as these were the most recent 
complete data available at that time. In that same final rule, we 
indicated that we computed the FY 2012 LTCH PPS wage index values 
consistent with the urban and rural geographic classifications 
(labor market areas) 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). This IPPS wage data for multicampus hospitals 
with campuses located in different labor market areas (CBSAs) are 
apportioned to each CBSA where the campus or campuses are located. 
We also continued to use our existing policy for determining wage 
index values in areas where there are no IPPS wage data.
    Consistent with our historical methodology, to determine the 
applicable wage index values under the LTCH PPS for FY 2013, 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 use 
wage data collected from cost reports submitted by IPPS hospitals 
for cost reporting periods beginning during FY 2009, without taking 
into account geographic reclassification under sections 1886(d)(8) 
and 1886(d)(10) of the Act. We are proposing to use FY 2009 data 
because these data are the most recent complete data available. 
These are the same data used to compute the proposed FY 2012 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 2013 LTCH PPS wage index values we are 
presenting in this proposed rule are computed consistent with the 
urban and rural geographic classifications (labor market areas) 
discussed above in section V.B.2. of the Addendum to this proposed 
rule and consistent with the pre-reclassified IPPS wage index policy 
(that is, our historical policy of not taking into account IPPS 
geographic reclassifications under sections 1886(d)(8) and 
1886(d)(10) of the Act in determining payments under the LTCH PPS). 
As with the IPPS wage index, 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 
(as discussed in section III.D. of the preamble of this proposed 
rule). Furthermore, in determining the proposed FY 2013 LTCH PPS 
wage index values in this proposed rule, we are proposing to 
continue to use our existing policy for determining wage index 
values in areas where there are no IPPS wage data.
    Specifically, we established a methodology for determining 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 continue to use 
this methodology for FY 2013. (We refer readers to 73 FR 26817 
through 26818 for an explanation of and rationale for our policy for 
determining LTCH PPS wage index values for areas that have no IPPS 
wage data.)
    There are currently no LTCHs located in labor areas without IPPS 
hospital wage data (or IPPS hospitals) for FY 2013. 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. Under our existing methodology, 
the LTCH PPS wage index value for urban CBSAs with no IPPS wage data 
is determined by using an average of all of the urban areas within 
the State, and the LTCH PPS wage index value for rural areas with no 
IPPS wage data is determined by using the unweighted average of the 
wage indices from all of the CBSAs that are contiguous to the rural 
counties of the State.
    Based on the FY 2009 IPPS wage data that we are proposing to use 
to determine the proposed FY 2013 LTCH PPS wage index values in this 
proposed rule, there are no IPPS hospital wage data for the urban 
area Hinesville-Fort Stewart, GA (CBSA 25980). Consistent with the 
methodology discussed above, we are proposing to calculate the FY 
2013 wage index value for CBSA 25980 as

[[Page 28155]]

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), as shown in Table 12A, which is 
listed in section VI. of the Addendum to this proposed rule and 
available via the Internet). We note that, as IPPS wage data are 
dynamic, it is possible that rural areas without IPPS hospital wage 
data will vary in the future.
    Based on the FY 2009 IPPS wage data that we are proposing to use 
to determine the proposed FY 2013 LTCH PPS wage index values in this 
proposed rule, there are no rural areas without IPPS hospital wage 
data. Therefore, for this proposed rule, it is not necessary to 
propose to use our established methodology to calculate a LTCH PPS 
wage index value for rural areas with no IPPS wage data. We note 
that, as IPPS wage data are dynamic, it is possible that rural areas 
without IPPS hospital wage data will vary in the future. In 
addition, we are proposing that if there are rural areas without 
IPPS hospital wage data based on the updated data, we would use our 
established methodology to calculate a LTCH PPS wage index value for 
such rural areas with no IPPS wage data in the final rule.
    The proposed FY 2013 LTCH wage index values that would be 
applicable for LTCH discharges occurring on or after October 1, 
2012, through September 30, 2013, are presented in Table 12A (for 
urban areas) and Table 12B (for rural areas), which are listed in 
section VI. of the Addendum of this proposed rule and available via 
the Internet on the CMS Web site.

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

    Historically, the LTCH PPS wage index and labor-related share 
are updated annually based on the latest available data. In the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51771 through 51773 and 51809), 
under Sec.  412.525(c)(2), we established that any changes to the 
wage index values or labor-related share will be made in a budget 
neutral manner such that estimated aggregate LTCH PPS payments are 
unaffected, that is, will be neither greater than nor less than 
estimated aggregate LTCH PPS payments without such changes to the 
area wage level adjustment. Under this policy, we determine an area 
wage level adjustment budget neutrality factor that will be applied 
to the standard Federal rate to ensure that any changes to the area 
wage level adjustment are budget neutral such that any changes to 
the wage index values or labor-related share will not result in any 
change (increase or decrease) in estimated aggregate LTCH PPS 
payments. Accordingly, under Sec.  412.523(d)(4), we established 
that we will apply an area wage level adjustment budget neutrality 
factor in determining the standard Federal rate and we also 
established a methodology for calculating an area wage level 
adjustment budget neutrality factor.
    For FY 2013, in accordance with Sec.  412.523(d)(4), we are 
proposing to apply an area wage level adjustment budget neutrality 
factor to adjust the standard Federal rate to account for the 
estimated effect of any adjustments or updates to the area wage 
level adjustment under Sec.  412.525(c)(1) on estimated aggregate 
LTCH PPS payments using the methodology we established in the FY 
2012 IPPS/LTCH PPS final rule (76 FR 51773). Specifically, we are 
proposing to determine a proposed area wage level adjustment budget 
neutrality factor that is applied to the standard Federal rate under 
at Sec.  412.523(d)(4) for FY 2013 using the following methodology:
    Step 1--We simulate estimated aggregate LTCH PPS payments using 
the FY 2012 wage index values (as established in Tables 12A and 12B 
listed in the Addendum to the FY 2012 IPPS/LTCH PPS final rule and 
available on the Internet) and the FY 2012 labor-related share of 
70.199 percent (as established in the FY 2012 IPPS/LTCH PPS final 
rule (76 FR 51767 and 51808).
    Step 2--We simulate estimated aggregate LTCH PPS payments using 
the proposed FY 2013 wage index values (as shown in Tables 12A and 
12B listed in the Addendum to this proposed rule and available on 
the Internet) and the proposed FY 2013 labor-related share of 63.217 
percent (based on the latest available data as discussed in section 
VII.C.3.f. of this preamble).
    Step 3--We calculate the ratio of these estimated total LTCH PPS 
payments by dividing the estimated total LTCH PPS payments using the 
FY 2012 area wage level adjustments (calculated in Step 1) by the 
estimated total LTCH PPS payments using the proposed FY 2013 area 
wage level adjustments (calculated in Step 2) to determine the 
proposed area wage level adjustment budget neutrality factor for FY 
2013.
    Step 4--We then apply the proposed FY 2013 area wage level 
adjustment budget neutrality factor from Step 3 to determine the 
proposed FY 2013 LTCH PPS standard Federal rate after the 
application of the proposed FY 2013 annual update (discussed in 
section V.A.2. of the Addendum to this proposed rule).
    For this proposed rule, using the steps in the methodology 
described above, we determined a proposed FY 2013 area wage level 
adjustment budget neutrality factor of 0.99903. Accordingly, in 
section V.A.2. of the Addendum to this proposed rule, to determine 
the proposed FY 2013 LTCH PPS standard Federal rate, we applied a 
proposed area wage level adjustment budget neutrality factor of 
0.99903, in accordance with Sec.  412.523(d)(4). Accordingly, the 
proposed FY 2013 LTCH PPS standard Federal rate shown in Table 1E of 
the Addendum to this proposed rule reflects this proposed adjustment 
factor.

C. Proposed LTCH PPS Cost-of-Living Adjustment for LTCHs Located in 
Alaska and Hawaii

    Under Sec.  412.525(b), we established a cost-of-living 
adjustment (COLA) for LTCHs located in Alaska and Hawaii to account 
for the higher costs incurred in those States (67 FR 56022). 
Specifically, we apply a COLA to payments to LTCHs located in Alaska 
and Hawaii by multiplying the nonlabor-related portion of the 
standard Federal payment rate by the applicable COLA factors 
established annually by CMS. Higher labor-related costs for LTCHs 
located in Alaska and Hawaii are taken into account in the 
adjustment for area wage levels described above.
    As we discuss in section VII.D.4. of the preamble of this 
proposed rule, historically, we have used the most recent updated 
COLA factors obtained from the OPM Web site at http://www.opm.gov/oca/cola/rates.asp to adjust the payments for LTCHs in Alaska and 
Hawaii. Recent statutory changes transition the Alaska and Hawaii 
COLAs to locality pay (phased in over a 3-year period beginning in 
January 2010 with COLA rates frozen as of October 28, 2009, and then 
proportionately reduced to reflect the phase-in of locality). As 
stated previously, we do not believe it is appropriate to use either 
the 2010 or 2011 reduced factors to adjust the nonlabor-related 
portion of the standard Federal rate for LTCHs in Alaska and Hawaii 
for Medicare payment purposes. Therefore, for FY 2012, we continued 
to use the same COLA factors (published by OPM) that we used to 
adjust payments in FY 2011 (which were based on OPM's 2009 COLA 
factors) to adjust the nonlabor-related portion of the standard 
Federal rate for LTCHs located in Alaska and Hawaii.
    We believe it was appropriate to use ``frozen'' COLA factors to 
adjust payments in FY 2012 while we explored alternatives for 
updating the COLA adjustment in the future. As we discuss in greater 
detail in section VII.D.4. of the preamble of this proposed rule, we 
are proposing to continue to use the same ``frozen'' COLA factors 
used in FY 2012 for FY 2013. Furthermore, we are proposing to update 
the COLA factors for Alaska and Hawaii beginning in FY 2014 based on 
a comparison of the growth in the CPIs for Anchorage, Alaska and 
Honolulu, Hawaii relative to the growth in the CPI for the average 
U.S. city as published by the Bureau of Labor Statistics (BLS). (For 
additional details on our proposal to update the COLA factors for 
Alaska and Hawaii beginning in FY 2014, we refer readers to section 
VII.D.4. of the preamble of this proposed rule.)
    In this proposed rule, for FY 2013, 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 use the same COLA factors 
used to adjust payments in FY 2012 (which are based on OPM's 2009 
COLA factors) by multiplying the nonlabor-related portion of the 
standard Federal payment rate by the proposed factors listed in the 
chart below.

    Proposed Cost-of-Living Adjustment Factors for Alaska and Hawaii
                 Hospitals for the LTCH PPS for FY 2013
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Alaska:
    City of Anchorage and 80-kilometer (50[dash]mile) radius by     1.23
     road.......................................................
    City of Fairbanks and 80-kilometer (50[dash]mile) radius by     1.23
     road.......................................................
    City of Juneau and 80-kilometer (50[dash]mile) radius by        1.23
     road.......................................................

[[Page 28156]]

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

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

1. Background

    Under the broad authority conferred upon the Secretary by 
section 123 of the BBRA as amended by section 307(b) of 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 
make an additional payment for an HCO case that is equal to 80 
percent of the difference between the estimated cost of the patient 
case and the outlier threshold, which is the sum of the adjusted 
Federal prospective payment for the MS-LTC-DRG and the fixed-loss 
amount. The fixed-loss amount is the amount used to limit the loss 
that a hospital will incur under the outlier policy for a case with 
unusually high costs. This results in Medicare and the LTCH sharing 
financial risk in the treatment of extraordinarily costly cases. 
Under the LTCH PPS HCO policy, the LTCH's loss is limited to the 
fixed-loss amount and a fixed percentage of costs above the outlier 
threshold (adjusted MS-LTC-DRG payment plus the fixed-loss amount). 
The fixed percentage of costs is called the marginal cost factor. We 
calculate the estimated cost of a case by multiplying the Medicare 
allowable covered charge by the hospital's overall hospital cost-to-
charge ratio (CCR).
    Under the LTCH PPS HCO policy at Sec.  412.525(a), 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 accordance with Sec.  412.525(a)(4)(iv)(C)(2) for HCOs and 
Sec.  412.529(f)(4)(iii)(B) for SSOs, in this proposed rule, using 
our established methodology for determining the LTCH total CCR 
ceiling (described above), based on IPPS total CCR data from the 
December 2011 update of the PSF, we are proposing to establish a 
total CCR ceiling of 1.210 under the LTCH PPS that would be 
effective for discharges occurring on or after October 1, 2012, 
through September 30, 2013. Consistent with our historical policy of 
using the best available data, we also are proposing that if more 
recent data became available, we would use such data to establish a 
total CCR ceiling for FY 2013 in the final rule.

c. Proposed 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 or 
MAC 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 or MAC 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.)
    Consistent with our historical practice of using the best 
available data and using our established methodology for determining 
the LTCH statewide average CCRs, based on the most recent complete 
IPPS ``total CCR'' data from the December 2011 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, 2012, through September 20, 2013, 
in Table 8C listed in section VI. of the Addendum to this proposed 
rule (and available via the Internet). Consistent with our 
historical policy of using the best available data, we

[[Page 28157]]

also are proposing that if more recent data become available, we 
would use such data to establish LTCH PPS statewide average total 
CCRs for urban and rural hospitals that would be effective for FY 
2013 in the final rule.
    All areas in the District of Columbia, New Jersey, and Rhode 
Island are classified as urban. Therefore, there are no rural 
statewide average total CCRs listed for those jurisdictions in Table 
8C. This policy is consistent with the policy that we established 
when we revised our methodology for determining the applicable LTCH 
statewide average CCRs in the FY 2007 IPPS final rule (71 FR 48119 
through 48121) and is the same as the policy applied under the IPPS.
    In addition, consistent with our existing methodology, in 
determining the proposed urban and rural statewide average total 
CCRs for Maryland LTCHs paid under the LTCH PPS, in this proposed 
rule, we are proposing to continue to use, as a proxy, the national 
average total CCR for urban IPPS hospitals and the national average 
total CCR for rural IPPS hospitals, respectively. We 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 the FY 2007 IPPS final rule (71 FR 48120)).

d. Reconciliation of LTCH HCO and SSO Payments

    We note that under the LTCH PPS HCO policy at 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 cost-to-charge data computed from the relevant cost report 
determined at the time the cost report coinciding with the discharge 
is settled. For additional information, we refer readers to sections 
150.26 through 150.28 of the Medicare Claims Processing Manual (Pub. 
100-4) as added by Change Request 7192 (Transmittal 2111; December 
3, 2010) and the RY 2009 LTCH PPS final rule (73 FR 26820 through 
26821).

3. Establishment of the Proposed LTCH PPS Fixed-Loss Amount for FY 2013

    When we implemented the LTCH PPS, as discussed in the August 30, 
2002 LTCH PPS final rule (67 FR 56022 through 56026), under the 
broad authority of section 123 of the BBRA as amended by section 
307(b) of BIPA, we established a fixed-loss amount so that total 
estimated outlier payments are projected to equal 8 percent of total 
estimated payments under the LTCH PPS. To determine the fixed-loss 
amount, we estimate outlier payments and total LTCH PPS payments for 
each case using claims data from the MedPAR files. Specifically, to 
determine the outlier payment for each case, we estimate the cost of 
the case by multiplying the Medicare covered charges from the claim 
by the LTCH's CCR. Under Sec.  412.525(a)(3) (in conjunction with 
Sec.  412.503), if the estimated cost of the case exceeds the 
outlier threshold, we make an outlier payment equal to 80 percent of 
the difference between the estimated cost of the case and the 
outlier threshold (that is, the sum of the adjusted Federal 
prospective payment for the MS-LTC-DRG and the fixed-loss amount).
    In this proposed rule, we are proposing to continue to use our 
existing methodology to calculate the proposed fixed-loss amount for 
FY 2013 (based on the 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 additional detail on the rationale for setting the 
HCO payment ``target'' at 8 percent of total estimated LTCH PPS 
payments, we refer readers to the to the FY 2003 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 2013, we use the most recent available LTCH 
claims data and CCR data at this time. Specifically, for this 
proposed rule, we are using LTCH claims data from the December 2011 
update of the FY 2011 MedPAR file and CCRs from the December 2011 
update of the PSF to determine a proposed fixed-loss amount that 
would result in estimated outlier payments projected to be equal to 
8 percent of total estimated payments in FY 2013 because these data 
are the most recent complete LTCH data available at this time. 
Consistent with the historical practice of using the best available 
data, we also are proposing that if more recent LTCH claims data 
become available, we would use them for determining the fixed-loss 
amount for FY 2013 in the final rule.
    Under the broad authority of section 123(a)(1) of the BBRA and 
section 307(b)(1) of BIPA, we established a fixed-loss amount of 
$17,931 for FY 2012. For this proposed rule, we are proposing to 
establish a fixed-loss amount of $15,728 for FY 2013. Thus, we are 
proposing to make an additional payment for an HCO case that is 
equal to 80 percent of the difference between the estimated cost of 
the case and the proposed outlier threshold (the sum of the proposed 
adjusted Federal LTCH payment for the proposed MS-LTC-DRG and the 
proposed fixed-loss amount of $15,728). We also note that the 
proposed fixed-loss amount of $15,728 for FY 2013 is lower than the 
FY 2012 fixed-loss amount of $17,931. Based on our payment 
simulations using the most recent available data at this time, the 
proposed decrease in the fixed-loss amount for FY 2013 is 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, as noted above, 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 less than the current regulatory 8-percent requirement 
because a higher fixed-loss amount would result in fewer cases 
qualifying as outlier cases. In addition, maintaining the higher 
fixed-loss amount would result in a decrease in the amount of the 
additional payment for an 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 lower the fixed-loss amount is appropriate and 
necessary to maintain that estimated outlier payments would equal 8 
percent of estimated total LTCH PPS payments as required under 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 an 
SSO case (as defined in the regulations at Sec.  412.529 in 
conjunction with Sec.  412.503) and also as an HCO case. In this 
scenario, a patient could be hospitalized for less than five-sixths 
of the geometric average length of stay for the specific MS-LTC-DRG, 
and yet incur extraordinarily high treatment costs. If the estimated 
costs exceeded the HCO threshold (that is, the SSO payment plus the 
fixed-loss amount), the discharge is eligible for payment as an HCO. 
Thus, for an SSO case in FY 2013, the HCO payment would be 80 
percent of the difference between the estimated cost of the case and 
the outlier threshold (the sum of the proposed fixed-loss amount of 
$15,728 and the amount paid under the SSO policy as specified in 
Sec.  412.529).

E. Computing the Proposed Adjusted LTCH PPS Federal Prospective 
Payments for FY 2013

    Section 412.525 sets forth the adjustments to the LTCH PPS 
standard Federal rate. Under Sec.  412.525(c), the standard Federal 
rate is adjusted to account for differences in area wages by 
multiplying the labor-related share of the standard Federal rate by 
the applicable LTCH PPS wage index (proposed FY 2013 values shown in 
Tables 12A and 12B listed in section VI. of the Addendum of this 
proposed rule and available via the Internet). The standard Federal 
rate is also adjusted to account for the higher costs of hospitals 
in Alaska and Hawaii by multiplying the nonlabor-related portion of 
the standard Federal rate by the applicable cost-of-living factor 
(proposed FY 2013 factors shown in the chart in section V.C. of the 
Addendum of this proposed rule) in accordance with Sec.  412.525(b). 
In this proposed rule, we are proposing to establish a proposed 
standard Federal rate for FY 2013 of $40,507.48 (however, payment 
for discharges occurring on or after October 1, 2012, and before 
December 29, 2012 would not reflect that proposed adjustment 
consistent with the statute, and instead would be paid based on a 
standard Federal rate of $41,026.88), as discussed above in section 
V.A.2. of the Addendum of this proposed rule. We illustrate the 
methodology to adjust the proposed LTCH PPS Federal standard rate 
for FY 2013 in the following example:
    Example: During FY 2013, a Medicare patient is in a LTCH located 
in Chicago, Illinois (CBSA 16974) and discharged on January 1, 2013. 
The proposed FY 2013 LTCH PPS wage index value for CBSA 16974 is 
1.0623 (Table 12A listed in section VI. of the Addendum of this 
proposed rule and available via the Internet). The Medicare patient 
is classified into proposed MS-LTC-DRG 28 (Spinal Procedures with 
MCC),

[[Page 28158]]

which has a proposed relative weight for FY 2013 of 1.5986 (Table 11 
listed in section VI. of the Addendum of this proposed rule and 
available via the Internet).
    To calculate the LTCH's proposed total adjusted Federal 
prospective payment for this Medicare patient in FY 2013, we 
computed the wage-adjusted Federal prospective payment amount by 
multiplying the unadjusted proposed FY 2013 standard Federal rate 
($40,507.48) by the proposed labor-related share (63.217 percent) 
and the proposed wage index value (1.0623). This wage-adjusted 
amount is then added to the nonlabor-related portion of the 
unadjusted proposed standard Federal rate (36.783 percent; adjusted 
for cost of living, if applicable) to determine the adjusted Federal 
rate, which is then multiplied by the proposed MS-LTC-DRG relative 
weight (1.5886) to calculate the total adjusted proposed Federal 
LTCH PPS prospective payment for FY 2013 ($67,305.58). The table 
below illustrates the components of the calculations in this 
example.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Proposed Unadjusted Standard Federal       $40,507.48
 Prospective Payment Rate.
Proposed Labor-Related Share.............  x 0.63217
Proposed Labor-Related Portion of the      = $25,607.61
 Federal Rate.
Proposed Wage Index (CBSA 16974).........  x 1.0623
Proposed Wage-Adjusted Labor Share of      = $27,202.96
 Federal Rate.
Proposed Nonlabor-Related Portion of the   + $14,899.87
 Federal Rate ($40,507.48 x 0.36783).
Proposed Adjusted Federal Rate Amount....  = $42,102.83
Proposed MS-LTC-DRG 28 Relative Weight...  x 1.5986
                                          ------------------------------
    Total Proposed Adjusted Federal        = $67,305.58
     Prospective Payment.
------------------------------------------------------------------------

VI. Tables Referenced in This Proposed Rule and Available Only Through 
the Internet on the CMS Web Site

    This section lists the tables referred to throughout the 
preamble of this proposed rule and in this Addendum. In the past, a 
majority of these tables were published in the Federal Register as 
part of the annual proposed and final rules. However, similar to FY 
2012, for the FY 2013 rulemaking cycle, the IPPS and LTCH tables 
will not be published as part of the annual IPPS/LTCH PPS proposed 
and final rulemakings and will be available only through the 
Internet. Specifically, IPPS tables 2, 3A, 3B, 4A, 4B, 4C, 4D, 4E, 
4F, 4J, 5, 6A, 6B, 6C, 6D, 6E, 6F, 6G, 6I, 6I.1, 6.I.2, 6J, 6J.1, 
6K, 7A, 7B, 8A, 8B, 9A, 9C, 10 and new tables 15 and 16 and LTCH PPS 
tables 8C, 11, 12A, 12B, 13A, and 13B will be available only through 
the Internet. IPPS tables 1A, 1B, 1C, and 1D, and LTCH PPS table 1E, 
displayed at the end of this section, will continue to be published 
in the Federal Register as part of the annual proposed and final 
rules. As discussed in section II.G.9. of the preamble of this 
proposed rule, for FY 2013, there were no changes to the ICD-9-CM 
coding system, effective October 1, 2012, due to the partial code 
freeze in anticipation of the transition to the ICD-10 coding system 
or for new technology. Therefore, there will be no new, revised, or 
deleted diagnosis and procedure codes effective October 1, 2012, 
that are usually announced in Tables 6A (New Diagnosis Codes), 6B 
(New Procedure Codes), 6C (Invalid Diagnosis Codes), 6D (Invalid 
Procedure Codes), 6E (Revised Diagnosis Code Titles), and 6F 
(Revised Procedure Codes). Therefore, these tables will not be 
published as part of this FY 2013 rulemaking cycle. As discussed in 
section IV.E. of this proposed rule, effective FY 2013 and forward, 
the low-volume hospital definition and payment adjustment 
methodology under section 1886(d)(12) of the Act will return to the 
pre-Affordable Care Act definition and payment adjustment 
methodology (we refer readers to section IV.E. for complete details 
on the low-volume hospital payment adjustment). Therefore, we are no 
longer including a table (previously Table 14) in this proposed rule 
that lists the low volume payment adjustments.
    Readers who experience any problems accessing any of the tables 
that are posted on the CMS Web sites identified below should contact 
Ing Jye Cheng at (410) 786-4548.
    The following IPPS tables for this FY 2013 proposed rule are 
available only through the Internet on the CMS Web site at: http://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp. Click on the 
link on the left side of the screen titled, ``FY 2013 IPPS Proposed 
Rule Home Page'' or ``Acute Inpatient--Files for Download''.

Table 2.--Acute Care Hospitals Case-Mix Indexes for Discharges 
Occurring in Federal Fiscal Year 2011; Proposed Hospital Wage 
Indexes for Federal Fiscal Year 2013; Hospital Average Hourly Wages 
for Federal Fiscal Years 2011 (2007 Wage Data), 2012(2008 Wage 
Data), and 2013 (2009 Wage Data); and 3-Year Average of Hospital 
Average Hourly Wages
Table 3A.--Proposed FY 2013 and 3-Year Average Hourly Wage for Acute 
Care Hospitals in Urban Areas by CBSA
Table 3B.--Proposed FY 2013 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 2013
Table 4B.--Proposed Wage Index and Capital Geographic Adjustment 
Factor (GAF) for Acute Care Hospitals in Rural Areas by CBSA and by 
State--FY 2013
Table 4C.--Proposed Wage Index and Capital Geographic Adjustment 
Factor (GAF) for Acute Care Hospitals That Are Reclassified by CBSA 
and by State--FY 2013
Table 4D.--States Designated as Frontier, with Acute Care Hospitals 
Receiving at a Minimum the Proposed Frontier State Floor Wage 
Index\1\; Urban Areas With Acute Care Hospitals Receiving the 
Proposed Statewide Rural Floor Wage Index--FY 2013
Table 4E.--Urban CBSAs and Constituent Counties for Acute Care 
Hospitals--FY 2013
Table 4F.--Proposed Puerto Rico Wage Index and Capital Geographic 
Adjustment Factor (GAF) for Acute Care Hospitals by CBSA--FY 2013
Table 4J.--Proposed Out-Migration Adjustment for Acute Care 
Hospitals--FY 2013
Table 5.--List of Proposed Medicare Severity Diagnosis-Related 
Groups (MS-DRGs), Relative Weighting Factors, and Geometric and 
Arithmetic Mean Length of Stay--FY 2013
Table 6G--Additions to the CC Exclusions List--FY 2013
Table 6I.--Proposed Complete MCC List--FY 2013
Table 6I.2.--Proposed Deletions to the MCC List--FY 2013
Table 6J.--Proposed Complete CC List--FY 2013
Table 6J.1.--Proposed Additions to the CC List--FY 2013
Table 6K.--Proposed Complete List of CC Exclusions--FY 2013
Table 7A.--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay: FY 2011 MedPAR Update--December 2011 GROUPER V29.0 
MS-DRGs
Table 7B.--Medicare Prospective Payment System Selected Percentile 
Lengths of Stay: FY 2011 MedPAR Update--December 2011 GROUPER V30.0 
MS-DRGs
Table 8A.--Proposed FY 2013 Statewide Average Operating Cost to 
Charge Ratios (CCRs) for Acute Care Hospitals (Urban and Rural)
Table 8B.--Proposed FY 2013 Statewide Average Capital Cost-to-Charge 
Ratios (CCRs) for Acute Care Hospitals
Table 9A.--Hospital Reclassifications and Redesignations--FY 2013
Table 9C.--Hospitals Redesignated as Rural Under Section 
1886(d)(8)(E) of the Act--FY 2013
Table 10.--Proposed New Technology Add-On Payment Thresholds for 
Applications for FY 2014
Table 15.--FY 2013 Proposed Readmissions Adjustment Factors
Table 16.--Proposed Hospital Inpatient Value-Based Purchasing 
Program (VBP) Program Adjustment Factors for FY 2013

    The following LTCH PPS tables for this FY 2013 proposed rule are 
available only through the Internet on the CMS Web site at http://www.cms.gov/LongTermCareHospitalPPS/LTCHPPSRN/list.asp under the 
list item for Regulation Number CMS-1588-P.

Table 8C.--Proposed FY 2013 Statewide Average Total Cost-to-Charge 
Ratios (CCRs) for LTCHs (Urban and Rural)
Table 11.--Proposed MS-LTC-DRGs, Relative Weights, Geometric Average 
Length of Stay, and Short-Stay Outlier (SSO) Threshold for 
Discharges Occurring from October 1, 2012 through September 30, 2013 
under the LTCH PPS
Table 12A.--Proposed LTCH PPS Wage Index for Urban Areas for 
Discharges Occurring from October 1, 2012 through September 30, 2013
Table 12B.--Proposed LTCH PPS Wage Index for Rural Areas for 
Discharges Occurring From October 1, 2012 through September 20, 2013

[[Page 28159]]

Table 13A.--Composition of Proposed Low-Volume Quintiles for MS-LTC-
DRGs--FY 2013
Table 13B.--Proposed No-Volume MS-LTC-DRG Crosswalk for FY 2013

 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)--FY 2013
----------------------------------------------------------------------------------------------------------------
                            Full update (2.1 percent)                              Reduced update (0.1 percent)
----------------------------------------------------------------------------------------------------------------
                                                                     Nonlabor-                       Nonlabor-
                          Labor-related                               related      Labor-related      related
----------------------------------------------------------------------------------------------------------------
$3,664.03.......................................................       $1,661.59       $3,592.26       $1,629.04
----------------------------------------------------------------------------------------------------------------


 Table 1B--Proposed National Adjusted Operating Standardized Amounts, Labor/Nonlabor (62 Percent Labor Share/38
                    Percent Nonlabor Share if Wage Index Is Less Than or Equal to 1)--FY 2013
----------------------------------------------------------------------------------------------------------------
                            Full update (2.1 percent)                              Reduced update (0.1 Percent)
----------------------------------------------------------------------------------------------------------------
                                                                     Nonlabor-                       Nonlabor-
                          Labor-related                               related      Labor-related      related
----------------------------------------------------------------------------------------------------------------
$3,301.88.......................................................       $2,023.74       $3,237.21       $1,984.09
----------------------------------------------------------------------------------------------------------------


      Table 1C--Proposed Adjusted Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor-- FY 2013
----------------------------------------------------------------------------------------------------------------
                                                  Rates if wage index is greater    Rates if wage index is less
                                                              than 1                    than or equal to 1
                                                 ---------------------------------------------------------------
                                                       Labor         Nonlabor          Labor         Nonlabor
----------------------------------------------------------------------------------------------------------------
National........................................       $3,664.03       $1,661.59       $3,301.88       $2,023.74
Puerto Rico.....................................        1,583.10          966.17        1,580.55          968.72
----------------------------------------------------------------------------------------------------------------


    Table 1D--Proposed Capital Standard Federal Payment Rate--FY 2013
------------------------------------------------------------------------
                                                               Rate
------------------------------------------------------------------------
National................................................         $424.42
Puerto Rico.............................................          206.82
------------------------------------------------------------------------


  Table 1E--Proposed LTCH Standard Federal Prospective Payment Rate--FY
                                  2013
------------------------------------------------------------------------
                                                               Rate
------------------------------------------------------------------------
Standard Federal Rate*..................................      $40,507.48
------------------------------------------------------------------------
* Consistent with section 114(c)(4) of the MMSEA as amended by sections
  3106(a) and 10312 of the Affordable Care Act, the proposed one-time
  prospective adjustment to the standard Federal rate for FY 2013 of
  0.98734 would not apply to payments for discharges occurring before
  December 29, 2012. Therefore, payment for discharges occurring on or
  after October 1, 2012, and on or before December 28, 2012, would not
  reflect that proposed adjustment and instead would be paid based on a
  standard Federal rate of $41,026.88 (calculated as $40,507.48 divided
  by 0.98734).

Appendix A: Economic Analyses

I. Regulatory Impact Analysis

A. Introduction

    We have examined the impacts of this proposed rule as required 
by Executive Order 12866 on Regulatory Planning and Review 
(September 30, 1993), Executive Order 13563 on Improving Regulation 
and Regulatory Review (February 2, 2011) the Regulatory Flexibility 
Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of 
the Social Security Act, section 202 of the Unfunded Mandates Reform 
Act of 1995 (March 22, 1995, Pub. L. 104-4), Executive Order 13132 
on Federalism (August 4, 1999), and the Congressional Review Act (5 
U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that 
maximize net benefits (including potential economic, environmental, 
public health and safety effects, distributive impacts, and equity). 
Executive Order 13563 emphasizes the importance of quantifying both 
costs and benefits, of reducing costs, of harmonizing rules, and of 
promoting flexibility. A regulatory impact analysis (RIA) must be 
prepared for major rules with economically significant effects ($100 
million or more in any 1 year).
    We have determined that this proposed rule is a major rule as 
defined in 5 U.S.C. 804(2). We estimate that the proposed changes 
for FY 2013 acute care hospital operating and capital payments will 
redistribute amounts in excess of $100 million to acute care 
hospitals. The applicable percentage increase to the IPPS rates 
required by the statute, in conjunction with other payment changes 
in this proposed rule, will result in an estimated $904 million 
increase in proposed FY 2013 operating payments (or 0.9 percent 
change) and an estimated $8 million decrease in proposed FY 2013 
capital payments (or -0.1 percent change). The proposed impact 
analysis of the capital payments can be found in section I.I. of 
this Appendix. In addition, as described in section I.J. of this 
Appendix, LTCHs are expected to experience an increase in payments 
by $100 million in FY 2013 relative to FY 2012.
    Our operating impact estimate includes the proposed 0.2 percent 
documentation and coding adjustment applied to the IPPS standardized 
amounts (which accounts for the proposed -2.7 percent documentation 
and coding adjustment and 2.9 percent adjustment to restore the one-
time recoupment adjustment made to the national standardized amount 
for FY 2012). In addition, our operating impact estimate includes 
the proposed 2.1 percent hospital update to the standardized amount 
(which includes the 3.0 percent proposed market basket update less 
0.8 percentage point for the proposed multifactor productivity 
adjustment and less 0.1 percentage point required under the 
Affordable Care Act). The proposed 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 analysis in this Appendix, in conjunction with the remainder 
of this document, demonstrates that this proposed rule is consistent 
with the regulatory philosophy and principles identified in 
Executive Orders 12866 and 13563, the RFA, and section 1102(b) of 
the Act. The proposed

[[Page 28160]]

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.

B. Need

    This proposed rule is necessary in order to make payment and 
policy changes under the Medicare IPPS for Medicare acute care 
hospital inpatient services for operating and capital-related costs 
as well as for certain hospitals and hospital units excluded from 
the IPPS. This proposed rule also is necessary to make payment and 
policy changes for Medicare hospitals under the LTCH PPS payment 
system.

C. Objectives of the IPPS

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

D. Limitations of Our Analysis

    The following quantitative analysis presents the projected 
effects of our proposed policy changes, as well as statutory changes 
effective for FY 2013, 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.

E. Hospitals Included in and Excluded From the IPPS

    The prospective payment systems for hospital inpatient operating 
and capital-related costs of acute care hospitals encompass most 
general short-term, acute care hospitals that participate in the 
Medicare program. There were 32 Indian Health Service hospitals in 
our database, which we excluded from the analysis due to the special 
characteristics of the prospective payment methodology for these 
hospitals. Among other short-term, acute care hospitals, only the 45 
such hospitals in Maryland remain excluded from the IPPS pursuant to 
the waiver under section 1814(b)(3) of the Act.
    As of March 2012, there are 3,405 IPPS acute care hospitals to 
be included in our analysis. This represents about 67 percent of all 
Medicare-participating hospitals. The majority of this impact 
analysis focuses on this set of hospitals. There also are 
approximately 1,349 CAHs. These small, limited service hospitals are 
paid on the basis of reasonable costs rather than under the IPPS. 
There are also 1,232 IPPS-excluded hospitals and 2,090 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 
proposed impact of the update and policy changes to the LTCH PPS for 
FY 2013 is discussed in section I.J. of this Appendix.

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

    As of March 2012, there were 3,337 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, 230 rehabilitation hospitals and 906 
rehabilitation units, and 442 LTCHs, are paid the Federal 
prospective per discharge rate under the IRF PPS and the LTCH PPS, 
respectively, and 469 psychiatric hospitals and 1,148 psychiatric 
units are paid the Federal per diem amount under the IPF PPS. As 
stated above, IRFs and IPFs are not affected by the rate updates 
discussed in this proposed rule. The impacts of the proposed changes 
on LTCHs are discussed in section I.J. 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 2013. For these 
hospitals (cancer and children's hospitals), consistent with the 
authority provided in section 1886(b)(3)(B)(ii) of the Act, the 
proposed update is the FY 2013 percentage increase in the 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 2012 first quarter forecast, 
with historical data through the 2011 fourth quarter, we are 
estimating that the proposed FY 2013 update based on the IPPS 
operating market basket is 3.0 percent (that is, the current 
estimate of the market basket rate-of-increase). However, the 
Affordable Care Act requires an adjustment for multifactor 
productivity (currently proposed to be 0.8 percentage point) and a 
0.1 percentage point reduction to the market basket update resulting 
in a proposed 2.1 percent applicable percentage increase for IPPS 
hospitals. RNCHIs, children's hospitals and cancer hospitals are not 
subject to the reductions in the applicable percentage increase 
required under the Affordable Care Act. 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 2013 IPPS operating market basket, estimated at 3.0 percent, 
without the reductions required under the Affordable Care Act.
    The impact of the 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 and 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.

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

1. Basis and Methodology of Estimates

    In this proposed rule, we are announcing proposed policy changes 
and payment rate updates for the IPPS for FY 2013 for operating 
costs of acute care hospitals. The proposed FY 2013 updates to the 
capital payments to acute care hospitals are discussed in section 
I.I. of this Appendix.
    Based on the overall percentage change in payments per case 
estimated using our payment simulation model, we estimate that total 
FY 2013 operating payments will increase by 0.9 percent compared to 
FY 2012. In addition to the applicable percentage increase, this 
amount reflects the proposed FY 2013 adjustments for documentation 
and coding described in section II.D. of the preamble of this 
proposed rule: 0.2 percent for the IPPS national standardized 
amounts and -1.3 percent for the IPPS hospital-specific rates. The 
impacts do not reflect changes in the number of hospital admissions 
or real case-mix intensity, which will also affect overall payment 
changes.
    We have prepared separate impact analyses of the proposed 
changes to each system. This section deals with the proposed changes 
to the operating inpatient prospective payment system for acute care 
hospitals. Our payment simulation model relies on the most recent 
available data to enable us to estimate the impacts on payments per 
case of certain 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

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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 
proposed changes in payments per case presented below are taken from 
the FY 2011 MedPAR file and the most current Provider-Specific File 
(PSF) that is used for payment purposes. Although the analyses of 
the proposed changes to the operating PPS do not incorporate cost 
data, data from the most recently available hospital cost reports 
were used to categorize hospitals. Our analysis has several 
qualifications. First, in this analysis, we do not make adjustments 
for future changes in such variables as admissions, lengths of stay, 
or underlying growth in real case-mix. Second, due to the 
interdependent nature of the IPPS payment components, it is very 
difficult to precisely quantify the impact associated with each 
proposed change. Third, we use various data sources to categorize 
hospitals in the tables. In some cases, particularly the number of 
beds, there is a fair degree of variation in the data from the 
different sources. We have attempted to construct these variables 
with the best available source overall. However, for individual 
hospitals, some miscategorizations are possible.
    Using cases from the FY 2011 MedPAR file, we simulated proposed 
payments under the operating IPPS given various combinations of 
payment parameters. As described above, Indian Health Service 
hospitals and hospitals in Maryland were excluded from the 
simulations. The proposed impact of payments under the capital IPPS, 
or the impact of payments for costs other than inpatient operating 
costs, are not analyzed in this section. Proposed estimated payment 
impacts of the capital IPPS for FY 2013 are discussed in section 
I.I. of this Appendix.
    We discuss the following changes below:
    <bullet> The effects of the proposed application of the 
documentation and coding adjustment and applicable percentage 
increase (including the market basket update, the multifactor 
productivity adjustment and the applicable percentage reduction in 
accordance with the Affordable Care Act) to the standardized amount 
and hospital-specific rates.
    <bullet> 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.
    <bullet> The effects of the proposed changes in hospitals' wage 
index values reflecting updated wage data from hospitals' cost 
reporting periods beginning during FY 2009, compared to the FY 2008 
wage data.
    <bullet> The effects of the proposed recalibration of the MS-DRG 
relative weights as required by section 1886(d)(4)(C) of the Act, 
including the wage and recalibration budget neutrality factors.
    <bullet> The effects of the proposed geographic 
reclassifications by the MGCRB that will be effective in FY 2013.
    <bullet> The effects of the proposed rural floor and imputed 
floor with the application of the national budget neutrality factor 
applied to the wage index, as required by the Affordable Care Act.
    <bullet> The effects of the proposed frontier State wage index 
provision that requires that hospitals located in States that 
qualify as frontier States cannot have a wage index less than 1.0. 
This provision is not budget neutral.
    <bullet> The effects of the proposed implementation 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.
    <bullet> The effects of the proposed policies for implementation 
of the Hospital Readmissions Reduction Program under section 3025 of 
the Affordable Care Act, that adjusts hospital's base operating DRG 
amount by an adjustment factor to account for a hospital's excess 
readmissions.
    <bullet> The effects of the expiration of the special payment 
status for MDHs under section 3124 of the Affordable Care Act under 
which MDHs that currently receive the higher of payments made under 
the Federal standardized amount or the payments made under the 
Federal standardized amount plus 75 percent of the difference 
between the Federal standardized amount and the hospital-specific 
rate will be paid based on the Federal standardized amount starting 
in FY 2013.
    <bullet> The proposed total estimated change in payments based 
on the FY 2013 proposed policies relative to payments based on FY 
2012 policies that include the applicable percentage increase of 2.1 
percent (or proposed 3.0 percent market basket update with a 
proposed reduction of 0.8 percentage point for the multifactor 
productivity adjustment, and a 0.1 percentage point reduction, as 
required under the Affordable Care Act).
    To illustrate the impact of the proposed FY 2013 changes, our 
analysis begins with a FY 2012 baseline simulation model using: The 
proposed FY 2013 applicable percentage increase of 2.1 percent and 
the documentation and coding adjustment of 0.2 to the Federal 
standardized amount and the 1.3 percent documentation and coding 
adjustment to the hospital-specific rate; the FY 2012 MS-DRG GROUPER 
(Version 29.0); the most current CBSA designations for hospitals 
based on OMB's MSA definitions; the FY 2012 wage index; and no MGCRB 
reclassifications. Outlier payments are set at 5.1 percent of total 
operating MS-DRG and outlier payments for modeling purposes.
    Section 1886(b)(3)(B)(viii) of the Act, as added by section 
5001(a) of Public Law 109-171, as amended by section 4102(b)(1)(A) 
of the ARRA (Pub. L. 111-5) and by section 3401(a)(2) of the 
Affordable Care Act (Pub. L. 111-148), provides that, for FY 2007 
through FY 2014, the update factor will include a reduction of 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. 
(Beginning in FY 2015, the reduction is one-quarter of such 
applicable percentage increase determined without regard to section 
1886(b)(3)(B)(ix), (xi), or (xii) of the Act.) At the time that this 
impact was prepared, 48 hospitals did not receive the full market 
basket rate-of-increase for FY 2012 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 2013 using a reduced update for these 48 
hospitals. However, we do not have enough information at this time 
to determine which hospitals will not receive the full update factor 
for FY 2013.
    Each proposed policy change, statutory or otherwise, is then 
added incrementally to this baseline, finally arriving at an FY 2013 
model incorporating all of the proposed changes. This simulation 
allows us to isolate the effects of each proposed change.
    Our final comparison illustrates the proposed percent change in 
payments per case from FY 2012 to FY 2013. 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 2013 using an applicable percentage 
increase of 2.1 percent. This includes our forecasted IPPS operating 
hospital market basket increase of 3.0 percent with a reduction of 
0.8 percentage point for the proposed multifactor productivity 
adjustment and a 0.1 percentage point reduction as required under 
the Affordable Care Act. (Hospitals that fail to comply with the 
quality data submission requirements will receive an update of 0.1 
percent (this update includes the 2.0 percentage point reduction for 
failure to submit these data)). Under section 1886(b)(3)(B)(iv) of 
the Act, the proposed updates to the hospital-specific amounts for 
SCHs are also equal to the applicable percentage increase, or 2.1 
percent. In addition, we are proposing to update the Puerto Rico-
specific amount by an applicable percentage increase of 2.1 percent.
    A second significant factor that affects the changes in 
hospitals' payments per case from FY 2012 to FY 2013 is the change 
in hospitals' geographic reclassification status from one year to 
the next. That is, payments may be reduced for hospitals 
reclassified in FY 2012 that are no longer reclassified in FY 2013. 
Conversely, payments may increase for hospitals not reclassified in 
FY 2012 that are reclassified in FY 2013.
    A third significant factor is that we currently estimate that 
actual outlier payments during FY 2012 will be 6.0 percent of total 
MS-DRG payments. Our updated FY 2012 outlier estimate accounts for 
changes to the FY 2012 IPPS payments required under the Affordable 
Care Act. When the FY 2012 final rule was published, we projected FY 
2012 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 2012 (as discussed in the Addendum to this 
proposed rule) are reflected in the analyses below comparing our 
current proposed estimates of FY 2012 payments per case to estimated 
proposed FY 2013 payments per case (with outlier payments projected 
to

[[Page 28162]]

equal 5.1 percent of total MS-DRG payments).

2. Analysis of Table I

    Table I displays the results of our analysis of the proposed 
changes for FY 2013. 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 3,405 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 2,485 
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 1,120 hospitals in other urban 
areas (populations of 1 million or fewer). In addition, there are 
920 hospitals in rural areas. The next two groupings are by bed-size 
categories, shown separately for urban and rural hospitals. The 
final groupings by geographic location are by census divisions, also 
shown separately for urban and rural hospitals.
    The second part of Table I shows hospital groups based on 
hospitals' proposed FY 2012 payment classifications, including any 
reclassifications under section 1886(d)(10) of the Act. For example, 
the rows labeled urban, large urban, other urban, and rural show 
that the numbers of hospitals paid based on these categorizations 
after consideration of geographic reclassifications (including 
reclassifications under sections 1886(d)(8)(B) and 1886(d)(8)(E) of 
the Act that have implications for capital payments) are 2,500; 
1,375; 1,125; and 905, 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 
2,376 nonteaching hospitals in our analysis, 789 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 proposed changes 
on rural hospitals by special payment groups (SCHs, RRCs, and MDHs). 
There were 199 RRCs, 340 SCHs, 195 former MDHs, and 101 hospitals 
that are both SCHs and RRCs, and 17 hospitals that were former MDHs 
and RRCs.
    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 2009 or FY 
2008 Medicare cost reports.
    The next two groupings concern the proposed geographic 
reclassification status of hospitals. The first grouping displays 
all proposed urban hospitals that were reclassified by the MGCRB for 
FY 2013. The second grouping shows the proposed MGCRB rural 
reclassifications. The final category shows the impact of the 
proposed policy changes on the 18 cardiac hospitals.
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a. Effects of the Proposed Hospital Update and Proposed Documentation 
and Coding Adjustment (Column 2)

    As discussed in section II.D. of the preamble of this proposed 
rule, this column includes the proposed hospital update, including 
the 3.0 percent proposed market basket update, the reduction of 0.8 
percentage point for the proposed multifactor productivity 
adjustment, and the 0.1 percentage point reduction in accordance 
with the Affordable Care Act. In addition, this column includes the 
proposed FY 2013 documentation and coding adjustment of 0.2 percent 
on the national standardized amount, which includes the -2.7 percent 
prospective adjustment for documentation and coding and a 2.9 
percent adjustment to restore the one-time recoupment adjustment 
made to the national standardized amount for FY 2012. As a result, 
we a proposing a 2.3 percent update to the national standardized 
amount.
    This column also includes the proposed 0.8 percent update to the 
hospital-specific rates, which includes the proposed 2.1 percent for 
the proposed hospital update and proposed -1.3 documentation and 
coding adjustment.
    Overall, hospitals will experience a 2.2 percent increase in 
payments primarily due to the effects of the proposed hospital 
update and proposed documentation and coding adjustment on the 
national standardized amount. Hospitals that are paid under the 
hospital-specific rate, namely SCHs, will see a 0.8 percent increase 
in payments; therefore, hospital categories with SCHs paid under the 
hospital-specific rate will see increases in payments less than 2.2 
percent.

b. Effects of the Proposed Changes to the MS-DRG Reclassifications and 
Relative Cost-Based Weights With Recalibration Budget Neutrality 
(Column 3)

    Column 3 shows the effects of the proposed changes to the MS-
DRGs and relative weights with the application of the recalibration 
budget neutrality factor to the standardized amounts. Section 
1886(d)(4)(C)(i) of the Act requires us annually to make appropriate 
classification changes in order to reflect changes in treatment 
patterns, technology, and any other factors that may change the 
relative use of hospital resources. Consistent with section 
1886(d)(4)(C)(iii) of the Act, we are 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.
    As discussed in section II.E. of the preamble of this proposed 
rule, the proposed FY 2013 MS-DRG relative weights will be 100 
percent cost-based and 100 percent MS-DRGs. For FY 2013, the MS-DRGs 
are calculated using the FY 2011 MedPAR data grouped to the Version 
30.0 (FY 2013) MS-DRGs. The methods of calculating the relative 
weights and the reclassification changes to the GROUPER are 
described in more detail in section II.H. of the preamble of this 
proposed rule.
    The ``All Hospitals'' line in Column 3 indicates that changes 
due to the proposed MS-DRGs and relative weights will result in a 
0.0 percent change in payments with the application of the proposed 
recalibration budget neutrality factor of 0.998546 on to the 
standardized amount. Due to the proposed changes to the MS-DRG 
GROUPER in this proposed rule, there were some shifts in payments 
due to changes in the relative weights with rural hospitals 
experiencing a 0.1 percent decrease in payments.

c. Effects of the Proposed Wage Index Changes (Column 4)

    Column 4 shows the impact of proposed updated wage data with the 
application of the wage budget neutrality factor. Section 
1886(d)(3)(E) of the Act requires that, beginning October 1, 1993, 
we annually update the wage data used to calculate the wage index. 
In accordance with this requirement, the wage index for acute care 
hospitals for FY 2013 is based on data submitted for hospital cost 
reporting periods beginning on or after October 1, 2008 and before 
October 1, 2009. The estimated impact of the updated wage data and 
labor share on hospital payments is isolated in Column 4 by holding 
the other payment parameters constant in this simulation. That is, 
Column 4 shows the percentage change in payments when going from a 
model using the FY 2012 wage index, based on FY 2008 wage data, the 
current labor-related share and having a 100-percent occupational 
mix adjustment applied, to a model using the FY 2013 pre-
reclassification wage index with the labor-related share, also 
having a 100-percent occupational mix adjustment applied, based on 
FY 2009 wage data (while holding other payment parameters such as 
use of the Version 30.0 MS-DRG GROUPER constant). The occupational 
mix adjustment is based on the 2010 occupational mix survey.
    In addition, the column shows the proposed impact of the 
application of wage budget neutrality to the national standardized 
amount. In FY 2010, we began calculating separate wage budget 
neutrality and recalibration budget neutrality factors, in 
accordance with section 1886(d)(3)(E) of the Act, which specifies 
that budget neutrality to account for wage 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 2013, we are 
calculating the wage budget neutrality factor to ensure that 
payments under updated wage data and the 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. The proposed wage budget 
neutrality factor is 1.000563, and the overall payment change is 0 
percent.
    Column 4 shows the impacts of updating the wage data using FY 
2009 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 4. Among the regions, 
the largest increase is in the urban New England region, which 
experiences a 1.0 percent increase. The largest decline from 
updating the wage data is seen in the rural East South Central 
region (-0.8 percent decrease).
    In looking at the wage data itself, the national average hourly 
wage increased 3.1 percent compared to FY 2012. Therefore, the only 
manner in which to maintain or exceed the previous year's wage index 
was to match or exceed the national 3.1 percent increase in average 
hourly wage. Of the 3,405 hospitals with wage data for both FYs 2012 
and 2013, 1,537, or 45.1 percent, experienced an average hourly wage 
increase of 3.1 percent or more.
    The following chart compares the shifts in wage index values for 
hospitals for FY 2013 relative to FY 2012. Among urban hospitals, 
none 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. Among rural hospitals, none 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, 924 rural 
hospitals will experience increases or decreases of less than 5 
percent, while 2,481 urban hospitals will experience increases or 
decreases of less than 5 percent. No urban hospitals will experience 
decreases in their wage index values of more than 5 percent and less 
than 10 percent. No urban hospitals will experience decreases in 
their wage index values of greater than 10 percent. No rural 
hospitals will experience a decrease of more than 10 percent. No 
rural hospitals will experience decreases in their wage index values 
of greater than 5 percent but less than 10 percent. These figures 
reflect changes in the wage index which is an adjustment to either 
68.8 percent or 62 percent of the labor-related share 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 illustrate 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.........................        0        0
Increase more than 5 percent and less than 10 percent.        0        0
Increase or decrease less than 5 percent..............    2,481      924

[[Page 28170]]

 
Decrease more than 5 percent and less than 10 percent.        0        0
Decrease more than 10 percent.........................        0        0
------------------------------------------------------------------------

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

    Section 1886(d)(4)(C)(iii) of the Act requires that changes to 
MS-DRG reclassifications and the relative weights cannot increase or 
decrease aggregate payments. In addition, section 1886(d)(3)(E) of 
the Act specifies that any updates or adjustments to the wage index 
are to be budget neutral. We computed a proposed wage budget 
neutrality factor of 1.000563, and a proposed recalibration budget 
neutrality factor of 0.998546 (which is applied to the Puerto Rico-
specific standardized amount and the hospital-specific rates). The 
product of the two proposed budget neutrality factors is the 
cumulative wage and recalibration budget neutrality factor. The 
proposed cumulative wage and recalibration budget neutrality 
adjustment is 0.999108, or approximately -0.9 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.
    We estimate that the combined impact of the proposed changes to 
the relative weights and MS-DRGs and the updated wage data with 
budget neutrality applied will result in 0.1 percent increase in 
payments for urban hospitals and 0.3 percent decrease in payments 
for rural hospitals. Urban Pacific hospitals will experience a 0.6 
percent increase in payments due to increases in their wages 
compared to the national average, while the urban East South Central 
area and rural South Atlantic will experience a -70.7 decrease in 
payments because of below average increases in wages.

e. Effects of Proposed MGCRB Reclassifications (Column 6)

    Our impact analysis to this point has assumed acute care 
hospitals are paid on the basis of their actual geographic location 
(with the exception of ongoing policies that provide that certain 
hospitals receive payments on other bases than where they are 
geographically located). The proposed changes in Column 6 reflect 
the per case payment impact of moving from this baseline to a 
simulation incorporating the proposed MGCRB decisions for FY 2013 
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.
    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 proposing to apply 
an adjustment of 0.991436 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 the 
proposed geographic reclassification will increase payments to rural 
hospitals by an average of 2.1 percent. By region, all the rural 
hospital categories, with the exception of the one rural Puerto Rico 
hospital, will experience increases in payments due to MGCRB 
reclassification. Rural hospitals in the East South Central region 
will experience a 2.9 percent increase in payments and rural 
hospitals in the Mountain region will experience a 0.5 percent 
increase in payments. Urban hospitals in New England and the Middle 
Atlantic will experience an increase in payments of 0.7 percent and 
0.1 percent, respectively, largely due to reclassifications of 
hospitals in Connecticut and New Jersey.
    Table 9A listed in section VI. of the Addendum to this proposed 
rule and available via the Internet reflects the proposed 
reclassifications for FY 2013.

f. Effects of the Proposed Rural and Imputed Floor, Including 
Application of National Budget Neutrality (Column 7)

    As discussed in section III.B. of the preamble of the FY 2009 
IPPS final rule, the FY 2010 IPPS/RY 2010 LTCH PPS final rule, the 
FY 2011 IPPS/LTCH PPS 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. 
We apply a uniform budget neutrality adjustment to the wage index. 
In addition, the imputed floor, which is budget neutral, was 
extended in FY 2012 for 2 additional years. The current imputed 
floor only benefits hospitals located in New Jersey. We note that we 
have proposed an alternative temporary methodology for the imputed 
floor that will have a negligible impact on budget neutrality. The 
impact of this proposal is discussed separately. While it is not 
included in the determination of budget neutrality for this proposed 
rule, if finalized, we intend to include it in the determination of 
budget neutrality in the final rule. The Affordable Care Act 
requires that we apply one rural floor budget neutrality factor to 
the wage index nationally, and the imputed floor is part of the 
rural floor budget neutrality factor applied to the wage index 
nationally. The proposed FY 2013 rural floor budget neutrality 
factor applied to the wage index is 0.992243, which will reduce wage 
indexes by -0.77 percent.
    Column 7 shows the projected impact of the rural floor and 
imputed floor with the national rural floor budget neutrality factor 
applied to the wage index. The column compares the proposed post-
reclassification FY 2013 wage index of providers before the rural 
floor and imputed floor adjustment and the proposed post-
reclassification FY 2013 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, all other hospitals (that is, all rural hospitals and those 
urban hospitals to which the adjustment is not made) experience a 
decrease in payments due to the budget neutrality adjustment applied 
nationally to their wage index.
    We project that, in aggregate, rural hospitals will experience a 
-0.3 percent decrease in payments as a result of the proposed 
application of rural floor budget neutrality because the rural 
hospitals do not benefit from the rural floor, but have their wage 
indexes downwardly adjusted to ensure that the application of the 
rural floor is budget neutral overall. We project hospitals located 
in 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 New 
England region can expect a 3.1 percent increase in payments 
primarily due to the application of the rural floor in Massachusetts 
and the application of national rural floor budget neutrality as 
required by the Affordable Care Act. All 60 urban providers in 
Massachusetts are expected to receive the rural floor wage index 
value, including rural floor budget neutrality, of 1.3047. During 
most past years, there have been no IPPS hospitals located in rural 
areas in Massachusetts. There was one urban IPPS hospital that was 
reclassified to rural Massachusetts (under section 1886(d)(8)(E) of 
the Act) which established the Massachusetts rural floor, but the 
wage index resulting from that hospital's data was not high enough 
for any urban hospital to benefit from the rural floor policy. 
However, beginning with the FY 2012 wage index, the rural floor for 
the State is established by the conversion of a CAH to an IPPS 
hospital that is geographically located in rural Massachusetts. We 
estimate that Massachusetts hospitals will receive

[[Page 28171]]

approximately a 5.5 percent increase in IPPS payments due to the 
application of rural floor.
    Urban Puerto Rico hospitals are expected to experience a 0.2 
percent increase in payments as a result of the application of a 
Puerto Rico rural floor. Urban Puerto Rico hospitals will receive a 
rural floor as a result of a one IPPS hospital located in rural 
Puerto Rico setting a rural floor. We are applying a proposed rural 
floor budget neutrality factor to the Puerto Rico-specific wage 
index of 0.987885 or -1.2 percent. The Puerto Rico-specific wage 
index adjusts the Puerto Rico-specific standardized amount, which 
represents 25 percent of payments to Puerto Rico hospitals.
    There are 29 hospitals in New Jersey that benefit from the 
extension of the imputed floor and will receive the imputed floor 
wage index value, including rural floor budget neutrality of 1.1010, 
which we estimate will increase their payments by approximately $18 
million. Urban Middle Atlantic hospitals will experience a -0.2 
percent decrease in payments which reflects the increase in payments 
for New Jersey hospitals receiving the imputed floor and a decrease 
for all other urban hospitals in the in the Middle Atlantic region.
    We note that the impact of the proposal under section III.G.2.b. 
of the preamble of this proposed rule to establish an alternative 
temporary methodology for the imputed floor is not included in the 
table. Based on FY 2012 wage data, we estimate that four Rhode 
Island hospitals will benefit from this alternative temporary 
methodology for the imputed floor and receive an additional $4.8 
million in payments.
    In response to a public comment addressed in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51593), we are providing the proposed 
payment impact of the rural floor and imputed floor with budget 
neutrality at the State level. Column 1 of the table below displays 
the number of IPPS hospitals located in each State. Column 2 
displays the number of hospitals in each State that would receive 
the rural floor or imputed floor wage index for FY 2013. Column 3 
displays the percentage of total payments each State would receive 
or contribute to fund the proposed rural floor and imputed floor 
with national budget neutrality. The column compares the proposed 
post-reclassification FY 2013 wage index of providers before the 
rural floor and imputed floor adjustment and the proposed post-
reclassification FY 2013 wage index of providers with the rural 
floor and imputed floor adjustment. Column 4 displays the proposed 
estimated payment amount that each State would gain or lose due to 
the proposed application of the rural floor and imputed floor with 
national budget neutrality. Again, we note that the proposal under 
section III.G.2.b. to establish an alternative temporary methodology 
for the imputed floor that would benefit four hospitals located in 
Rhode Island is not included in this table.

  FY 2013 IPPS Proposed Estimated Payments Due to Rural Floor and Imputed Floor With National Budget Neutrality
----------------------------------------------------------------------------------------------------------------
                                                                                          Proposed
                                                                                          percent
                                                                                         change in
                                                                             Proposed     payments
                                                                            number of      due to      Proposed
                                                               Number of    hospitals   application   difference
                            State                              hospitals    receiving     of rural       (in
                                                                  (1)      rural floor   floor and    millions)
                                                                            or imputed    imputed        (4)
                                                                            floor  (2)   floor with
                                                                                           budget
                                                                                         neutrality
                                                                                            (3)
----------------------------------------------------------------------------------------------------------------
Alabama.....................................................           95            4         -0.4        -$7.1
Alaska......................................................            6            4          1.6          2.1
Arizona.....................................................           56            8         -0.4         -6.1
Arkansas....................................................           45            0         -0.4         -4.5
California..................................................          308          178          1.3        113.9
Colorado....................................................           46            7          0.7          6.3
Connecticut.................................................           32            9           -0         -0.3
Delaware....................................................            5            0         -0.4         -1.8
Florida.....................................................          166            8         -0.3        -23.3
Georgia.....................................................          108            0         -0.4        -11.0
Hawaii......................................................           14            0         -0.3         -0.8
Idaho.......................................................           14            0         -0.3         -0.7
Illinois....................................................          129            1         -0.4        -22.8
Indiana.....................................................           89            0         -0.4        -10.0
Iowa........................................................           34            0         -0.4         -3.8
Kansas......................................................           55            0         -0.3         -2.6
Kentucky....................................................           65            0         -0.4         -7.4
Louisiana...................................................           97            6         -0.4         -6.2
Maine.......................................................           20            0         -0.4         -2.1
Massachusetts...............................................           61           60          5.6        182.7
Michigan....................................................           96            0         -0.4        -18.6
Minnesota...................................................           51            0         -0.4         -7.3
Mississippi.................................................           64            0         -0.4         -4.7
Missouri....................................................           76            2         -0.4         -8.5
Montana.....................................................           12            1         -0.2         -0.5
Nebraska....................................................           23            0         -0.3         -1.8
Nevada......................................................           24            0         -0.4         -2.9
New Hampshire...............................................           13            9          0.8          3.6
New Jersey..................................................           65           29          0.5         17.7
New Mexico..................................................           27            0         -0.3         -1.2
New York....................................................          168            0         -0.5        -41.0
North Carolina..............................................           87            0         -0.4        -13.9
North Dakota................................................            6            0         -0.3         -0.6
Ohio........................................................          137           11         -0.3        -13.1
Oklahoma....................................................           85            0         -0.4         -4.8
Oregon......................................................           33            0         -0.4         -3.0

[[Page 28172]]

 
Pennsylvania................................................          154           14         -0.3        -13.8
Puerto Rico.................................................           52           13          0.2          0.2
Rhode Island................................................           11            0         -0.5         -1.9
South Carolina..............................................           56            7         -0.3         -5.0
South Dakota................................................           18            0         -0.2         -0.6
Tennessee...................................................           97           10         -0.3         -6.5
Texas.......................................................          324            2         -0.4        -28.3
Utah........................................................           32            0         -0.3         -1.2
Vermont.....................................................            6            0         -0.3         -0.6
Virginia....................................................           79            1         -0.4         -9.5
Washington..................................................           48            6         -0.4         -5.8
Washington, DC..............................................            7            0         -0.4         -1.9
West Virginia...............................................           33            2         -0.3         -2.6
Wisconsin...................................................           65            5         -0.3         -4.6
Wyoming.....................................................           11            0         -0.1         -0.1
----------------------------------------------------------------------------------------------------------------

g. Effects of the Proposed Application of the Frontier State Wage Index 
(Column 8)

    Section 10324(a) of Affordable Care Act requires that we 
establish a minimum post-reclassified wage-index of 1.00 for all 
hospitals located in ``frontier States.'' The term ``frontier 
States'' is defined in the statute as States in which at least 50 
percent of counties have a population density less than 6 persons 
per square mile. Based on these criteria, four States (Montana, 
North Dakota, South Dakota, and Wyoming) are considered frontier 
States and 51 hospitals located in those States will receive a 
frontier wage index of 1.0. Although Nevada is also, by definition, 
a frontier State and was assigned a frontier floor value of 1.0000 
for FY 2012, its FY 2013 proposed rural floor value of 1.0293 is 
greater and, therefore, is the State's proposed minimum wage index 
for FY 2013. As a result, hospitals located in Nevada will not 
experience a change in payment as a result of this provision. 
Overall, this provision is not budget neutral and is estimated to 
increase IPPS operating payments by approximately $53 million.
    Urban hospitals located in the West North Central region and 
urban hospitals located in the Mountain region will receive an 
increase in payments by 0.7 percent and 0.2 percent, respectively 
because many of the hospitals located in this region are frontier 
hospitals. Similarly, rural hospitals located in the Mountain region 
and rural hospitals in the West North Central region will experience 
an increase in payments by 0.8 percent and 0.2 percent, 
respectively.

h. Effects of the Proposed Wage Index Adjustment for Out-Migration 
(Column 9)

    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. Overall, rural hospitals will experience a 0.1 
percent increase in payments as a result of the proposed 
outmigration adjustment. Rural DSH providers with less than 100 beds 
will experience a 0.4 percent increase in payments. There are 213 
providers that will receive the out-migration adjustment in FY 2013. 
This out-migration wage adjustment is not budget neutral, and we 
estimate the impact of these providers receiving the out-migration 
increase to be approximately $18 million.

i. Effects of the Expiration of MDH Special Payment Status (Column 10)

    Column 10 shows our estimate of the changes in payments due to 
the expiration of MDH status, a nonbudget neutral payment provision, 
under section 3124 of the Affordable Care Act. Hospitals that 
qualified to be MDHs receive the higher of payments made under the 
Federal standardized amount or the payments made under the Federal 
standardized amount plus 75 percent of the difference between the 
Federal standardized amount and the hospital specific rate (a 
hospital-specific cost-based rate). Because this provision was not 
budget neutral, the expiration of this payment provision results in 
a -0.1 percent decrease in payments overall. There are currenty 212 
MDHs, of which 104 were estimated to be paid under the blended 
payment of the federal standardized amount and hospital specific 
rate. Because those 104 MDHs will no longer receive the blended 
payment and will be paid only under the Federal standardized amount 
in FY 2013, it is estimated that those hospitals will experience an 
overall decrease in payments of approximately $114 million.
    MDHs were generally rural hospitals, so the expiration of th MHD 
program will result in an overall decrease in payments to rural 
hospitals of 0.9 percent. Rural New England hospitals can expect a 
decrease in payments of 3.5 percent because 8 out of the 23 rural 
New England hospitals are MDHs that will lose their special payment 
status under the expiration at the end of FY 2012. MDHs can expect a 
decrease in payments of -6.1 percent.

j. Proposed Effects of the Hospital Readmissions Reduction Program 
(Column 11)

    Column 11 shows our estimates of proposed effects of the 
proposed policies for implementation of the Hospital Readmissions 
Reduction Program, which was established under section 3025 of the 
Affordable Care Act. The Hospital Readmissions Reduction Program 
requires a reduction to a hospital's base operating DRG payments to 
account for excess readmissions, which is based on a hospital's 
risk-adjusted readmission rate during a 3-year period for three 
applicable conditions: Acute Myocardial Infarction, Heart Failure, 
and Pneumonia. This provision is not budget neutral. A hospital's 
readmission adjustment is the higher of a ratio of the hospital's 
aggregate payments for excess readmissions to their aggregate 
payments for all discharges, or a floor, which has been defined in 
statute as 0.99 (or a 1-

[[Page 28173]]

percent reduction) for FY 2013. A hospital's base operating DRG 
payment (that is, wage-adjusted DRG payment amount, as proposed in 
section IV.A. of the preamble of this proposed rule) is the portion 
of the IPPS payment subject to the readmissions payment adjustment 
(DSH, IME, outliers and low-volume add-on payments are not subject 
to the readmissions adjustment). In this proposed rule, we estimate 
that 2,210 hospitals will have their base operating DRG payments 
reduced by the readmissions adjustment, resulting in a 0.3 percent 
decrease in payments to hospitals overall.
    Urban hospitals in the Middle Atlantic, rural hospitals in the 
West South Central region, rural DSH hospitals with more than 100 
beds, and hospitals with Medicare utilization of over 65 percent are 
estimated to experience the highest decreases of 0.5 percent among 
the different hospital categories. Urban and rural hospitals in the 
Mountain Region and Rural Pacific hospitals are expected to 
experience the smallest decreases of 0.1 percent in payments. Puerto 
Rico hospitals are estimated to show a 0 percent change in payments 
because they are exempt from the provision.

k. Effects of All FY 2013 Proposed Changes (Column 12)

    Column 12 shows our estimate of the changes in payments per 
discharge from FY 2012 and FY 2013, resulting from all proposed 
changes reflected in this proposed rule for FY 2013. It includes 
combined effects of the previous columns in the table.
    The average increase in payments under the IPPS for all 
hospitals is approximately 0.9 percent for FY 2013 relative to FY 
2012. As discussed in section II.D. of the preamble of this proposed 
rule, this column includes the proposed FY 2013 documentation and 
coding adjustment of 0.2 percent on the national standardized amount 
(the proposed -2.7 documentation and coding adjustment and 2.9 
percent adjustment to restore the one-time recoupment adjustment 
made to national standardized amount) and the proposed -1.3 percent 
documentation and coding adjustment on the hospital-specific rates. 
In addition, this column includes the proposed annual hospital 
update of 2.1 percent to the national standardized amount. This 
proposed annual hospital update includes the 3.0 percent proposed 
market basket update, the proposed reduction of 0.8 percentage point 
for the proposed multifactor productivity adjustment, and the 0.1 
percentage point reduction under section 3401 of the Affordable Care 
Act. As described in Column 2, the proposed annual hospital update, 
combined with the documentation and coding adjustment, results in a 
2.2 percent increase in payments in FY 2013 relative to FY 2012. In 
addition, Column 8 describes an estimated 0.1 percent increase in 
payments due to the proposed frontier State wage index. Column 10 
describes the estimated 0.1 percent decrease in payments due to the 
expiration of the MDH status under section 3124 of the Affordable 
Care Act. Column 11 shows the estimated 0.3 percent decrease in 
payments due to the establishment of the Hospital Readmissions 
Reduction Program, which reduces a hospital's base operating DRG 
payments by a readmission adjustment factor based on a hospital's 
performance on readmissions for specified conditions. In addition, 
although not shown in the impacts table, payments are estimated to 
decrease by 0.1 due to the expiration of section 508 
reclassifications that had been extended for 6 months of FY 2012 
under section 302 of the Temporary Payroll Tax Cut Continuation Act 
of 2011 (Pub. L. 112-78), as amended by section 3001 of the Middle 
Class Tax Relief and Job Creation Act of 2012 (Pub. L. 112-96). 
Section 508 was not a budget-neutral provision. The impact of moving 
from our proposed estimate of FY 2012 outlier payments, 6.0 percent, 
to the estimate of FY 2013 outlier payments, 5.1 percent, results in 
a decrease of 0.9 percent in FY 2013 payments relative to FY 2012. 
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 12 may not equal the sum of the 
percentage changes described above.
    The overall change in payments per discharge for hospitals paid 
under the IPPS in FY 2013 is estimated to increase by 0.9 percent. 
The payment increase among the hospital categories are largely 
attributed to the proposed updates to the rate including the 
hospital update. Hospitals in urban areas will experience an 
estimated 1.1 percent increase in payments per discharge in FY 2013 
compared to FY 2012. Hospital payments per discharge in rural areas 
are estimated to increase by 0.5 percent in FY 2013 as compared to 
FY 2012 due to the expiration of MDH status.
    Among urban census divisions, the Urban New England hospitals 
will experience a -0.4 percent change in payments because many of 
the urban providers in this region had benefited from section 508 
reclassifications in FY 2012 that will expire for FY 2013. Urban 
hospitals in the Pacific will see the largest payment increases (2.4 
percent) because the hospitals are benefitting from the rural floors 
in their States.
    Among the rural regions, the providers in the New England Region 
will experience the decreases in payments of -2.1 percent, due to 
the expiration of MDH status. Rural hospitals in the Pacific Region 
are estimated to experience a 0.0 percent change because the rural 
providers in this region benefit from higher than average wage data 
and MGCRB reclassification, which offsets decreases due to the rural 
floor and the expiration of MDH status.
    Among special categories of hospitals, former MDHs will receive 
an estimated payment decrease of -7 percent due to the expiration of 
the MDH status. SCHs are paid the higher of their Federal rate and 
the hospital-specific rate. Overall, SCHs are estimated to 
experience a decrease in payments by 0.4 percent due to decreases in 
their wage data and the implementation of the Hospital Readmissions 
Reduction Program.
    Proposed rural hospitals reclassified for FY 2013 are 
anticipated to receive a 0.5 percent payment increase. Rural 
hospitals that are not reclassifying are estimated to receive a 
payment decrease of -1.8 percent due to lower wage data, the 
proposed application of rural floor budget neutrality and expiration 
of MDH status. Urban reclassified hospitals will experience the 
average payment increase at 1.1 percent due to the benefits under 
MGCRB reclassification and the proposed rural floor. Urban 
nonreclassified hospitals will experience a payment increase of 1.0 
percent.
    Cardiac hospitals are expected to experience a payment increase 
2.7 percent in FY 2013 relative to FY 2012 primarily due to benefits 
to the changes in the relative weights.

3. Impact Analysis of Table II

    Table II presents the projected impact of the proposed changes 
for FY 2013 for urban and rural hospitals and for the different 
categories of hospitals shown in Table I. It compares the proposed 
estimated average payments per discharge for FY 2012 with the 
proposed average payments per discharge for FY 2013, as calculated 
under our models. Thus, this table presents, in terms of the average 
dollar amounts paid per discharge, the combined effects of the 
changes presented in Table I. The estimated percentage changes shown 
in the last column of Table II equal the estimated percentage 
changes in average payments per discharge from Column 12 of Table I.

   Table II--Impact Analysis oF Proposed Changes for FY 2013 Acute Care Hospital Operating Prospective Payment
                                         System (Payments per Discharge)
----------------------------------------------------------------------------------------------------------------
                                                                             Proposed     Proposed
                                                                            average FY   average FY      All
                                                               Number of       2012         2013     proposed FY
                                                               hospitals   payment per  payment per      2013
                                                                  (1)       discharge    discharge   changes (4)
                                                                               (2)          (3)
----------------------------------------------------------------------------------------------------------------
All hospitals...............................................        3,405       10,447       10,539          0.9
By Geographic Location:
    Urban hospitals.........................................        2,485       10,859       10,971            1
    Large urban areas (populations over 1 million)..........        1,365       11,469       11,602          1.2

[[Page 28174]]

 
    Other urban areas (populations of 1 million or fewer)...        1,120       10,110       10,198          0.9
    Rural hospitals.........................................          920        7,790        7,752         -0.5
    Bed Size (Urban):
        0-99 beds...........................................          627        8,277        8,361            1
        100-199 beds........................................          773        9,126        9,227          1.1
        200-299 beds........................................          448        9,882        9,996          1.2
        300-499 beds........................................          432       11,091       11,219          1.2
        500 or more beds....................................          205       13,475       13,581          0.8
    Bed Size (Rural):
        0-49 beds...........................................          317        6,222        6,106         -1.9
        50-99 beds..........................................          346        7,270        7,093         -2.4
        100-149 beds........................................          152        7,529        7,551          0.3
        150-199 beds........................................           58        8,487        8,537          0.6
        200 or more beds....................................           47        9,615        9,725          1.1
    Urban by Region:
        New England.........................................          120       11,860       11,818         -0.4
        Middle Atlantic.....................................          318       11,946       12,009          0.5
        South Atlantic......................................          377        9,984       10,060          0.8
        East North Central..................................          396       10,147       10,266          1.2
        East South Central..................................          151        9,601        9,651          0.5
        West North Central..................................          165       10,544       10,736          1.8
        West South Central..................................          370       10,216       10,333          1.1
        Mountain............................................          157       11,013       11,145          1.2
        Pacific.............................................          380       13,609       13,942          2.4
        Puerto Rico.........................................           51        5,369        5,458          1.7
    Rural by Region:
        New England.........................................           23       10,441       10,219         -2.1
        Middle Atlantic.....................................           69        8,291        8,246         -0.5
        South Atlantic......................................          164        7,526        7,503         -0.3
        East North Central..................................          120        8,014        7,942         -0.9
        East South Central..................................          170        7,167        7,161         -0.1
        West North Central..................................           98        8,248        8,193         -0.7
        West South Central..................................          181        6,868        6,830         -0.5
        Mountain............................................           65        8,603        8,658          0.6
        Pacific.............................................           29       10,599       10,594            0
        Puerto Rico.........................................  ...........        2,104        2,182          3.7
By Payment Classification:
    Urban hospitals.........................................        2,500       10,838       10,952            1
    Large urban areas (populations over 1 million)..........        1,375       11,449       11,577          1.1
    Other urban areas (populations of 1 million or fewer)...        1,125       10,082       10,178            1
    Rural areas.............................................          905        7,991        7,947         -0.5
    Teaching Status:
        Non-teaching........................................        2,376        8,721        8,784          0.7
        Fewer than 100 Residents............................          789       10,259       10,374          1.1
        100 or more Residents...............................          240       15,474       15,600          0.8
    Urban DSH:
        Non-DSH.............................................          758        9,075        9,121          0.5
        100 or more beds....................................        1,523       11,370       11,494          1.1
        Less than 100 beds..................................          327        7,582        7,671          1.2
    Rural DSH:
        SCH.................................................          269        7,827        7,764         -0.8
        RRC.................................................          210        8,855        8,912          0.6
        100 or more beds....................................           32        6,913        6,889         -0.3
        Less than 100 beds..................................          286        6,158        5,995         -2.6
    Urban teaching and DSH:
        Both teaching and DSH...............................          815       12,443       12,570            1
        Teaching and no DSH.................................          147       10,014       10,087          0.7
        No teaching and DSH.................................        1,035        9,259        9,375          1.3
        No teaching and no DSH..............................          503        8,643        8,717          0.9
    Rural Hospital Types:
        RRC.................................................          199        8,848        8,924          0.9
        SCH.................................................          340        8,281        8,251         -0.4
        Former MDH..........................................          195        6,423        5,975           -7
        SCH and RRC.........................................          101        9,678        9,717          0.4
        Former MDH and RRC..................................           17        8,678        7,396        -14.8
    Type of Ownership:
        Voluntary...........................................        1,970       10,592       10,680          0.8

[[Page 28175]]

 
        Proprietary.........................................          866        9,262        9,365          1.1
        Government..........................................          560       11,108       11,210          0.9
    Medicare Utilization as a Percent of Inpatient Days:
        0-25................................................          377       14,766       15,027          1.8
        25-50...............................................        1,834       10,949       11,056            1
        50-65...............................................          968        8,543        8,573          0.4
        Over 65.............................................          168        7,926        7,889         -0.5
Hospitals Reclassified by the Medicare Geographic
 Classification Review Board:
    Proposed FY 2013 Reclassifications:
    All Reclassified Hospitals FY 2013......................          755       10,018       10,106          0.9
    All Non-Reclassified Hospitals FY 2013..................        2,650       10,585       10,678          0.9
    Urban Reclassified Hospitals FY 2013:...................          420       10,811       10,931          1.1
    Urban Non-reclassified Hospitals FY 2013................        2,025       10,882       10,996            1
    Rural Reclassified Hospitals FY 2013....................          335        8,349        8,370          0.2
    Rural Nonreclassified Hospitals FY 2013:................          524        6,950        6,825         -1.8
    All Section 401 Reclassified Hospitals:.................           46        9,905        9,760         -1.5
    Other Reclassified Hospitals (Section 1886(d)(8)(B))....           62        7,383        7,202         -2.4
Specialty Hospitals
    Cardiac Hospitals.......................................           18       10,898       11,194          2.7
----------------------------------------------------------------------------------------------------------------

H. Effects of Other Policy Changes

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

1. 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. 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.
    In section II.F. of the preamble of this proposed rule, we are 
proposing to add two additional HACs for FY 2013: Surgical Site 
Infection (SSI) Following Cardiac Implantable Electronic Device 
(CIED) Procedures and Iatrogenic Pneumothorax with Venous 
Catheterization. Similar to the current HACs, only a very small 
number of discharges would have only one secondary diagnosis that 
would lead to a higher payment. Therefore, there will likely be very 
few discharges where the MS-DRG is reassigned for these proposed 
conditions and this would result in a minimal payment impact.
    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 2013.................................................             $24
FY 2014.................................................              26
FY 2015.................................................              28
FY 2016.................................................              30
FY 2017.................................................              33
------------------------------------------------------------------------

2. 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 five applications for add-on payments for new medical 
services and technologies for FY 2013, as well as the status of the 
new technology that was approved to receive new technology add-on 
payments in FY 2012. 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 five applications we received for consideration for new 
technology add-on payments for FY 2013 will meet the specified 
criteria. Consequently, it is premature to estimate the potential 
payment impact of these five applications for any potential new 
technology add-on payments for FY 2013. We note that if any of the 
five applications are found to be eligible for new technology add-on 
payments for FY 2013 in the FY 2013 IPPS/LTCH PPS final rule, we 
would discuss the estimated payment impact for FY 2013 in that final 
rule. In the preamble to this proposed rule, we are proposing not to

[[Page 28176]]

continue making new technology add-on payments for the 
AutoLITT<SUP>TM</SUP> in FY 2013. Therefore, we are not providing an 
impact analysis for the AutoLITT<SUP>TM</SUP> in this proposed rule.

3. Effects of Proposed Policy Changes Relating to SCHs

    In section IV.B.2. of the preamble of this proposed rule, we 
discuss our proposal to clarify the regulations related to the 
termination of a hospital's status as an SCH. We are proposing to 
add a provision to the regulations to clarify that if CMS determines 
that the hospital was incorrectly classified as an SCH, SCH status 
would be cancelled retroactively, consistent with the provisions at 
42 CFR 405.1885. We also are proposing that if a hospital that was 
incorrectly designated as an SCH notifies CMS of that error, the SCH 
classification status will be terminated effective with the date of 
the notice to CMS. We believe it would be difficult to quantify the 
payment impact of these proposed clarifications because we cannot 
estimate the number of SCHs that would be affected by these 
proposals. However, we believe any impact would be insignificant 
because the proposal only affects hospitals that were incorrectly 
classified as SCHs. We are soliciting public comments on these 
issues.
    In section IV.B.3. of the preamble of this proposed rule, we 
discuss our proposal to add a provision to the regulations to allow 
hospitals that are currently classified as MDHs to apply for 
classification as SCHs upon the expiration of the MDH program on 
September 30, 2012. We are proposing that, for any MDH that applies 
for SCH classification at least 30 days prior to the expiration of 
the MDH program and requests that SCH classification status be 
effective with the expiration of the MDH program, and the hospital 
is approved for SCH status, the effective for SCH status would be 
the day following the expiration of the MDH program. We believe it 
would be difficult to quantify the payment impact of this proposal 
because we cannot estimate the number of MDHs that would be applying 
for SCH status.

4. Effects of the Proposed Payment Adjustment for Low-Volume Hospitals 
for FY 2013

    In section IV.D. of the preamble to this proposed rule, we 
discuss the provisions of the Affordable Care Act that expanded the 
definition of low-volume hospital and modified the methodology for 
determining the payment adjustment for hospitals meeting that 
definition for FYs 2011 and 2012. In accordance with section 
1886(d)(12) of the Act, beginning with FY 2013, the low-volume 
hospital definition and payment adjustment methodology will revert 
back to the statutory requirements that were in effect prior to the 
amendments made by the Affordable Care Act. Therefore, effective for 
FY 2013 and subsequent years, in order to qualify as a low-volume 
hospital, a subsection (d) hospital must be more than 25 road miles 
from another subsection (d) hospitals and have less than 200 
discharges (that is, less than 200 discharges total, including both 
Medicare and non-Medicare discharges) during the fiscal year.
    Based on FY 2011 claims data (December 2011 update of the MedPAR 
file), we estimate that approximately 600 hospitals in our database 
qualified as a low-volume hospital for FY 2012, but will no longer 
meet the mileage and discharges criteria to qualify as a low-volume 
hospital under section 1886(d)(12) of the Act for FY 2013. Because 
we estimate that these hospitals will no longer qualify for the low-
volume hospital adjustment in FY 2013 (due to the statutory change 
in the qualifying criteria), we project that these hospitals will 
experience a decrease in payments of approximately $300 million in 
FY 2013 as compared to the payments that they would have otherwise 
received in FY 2013 in absence of the statutory change in the low-
volume hospital qualifying criteria.

5. Effects of Proposed Policy Changes Relating to Payment Adjustments 
for Medicare Disproportionate Share Hospitals (DSHs) and Indirect 
Medical Education (IME)

    In section IV.F. of the preamble of this proposed rule, we 
discuss our proposal to include ancillary labor and delivery beds in 
the available bed count used to determine the DSH payment adjustment 
and the IME payment adjustment. The impact of the proposed changes 
to the DSH payment adjustment should be negligible, as the DSH 
payment adjustment is determined mainly by the demographic 
composition of an individual hospital's patient population, and not 
its overall bed count. However, we note that some hospitals' bed 
counts do not meet the minimum threshold required to qualify for the 
DSH payment adjustment. For these hospitals that do not meet the 
minimum bed count required to qualify for the DSH payment 
adjustment, an increase in the number of available beds could now 
allow them to qualify for the DSH payment adjustment. For purposes 
of the IME payment adjustment, an increase in a hospital's number of 
available beds would result in a decrease in the resident-to-bed 
ratio. The inclusion of bed days associated with labor and delivery 
patients in the available bed count for IME would increase the 
available beds, decrease the resident-to-bed ratio, and, 
consequently, decrease IME payments to teaching hospitals, depending 
on the number of these hospitals' labor and delivery beds. Based on 
labor and delivery patient days currently reported in the Medicare 
hospital cost report database, we estimate that the inclusion of 
labor and delivery beds in the available bed day count would 
decrease IME payments by $170 million in FY 2013.

6. Effects of the Proposed Policy Changes Relating to GME and IME

a. Effects of Clarification and Proposal Regarding Timely Filing 
Requirements Under Fee-for-Service Medicare

    In section IV.E.2. of the preamble of this proposed rule, we 
discuss a clarification related to the time limits for filing claims 
for Medicare Advantage patients under fee-for-service Medicare for 
IME, direct GME, and nursing and allied health education payment 
purposes. This clarification is intended to make clear to hospitals 
that they must follow the regulations governing the time limits for 
filing claims at Sec.  424.44 in order to receive IME, and/or direct 
GME, and/or nursing or allied health education program payments 
associated with Medicare Advantage enrollees. Because we are not 
proposing to make any policy changes (but rather clarifying the 
timely filing requirements), there is no financial impact for this 
clarification.
    In section IV.E.2. of the preamble of this proposed rule, we 
also are proposing to adopt a policy under which hospitals that are 
required to submit no pay bills for the purpose of calculating the 
DPP that is used in determining the DSH payment adjustment must do 
so within the time limits for filing claims at Sec.  424.44. We do 
not anticipate that this proposal would have any impact, as 
providers are already submitting no pay bills for purposes of the 
DPP.

b. Effects of Proposed Policy Changes Relating to New Teaching 
Hospitals: New Program Growth From 3 Years to 5 Years

    In section IV.I.2. of the preamble of this proposed rule, we 
discuss our proposal to extend the period a new teaching hospital 
has to establish its caps for direct GME and IME payment purposes 
from 3 years to 5 years. We are proposing to revise the regulations 
to state that if a new teaching hospital participates in training 
residents in a new program for the first time on or after October 1, 
2012, that new teaching hospital's caps will be based on the product 
of the highest number of FTE residents training in any program year 
during the fifth academic year of the first program's existence for 
all new residency training programs and the number of years in which 
residents are expected to complete the program based on the minimum 
accredited length for the type of program. The cap would be applied 
beginning with the sixth academic year of the first new program. We 
believe this expansion of the cap-building period from 3 years to 5 
years would make our policies for the establishment of a hospital's 
cap more compatible with current accreditation requirements that 
hospitals must meet to establish new residency training programs. We 
estimate that this proposal would cost approximately $175 million 
over the next 10 years. However, because this proposal to change the 
cap growth period from 3 years to 5 years would only affect new 
programs begun on or after October 1, 2012, we estimate that no cost 
would be incurred until FY 2016. This estimate assumes that there 
could be 20 new teaching hospitals each year.

c. Effects of Proposed Changes Relating to 5-Year Period Following 
Implementation of Reductions and Increases to Hospitals' FTE Resident 
Caps for GME Payment Purposes Under Section 5503 of the Affordable Care 
Act

    In section IV.I.3. of the preamble of this proposed rule, we 
discuss our proposals related to the 5-year period following 
implementation of reductions and increases to hospitals' FTE 
resident caps for GME payment purposes under section 5503 of the 
Affordable Care Act. Section 5503 of the Affordable Care Act amended 
the Medicare statute by adding a new section 1886(h)(8) of

[[Page 28177]]

the Act, which provides for reductions in the statutory FTE resident 
caps for direct GME and IME under Medicare for certain hospitals, 
and authorizes a ``redistribution'' to certain hospitals of the 
estimated number of FTE resident slots resulting from the 
reductions. The amendments made by section 5503 also specifies that 
a hospital that receives an increase in its cap shall ensure, during 
the 5-year period beginning on the date of such increase (July 1, 
2011), that certain requirements, referred to as the primary care 
average and 75-percent threshold, are met in order to retain those 
slots. Otherwise, the Medicare statute authorizes the Secretary to 
reduce the FTE caps of the hospital by the same number of FTE 
residents by which the hospital's FTE caps were increased if the 
hospital fails to meet either of those requirements.
    Because a statutorily directed criteria for consideration in 
awarding slots under section 5503 included the requirement that 
hospitals applying for slots demonstrate the likelihood of filling 
the slots within the first three cost reporting periods beginning on 
or after July 1, 2011, and we relied on that information in awarding 
slots, we believe it is reasonable and authorized under section 
1886(h)(8)(B)(ii) of the Act to expect that hospitals that received 
slots under section 5503 begin to use their slots by Year 3 of the 
5-year period in order to give full effect to the requirements under 
section 1886(h)(8)(B)(ii) of the Act. Therefore, we are proposing 
that a hospital that received section 5503 slots must fill at least 
half of its section 5503 slots, IME and direct GME respectively, in 
at least one of the following timeframes: The first 12-month cost 
reporting period of the 5-year period, and/or in its second 12-month 
cost reporting period and/or in its third 12-month cost reporting 
period of the 5-year period, or lose its section 5503 slots. We also 
are proposing that the hospital must fill all of the slots it 
received by its final cost reporting period beginning during the 
timeframe of July 1, 2011 through June 30, 2016, or lose all of its 
section 5503 slots after June 30, 2016.
    We believe the impact of these proposals regarding the timing of 
the use of these section 5503 slots is budget neutral. We believe 
that hospitals will take the steps necessary to comply with the 
section 5503 requirements to ensure, to the best of their ability, 
that they will not lose their section 5503 slots. We believe that 
section 5503 slots are valuable enough to a hospital that it is 
worthwhile for the hospital to comply with the proposed regulations 
(that is, to fill at least half of its section 5503 slots in its 
first 12-month cost reporting period of the 5-year period, and/or in 
its second 12-month cost reporting period and/or in its third 12-
month cost reporting period of the 5-year period, and also fill all 
of the slots it received by its final cost reporting period 
beginning during the timeframe of July 1, 2011 through June 30, 
2016), because not doing so would mean the loss of all of its 
section 5503 slots after Year 5 ends. Therefore, we anticipate that, 
as a result of these proposals, the hospitals that previously might 
not have made an effort to fill their section 5503 slots in a timely 
manner will now do so, and, assuming they continue to meet the 
primary care average and 75-percent threshold requirements, those 
hospitals would be allowed to keep their section 5503 slots. Thus, 
there would be neither an additional cost due to these proposals nor 
savings related to these proposals.

d. Preservation of Resident Cap Positions From Closed Hospitals 
(Section 5506 of the Affordable Care Act)

    In section IV.I.4. of the preamble of this proposed rule, we 
discuss our proposals and clarifications of existing policy related 
to section 5506 of the Affordable Care Act. Section 5506 amended the 
Medicare statute to add a provision that instructs the Secretary to 
establish a process by regulation under which, in the event a 
teaching hospital closes, the Secretary will permanently increase 
the FTE resident caps for hospitals that meet certain criteria up to 
the number of the closed hospital's FTE resident caps. The Secretary 
is directed to ensure that the total number of FTE resident cap 
slots distributed is not to exceed the amount of slots in the closed 
hospital's direct GME and IME FTE resident caps, respectively. The 
regulations and application process regarding section 5506 were 
implemented in the November 24, 2010 Federal Register (75 FR 72212). 
The provisions included in the preamble of this proposed rule are 
generally administrative in nature, related to the rules regarding 
the application of section 5506, minor proposed changes or 
clarifications to the ranking criteria on the applications, and 
minor proposed changes or clarifications regarding the effective 
dates of slots awarded under section 5506. Therefore, there is no 
financial impact for these section 5506 provisions.

7. Effects of Proposed Changes Relating to the Reporting Requirements 
for Pension Costs for Medicare Cost-Finding Purposes

    In section IV.J. of the preamble of this proposed rule, we 
discuss our proposal to amend two existing regulations to conform 
these regulations to the final policy we adopted in the FY 2012 
IPPS/LTCH PPS final rule (76 FR 51693 through 51597) with regard to 
pension costs for Medicare cost-finding purposes. Because we are 
proposing to make only conforming changes to the regulations and not 
further modifying the policy we finalized, there is no impact on 
hospitals for these proposed changes for FY 2013.

8. Effects of Implementation of Rural Community Hospital Demonstration 
Program

    In section IV.K. of the preamble of this proposed rule, we 
discuss our implementation of section 410A of Public Law 108-173, as 
amended, which requires the Secretary to conduct a demonstration 
that would modify reimbursement for inpatient services for up to 30 
rural community hospitals. Section 410A(c)(2) requires that ``[i]n 
conducting the demonstration program under this section, the 
Secretary shall ensure that the aggregate payments made by the 
Secretary do not exceed the amount which the Secretary would have 
paid if the demonstration program under this section was not 
implemented.'' As discussed in section IV.K. of the preamble of this 
proposed rule, in the IPPS final rules for each of the previous 8 
fiscal years, we have estimated the additional payments made by the 
program for each of the participating hospitals as a result of the 
demonstration. In order to achieve budget neutrality, we are 
proposing to adjust the national IPPS rates by an amount sufficient 
to account for the added costs of this demonstration. In other 
words, we are proposing to apply budget neutrality across the 
payment system as a whole rather than 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 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.
    We are proposing to adjust the national IPPS rates according to 
the methodology set forth elsewhere in this proposed rule. In this 
proposed rule, the proposed adjustment to the national IPPS rates to 
account for estimated demonstration cost for FY 2013 for the 7 
``pre-expansion'' participating hospitals that are currently 
participating in the demonstration and the 16 additional hospitals 
participating as a result of the expansion of the demonstration 
under the Affordable Care Act is $35,077,708. In addition, in this 
FY 2013 proposed rule, we are proposing that if settled cost reports 
for all of the demonstration hospitals that participated in the 
applicable budget year (FY 2007, 2008, 2009, or 2010) are available 
prior to the FY 2013 IPPS/LTCH PPS final rule, we would include in 
the budget neutrality offset amount any additional amount by which 
the final settled costs of the demonstration for the year (FY 2007, 
2008, 2009, or 2010) exceeded the budget neutrality offset amount 
applicable to such year as finalized in the respective year's IPPS 
final rule. The estimated amount of $35,077,708 that we are 
proposing in this FY 2013 proposed rule does not account for any 
differences between the cost of the demonstration program for 
hospitals participating in the demonstration for FYs 2007 through 
2010 and the amounts that were offset by the budget neutrality 
adjustment for these years because the specific numeric value 
associated with this component of the adjustment to the national 
IPPS rates cannot be known at this time. This is because the large 
majority of settled cost reports beginning in FYs 2007 through 2010 
for the hospitals participating during in the demonstration during 
those years also are not available at this time.

9. Effects of Proposed Change in Effective Date for Policies Relating 
to Hospital Services Furnished Under Arrangements

    In section IV.L. of the preamble of this proposed rule, we 
discuss that, in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51711 
through 51714), we limited the circumstances under which a hospital 
may furnish services to Medicare beneficiaries ``under 
arrangements.'' Under the revised policy, ``routine services'' (that 
is, bed, board,

[[Page 28178]]

and nursing and other related services) must be provided in the 
hospital in which the patient is a registered inpatient in order for 
the services to be considered as being provided by the hospital. 
Routine services furnished to Medicare beneficiaries as inpatients 
of the hospital are considered services furnished by the hospital. 
Only diagnostic and therapeutic services (that is, ancillary 
services) may be provided under arrangements outside the hospital. 
We have become aware that a number of affected hospitals need 
additional time to restructure existing arrangements and establish 
necessary operational protocols to comply with this requirement. 
Therefore, in this proposed rule, we are proposing to postpone the 
effective date of the revised policy change from services provided 
on or after October 1, 2011, to cost reporting periods beginning in 
FY 2014. We have determined that the impact of this proposed 
effective date change would be negligible.

I. Effects of Proposed Changes in the Capital IPPS

1. General Considerations

    For the impact analysis presented below, we used data from the 
December 2011 update of the FY 2011 MedPAR file and the December 
2011 update of the Provider-Specific File (PSF) that is used for 
payment purposes. Although the analyses of the proposed changes to 
the capital prospective payment system do not incorporate cost data, 
we used the December 2011 update of the most recently available 
hospital cost report data (FYs 2009 and 2010) 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.C.2. of the preamble to this proposed rule, we are proposing to 
make a -0.8 percent documentation and coding adjustment to the 
national capital rate for FY 2013 in addition to the -0.6 percent 
adjustment established for FY 2008, the -0.9 percent adjustment for 
FY 2009, the -2.9 percent adjustment for FY 2011, and the -1.0 
percent adjustment for FY 2012. This results in a proposed 
cumulative adjustment factor of 0.9404 that we applied in 
determining the proposed FY 2013 national capital rate to account 
for improvements in documentation and coding that do not reflect 
real changes in case mix under the MS-DRGs. We note that we applied 
a -2.6 percent documentation and coding adjustment to the Puerto 
Rico-specific capital rate in FY 2011, which reflects the entire 
amount of our current estimate of the effects of documentation and 
coding for FYs 2008 and 2009 that do not reflect real changes in 
case-mix under the MS-DRGs. (We currently estimate that there was no 
additional effect of documentation and coding from the adoption of 
the Ms-DRGs in FY 2010 for hospitals located in Puerto Rico.) 
Therefore, as we did for FY 2012, we are not proposing to adjust the 
Puerto Rico-specific capital rate in FY 2013 to account for changes 
in documentation and coding.
    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, it is 
possible that some individual hospitals are placed in the wrong 
category.
    Using cases from the December 2011 update of the FY 2011 MedPAR 
file, we simulated payments under the capital IPPS for FY 2012 and 
FY 2013 for a comparison of total payments per case. Any short-term, 
acute care hospitals not paid under the general IPPS (Indian Health 
Service hospitals and hospitals in Maryland) are excluded from the 
simulations.
    The methodology for determining a capital IPPS payment is set 
forth at Sec.  412.312. The basic methodology for calculating 
capital IPPS payments in FY 2013 is as follows:

(Standard Federal Rate) x (DRG weight) x (GAF) x (COLA for hospitals 
located in Alaska and Hawaii) x (1 + DSH Adjustment Factor + IME 
adjustment factor, if applicable).

    In addition to the other adjustments, hospitals may also receive 
outlier payments for those cases that qualify under the threshold 
established for each fiscal year. We modeled payments for each 
hospital by multiplying the capital Federal rate by the GAF and the 
hospital's case-mix. We then added estimated payments for indirect 
medical education, disproportionate share, and outliers, if 
applicable. For purposes of this impact analysis, the model includes 
the following assumptions:
    <bullet> We estimate that the Medicare case-mix index would 
increase by 0.5 percent in both FYs 2012 and 2013.
    <bullet> We estimate that the Medicare discharges would be 
approximately 12.8 million in FY 2012 and 13.3 million in FY 2013.
    <bullet> The capital Federal rate was updated beginning in FY 
1996 by an analytical framework that considers changes in the prices 
associated with capital-related costs and adjustments to account for 
forecast error, changes in the case-mix index, allowable changes in 
intensity, and other factors. As discussed in section III.A.1.a. of 
the Addendum to this proposed rule, the proposed update is 1.3 
percent for FY 2013.
    <bullet> In addition to the proposed FY 2013 update factor, the 
proposed FY 2013 capital Federal rate was calculated based on a 
proposed GAF/DRG budget neutrality factor of 1.0002, and a proposed 
outlier adjustment factor of 0.9400.
    <bullet> For FY 2013, as discussed above and in section V.C.2. 
of the preamble to this proposed rule, we are proposing to apply a 
cumulative adjustment of 0.9404 in determining the proposed FY 2013 
national capital rate for changes in documentation and coding that 
are expected to increase case-mix under the MS-DRGs but do not 
reflect real case-mix change. This proposed cumulative adjustment of 
0.9404 reflects the additional -0.8 percent adjustment in FY 2013 
for the effects of documentation and coding in FY 2010 (and is in 
addition to the adjustments previously made for the effects in FYs 
2008 and 2009).

2. Results

    We used the actuarial model described above to estimate the 
potential impact of our proposed changes for FY 2013 on total 
capital payments per case, using a universe of 3,405 hospitals. As 
described above, the individual hospital payment parameters are 
taken from the best available data, including the December 2011 
update of the FY 2011 MedPAR file, the December 2011 update to the 
PSF, and the most recent cost report data from the December 2011 
update of HCRIS. In Table III, we present a comparison of estimated 
total payments per case for FY 2012 and estimated total payments per 
case for FY 2013 based on the proposed FY 2013 payment policies. 
Column 2 shows estimates of payments per case under our model for FY 
2012. Column 3 shows estimates of payments per case under our model 
for FY 2013. Column 4 shows the proposed total percentage change in 
payments from FY 2012 to FY 2013. The proposed change represented in 
Column 4 includes the 1.3 percent update to the proposed 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 2013 are expected to decrease as compared to capital 
payments per case in FY 2012. However, the proposed capital rate for 
FY 2013 would increase approximately 0.7 percent as compared to the 
FY 2012 capital Federal rate. The proposed changes to the GAFs are 
expected to result, on average, in a slight decrease in capital 
payments for most regions with the certain exceptions. The regional 
variations in the proposed estimated change in capital payments are 
consistent with the proposed changes in payments due to changes in 
the wage index (and policies affecting the wage index) shown in 
Table I in section I of this Appendix.
    We also are estimating a slight decrease in outlier payments in 
FY 2013 as compared to FY 2012. This is primarily because of the 
proposed increase to the outlier fixed-loss amount (discussed in 
section II.A.4.f. of the Addendum to this proposed rule). In 
addition, this estimated decrease in outlier payments is based on 
the FY 2011 claims from the December 2011 update of the MedPAR file, 
we are currently estimating that FY 2012 capital outlier payments 
are more than the projected 6.18 percent that we used to determine 
the outlier offset that we applied in determining the FY 2012 
capital Federal rate.
    The net impact of these proposed changes, as discussed above, is 
an estimated -0.2 percent change in capital payments per discharge 
from FY 2012 to FY 2013 for all hospitals (as shown below in Table 
III).
    The geographic comparison shows that, on average, all hospitals 
are expected to experience a decrease in capital IPPS payments per 
case in FY 2013 as compared to FY 2012. These decreases are 
primarily due to proposed changes in the GAFs (primarily resulting 
from policies affecting

[[Page 28179]]

the wage index)), and the estimated decrease in capital outlier 
payments. Capital IPPS payments per case for large urban hospitals 
are estimated to decrease 0.1 percent, while other urban hospitals 
are expected to experience a 0.4 percent decrease. Rural hospitals, 
on average, are not expected to experience any change in capital 
payments per discharge from FY 2012 to FY 2013.
    The comparisons by region show that most urban regions, except 
for the Pacific region and Puerto Rico, will experience, on average, 
decreases in capital IPPS payments. The estimated decrease in 
capital payments per discharge from FY 2012 to FY 2013 in urban 
areas ranges from a 0.1 percent decrease for the East North Central 
urban region to a 1.0 percent decrease for the New England urban 
region. The two exceptions to decreases in capital payments per case 
are the Pacific urban region and the Puerto Rico urban region, which 
are expected to experience a 1.1 percent and 0.5 percent increase, 
respectively. As we indicated in the FY 2012 IPPS/LTCH PPS final 
rule, the GAFs for Puerto Rico result in a positive effect in 
estimated capital IPPS payment because of the application of a 
Puerto Rico rural floor. FY 2012 was the first year an IPPS hospital 
was located in rural Puerto Rico, therefore, setting a rural floor. 
The GAFs are also having a positive effect on capital IPPS payments 
per discharge in the Pacific urban region, primarily due to proposed 
changes in the wage index for hospitals located in that area as 
discussed in section I of this Appendix.
    For rural regions, the estimated change in capital payments per 
discharge from FY 2012 to FY 2013 ranges from a 1.6 percent decrease 
for the Pacific rural region to a 0.7 percent increase for the 
Middle Atlantic rural region. The East South Central and Mountain 
rural regions are not expected to experience any change in their 
capital payments per discharge from FY 2012 to FY 2013. The Puerto 
Rico rural region is estimated to experience a 3.3 percent increase 
in capital payments per discharge in FY 2013 compared to FY 2012.
    Hospitals of all type of ownership (that is, voluntary 
hospitals, government hospitals, and proprietary hospitals) are 
estimated to experience a 0.2 percent decrease in capital payments 
per case from FY 2012 to FY 2013.
    Section 1886(d)(10) of the Act established the MGCRB. Hospitals 
may apply for reclassification for purposes of the wage index for FY 
2013. 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 2013, 
we show the average capital payments per case for reclassified 
hospitals for FY 2013. Only urban reclassified hospitals are 
expected to experience an increase in capital payments, 0.1 percent, 
in FY 2013 as compared to FY 2012. Urban non-reclassified hospitals 
are estimated to experience a decrease of 0.3 percent. Rural 
reclassified hospitals are estimated to experience no change in 
capital payments per discharge from FY 2012 to FY 2013, while rural 
nonreclassified hospitals are estimated to have a 0.1 percent 
decrease in capital payments per case. Similarly, other reclassified 
hospitals (that is, hospitals reclassified under section 
1886(d)(8)(B) of the Act) are expected to experience a decrease of 
0.1 percent in capital payments from FY 2012 to FY 2013.

                                Table III--Comparison of Total Payments per Case
                            [FY 2012 payments compared to proposed FY 2013 payments]
----------------------------------------------------------------------------------------------------------------
                                                                                          Proposed
                                                                            Average FY   average FY
                                                               Number of       2012         2013        Change
                                                               hospitals    payments/    payments/
                                                                               case         case
----------------------------------------------------------------------------------------------------------------
By Geographic Location:
    All hospitals...........................................        3,405          799          797         -0.2
    Large urban areas (populations over 1 million)..........        1,365          880          880         -0.1
    Other urban areas (populations of 1 million of fewer)...        1,120          784          781         -0.4
    Rural areas.............................................          920          552          552          0.0
    Urban hospitals.........................................        2,485          837          835         -0.2
        0-99 beds...........................................          627          670          667         -0.4
        100-199 beds........................................          773          722          720         -0.2
        200-299 beds........................................          448          769          770          0.1
        300-499 beds........................................          432          848          848          0.0
        500 or more beds....................................          205        1,016        1,010         -0.6
    Rural hospitals.........................................          920          552          552          0.0
        0-49 beds...........................................          317          438          438          0.1
        50-99 beds..........................................          346          505          506          0.0
        100-149 beds........................................          152          545          544         -0.1
        150-199 beds........................................           58          619          617         -0.3
        200 or more beds....................................           47          672          673          0.2
By Region:
    Urban by Region.........................................        2,485          837          835         -0.2
        New England.........................................          120          907          898         -1.0
        Middle Atlantic.....................................          318          886          884         -0.2
        South Atlantic......................................          377          781          776         -0.6
        East North Central..................................          396          804          804         -0.1
        East South Central..................................          151          730          725         -0.7
        West North Central..................................          165          836          841          0.7
        West South Central..................................          370          796          791         -0.6
        Mountain............................................          157          868          864         -0.4
        Pacific.............................................          380        1,016        1,026          1.1
        Puerto Rico.........................................           51          384          386          0.5
    Rural by Region.........................................          920          552          552          0.0
        New England.........................................           23          744          743         -0.1
        Middle Atlantic.....................................           69          569          573          0.7
        South Atlantic......................................          164          541          540         -0.2
        East North Central..................................          120          576          577          0.1
        East South Central..................................          170          507          507          0.0
        West North Central..................................           98          585          582         -0.4
        West South Central..................................          181          491          491          0.1
        Mountain............................................           65          580          580          0.0
        Pacific.............................................           29          723          712         -1.6
        Puerto Rico.........................................            1          150          155          3.3

[[Page 28180]]

 
By Payment Classification:
    All hospitals...........................................        3,405          799          797         -0.2
    Large urban areas (populations over 1 million)..........        1,375          879          879         -0.1
    Other urban areas (populations of 1 million of fewer)...        1,125          783          780         -0.3
    Rural areas.............................................          905          563          561         -0.2
    Teaching Status:
        Non-teaching........................................        2,376          680          679         -0.2
        Fewer than 100 Residents............................          789          790          790          0.0
        100 or more Residents...............................          240        1,137        1,133         -0.4
    Urban DSH:
        100 or more beds....................................        1,523          863          861         -0.1
        Less than 100 beds..................................          327          583          585          0.2
    Rural DSH:
        Sole Community (SCH/EACH)...........................          269          519          517         -0.4
        Referral Center (RRC/EACH)..........................          210          624          623         -0.3
    Other Rural:
        100 or more beds....................................           32          506          504         -0.5
        Less than 100 beds..................................          286          446          447          0.2
    Urban teaching and DSH:
        Both teaching and DSH...............................          815          933          932         -0.2
        Teaching and no DSH.................................          147          812          810         -0.3
        No teaching and DSH.................................        1,035          720          720          0.0
        No teaching and no DSH..............................          503          741          736         -0.7
    Rural Hospital Types:
        Non special status hospitals........................        2,391          841          839         -0.2
        RRC/EACH............................................           61          733          736          0.4
        SCH/EACH............................................           34          722          724          0.2
        SCH, RRC and EACH...................................           16          769          764         -0.6
Hospitals Reclassified by the Medicare Geographic
 Classification Review Board:
    FY 2013 Reclassifications:
        All Urban Reclassified..............................          420          833          834          0.1
        All Urban Non-Reclassified..........................        2,025          840          838         -0.3
        All Rural Reclassified..............................          335          596          596          0.0
        All Rural Non-Reclassified..........................          524          482          481         -0.1
        Other Reclassified Hospitals (Section 1886(d)(8)(B))           55          550          550         -0.1
    Type of Ownership:
        Voluntary...........................................        1,970          813          812         -0.2
        Proprietary.........................................          866          718          717         -0.2
        Government..........................................          560          817          816         -0.2
    Medicare Utilization as a Percent of Inpatient Days:
        0-25................................................          377        1,044        1,047          0.3
        25-50...............................................        1,834          839          837         -0.3
        50-65...............................................          968          666          665         -0.1
        Over 65.............................................          168          611          611          0.1
----------------------------------------------------------------------------------------------------------------

J. Effects of Proposed Payment Rate Changes and Policy Changes 
Under the LTCH PPS

1. Introduction and General Considerations

    In section VII. of the preamble and section V. of the Addendum 
to this proposed rule, we set forth the proposed annual update to 
the payment rates for the LTCH PPS for FY 2013. In the preamble, we 
specify the statutory authority for the proposed provisions that are 
presented, identify those proposed policies, and present rationales 
for our proposed decisions as well as alternatives that were 
considered. In this section of Appendix A to this proposed rule, we 
discuss the impact of the proposed changes to the payment rate, 
factors, and other payment rate policies related to the LTCH PPS 
that are presented in the preamble of this proposed rule in terms of 
their estimated fiscal impact on the Medicare budget and on LTCHs.
    Currently, our database of 427 LTCHs includes the data for 82 
nonprofit (voluntary ownership control) LTCHs and 322 proprietary 
LTCHs. Of the remaining 23 LTCHs, 14 LTCHs are government-owned and 
operated and the ownership type of the other 9 LTCHs is unknown. In 
the impact analysis, we used the proposed rate, factors, and 
policies presented in this proposed rule, including the proposed 2.1 
percent annual update, which is based on the full increase of the 
proposed LTCH PPS market basket and the reductions required by 
sections 1886(m)(3) and (m)(4) of the Act, the proposed one-time 
prospective adjustment of 0.98734 (approximately -1.3 percent), 
which would not apply to payments for discharges occurring on or 
before December 28, 2012 (consistent with the statute), the proposed 
update to the MS-LTC-DRG classifications and relative weights, the 
proposed update to the wage index values and labor-related share, 
the expiration of the statutory delay in the application of very 
short-stay outlier policy at Sec.  412.529(c)(3), effective for 
discharges occurring on or after December 29, 2012 (that is, the 
option for certain short-stay outlier cases to be paid under the 
``blended payment'' will be replaced with the ``IPPS comparable per 
diem amount'' as discussed in section VII.E.3. of the preamble of 
this proposed rule), and the best available claims and CCR data to 
estimate the proposed change in payments for FY 2013.
    The standard Federal rate for FY 2012 was $40,222.05. For FY 
2013, we are proposing to establish a standard Federal rate of 
$40,507.48 that reflects the proposed 2.1 percent annual update to 
the standard

[[Page 28181]]

Federal rate, and the proposed area wage budget neutrality factor of 
0.99903, which ensures that the proposed changes in the wage indexes 
and labor-related share do not influence aggregate payments. 
Furthermore, consistent with section 114(c)(4) of the MMSEA, as 
amended by sections 3106(a) and 10312 of the Affordable Care Act, 
the proposed one-time prospective adjustment to the standard Federal 
rate for FY 2013 of 0.98734 (approximately -1.3 percent) would not 
apply to payments for discharges occurring before December 29, 2012. 
Therefore, payment for discharges occurring on or after October 1, 
2012, and on or before December 28, 2012, would not reflect that 
proposed adjustment and, instead, would be paid based on a standard 
Federal rate of $41,026.88.
    Based on the best available data for the 427 LTCHs in our 
database, we estimate that the proposed update to the standard 
Federal rate for FY 2013 (discussed in section V.A.2. of the 
Addendum to this proposed rule) and the proposed changes to the area 
wage adjustment for FY 2013 (discussed in section V.B. of the 
Addendum to this proposed rule), in addition to an estimated 
increase in HCO payments and an estimated decrease in SSO payments, 
would result in an increase in estimated payments from FY 2012 of 
approximately $100 million. Based on the 427 LTCHs in our database, 
we estimate that the FY 2013 LTCH PPS payments would be 
approximately $5.282 billion, as compared to estimated FY 2012 LTCH 
PPS payments of approximately $5.181 billion. Because the combined 
distributional effects and estimated changes to the Medicare program 
payments are over approximately $100 million, this proposed rule is 
considered a major economic rule, as defined in this section. We 
note that the approximately $100 million for the projected increase 
in estimated aggregate proposed LTCH PPS payments from FY 2012 to FY 
2013 does not reflect changes in LTCH admissions or case-mix 
intensity in estimated LTCH PPS payments, which also will affect 
overall payment changes. It also does not include the estimated 
effect of the proposed 1-year extension of the moratorium on the 
application of the ``25-percent threshold'' payment adjustment 
policy on LTCH PPS payments, which is discussed below in section 
I.J.b.3. of this Appendix.
    The projected 1.9 percent increase in estimated proposed 
payments per discharge from FY 2012 to FY 2013 is attributable to 
several factors, including the proposed 2.1 percent annual update to 
the standard Federal rate, the proposed one-time prospective 
adjustment of -0.98734 (approximately -1.3 percent) to the standard 
Federal rate, which is not applicable to payments for discharges 
occurring on or before December 28, 2012, consistent with the 
statute, and projected increases in estimated HCO and decreases in 
SSO payments due to a change in the SSO payment methodology 
effective for discharges occurring on or after December 29, 2012 (as 
described in section VII.E.3. of the preamble of this proposed 
rule). As Table IV shows, the change attributable solely to the 
proposed annual update to the standard Federal rate (2.1 percent), 
including the proposed one-time prospective adjustment 
(approximately -1.3 percent) which is not applicable to payments for 
discharges occurring before December 29, 2012, is projected to 
result in an increase of 0.9 percent in payments per discharge from 
FY 2012 to FY 2013, on average, for all LTCHs. This estimated 
increase of 0.9 percent reflects the proposed 2.1 percent annual 
update for payments to FY 2013 discharges occurring from October 1, 
2012 through December 28, 2012, and the proposed -1.3 percent one-
time prospective adjustment factor, which would not apply in 
determining payments for discharges occurring on or before December 
28, 2012, and also includes estimated payments to SSO cases that are 
paid using special methodologies that are not affected by the annual 
update to the standard Federal rate. Therefore, the projected 
increase in payments to the Federal rate is less than the proposed 
2.1 percent annual update for FY 2013. Because we are proposing to 
apply an area wage level budget neutrality factor to the standard 
Federal rate, the proposed update to the wage data and labor-related 
share does not impact the proposed increase in payments.
    As discussed in section V.B. of the Addendum to this proposed 
rule, we are proposing to update the wage index values for FY 2013 
based on the most recent available data. In addition, we are 
proposing to decrease the labor-related share from 70.199 percent to 
63.217 percent under the LTCH PPS for FY 2013, based on the most 
recent available data on the relative importance of the proposed 
labor-related share of operating and capital costs of the proposed 
FY 2009-based LTCH-specific market basket. We also are proposing an 
area wage level budget neutrality factor of 0.99903, which reduces 
the proposed standard Federal rate by approximately 0.1 percent. 
Therefore, the proposed changes to the wage data and labor-related 
share do not result in a change in estimated aggregate LTCH PPS 
payments.
    We are projecting that LTCHs would experience a decrease in 
aggregate payments of 0.4 percent in FY 2013 as a result of the 
expiration of the statutory delay in the application of the very 
short-stay outlier policy at Sec.  412.529(c)(3), effective for 
discharges occurring on or after December 29, 2012. Generally, very 
short-stay outliers are cases that have a length of stay that is 
less than or equal to one standard deviation from the geometric mean 
average length of stay of the same DRG under the IPPS. Under the 
moratorium, very short stay outliers are paid the lowest of: (1) The 
LTC-DRG payment; (2) 100 percent of cost; (3) 120 percent of the 
LTCH per diem payment; or (4) a blend of 120 percent of the LTCH per 
diem amount and the ``IPPS comparable per diem amount'' (the 
``blended payment''). With the expiration of the moratorium, in the 
case of very short-stay outliers, effective for discharges on or 
after December 29, 2012, the ``blended payment'' will be replaced 
with only the ``IPPS comparable per diem amount,'' which results in 
a decrease in payments for these cases.
    Table IV below shows the impact of the proposed payment rate and 
the proposed policy changes on LTCH PPS payments for FY 2013 
presented in this proposed rule by comparing estimated FY 2012 
payments to estimated FY 2013 payments. The projected increase in 
payments per discharge from FY 2012 to FY 2013 is 1.9 percent (shown 
in Column 9). This projected increase in payments is attributable to 
the impacts of the proposed change to the standard Federal rate (0.9 
percent in Column 6), the end of the moratorium on delaying the 
implementation of the very short-stay outlier policy (-0.4 percent 
in Column 8), as well as the effect of the estimated increase in 
proposed payments for HCO cases and SSO cases (1.1 percent, 0.2 
percent, respectively). That is, estimated total HCO payments are 
projected to increase from FY 2012 to FY 2013 in order to ensure 
that the estimated HCO payments would be 8 percent of the total 
estimated LTCH PPS payments in FY 2013. An analysis of the most 
recent available LTCH PPS claims data (that is, FY 2011 claims data 
from the December 2011 update of the MedPAR file) indicates that the 
FY 2012 HCO threshold of $17,931 (as established in the FY 2012 
IPPS/LTCH PPS final rule) may-result in HCO payments in FY 2012 that 
fall below the estimated 8 percent. Specifically, we currently 
estimate that HCO payments would be approximately 6.9 percent of the 
estimated total LTCH PPS payments in FY 2012. We estimate that the 
impact of the increase in HCO payments would result in approximately 
a 1.1 percent increase in estimated payments from FY 2012 to FY 
2013, on average, for all LTCHs. Furthermore, in calculating the 
estimated increase in payments from FY 2012 to FY 2013 for HCOs, we 
increased estimated costs by the applicable market basket percentage 
increase as projected by our actuaries. This increase in estimated 
costs also results in a projected increase in SSO payments of 0.2 
percent relative to last year. However, the expiration of the 
statutory moratorium on the application of the very short-stay 
outlier policy, effective December 29, 2012, which replaces the 
``blended payment'' option with the ``IPPS comparable per diem 
amount'' option for certain SSO cases (as described in section 
VII.E.3. of the preamble of this proposed rule) is expected to 
result in a -0.4 percent change in aggregate payments. The net 
result of these projected changes in SSO payments in FY 2013 is an 
estimated change in aggregate payments of -0.2 percent. We note that 
estimated payments for all SSO cases comprise approximately 13 
percent of the estimated total LTCH PPS payments, and estimated 
payments for HCO cases comprise approximately 8 percent of the 
estimated total LTCH FY 2013 PPS payments. Payments for HCO cases 
are based on 80 percent of the estimated cost of the case above the 
HCO threshold, while the majority of the payments for SSO cases 
(approximately 59 percent) are based on the estimated cost of the 
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 would result in an 
increase in estimated aggregate LTCH PPS payments and that the 
resulting LTCH PPS payment amounts would result in appropriate 
Medicare payments.

[[Page 28182]]

2. Impact on Rural Hospitals

    For purposes of section 1102(b) of the Act, we define a small 
rural hospital as a hospital that is located outside of an urban 
area and has fewer than 100 beds. As shown in Table IV, we are 
projecting a 3.6 percent increase in estimated payments per 
discharge for FY 2013 as compared to FY 2012 for rural LTCHs that 
would result from the proposed changes presented in this proposed 
rule, as well as the effect of estimated changes to HCO and SSO 
payments. This estimated impact is based on the data for the 27 
rural LTCHs in our database (out of 427 LTCHs) for which complete 
data were available.
    The estimated increase in LTCH PPS payments from FY 2012 to FY 
2013 for rural LTCHs is primarily due to the higher than average 
impacts from the proposed changes to the area wage level adjustment, 
specifically, the proposed decrease in the labor-related share from 
70.199 to 63.217. Although we are proposing to apply an area wage 
level budget neutrality factor for proposed changes to the wage 
indexes and labor-related share to ensure that there is no change in 
aggregate LTCH PPS payments due to those changes, we estimate rural 
hospitals would experience a 1.1 percent increase in payments due to 
the proposed changes to the area wage level adjustment, as shown in 
Column 7 below. Rural hospitals generally have a wage index of less 
than 1; therefore, a proposed decrease to the labor-related share 
results in their proposed wage index reducing a smaller portion of 
the standard Federal rate, resulting in an estimated increase in 
payments in FY 2013 as compared to FY 2012.

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

a. Budgetary Impact

    Section 123(a)(1) of the BBRA requires that the PPS developed 
for LTCHs ``maintain budget neutrality.'' We believe that the 
statute's mandate for budget neutrality applies only to the first 
year of the implementation of the LTCH PPS (that is, FY 2003). 
Therefore, in calculating the FY 2003 standard Federal rate under 
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 above in section I.J.1. of this Appendix, we 
project an increase in aggregate LTCH PPS payments in FY 2013 
relative to FY 2012 of approximately $100 million based on the 427 
LTCHs in our database.

b. Expiration of Statutory Delay on Full Implementation of the ``25 
Percent Threshold'' Payment Adjustment and Proposed 1-Year Extension

    As discussed in section VII.E.2. of the preamble of this 
proposed rule, the statutory delay in the full application of the 
``25 percent threshold'' payment adjustment for LTCHs at Sec.  
412.534 and Sec.  412.536 will expire for cost reporting periods 
beginning on or after July 1, 2012, or October 1, 2012, as 
applicable. We are proposing a 1-year extension of the moratorium on 
the application of the ``25 percent threshold'' payment adjustment 
policy as provided by section 114(c) of the MMSEA, as amended by 
section 4302(a) of the ARRA and sections 3106(a) and 10312(a) of the 
Affordable Care Act, for cost reporting periods beginning on or 
after October 1, 2012, and before October 1, 2013. We estimate that 
this proposal will result in a payment impact of approximately $170 
million to LTCHs.

c. 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 (the standard Federal rate 
multiplied by the MS-LTC-DRG relative weight), we make adjustments 
for differences in area wage levels, the 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 2013, it is necessary to estimate payments per 
discharge for FY 2012 using the rates, factors (including the FY 
2012 GROUPER (Version 29.0), and relative weights and the policies 
established in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51733 
through 51781 and 51838 through 51844). It is also necessary to 
estimate the payments per discharge that would be made under the 
proposed LTCH PPS rates, factors, policies, and GROUPER (proposed 
Version 30.0) for FY 2013 (as discussed in section VII. of the 
preamble and section V. of the Addendum to this proposed rule). 
These estimates of FY 2012 and FY 2013 LTCH PPS payments are based 
on the best available LTCH claims data and other factors, such as 
the application of inflation factors to estimate costs for SSO and 
HCO cases in each year. We also evaluated the proposed change in 
estimated FY 2012 payments to estimated FY 2013 payments (on a per 
discharge basis) for each category of LTCHs. We are proposing a 
standard Federal rate for FY 2013 of $40,507.48 that includes the 
proposed 2.1 percent annual update, the proposed area wage budget 
neutrality factor, and the proposed one-time prospective adjustment 
to the standard Federal rate for FY 2013 of 0.98734 (approximately -
1.3 percent) that would not apply to payments for discharges 
occurring on or before December 29, 2012, consistent with statute. 
Payment for discharges occurring on or after October 1, 2012, and on 
or before December 28, 2012, would not reflect that proposed one-
time prospective adjustment and instead would be paid based on a 
standard Federal rate of $41,026.88.
    Therefore, we modeled payments so that claims with discharge 
dates prior to January would be paid on the basis of a rate that 
does not reflect the proposed one-time prospective adjustment, and 
claims with discharges in January or after would reflect our 
proposed standard Federal rate for FY 2013 that reflects the 
proposed one-time prospective adjustment. Furthermore, because the 
statutory moratorium on application of the very short-stay outlier 
policy will expire effective for discharges occurring on or after 
December 29, 2012, we modeled payments so that claims that would 
qualify for a payment under the very short-stay outlier policy with 
discharge dates in October, November, and December are paid based on 
the ``blended payment'' option, if applicable, and claims that would 
qualify for a payment under the very short-stay outlier policy with 
discharges in January through September are paid based on the ``IPPS 
comparable per diem amount,'' if applicable (as described in section 
VII.E.3. of the preamble of this proposed rule).
    Hospital groups were based on characteristics provided in the 
OSCAR data, FY 2008 through FY 2009 cost report data in HCRIS, and 
PSF data. Hospitals with incomplete characteristics were grouped 
into the ``unknown'' category. Hospital groups included the 
following:
    <bullet> Location: Large urban/other urban/rural.
    <bullet> Participation date.
    <bullet> Ownership control.
    <bullet> Census region.
    <bullet> Bed size.
    To estimate the impacts of the proposed payment rates and policy 
changes among the various categories of existing providers, we used 
LTCH cases from the FY 2011 MedPAR file to estimate payments for FY 
2012 and to estimate payments for FY 2013 for 427 LTCHs. We believe 
that the discharges based on the FY 2011 MedPAR data for the 427 
LTCHs in our database, which includes 322 proprietary LTCHs, provide 
sufficient representation in the MS-LTC-DRGs containing discharges 
for patients who received LTCH care for the most commonly treated 
LTCH patients' diagnoses.

d. Calculation of Prospective Payments

    For purposes of this impact analysis, to estimate per discharge 
payments under the LTCH PPS, we simulated payments on a case-by-case 
basis using LTCH claims from the FY 2011 MedPAR files. For modeling 
estimated LTCH PPS payments for FY 2012, we used the FY 2012 
standard Federal rate (that is, $40,222.05 effective for LTCH 
discharges occurring on or after October 1, 2011, through September 
30, 2012).
    For modeling estimated LTCH PPS payments for FY 2013, we used 
the proposed FY 2013 standard Federal rate of $40,507.48, which 
includes the proposed one-time prospective adjustment of 0.98734 for 
payments for discharges occurring on or after December 29, 2012 and 
through September 30, 2013. As noted above, consistent with section 
114(c)(4) of the MMSEA, as amended by sections 3106(a) and 10312 of 
the Affordable Care Act, the proposed one-time prospective 
adjustment to the standard Federal rate for FY 2013 of 0.98734 
(approximately -1.3 percent) would not apply to payments for 
discharges occurring before December 29, 2012. Therefore, payment 
for discharges occurring on or after October 1, 2012 and on or 
before December 28, 2012 would not reflect that proposed adjustment 
and instead would be paid based on a standard Federal rate of 
$41,026.88; therefore, for the purpose of payment modeling, claims 
with discharges occurring October through December were modeled 
using this proposed payment rate.

[[Page 28183]]

    The proposed FY 2013 standard Federal rate of $40,507.48 
includes the proposed application of an area wage level budget 
neutrality factor of 0.99903 (as discussed in section V.B.5. of the 
Addendum to this proposed rule). As noted above, consistent with 
section 114(c)(4) of the MMSEA, as amended by sections 3106(a) and 
10312 of the Affordable Care Act, this proposed rate would not apply 
to payments for discharges occurring before December 29, 2012. 
Therefore, payment for discharges occurring on or after October 1, 
2012 and on or before December 28, 2012 would be paid based on a 
standard Federal rate of $41,026.88, which also includes the 
proposed area wage level budget neutrality factor of 0.99903.
    Furthermore, in modeling estimated LTCH PPS payments for both FY 
2012 and FY 2013 in this impact analysis, we applied the FY 2012 and 
the proposed FY 2013 adjustments for area wage levels and the 
proposed COLA for Alaska and Hawaii. Specifically, we adjusted for 
differences in area wage levels in determining estimated FY 2012 
payments using the current LTCH PPS labor-related share of 70.199 
percent (76 FR 51766) and the wage index values established in the 
Tables 12A and 12B listed in the Addendum to the FY 2012 IPPS/LTCH 
PPS final rule (and available via the Internet (76 FR 51813)). We 
also applied the FY 2012 COLA factors shown in the table in section 
V.C. of the Addendum to that final rule (76 FR 51810) to the FY 2012 
nonlabor-related share (29.801 percent) for LTCHs located in Alaska 
and Hawaii. Similarly, we adjusted for differences in area wage 
levels in determining the estimated FY 2013 payments using the 
proposed LTCH PPS FY 2013 labor-related share of 63.217 percent and 
the proposed FY 2013 wage index values presented in Tables 12A and 
12B listed in section VI. of the Addendum to this proposed rule (and 
available via the Internet). We also applied the proposed FY 2013 
COLA factors shown in the table in section V.C. of the Addendum of 
this proposed rule to the proposed FY 2013 nonlabor-related share 
(36.783 percent) for LTCHs located in Alaska and Hawaii.
    As discussed above, our impact analysis reflects an estimated 
change in payments for SSO cases, as well as an estimated increase 
in payments for HCO cases (as described in section V.D. of the 
Addendum to this proposed rule). In modeling proposed payments for 
SSO and HCO cases in FY 2013, we applied an inflation factor of 
1.055 (determined by OACT) to estimate the costs of each case using 
the charges reported on the claims in the FY 2011 MedPAR files and 
the best available CCRs from the December 2011 update of the PSF. 
Furthermore, in modeling estimated LTCH PPS payments for FY 2013 in 
this impact analysis, we used the proposed FY 2013 fixed-loss amount 
of $15,728 (as discussed in section V.D. of the Addendum to this 
proposed rule). Finally, in modeling payments for SSO cases, we 
included the expiration of the statutory moratorium on application 
of the very short-stay outlier, effective for discharges occurring 
on or after December 29, 2012, under which the ``blended payment'' 
option of the SSO payment formula will be replaced with the ``IPPS 
comparable per diem amount'' for very short-stay outlier cases as 
discussed in section VII.E.3. of the preamble of this proposed rule.
    These impacts reflect the estimated ``losses'' or ``gains'' 
among the various classifications of LTCHs from the FY 2012 to FY 
2013 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.
    <bullet> The first column, LTCH Classification, identifies the 
type of LTCH.
    <bullet> The second column lists the number of LTCHs of each 
classification type.
    <bullet> The third column identifies the number of LTCH cases.
    <bullet> The fourth column shows the estimated payment per 
discharge for FY 2012 (as described above).
    <bullet> The fifth column shows the estimated payment per 
discharge for FY 2013 (as described above).
    <bullet> The sixth column shows the percentage change in 
estimated payments per discharge from FY 2012 to FY 2013 due to the 
proposed update to the standard Federal rate (as discussed in 
section V.A.2. of the Addendum to this proposed rule) and proposed 
one-time prospective adjustment (which is not applicable to payments 
for discharges occurring before December 29, 2012, consistent with 
the statute).
    <bullet> The seventh column shows the percentage change in 
estimated payments per discharge from FY 2012 to FY 2013 for 
proposed changes to the area wage level adjustment (that is, the 
proposed wage indexes and proposed labor-related share), including 
the proposed application of an area wage level budget neutrality 
factor (as discussed in section V.B.5. of the Addendum to this 
proposed rule).
    <bullet> The eighth column shows the percentage change in 
estimated payments per discharge from FY 2012 to FY 2013 due to the 
expiration of the SSO policy that allowed for qualifying SSO cases 
to be paid under a blended payment amount based on the LTCH per diem 
rate and IPPS comparable per diem rate.
    <bullet> The ninth column shows the percentage change in 
estimated payments per discharge from FY 2012 (Column 4) to FY 2013 
(Column 5) for all proposed changes (and includes the effect of 
estimated proposed changes to HCO and SSO payments).

[[Page 28184]]



                                                  Table IV--Impact of Proposed Payment Rate and Policy Changes to LTCH PPS Payments for FY 2013
                                                          (Estimated FY 2012 payments compared to estimated proposed FY 2013 payments*)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                  Percent change
                                                                                                                                                   in estimated   Percent change
                                                                                                                                  Percent change   payments per    in estimated
                                                                                                                                   in estimated   discharge from   payments per
                                                                                                                                   payments per    FY 2012 to FY  discharges due  Percent change
                                                                                                    Average FY      Average FY    discharge from     2013 for      to expiration    in payments
                                                                     Number of    Number of LTCH   2012 LTCH PPS   2013 LTCH PPS    FY 2012 to       proposed      of statutory    per discharge
                       LTCH Classification                             LTCHs         PPS cases      payment per      proposed       proposed FY   changes to the   moratorium on   from FY 2012
                                                                                                       case         payment per    2013 for the      area wage    application of  to FY 2013 for
                                                                                                                     case \1\        proposed          level        the `very'     all proposed
                                                                                                                                   annual update    adjustment    short-stay SSO    changes \5\
                                                                                                                                  to the federal  with  proposed      payment
                                                                                                                                     rate \2\         budget        methodology
                                                                                                                                                  neutrality \3\        \4\
(1)                                                                          (2)             (3)             (4)             (5)             (6)             (7)             (8)             (9)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
ALL PROVIDERS...................................................             427         134,114          38,633          39,381             0.9             0.0            -0.4             1.9
BY LOCATION:
    RURAL.......................................................              27           6,259          34,325          35,571             1.0             1.1            -0.3             3.6
    URBAN.......................................................             400         127,855          38,844          39,568             0.9             0.0            -0.4             1.9
    LARGE.......................................................             202          73,668          40,827          41,519             0.9            -0.2            -0.4             1.7
    OTHER.......................................................             198          54,187          36,147          36,916             1.0             0.2            -0.5             2.1
BY PARTICIPATION DATE:
    BEFORE OCT. 1983............................................              17           5,848          34,189          35,120             0.9            -0.2            -0.2             2.7
    OCT. 1983-SEPT. 1993........................................              44          15,786          41,530          42,286             0.9            -0.1            -0.5             1.8
    OCT. 1993-SEPT. 2002........................................             185          62,594          37,886          38,616             1.0             0.0            -0.4             1.9
    AFTER OCTOBER 2002..........................................             173          48,737          39,142          39,895             1.0             0.0            -0.5             1.9
    UNKNOWN PARTICIPATION DATE..................................               8           1,149          40,546          41,096             0.9            -0.3            -0.7             1.4
BY OWNERSHIP TYPE:
    VOLUNTARY...................................................              82          19,532          38,899          39,900             0.9             0.2            -0.5             2.6
    PROPRIETARY.................................................             322         111,475          38,451          39,148             1.0             0.0            -0.4             1.8
    GOVERNMENT..................................................              14           1,718          44,353          45,172             0.9            -0.4            -0.6             1.8
    UNKNOWN OWNERSHIP TYPE......................................               9           1,389          42,411          43,693             0.9             0.9            -0.6             3.0
BY REGION:
    NEW ENGLAND.................................................              15           7,333          33,793          34,643             0.9            -0.2            -0.2             2.5
    MIDDLE ATLANTIC.............................................              31           7,970          41,678          42,233             1.0            -0.1            -0.4             1.3
    SOUTH ATLANTIC..............................................              60          16,367          41,373          41,951             0.9            -0.1            -0.5             1.4
    EAST NORTH CENTRAL..........................................              69          20,669          40,014          40,782             1.0             0.2            -0.5             1.9
    EAST SOUTH CENTRAL..........................................              30           8,411          38,938          39,929             0.9             0.7            -0.4             2.5
    WEST NORTH CENTRAL..........................................              26           5,374          40,845          41,733             0.9             0.6            -0.5             2.2
    WEST SOUTH CENTRAL..........................................             139          50,543          34,502          35,415             1.0             0.3            -0.4             2.6
    MOUNTAIN....................................................              32           5,956          41,996          42,450             0.9            -0.7            -0.4             1.1
    PACIFIC.....................................................              25          11,491          48,388          48,603             0.8            -1.3            -0.4             0.4
BY BED SIZE:
    BEDS: 0-24..................................................              31           3,478          34,245          35,055             1.0             0.6            -0.4             2.4
    BEDS: 25-49.................................................             198          44,578          38,194          38,992             1.0             0.3            -0.5             2.1
    BEDS: 50-74.................................................             115          36,438          38,667          39,421             1.0             0.0            -0.4             2.0
    BEDS: 75-124................................................              46          20,178          41,700          42,290             0.9            -0.3            -0.4             1.4
    BEDS: 125-199...............................................              23          16,055          37,051          37,804             0.9            -0.1            -0.4             2.0
    BEDS: 200+..................................................              14          13,387          38,416          39,201             0.9            -0.4            -0.4             2.0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimated FY 2013 LTCH PPS payments based on the proposed payment rate and policy changes presented in the preamble and the Addendum to this proposed rule.

[[Page 28185]]

 
\2\ Percent change in estimated payments per discharge from FY 2012 to FY 2013 for the proposed annual update to the standard Federal rate and the proposed one-time prospective adjustment to
  the standard Federal rate (which would not apply to payments for discharges occurring before December 29, 2012, consistent with the statute), as discussed in section V.A.2. of the Addendum
  to this proposed rule.
\3\ Percent change in estimated payments per discharge from FY 2012 to FY 2013 for proposed changes to the area wage level adjustment at Sec.   412.525(c) (as discussed in section V.B. of the
  Addendum to this proposed rule).
\4\ Percent change in estimated payments per discharges due to the expiration of the statutory moratorium on application of the very short-stay outlier, effective for discharges occurring on
  or after December 29, 2012, under which the ``blended payment'' option of the SSO payment formula will be replaced with the ``IPPS comparable per diem amount'' for very short-stay outlier
  cases as discussed in section VII.E.3. of the preamble of this proposed rule.
\5\ Percent change in estimated payments per discharge from FY 2012 LTCH PPS (shown in Column 4) to FY 2013 LTCH PPS (shown in Column 5), including all of the proposed changes presented in the
  preamble and the Addendum to this proposed rule. Note, this column, which shows the percent change in estimated payments per discharge for all proposed changes, does not equal the sum of the
  percent changes in estimated payments per discharge for the proposed annual update to the standard Federal rate (column 6) and the proposed changes to the area wage level adjustment with
  budget neutrality (Column 7) due to the effect of estimated changes in both estimated payments to SSO cases that are paid based on estimated costs and aggregate HCO payments (as discussed in
  this impact analysis), as well as other interactive effects that cannot be isolated.


[[Page 28186]]

e. Results

    Based on the most recent available data for 427 LTCHs, we have 
prepared the following summary of the impact (as shown above in 
Table IV) of the proposed LTCH PPS payment rate and policy changes 
presented in this proposed rule. The impact analysis in Table IV 
shows that estimated payments per discharge are expected to increase 
approximately 1.9 percent, on average, for all LTCHs from FY 2012 to 
FY 2013 as a result of the proposed payment rate and policy changes 
presented in this proposed rule, including the expiration of the 
statutory moratorium on application of the very short-stay outlier 
policy which utilizes the ``IPPS comparable per diem amount'' 
payment option, effective for discharges occurring on or after 
December 29, 2012 (discussed in section VII.E.3. of the preamble of 
this proposed rule) and an estimated increase in HCO payments. This 
estimated 1.9 percent increase in LTCH PPS payments per discharge 
from the FY 2012 to FY 2013 for all LTCHs (as shown in Table IV) was 
determined by comparing estimated FY 2013 LTCH PPS payments (using 
the proposed rate and policies discussed in this proposed rule) to 
estimated FY 2012 LTCH PPS payments (as described above in section 
I.J.1. of this Appendix).
    We are proposing to establish a standard Federal rate of 
$40,507.48 for FY 2013. Specifically, we are proposing to update the 
standard Federal rate for FY 2013 by 2.1 percent, which is based on 
the latest estimate of the proposed LTCH PPS market basket increase 
(3.0 percent), the proposed reduction of 0.8 percentage point for 
the multifactor productivity adjustment, and the 0.1 percentage 
point reduction consistent with sections 1886(m)(3) and (m)(4) of 
the Act. In addition, we are proposing to apply a one-time 
prospective adjustment of 0.98734 (approximately -1.3 percent) to 
the standard Federal rate. However, this proposed reduction would 
not apply to payments for discharges occurring before December 29, 
2012, consistent with section 114(c)(4) of the MMSEA, as amended by 
sections 3106(a) and 10312 of the Affordable Care Act. Therefore, 
payments for discharges occurring on or after October 1, 2012, and 
on or before December 28, 2012, would not reflect that proposed 
adjustment and instead would be paid based on a standard Federal 
rate of $41,026.88. We noted earlier in this section that, for most 
categories of LTCHs, as shown in Table IV (Column 6), the impact of 
the increase of 2.1 percent for the proposed annual update to the 
standard Federal rate and the proposed 0.8 percent update to the 
standard Federal rate that includes the proposed one-time 
prospective adjustment of approximately -1.3 percent which would not 
apply to payments for discharges occurring before December 29, 2012, 
consistent with the statute, is projected to result in approximately 
a 0.9 percent increase in estimated payments per discharge for all 
LTCHs from FY 2012 to FY 2013. That is, for approximately the first 
3 months of FY 2013, payments would not reflect the proposed one-
time prospective adjustment such that payments would be based on the 
proposed annual update to the standard Federal rate of 2.1 percent, 
and for the remaining 9 months of FY 2013, payments would be based 
on a standard Federal rate that reflects the proposed FY 2013 annual 
update of 2.1 percent and the proposed one-time prospective 
adjustment of approximately -1.3 percent. In addition, our estimate 
of the proposed changes in payments due to the proposed updates to 
the standard Federal rate also reflects estimated payments for SSO 
cases that are paid using special methodologies that are not 
affected by the update to the standard Federal rate. For these 
reasons, we estimate that payments would increase by 0.9 percent due 
to the proposed update to the Federal rate.

(1) 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 5 percent of all LTCH cases are treated in these rural 
hospitals. The impact analysis presented in Table IV shows that the 
average percent increase in estimated payments per discharge from FY 
2012 to FY 2013 for all hospitals is 1.9 percent for all proposed 
changes. For rural LTCHs, the percent change for all proposed 
changes is estimated to be 3.6 percent, while for urban LTCHs, we 
estimate the increase would be 1.9 percent. Large urban LTCHs are 
projected to experience an increase of 1.7 percent in estimated 
payments per discharge from FY 2012 to FY 2013, while other urban 
LTCHs are projected to experience an increase of 2.1 percent in 
estimated payments per discharge from FY 2012 to FY 2013, as shown 
in Table IV.

(2) Participation Date

    LTCHs are grouped by participation date into four categories: 
(1) Before October 1983; (2) between October 1983 and September 
1993; (3) between October 1993 and September 2002; and (4) after 
October 2002. Based on the most recent available data, the majority 
(approximately 47 percent) of the LTCH cases are in hospitals that 
began participating in the Medicare program between October 1993 and 
September 2002, and are projected to experience nearly the average 
increase (1.9 percent) in estimated payments per discharge from FY 
2012 to FY 2013, as shown in Table IV.
    In the participation category where LTCHs began participating in 
the Medicare program before October 1983, LTCHs are projected to 
experience a higher than average percent increase (2.7 percent) in 
estimated payments per discharge from FY 2012 to FY 2013, 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 lower than average increase in estimated 
payments because of decreases in payments due to the proposed 
changes to the area wage adjustment. Approximately 10 percent of 
LTCHs began participating in Medicare between October 1983 and 
September 1993. These LTCHs are projected to experience a 1.8 
percent increase in estimated payments from FY 2012 to FY 2013. 
LTCHs that began participating in Medicare after October 2002 
currently represent approximately 41 percent of all LTCHs, and are 
projected to experience an average increase (1.9 percent) in 
estimated payments from FY 2012 to FY 2013.

(3) 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 19 percent of LTCHs are identified as 
voluntary (Table IV). We expect that, for these LTCHs in the 
voluntary category, estimated FY 2013 LTCH payments per discharge 
would experience a higher than the average increase (2.6 percent) in 
comparison to estimated payments in FY 2012 primarily because we 
project the estimated increase in HCO payments to be higher than the 
average increase for these LTCHs. The majority (75 percent) of LTCHs 
are identified as proprietary and these LTCHs are projected to 
experience a nearly average increase (1.8 percent) in estimated 
payments per discharge from FY 2012 to FY 2013. Finally, government-
owned and operated LTCHs are also expected to experience a nearly 
average increase in payments of 1.8 percent in estimated payments 
per discharge from FY 2012 to FY 2013.

(4) Census Region

    Estimated payments per discharge for FY 2013 are projected to 
increase for LTCHs located in all regions in comparison to FY 2012. 
Of the 9 census regions, we project that the increase in estimated 
payments per discharge would have the largest positive impact on 
LTCHs in the West South Central, East South Central and New England 
regions (2.6 percent, 2.5 percent and 2.5 percent respectively as 
shown in Table IV). The estimated percent increase in payments per 
discharge from FY 2012 to FY 2013 for those regions is largely 
attributable to the proposed changes in the area wage level 
adjustment or proposed updates to the MS-LTC-DRGs classifications 
and relative weights.
    In contrast, LTCHs located in the Pacific region are projected 
to experience the smallest increase in estimated payments per 
discharge from FY 2012 to FY 2013. The average estimated increase in 
payments of 0.4 percent for LTCHs in the Pacific region is primarily 
due to estimated decreases in payments associated with the proposed 
changes to the area wage level adjustment.

(5) Bed Size

    LTCHs are grouped into six categories based on bed size: 0-24 
beds; 25-49 beds; 50-74 beds; 75-124 beds; 125-199 beds; and greater 
than 200 beds.
    We project that small LTCHs (0-24 beds) would experience a 2.4 
percent increase in payments due to increases in the area wage 
adjustment while large LTCHs (200+ beds) would experience a 2.0 
percent increase in payments. LTCHs with between 75 and 124 beds are 
expected to experience a slightly below average increase in payments 
per discharge from FY 2012 to FY 2013 (1.4 percent) primarily due to 
an estimated decreases in their payments from FY 2012 to FY 2013 due 
to the proposed area wage level adjustment.

[[Page 28187]]

4. Effect on the Medicare Program

    As noted previously, we project that the provisions of this 
proposed rule would result in an increase in estimated aggregate 
LTCH PPS payments in FY 2013 relative to FY 2012 of approximately 
$100 million (or approximately 1.9 percent) for the 427 LTCHs in our 
database. In addition, the effects of the proposed extension of the 
moratorium on the application of the ``25 percent threshold'' 
payment adjustment policy, as provided by section 114(c) of the 
MMSEA, as amended by section 4302(a) of the ARRA and sections 
3106(a) and 10312(a) of the Affordable Care Act, for cost reporting 
periods beginning or after October 1, 2012, and before October 1, 
2012, will result in a payment impact of approximately $170 million 
to LTCHs.

5. Effect on Medicare Beneficiaries

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

K. Effects of Proposed Requirements for Hospital Inpatient Quality 
Reporting (IQR) Program

    In section VIII.A. of this proposed rule, we discuss our 
requirements for hospitals to report quality data under the Hospital 
IQR Program in order to receive the full annual percentage increase 
for FY 2015. We now estimate that approximately 95 hospitals may not 
receive the full annual percentage increase in any fiscal year. At 
the time that analysis was prepared, 70 hospitals did not receive 
the full annual percentage increase in FY 2012.
    We are proposing that, for the FY 2015 payment determination, we 
would remove one chart-abstracted measure and 16 claims-based 
measures, beginning with January 1, 2012 discharges. We believe that 
these proposed changes would not have a significant effect on our 
estimate. We believe that most of these estimated 95 hospitals will 
be either small rural or small urban hospitals. However, at this 
time, information is not available to determine the precise number 
of hospitals that will not meet the requirements to receive the full 
annual percentage increase for FY 2015.
    In section VIII.A.6. of this preamble, we are proposing, for the 
FY 2015 payment determination, supplements to the chart validation 
process for the Hospital IQR Program. As a part of these 
supplements, we are proposing, for FY 2015 payment determinations 
and subsequent years, to separate validation for chart-abstracted 
and HAI measures and to also validate two additional HAI measures, 
CAUTI and SSI.
    Starting with the FY 2015 payment determination, we are 
proposing a modest increase to the current Hospital IQR Program 
validation sample of 18 cases per quarter (currently three each for 
SCIP, AMI, HF, PN, ED/IMM, and candidate CLABSI) to 27 cases per 
quarter (3 each for SCIP, AMI, HF, PN, ED/IMM, and up to 4 each for 
CLABSI, CAUTI, and SSI). However, in order not to increase the 
Hospital IQR validation program's overall burden to hospitals, while 
expanding some of the requirements, and targeting hospitals with 
higher levels of concern for data quality, we are proposing to 
reduce the total sample size of hospitals included in the annual 
validation random sample from 800 eligible hospitals to 600 eligible 
hospitals. This includes 400 hospitals in the base sample and up to 
200 hospitals in the target sample.
    The requirement of an additional 9 charts per hospital submitted 
for validation, combined with the decreased sample size, will result 
in approximately 1,800 additional charts per quarter being submitted 
to CMS by all selected hospitals. We provide payment to 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 275 pages. Thus, we estimate that 
we would expend approximately $66,600 per quarter to collect the 
additional charts we need to validate all measures.
    The total requirement of 27 charts per hospital would result in 
approximately 16,200 charts per quarter being submitted to CMS. 
Using the assumptions discussed above, for the FY 2015 Hospital IQR 
Program, we estimate that we would have expenditures of 
approximately $599,400 per quarter related to the validation 
requirement. Given that we pay for the data collection effort, we 
believe that a requirement for 27 charts per hospital per quarter 
represents a minimal burden to participating hospitals selected for 
validation.

L. Effects of Proposed PPS-Exempt Cancer Hospital Quality Reporting 
(PCHQR) Program

    In section VIII.B. of the preamble of this proposed rule, we 
discuss our proposal to implement the quality data reporting program 
for PPS-exempt hospitals (PCHs), which we refer to as the PCHQR 
program, as required under section 1866(k) of the Act, as added by 
section 3005 of the Affordable Care Act. These quality reporting 
requirements would affect all PCHs participating in Medicare. PCHs 
would be required to register with the CDC, the CMS contractor, and 
QualityNet Web sites and take the proper training in order to be 
adequately prepared to use the respective systems to submit the 
data. The anticipated burden to these PCHs consists of the 
following: (1) The initial registration of the facility with CDC, 
the CMS contractor, and CMS; (2) training of the appropriate staff 
members on how to use the CDC agency-based data collection mechanism 
(CDC/NHSN), the CMS contractor-based collection mechanism for the 
cancer-specific quality measure data, and CMS (QualityNet) program; 
(3) the time required for collection and aggregation of data; (4) 
the time required for entry of the data into the CDC's NHSN data 
warehouse, CMS contractor's quality measure data warehouse, and 
QualityNet databases by the PCH's representative.
    All PCHs that currently do not already report data to the NHSN 
would be required to register with the CDC, the CMS contractor, and 
the CMS/QualityNet and take the proper training in order to be 
adequately prepared to use the CDC's NHSN data warehouse, the CMS 
contractor's collection mechanism for data submission, and the CMS 
QualityNet Web site.
    Those PCHs that already report the proposed HAI measures to the 
NHSN would not be significantly affected because we intend to align 
our reporting infrastructure with that used by the NHSN. However, 
for PCHs that do not currently report the two proposed HAI measures 
to the NHSN, at this time, we have no way to estimate how many PCHs 
will participate in the PCHQR program. Therefore, we are unable to 
estimate the burden for these PCHs.
    Aside from the statutory requirements, it is important to note 
that one of our priorities is to help achieve better health and 
better health care for individuals through collection of valid, 
reliable, and relevant measures of quality health care data. Such 
data can be shared with appropriate health care related 
organizations and used to the further the development of health care 
quality, which, in turn, helps to further our objectives and goals. 
Health care organizations can use their health care quality data for 
many purposes such as in their risk management programs, health care 
acquired infection prevention programs and research and development 
of medical programs, among others.
    Even more importantly, we intend to share the information 
obtained from the PCHQR Program with the public as is required under 
the statute. These data will be displayed on the Hospital Compare 
Web site. The goals of making these data available to the public in 
a public user-friendly and relevant format, include, but are not 
limited to: (1) Keeping the public informed of the quality of care 
that is being provided in PCHs as a whole; (2) keeping the public 
informed of the quality of care being provided in specific PCHs; (3) 
allowing the public to compare and contrast the data about specific 
PCHs, thus enabling the public to make informed health care 
decisions regarding PCHs; and (4) providing information about 
current trends in health care. There are many other public uses for 
these quality data concerning PCHs. Further, keeping the public 
informed of quality of care provided in health care has always been 
of high priority to CMS.
    We also seek to align the new PCHQR Program reporting 
requirements with current HHS high priority conditions and topics 
and to ultimately provide a comprehensive assessment of the quality 
of health care delivered in a variety of settings.

M. Effects of Proposed Hospital Value-Based Purchasing (VBP) 
Program Requirements

    Section 1886(o)(1)(B) of the Act directs the Secretary to begin 
making value-based incentive payments under the Hospital VBP Program 
to hospitals for discharges occurring on or after October 1, 2012. 
These incentive payments will be funded for FY 2013 through a 
reduction to the FY 2013 base operating MS-DRG payment for each 
discharge of 1 percent, as required by section 1886(o)(7)(B) of the 
Act. The applicable percentage for FY 2014 is 1.25 percent, for FY 
2015 is 1.5

[[Page 28188]]

percent, for FY 2016 is 1.75 percent, and for FY 2017 and subsequent 
years is 2 percent.
    We previously published a detailed analysis of the FY 2013 
Hospital VBP Program's impact, based on scoring for two quality 
domains, in the Hospital Inpatient VBP Program final rule (76 FR 
26542 through 26545). Because we are not proposing in this proposed 
rule to make any changes to the FY 2013 Hospital VBP Program, we do 
not believe we must provide an additional regulatory impact analysis 
for the FY 2013 Hospital VBP Program. We are proposing the 
operational details of the payment adjustment in the preamble of 
this proposed rule. We believe that these proposals do not have a 
regulatory impact or financial impact beyond policies already 
finalized. They are proposals regarding how CMS intends to ensure 
that the value-based incentive payments made to all hospitals in a 
fiscal year are equal, in total, to the reduced base operating DRG 
payment amounts.
    In section VIII.C. of the preamble of this proposed rule, we 
discuss our proposal to add requirements for the Hospital VBP 
Program. In addition to certain operational and payment details for 
the FY 2013 Hospital VBP Program, we are making a number of 
additional proposals related to the FY 2015 and the FY 2016 Hospital 
VBP Program, including proposed measures, performance periods, 
performance standards, domain weighting, and other topics.
    Specifically, with respect to the FY 2015 Hospital VBP Program, 
we are proposing to add one additional clinical process of care 
measure, AMI-10: Statin Prescribed at Discharge, and two additional 
outcome measures, an AHRQ Patient Safety Patient Safety Indicators 
composite measure and CLABSI: Central Line-Associated Blood Stream 
Infection. We also are proposing to add a measure of Medicare 
Spending per Beneficiary in the Efficiency domain.
    With respect to the FY 2016 Hospital VBP Program, we are 
proposing to adopt four measures: three 30-day mortality measures 
adopted for FY 2014 and proposed for FY 2015--MORT-30-AMI, MORT-30-
HF, and MORT-30-PN--and the AHRQ PSI composite measure. All of these 
measures are required for the Hospital IQR Program; therefore, their 
inclusion in the Hospital VBP Program does not result in any 
additional burden because the Hospital VBP Program uses data that 
are required for the Hospital IQR Program.
    For future program years, we intend to consider the impacts of 
Hospital VBP Program policies in the applicable IPPS/LTCH PPS 
rulemaking vehicle. Because we are not proposing to alter the 
underlying scoring methodology finalized for the FY 2013 Hospital 
VBP Program in this proposed rule, we do not believe it appropriate 
to revise the regulatory impact analysis published in the Hospital 
Inpatient VBP final rule referenced above. We intend to provide an 
updated analysis of the Hospital VBP Program's impacts for the FY 
2014 program year in the FY 2014 IPPS/LTCH PPS rulemaking.

N. Effects of Proposed New Measures To Be Added to the LTCH Quality 
Reporting (LTCHQR) Program

    In section VIII.D. of the preamble of this proposed rule, we 
discuss the implementation of section 3004(a) of the Affordable Care 
Act, which added section 1886(m)(5) to the Act. Section 1886(m)(5) 
of the Act, further provides that in the case of an LTCH that does 
not submit data to the Secretary in accordance with section 
1886(m)(5)(C) of the Act with respect to such a rate year, any 
annual update to the standard Federal rate for discharges for the 
hospital during the rate year, and after application of section 
1886(m)(3) of the Act, shall be reduced by 2 percentage points. The 
initial requirements for this LTCH Quality Reporting (LTCHQR) 
Program were finalized in the section VII.C. of the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51743 through 51756).
    In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51839 through 
51840), we estimated that only a few LTCHs would not receive the 
full payment update in any fiscal year as a result of not submitting 
data under the LTCH quality reporting program. At this time, the 
LTCHQR Program has not been fully implemented, as data collection 
will not begin until October 1, 2012. However, we believe that 
statements we made in the FY 2012 IPPS/LTCH PPS final rule regarding 
the number and types of LTCHs that may not receive the full payment 
update as a result of failing to submit data to the Secretary under 
the LTCHQR Program remain valid. We believe that a majority of LTCHs 
will submit data because they will view the new quality reporting 
program as an important step in improving the quality of care 
patients receive in these facilities. We believe that most LTCHs 
will quickly and easily adapt to this new quality reporting program 
and find that the benefits of this program outweigh the burdens.
    In section VIII.D.3.d. of the preamble of this proposed rule, 
for FY 2015, we have proposed to retain the three quality measures 
that were finalized for use in the LTCHQR Program in the FY 2012 
IPPS/LTCH PPS final rule. These measures are: (1) Catheter-
Associated Urinary Tract Infections (CAUTI); (2) Central Line 
Catheter-Associated Blood Stream Infection Event (CLABSI); and (3) 
Pressure Ulcers that are New or Have Worsened. In the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51780 through 51781), we estimated that 
the total yearly cost to all LTCH that are paid under the LTCH PPS 
to report these data (including: NHSN registration and training for 
the CAUTI and CLABSI quality measures; data submission for all three 
measures, and monitoring data submission) would be approximately 
$756,326. In section XI.B.9. of the preamble of this proposed rule, 
we use this same estimate.
    It is important to note that, as part of its endorsement 
maintenance process under NQF's Patient Safety Measures Project 
(http://www.qualityforum.org/projects/patient safety_
measures.aspx), the NQF reviewed the CAUTI and CLABSI measures that 
we adopted in the FY 2012 IPPS/LTCH final rule. As a result of this 
review, the NQF expanded the scope of endorsement of these measures 
to include additional care settings, including LTCHs. We are 
proposing, in this proposed rule, that the CAUTI and CLABSI measures 
be adopted in their expanded form for the FY 2014 payment 
determination. and all subsequent fiscal year payment 
determinations. We do not anticipate that the expansion of the CAUTI 
and CLABSI measures will cause any increase in the burden to 
providers because there will be no change in the way that these data 
are collected or reported.
    In the FY 2012 IPPS/LTCH PPS final rule and in the preamble of 
this proposed rule, we estimate that the total cost to all LTCHs to 
report these data, including NHSN registration and training for the 
CAUTI and CLABSI quality measures; data submission for all three 
measures, and monitoring data submission would be $756,326. We 
believe that this remains a valid estimation of the total financial 
burden that all LTCHs will incur as a result of the LTCHQR Program, 
even considering that the CAUTI and CLABSI measures were reviewed 
and expanded by the NQF.
    We do not believe that that the burden estimate that we made in 
the FY 2012 IPPS/LTCH PPS final rule is affected by the expansion of 
the CAUTI and CLABSI measures because these expanded measures are 
essentially the same measures that were adopted in the FY 2012 IPPS/
LTCH PPS final rule, except that the measure names have been changed 
and the measures have been expanded so as to be applicable to the 
LTCH setting. The expanded CAUTI and CLABSI measures make no changes 
to the way that this data is to be collected and reported by LTCHs. 
Thus, use of the expanded CAUTI and CLABSI measures will place no 
additional financial burden on LTCHs. In addition, we believe that 
this financial burden should remain relatively stable over the first 
several years of this quality reporting program, subject to normal 
inflationary increases, such as increased labor wage rates.
    In section VIII.D.3.d. of the preamble of this proposed rule, 
for the FY 2016 LTCHQR Program, we are proposing to add five 
additional quality measures. These proposed quality measures are: 
(1) Percent of Nursing Home Residents Who Were Assessed and 
Appropriately Given the Seasonal Influenza Vaccine (Short-Stay) (NQF 
<greek-i>0680); (2) Percent of Residents Assessed and Appropriately 
Given the Pneumococcal Vaccine (Short-Stay) (NQF <greek-i>0682); (3) 
Influenza Vaccination Coverage Among Healthcare Personnel (NQF 
<greek-i>0431); (4) Ventilator Bundle (NQF <greek-i>0302); and (5) 
Restraint Rate per 1,000 Patient Days (not NQF-endorsed).
    As we noted previously, the LTCHQR Program has not been fully 
implemented, as data collection will not begin until October 1, 
2012. At this time, we provide estimates of the costs associated 
with the collection and submission of data in section XI.B.9 of the 
preamble of this proposed rule.
    We invite public comment on the impact that the proposed 
measures would have on LTCHs.

[[Page 28189]]

O. Effects of Proposed Quality Reporting Requirements for 
Ambulatory Surgical Centers (ASCs)

    In section XIV.K. of the CY 2012 OPPS/ASC final rule with 
comment period (76 FR 74492 through 74517), we finalized quality 
reporting measures for the CYs 2014, 2015, and 2016 payment 
determinations under the ASC Quality Reporting Program. In section 
VIII.E. of the preamble of this proposed rule, we discuss our 
proposals to adopt requirements for ASCs to report quality data 
under the ASC Quality Reporting Program in order to be eligible to 
receive the full ASC annual payment update. We are unable at this 
time to estimate the number of ASCs that may not receive the full 
ASC annual payment update in CYs 2014, 2015, and 2016 because we do 
not have data that would allow us to make a reasonable estimate. 
ASCs have not yet submitted quality data to CMS; therefore, there 
are no data from previous program operations on which to base an 
estimate. Further, data from other quality programs would not allow 
us to make a reasonable estimate. Although we might be able to make 
a reasonable estimate based on data from other programs with respect 
to the structural and process of care measures, we are unable to 
estimate the number of ASCs that would not be eligible to receive 
the full ASC annual payment update with respect to the submission of 
QDCs for the claims-based measures. There are two other quality data 
reporting programs that utilize QDCs reported on claims similar to 
what we finalized in the ASC Quality Reporting Program: the 
Physician Quality Reporting System (PQRS) and the E-Prescribing 
Incentive Program. However, these programs do not have comparable 
reporting incentives. PQRS currently has no penalty for not meeting 
reporting requirements, and the E-Prescribing Incentive Program 
until CY 2012 was solely incentive-based, rather than penalty-based.

P. Effects of Proposed Requirements for the Inpatient Psychiatric 
Facilities Quality Reporting (IPFQR) Program

    In section VIII.F. of the preamble of this proposed rule, we 
discuss our proposals to implement the IPFQR Program.

1. General Background and Intent for Implementation of the Proposed 
IPFQR Program

    We intend to achieve several goals as we develop and implement 
the proposed IPFQR Program. One goal of the proposed IPFQR Program 
is to implement the statutory requirements of section 1886(s)(4) of 
the Act as added by sections 3401(f)(4) and 10322(a) of the 
Affordable Care Act. However, in addition, it is important to note 
that one of our priorities is to help achieve better health and 
better health care for individuals through collection of valid, 
reliable, and relevant measures of quality health care data. Such 
data can be shared with appropriate health care related 
organizations and used to further the development of health care 
quality, which, in turn, helps to further CMS' objectives and goals. 
Health care organizations can use such health care quality data for 
many purposes such as in their risk management programs, health care 
acquired infection prevention programs and research and development 
of medical programs, among others.
    More importantly, as required by the Act, we intend to share the 
information obtained from the IPFQR Program with the public. These 
data will be displayed on the CMS Web site. The goals of making 
these data available to the public in a properly risk-adjusted, 
public user-friendly and relevant format, include, but are not 
limited to: (1) Keeping the public informed of the quality of care 
that is being provided in IPFs as a whole; (2) keeping the public 
informed of the quality of care being provided in specific IPFs; (3) 
allowing the public to compare and contrast the data about specific 
IPFs, thus enabling the public to make informed health care 
decisions regarding IPFs; and (4) providing information about 
current trends in health care. There are certainly many other public 
uses for these quality data concerning IPFs. However, giving the 
public access to information about the quality of care in specific 
facilities and keeping the public informed of trends in health care 
has always been of high priority to CMS.
    CMS also seeks to align the new IPFQR Program reporting 
requirements with current HHS high priority conditions and topics 
and to ultimately provide a comprehensive assessment of the quality 
of health care delivered in a variety of settings.

2. Anticipated Effects

    This proposed rule would affect all IPFs participating in 
Medicare. The facilities will have to register with QualityNet and 
take the proper training in order to be adequately prepared to use 
the QualityNet system to submit the data. The anticipated burden to 
these providers consists of the following: (1) The initial 
registration of the facility with QualityNet; (2) training of the 
appropriate staff members on how to use the QualityNet reporting 
program; (3) the time required for collection and aggregation of 
data; and (4) the time required for entry of the data into the 
QualityNet database by the IPF's representative.
    We have estimated the burdens associated with IPFs reporting 
aggregated-level data on QualityNet. In our burden calculation, we 
have included the time used for chart abstraction and for training 
personnel on collection of chart-abstracted data, aggregation of the 
data, as well as training for submitting the aggregate-level data 
through QualityNet. We estimate that the annual hourly burden to 
each IPF for the collection, submission, and training of personnel 
for submitting all quality measures is approximately 821 hours in a 
year for each IPF. Thus, the average hourly burden to each IPF is 
approximately 68 hours per month. At this time we have no way to 
estimate how many IPFs will participate in the program. Therefore, 
we cannot estimate the financial impact.
    We are proposing to adopt the quality measures, abstraction 
methods, population, sampling, and reporting approaches used by TJC. 
One reason we selected this proposed approach was to minimize the 
burden on IPFs. There were 1,741 existing IPFs, of which 450 
(approximately 26 percent) are currently reporting the proposed 
measures to TJC. For these IPFs, we estimate that the burden will be 
minimal.

Q. Effects of Proposed Requirements for Provider and Practitioner 
Medical Record Deadlines and Claims Denials

    In section X. of the preamble of this proposed rule, we discuss 
changes for practitioners to follow in responding to requests for 
medical records from Quality Improvement Organizations (QIOs). The 
proposed changes would require practitioners to adhere to the 21-day 
and 30-day timeframes in the regulations, which are currently only 
applicable to providers. In addition, the proposed changes would 
give QIOs the authority to effectuate claim denials for 
practitioners who fail to submit the medical records within these 
timeframes. QIOs have authority to carry out claim denials for 
providers who fail to submit medical records, but similar provisions 
do not exist for practitioners. In fact, to this point, the QIOs' 
only option for practitioners who fail to submit medical records has 
been to refer the matter to the HHS Inspector General, and it would 
seem appropriate to identify a step, short of recommending 
sanctions, for the QIOs to pursue.
    On average, QIOs request approximately 2,000 medical records 
from practitioners each year. In general, requests for medical 
records from both practitioners and providers are ultimately 
fulfilled, but the average response time is considerably longer for 
practitioners than for providers. Because we are working to improve 
the QIOs' response time in completing various review activities, the 
proposed application of the timeframes to practitioners is an 
important step in our efforts. In addition, given that the QIOs have 
the need for and the statutory authority to request medical records 
within a reasonable period of time, they have relied on the same 21-
day and 30-day timeframes for practitioners. We believe that having 
the regulatory timeframe and authority to carry out technical 
denials for providers have generally resulted in providers complying 
with medical record requests within the required timeframes. In line 
with this, we believe that having this same regulatory authority for 
practitioners will result in practitioners complying with medical 
record requests within their required timeframes, which should, in 
turn, greatly will reduce the potential for any technical denials. 
Moreover, because vendors are increasingly being used by providers 
and practitioners to respond to requests for medical records, the 
increasing effectiveness of this process could well further diminish 
any impact of the proposed regulatory changes. While we believe the 
impact would be insignificant, at this time, we cannot determine the 
precise number of claim denials that could occur for practitioners 
as a result of these proposed changes.

R. Alternatives Considered

    This proposed rule contains a range of proposed policies. It 
also provides descriptions of the statutory provisions that are 
addressed, identifies proposed policies, and presents rationales for 
our decisions and,

[[Page 28190]]

where relevant, alternatives that were considered.

S. Overall Conclusion

1. Acute Care Hospitals

    Table I of section I.G. of this Appendix demonstrates the 
estimated distributional impact of the IPPS budget neutrality 
requirements for the proposed MS-DRG and wage index changes, and for 
the wage index reclassifications under the MGCRB. Table I also shows 
an overall increase of 0.9 percent in operating payments. We 
estimate that operating payments would increase by approximately 
$904 million in FY 2013 relative to FY 2012. In addition, we 
estimate a savings of $24 million associated with the HACs policies 
in FY 2013, which is an additional $2 million in savings than in FY 
2012. In FY 2012, pursuant to section 1109 of the Affordable Care 
Act, we distributed an additional $250 million to qualifying 
hospitals resulting in a decrease of $250 million in payments to 
hospitals in FY 2013 relative to FY 2012. Furthermore, we estimate 
that the expiration of the expansion of low-volume payments under 
sections 3125 and 10314 of the Affordable Care Act in FY 2013 will 
result in a decrease in payments of $300 million compared to low-
volume payments made in FY 2012. Finally, we estimate that our 
proposal to count labor and delivery bed days in the available bed 
day count for IME and DSH payments will reduce IME payments by 
approximately $170 million for FY 2013. These estimates, added to 
our FY 2013 operating estimate of $904 million, would result in an 
increase of $182 million for FY 2013. We estimate that capital 
payments will experience a -0.1 percent decrease in payments per 
case, as shown in Table III of section I.I. of this Appendix. We 
project that there would be an $8 million decrease in capital 
payments in FY 2013 compared to FY 2012. The proposed cumulative 
operating and capital payments should result in a net increase of 
$174 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.

2. LTCHs

    Overall, LTCHs are projected to experience an increase in 
estimated payments per discharge in FY 2013. In the impact analysis, 
we are proposing to use the rates, factors, and policies presented 
in this proposed rule, including 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 2013. 
Accordingly, based on the best available data for the 427 LTCHs in 
our database, we estimate that FY 2013 LTCH PPS payments would 
increase approximately $100 million relative to FY 2012. In 
addition, we estimate that extension of the moratorium on the 
application of the ``25 percent threshold'' payment adjustment 
policy, as provided by section 114(c) of the MMSEA, as amended by 
section 4302(a) of the ARRA and sections 3106(a) and 10312(a) of the 
Affordable Care Act, for cost reporting periods beginning on or 
after October 1, 2012, and before October 1, 2013, will result in a 
payment impact of approximately $170 million to LTCHs.

II. Accounting Statements and Tables

A. Acute Care Hospitals

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/sites/default/files/omb/assets/regulatory_matters_pdf/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 proposed change in Medicare payments to providers as a result of 
the 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 2012 to FY 2013
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............  $174 million.
From Whom to Whom.........................  Federal Government to IPPS
                                             Medicare Providers.
                                           -----------------------------
    Total.................................  $174 million.
------------------------------------------------------------------------

B. LTCHs

    As discussed in section I.J. 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 
in FY 2013 relative to FY 2012 of approximately $100 million for the 
427 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/sites/default/files/omb/assets/regulatory_matters_pdf/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 proposed changes to the LTCH PPS. Table VI provides our best 
estimate of the estimated increase in Medicare payments under the 
LTCH PPS as a result of the proposed provisions presented in this 
proposed rule based on the data for the 427 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 FY 2012 LTCH PPS to the FY 2013 LTCH PPS
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............  Positive transfer--Estimated
                                             increase in expenditures:
                                             $100 million.
------------------------------------------------------------------------

III. Regulatory Flexibility Act (RFA) Analysis

    The RFA requires agencies to analyze options for regulatory 
relief of small entities. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small 
government jurisdictions. We estimate that most hospitals and most 
other providers and suppliers are small entities as that term is 
used in the RFA. The great majority of hospitals and most other 
health care providers and suppliers are small entities, either by 
being nonprofit organizations or by meeting the SBA definition of a 
small business (having revenues of less than $7.5 million to $34.5 
million in any 1 year). (For details on the latest standards for 
health care providers, we refer readers to page 33 of the Table of 
Small Business Size Standards for NAIC 622 found on the SBA Web site 
at: http://www.sba.gov/contractingopportunities/sizestandardtopics/tableofsize/index.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 
I.J. 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 regulatory flexibility analysis. In this proposed rule, we are 
soliciting public comments on our estimates and analysis of the 
impact of our proposals on those small entities.

IV. Impact on Small Rural Hospitals

    Section 1102(b) of the Social Security Act requires us to 
prepare a regulatory impact analysis for any proposed or final rule 
that may have a significant impact on the operations of a 
substantial number of small rural hospitals. This analysis must 
conform to the provisions of section 603 of the RFA. With the 
exception of hospitals located in certain New England counties, for 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of an urban area and 
has fewer than 100 beds. Section 601(g) of the

[[Page 28191]]

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 I in section I.G. of this Appendix for the 
quantitative effects of the proposed policy changes under the IPPS 
for operating costs.)

V. Unfunded Mandates Reform Act Analysis

    Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4) also requires that agencies assess anticipated costs and 
benefits before issuing any rule whose mandates require spending in 
any 1 year of $100 million in 1995 dollars, updated annually for 
inflation. In 2012, that threshold level is approximately $136 
million. This proposed rule will not mandate any requirements for 
State, local, or tribal governments, nor will it affect private 
sector costs.

VI. Executive Order 12866

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

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

I. Background

    Section 1886(e)(4)(A) of the Act requires that the Secretary, 
taking into consideration the recommendations of MedPAC, recommend 
update factors for inpatient hospital services for each fiscal year 
that take into account the amounts necessary for the efficient and 
effective delivery of medically appropriate and necessary care of 
high quality. Under section 1886(e)(5) of the Act, we are required 
to publish update factors recommended by the Secretary in the 
proposed and final IPPS rules, respectively. Accordingly, this 
Appendix provides the recommendations for the update factors for the 
IPPS national standardized amount, the Puerto Rico-specific 
standardized amount, the hospital-specific rate for SCHs, and the 
rate-of-increase limits for certain hospitals excluded from the 
IPPS, as well as LTCHs. In prior years, we have made a 
recommendation in the IPPS proposed rule and final rule for the 
update factors for the payment rates for IRFs and IPFs. However, for 
FY 2013, we plan to include the Secretary's recommendation for the 
update factors for IRFs and IPFs in separate Federal Register 
documents at the time that we announce the annual updates for IRFs 
and IPFs. We also discuss our response to MedPAC's recommended 
update factors for inpatient hospital services.

II. Inpatient Hospital Update for FY 2013

A. Proposed FY 2013 Inpatient Hospital Update

    Section 1886(b)(3)(B) of the Act, as amended by sections 3401(a) 
and 10319(a) of the Affordable Care Act, sets the applicable 
percentage increase under the IPPS for FY 2013 as equal to the rate-
of-increase in the hospital market basket for IPPS hospitals in all 
areas (which is based on IHS Global Insight Inc.'s (IGI's) first 
quarter 2012 forecast of the FY 2006-based IPPS market basket), 
subject to a reduction of 2.0 percentage points if the hospital 
fails to submit quality data under rules established by the 
Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act, 
and then subject to an adjustment based on changes in economy-wide 
productivity and an additional reduction of 0.1 percentage point. 
Sections 1886(b)(3)(B)(xi) and (b)(3)(B)(xii) of the Affordable Care 
Act, as added by section 3401(a) of the Affordable Care Act, state 
that the application of the multifactor productivity adjustment and 
the additional FY 2012 adjustment of 0.1 percentage point may result 
in the applicable percentage increase being less than zero.
    In accordance with section 1886(b)(3)(B) of the Act, as amended 
by section 3401(a) of the Affordable Care Act, in section IV.H.1. of 
the preamble of this proposed rule, we are proposing a multifactor 
productivity (MFP) adjustment (the 10-year moving average of MFP for 
the period ending FY 2012) of 0.8 percent.
    Therefore, based on IGI's first quarter 2012 forecast of the FY 
2013 market basket increase, we are proposing an applicable 
percentage increase to the FY 2012 operating standardized amount of 
2.1 percent (that is, the FY 2013 estimate of the market basket 
rate-of-increase of 3.0 percent less an adjustment of 0.8 percentage 
point for economy-wide productivity and less 0.1 percentage point) 
for hospitals in all areas, provided the hospital submits quality 
data in accordance with section 1886(b)(3)(B)(vii) of the Act and 
our rules. For hospitals that fail to submit quality data, we are 
proposing an applicable percentage increase to the operating 
standardized amount of 0.1 percent (that is, the FY 2013 estimate of 
the market basket rate-of increase of 3.0 percent less 2.0 
percentage points for failure to submit quality data, less an 
adjustment of 0.8 percentage point for economy-wide productivity, 
and less an additional adjustment of 0.1 percentage point).

B. Proposed Update for SCHs for FY 2013

    Section 1886(b)(3)(B)(iv) of the Act provides that the FY 2013 
applicable percentage increase in the hospital-specific rate for 
SCHs equals the applicable percentage increase set forth in section 
1886(b)(3)(B)(i) of the Act (that is, the same update factor as for 
all other hospitals subject to the IPPS). Therefore, the update to 
the hospital specific rate for SCHs is subject to section 
1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and 
10319(a) of the Affordable Care Act. Accordingly, we are proposing 
an applicable percentage increase to the hospital-specific rate 
applicable to SCHs of 2.1 percent for hospitals that submit quality 
data or 0.1 percent for hospitals that fail to submit quality data.

C. Proposed FY 2013 Puerto Rico Hospital Update

    Section 401(c) of Public Law 108-173 amended section 
1886(d)(9)(C)(i) of the Act and states that, for discharges 
occurring in a fiscal year (beginning with FY 2004), the Secretary 
shall compute an average standardized amount for hospitals located 
in any area of Puerto Rico that is equal to the average standardized 
amount computed under subclause (I) for FY 2003 for hospitals in a 
large urban area (or, beginning with FY 2005, for all hospitals in 
the previous fiscal year) increased by the applicable percentage 
increase under subsection (b)(3)(B) for the fiscal year involved. 
Therefore, the update to the Puerto Rico-specific operating 
standardized amount is subject to the applicable percentage increase 
set forth in section 1886(b)(3)(B)(i) of the Act as amended by 
sections 3401(a) and 10319(a) of the Affordable Care Act (that is, 
the same update factor as for all other hospitals subject to the 
IPPS). Accordingly, we are proposing an applicable percentage 
increase to the Puerto Rico-specific standardized amount of 2.1 
percent.

D. Proposed Update for Hospitals Excluded From the IPPS

    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.
    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 that the FY 2013 
rate-of-increase percentage to be applied to the target amount for 
children's hospitals, cancer hospitals, and RNHCIs would be the 
percentage increase in the IPPS operating market basket. For this 
proposed rule, the current estimate of the FY 2013 IPPS operating 
market basket percentage increase is 3.0 percent.

E. Proposed Update for LTCHs

    Section 123 of Public Law 106-113, as amended by section 307(b) 
of Public Law 106-554 (and codified at section 1886(m)(1) of the 
Act), provides the statutory authority for updating payment rates 
under the LTCH PPS.
    As discussed in section VII. of the preamble of this proposed 
rule, we are proposing to establish an update to the LTCH PPS 
standard Federal rate for FY 2013 based on the full LTCH PPS market 
basket increase estimate (for this proposed rule, estimated to be 
3.0 percent), subject to an adjustment based on changes in economy-
wide productivity and an additional reduction of 0.1 percentage 
point. The productivity adjustment described in section 
1886(b)(3)(B)(xi)(ii) of the Act is currently estimated to be 0.8 
percent for FY 2013. In addition, section 1886(m)(3)(A)(ii) of the 
Act requires that any annual update for FY 2013 be reduced by the 
``other adjustment'' at section 1886(m)(4)(C) of the Act, which is 
0.1 percentage point. Therefore, based on IGI's

[[Page 28192]]

first quarter 2012 forecast of the proposed FY 2013 market basket 
increase, we are proposing an annual update to the LTCH PPS standard 
Federal rate of 2.1 percent (that is, the current FY 2013 estimate 
of the proposed market basket rate-of-increase of 3.0 percent less 
an adjustment of 0.8 percentage point for economy-wide productivity 
and less 0.1 percentage point). Accordingly, we are proposing to 
apply an update factor of 1.021 in determining the proposed LTCH PPS 
standard Federal rate for FY 2013. Furthermore, we are proposing to 
phase in a one-time prospective adjustment to the standard Federal 
rate under Sec.  412.523(d)(3) by applying a factor of 0.98734 (or 
approximately -1.3 percent), which would not be applicable to 
payments for LTCH PPS discharges occurring on or before December 28, 
2012 (consistent with current law).

III. Secretary's Recommendations

    MedPAC is recommending an inpatient hospital update equal to one 
percent for FY 2013. MedPAC's rationale for this update 
recommendation is described in more detail below. As mentioned 
above, section 1886(e)(4)(A) of the Act requires that the Secretary, 
taking into consideration the recommendations of MedPAC, recommend 
update factors for inpatient hospital services for each fiscal year 
that take into account the amounts necessary for the efficient and 
effective delivery of medically appropriate and necessary care of 
high quality. Consistent with current law, we are recommending an 
applicable percentage increase to the standardized amount of 2.1 
percent (that is, the FY 2013 estimate of the market basket rate-of-
increase of 3.0 percent less an adjustment of 0.8 percentage point 
for MFP and less 0.1 percentage point). We are recommending that the 
same applicable percentage increase apply to SCHs and the Puerto 
Rico-specific standardized amount.
    In addition to making a recommendation for IPPS hospitals, in 
accordance with section 1886(e)(4)(A) of the Act, we are 
recommending update factors for certain other types of hospitals 
excluded from the IPPS. Consistent with our proposal for these 
facilities, we are recommending an update for children's hospitals, 
cancer hospitals, and RNHCIs of 3.0 percent.
    For FY 2013, consistent with policy proposal set forth in 
section VII. of the preamble of this proposed rule, we are 
recommending an update of 2.1 percent to the LTCH PPS standard 
Federal rate.

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

    In its March 2012 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 one percent. MedPAC expects 
Medicare margins to remain low in 2012. At the same time, MedPAC's 
analysis finds that efficient hospitals have been able to maintain 
positive Medicare margins while maintaining a relatively high 
quality of care. MedPAC also recommended that Congress should 
require the Secretary to use the difference between the increase of 
the applicable percentage increase under the IPPS for FY 2013 and 
MedPAC's recommendation of a 1.0 percent update to gradually recover 
past overpayments due to documentation and coding changes.
    Response: With regard to MedPAC's recommendation of an update to 
the hospital inpatient rates equal to one percent, for FY 2013, as 
discussed above, sections 3401(a) and 10319(a) of the Affordable 
Care Act amended section 1886(b)(3)(B) of the Act. Section 
1886(b)(3)(B) of the Act, as amended by these sections, sets the 
requirements for the FY 2013 applicable percentage increase. 
Therefore, we have proposed an applicable percentage increase for FY 
2013 of 2.1 percent, provided the hospital submits quality data, 
consistent with these statutory requirements.
    With regard to MedPAC's recommendation that Congress should 
require the Secretary to use the difference between the increase of 
the applicable percentage increase under the IPPS for FY 2013 and 
MedPAC's recommendation of a 1.0 percent update to gradually recover 
post overpayments due to documentation and coding changes, we refer 
readers to section II.D. of the preamble of this proposed rule for a 
complete discussion of the proposed FY 2013 documentation and coding 
adjustments. In section II.D. of the preamble of this proposed rule, 
we are proposing a prospective adjustment of 2.7 percent to the FY 
2013 standardized amount to remove the remaining effect of 
documentation and coding that occurred in FY 2008, FY 2009, and FY 
2010. We note that section 7(b)(1)(B) of Pub. L. 110-90 authorized 
recoupments of overpayments due to documentation and coding 
improvements for FY 2008 and FY 2009, and under this authority, such 
recoupments had to be made no later than FY 2012. Accordingly, any 
recoupments of overpayments due to documentation and coding 
improvements beyond the authority of section 7(b)(1)(B) of Public 
Law 110-90 would require changes to current law by Congress.
    We also note that, because the operating and capital prospective 
payment systems remain separate, we are continuing to use separate 
updates for operating and capital payments. The update to the 
capital rate is discussed in section III. of the Addendum to this 
proposed rule.
[FR Doc. 2012-9985 Filed 4-24-12; 4:15 pm]
BILLING CODE 4120-01-P


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