Vol. 78 Friday, 

No. 91 May 10, 2013 

Part II 

Department of Health and Human Services 

Centers for Medicare & Medicaid Services 

42 CFR Parts 412, 418, 482, et al. 

Medicare Program; Hospital Inpatient Prospective Payment Systems for 

Acute Care Hospitals and the Long Term Care Hospital Prospective 

Payment System and Proposed Fiscal Year 2014 Rates; Quality Reporting 

Requirements for Specific Providers; Hospital Conditions of Participation; 

Medicare Program; FY 2014 Hospice Wage Index and Payment Rate 

Update; Hospice Quality Reporting Requirements; and Updates on 

Payment Reform; Proposed Rules 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

27486 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 412, 482, 485, and 489 

[CMS–1599–P] 

RIN 0938–AR53 

Medicare Program; Hospital Inpatient 

Prospective Payment Systems for 

Acute Care Hospitals and the LongTerm Care Hospital Prospective 

Payment System and Proposed Fiscal 

Year 2014 Rates; Quality Reporting 

Requirements for Specific Providers; 

Hospital Conditions of Participation 

AGENCY: Centers for Medicare and 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: We are proposing to revise the 

Medicare hospital inpatient prospective 

payment systems (IPPS) for operating 

and capital-related costs of acute care 

hospitals to implement changes arising 

from our continuing experience with 

these systems. Some of the proposed 

changes implement certain statutory 

provisions contained in the Patient 

Protection and Affordable Care Act and 

the Health Care and Education 

Reconciliation Act of 2010 (collectively 

known as the Affordable Care Act) and 

other legislation. These proposed 

changes would be applicable to 

discharges occurring on or after October 

1, 2013, unless otherwise specified in 

this proposed rule. We also are 

proposing to update the rate-of-increase 

limits for certain hospitals excluded 

from the IPPS that are paid on a 

reasonable cost basis subject to these 

limits. The proposed updated rate-ofincrease limits would be effective for 

cost reporting periods beginning on or 

after October 1, 2013. 

We are proposing to update the 

payment policies and the annual 

payment rates for the Medicare 

prospective payment system (PPS) for 

inpatient hospital services provided by 

long-term care hospitals (LTCHs) and 

implement certain statutory changes 

made by the Affordable Care Act. 

Generally, these proposed changes 

would be applicable to discharges 

occurring on or after October 1, 2013, 

unless otherwise specified in this 

proposed rule. 

In addition, we are proposing a 

number of changes relating to direct 

graduate medical education (GME) and 

indirect medical education (IME) 

payments. We are proposing to establish 

new requirements or 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 are proposing to update policies 

relating to the Hospital Value-Based 

Purchasing (VBP) Program and the 

Hospital Readmissions Reduction 

Program. In addition, we are proposing 

to revise the conditions of participation 

(CoPs) for hospitals relating to the 

administration of vaccines by nursing 

staff as well as the CoPs for critical 

access hospitals relating to the provision 

of acute care inpatient services. 

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, 2013. 

Application Deadline for GME FTE 

Resident Slots from Closed Hospital. 

Applications from hospitals to receive 

GME FTE resident slots from a 

hospital’s closure as described in 

section V.J.3.c. of the preamble of this 

proposed rule must be received, not 

postmarked, by 5 p.m. EST on July 25, 

2013. 

ADDRESSES: When commenting, please 

refer to file code CMS–1599–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–1599–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– 

1599–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– 

1599–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, LongTerm Care Hospital Prospective 

Payment System and MS–LTC–DRG 

Relative Weights Issues. 

Mollie Knight, (410) 786–7948 and 

Bridget Dickensheets, (410) 786–8670, 

Market Basket for IPPS Hospitals and 

LTCHs Issues. 

Siddhartha Mazumdar, (410) 786– 

6673, Rural Community Hospital 

Demonstration Program Issues. 

James Poyer, (410) 786–2261, Hospital 

Inpatient Quality Reporting and 

Hospital Value-Based Purchasing— 

Program Administration, Validation, 

and Reconsideration Issues. 

Shaheen Halim, (410) 786–0641, 

Hospital Inpatient Quality Reporting— 

Measures Issues Except Hospital 

Consumer Assessment of Healthcare 

Providers and Systems Issues; and 

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Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 27487 

Readmission Measures for Hospitals 

Issues. 

Elizabeth Goldstein, (410) 786–6665, 

Hospital Inpatient Quality Reporting— 

Hospital Consumer Assessment of 

Healthcare Providers and Systems 

Measures Issues. 

Mary Pratt, (410) 786–6867, LTCH 

Quality Data Reporting Issues. 

Kim Spalding Bush, (410) 786–3232, 

Hospital Value-Based Purchasing 

Efficiency Measures Issues. 

James Poyer, (410) 786–2261, PPSExempt Cancer Hospital Quality 

Reporting Issues. 

Allison Lee, (410) 786–8691 and 

Jeffrey Buck, (410) 786–0407, Inpatient 

Psychiatric Facility Quality Reporting 

Issues. 

Sarah Fahrendorf, (410) 786–3112, 

Conditions of Participation (CoPs) for 

CAHs Issues. 

Commander Scott Cooper, USPHS, 

(410) 786–9465, Hospital Conditions of 

Participation (CoPs)—Pneumococcal 

Vaccine Issues. 

Jennifer Dupee, (410) 786–6537, and 

Jennifer Phillips, (410) 786–1023, 

Medical Review Criteria for Hospital 

Inpatient Services under Medicare Part 

A. 

Ann Marshall, (410) 786–3059, 

Requirement for Physician Order for 

Payment of Hospital Inpatient Services 

under Medicare Part A. 

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 on that Web site to view 

public comments. 

Comments received timely also will 

be available for public inspection, 

generally beginning approximately 3 

weeks after publication of the rule, at 

the headquarters of the Centers for 

Medicare and Medicaid Services, 7500 

Security Boulevard, Baltimore, MD 

21244, on Monday through Friday of 

each week from 8:30 a.m. to 4 p.m. EST. 

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 Federal Digital 

System (FDsys), a service of the U.S. 

Government Printing Office. This 

database can be accessed via the 

Internet at: http://www.gpo.gov/fdsys. 

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 and the final rule were published 

in the Federal Register as part of the 

annual proposed and final rules. 

However, beginning in FY 2012, some of 

the IPPS tables and LTCH PPS tables are 

no longer published in the Federal 

Register. Instead, these tables 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/Medicare/medicareFee-for-Service-Payment/ 

AcuteInpatientPPS/index.html. Click on 

the link on the left side of the screen 

titled, ‘‘FY 2014 IPPS Proposed Rule 

Home Page’’ or ‘‘Acute Inpatient—Files 

for Download’’. The LTCH PPS tables 

for this FY 2014 proposed rule are 

available only through the Internet on 

the CMS Web site at: http:// 

www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/ 

LongTermCareHospitalPPS/index.html 

under the list item for Regulation 

Number CMS–1599–P. For complete 

details on the availability of the tables 

referenced in this proposed rule, we 

refer readers to section VI. of the 

Addendum to this proposed rule. 

Readers who experience any problems 

accessing any of the tables that are 

posted on the CMS Web sites identified 

above should contact Michael Treitel at 

(410) 786–4552. 

Acronyms 

3M 3M Health Information System 

AAMC Association of American Medical 

Colleges 

ACGME Accreditation Council for Graduate 

Medical Education 

ACoS American College of Surgeons 

AHA American Hospital Association 

AHIC American Health Information 

Community 

AHIMA American Health Information 

Management Association 

AHRQ Agency for Healthcare Research and 

Quality 

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 

APRN Advanced practice registered nurse 

ARRA American Recovery and 

Reinvestment Act of 2009, Public Law 

111–5 

ASCA Administrative Simplification 

Compliance Act of 2002, Public Law 107– 

105 

ASITN American Society of Interventional 

and Therapeutic Neuroradiology 

ATRA American Taxpayer Relief Act of 

2012, Public Law 112–240 

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 

CAUTI Catheter-associated urinary tract 

infection 

CBSAs Core-based statistical areas 

CC Complication or comorbidity 

CCN CMS Certification Number 

CCR Cost-to-charge ratio 

CDAC [Medicare] Clinical Data Abstraction 

Center 

CDAD Clostridium difficile-associated 

disease 

CDC Center for Disease Control and 

Prevention 

CERT Comprehensive error rate testing 

CDI Clostridium difficile 

CFR Code of Federal Regulations 

CLABSI Central line-associated 

bloodstream infection 

CIPI Capital input price index 

CMI Case-mix index 

CMS Centers for Medicare & Medicaid 

Services 

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 

DACA Data Accuracy and Completeness 

Acknowledgement 

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 American Hospitals 

FDA Food and Drug Administration 

FFY Federal fiscal year 

FPL Federal poverty line 

FQHC Federally qualified health center 

FR Federal Register 

FTE Full-time equivalent 

FY Fiscal year 

GAAP Generally Accepted Accounting 

Principles 

GAF Geographic Adjustment Factor 

GME Graduate medical education 

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HAC Hospital-acquired condition 

HAI Healthcare-associated infection 

HBIPS Hospital-based inpatient psychiatric 

services 

HCAHPS Hospital Consumer Assessment of 

Healthcare Providers and Systems 

HCFA Health Care Financing 

Administration 

HCO High-cost outlier 

HCRIS Hospital Cost Report Information 

System 

HHA Home health agency 

HHS Department of Health and Human 

Services 

HICAN Health Insurance Claims Account 

Number 

HIPAA Health Insurance Portability and 

Accountability Act of 1996, 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 

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 

IPFQR Inpatient Psychiatric Facility 

Quality Reporting [Program] 

IPPS [Acute care hospital] inpatient 

prospective payment system 

IRF Inpatient rehabilitation facility 

IQR Inpatient Quality Reporting 

IVR Interactive voice response 

LAMCs Large area metropolitan counties 

LOS Length of stay 

LTC–DRG Long-term care diagnosis-related 

group 

LTCH Long-term care hospital 

LTCHQR Long-Term Care Hospital Quality 

Reporting 

MA Medicare Advantage 

MAC Medicare Administrative Contractor 

MAP Measure Application Partnership 

MCC Major complication or comorbidity 

MCE Medicare Code Editor 

MCO Managed care organization 

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 diagnosisrelated 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 

NOP Notice of Participation 

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 1986, 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 

OQR [Hospital] Outpatient Quality 

Reporting 

O.R. Operating room 

OSCAR Online Survey Certification and 

Reporting [System] 

PCH PPS-exempt cancer hospital 

PCHQR PPS-exempt cancer hospital quality 

reporting 

PMSAs Primary metropolitan statistical 

areas 

POA Present on admission 

PPI Producer price index 

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] 

PQRS Physician Quality Reporting 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 

SCIP Surgical Care Improvement Project 

SFY State fiscal year 

SIC Standard Industrial Classification 

SNF Skilled nursing facility 

SOCs Standard occupational classifications 

SOM State Operations Manual 

SSI Surgical site infection 

SSI Supplemental Security Income 

SSO Short-stay outlier 

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 

VBP [Hospital] Value Based Purchasing 

[Program] 

VTE Venous thromboembolism 

Table of Contents 

I. Executive Summary and Background 

A. Executive Summary 

1. Purpose and Legal Authority 

2. Summary of the Major Provisions 

3. Summary of Costs and Benefits 

B. Summary 

1. Acute Care Hospital Inpatient 

Prospective Payment System (IPPS) 

2. Hospitals and Hospital Units Excluded 

from the IPPS 

3. Long-Term Care Hospital Prospective 

Payment System (LTCH PPS) 

4. Critical Access Hospitals (CAHs) 

5. Payments for Graduate Medical 

Education (GME) 

C. Provisions of the Patient Protection and 

Affordable Care Act 

(Pub. L. 111–148), the Health Care and 

Education Reconciliation Act of 2010 

(Pub. L. 111–152), and the American 

Taxpayer Relief Act of 2012 (Pub. L. 112– 

240) 

D. Summary of Provisions 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 

C. Adoption of the MS–DRGs in FY 2008 

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D. Proposed FY 2014 MS–DRG 

Documentation and Coding Adjustment 

1. Background on the Prospective MS–DRG 

Documentation and Coding Adjustments 

for FY 2008 and FY 2009 Authorized by 

Public Law 110–90 

2. Adjustment to the Average Standardized 

Amounts Required by Public Law 110– 

90 

a. Prospective Adjustment Required by 

Section 7(b)(1)(A) of Public Law 110–90 

b. Recoupment or Repayment Adjustments 

in FYs 2010 through 2012 Required by 

Section 7(b)(1)(B) Public Law 110–90 

3. Retrospective Evaluation of FY 2008 and 

FY 2009 Claims Data 

4. Prospective Adjustments for FY 2008 

and FY 2009 Authorized by Section 

7(b)(1)(A) of Public Law 110–90 

5. Recoupment or Repayment Adjustment 

Authorized by Section 7(b)(1)(B) of 

Public Law 110–90 

6. Recoupment or Repayment Adjustment 

Authorized by Section 631 of the 

American Taxpayer Relief Act of 2012 

(ATRA). 

7. Additional Prospective Adjustments for 

the MS–DRG Documentation and Coding 

Effect through FY 2010 Authorized 

under Section 1886(d)(3)(A)(vi) of the 

Act 

E. Proposed Refinement of the MS–DRG 

Relative Weight Calculation 

1. Background 

2. Discussion and Proposal for FY 2014 

F. Adjustment to MS–DRGs for Preventable 

Hospital-Acquired Conditions (HACs), 

Including Infections 

1. Background 

2. HAC Selection 

3. Present on Admission (POA) Indicator 

Reporting 

4. HACs and POA Reporting in ICD–10– 

CM and ICD–10–PCS 

5. Proposal Regarding Current HACs and 

Previously Considered Candidate HACs 

6. RTI Program Evaluation 

7. Current and Previously Considered 

Candidate HACs—RTI Report on 

Evidence-Based Guidelines 

G. Proposed Changes to Specific MS–DRG 

Classifications 

1. Pre-Major Diagnostic Categories (PreMDCs): Heart Transplants and Liver 

Transplants 

2. MDC 1 (Diseases and Disorders of the 

Nervous System): Tissue Plasminogen 

Activator (tPA) (rtPA) Administration 

within 24 Hours Prior to Admission 

3. MDC 4 (Diseases and Disorders of the 

Ear, Nose, Mouth and Throat) 

a. Endoscopic Placement of a Bronchial 

Valve 

b. Pulmonary Thromboendarterectomy 

(PTE) with Full Circulatory Arrest 

4. MDC 5 (Diseases and Disorders of the 

Circulatory System) 

a. Discharge/Transfer to Designated 

Disaster Alternative Care Site 

b. Discharges/Transfers with a Planned 

Acute Care Hospital Inpatient 

Readmission 

5. MDC 8 (Diseases and Disorders of the 

Musculoskeletal System and Connective 

Tissue) 

a. Reverse Shoulder Procedures 

b. Total Ankle Replacement Procedures 

6. MDC 15 (Newborns and Other Neonates 

with Conditions Originating in the 

Perinatal Period) 

a. Persons Encountering Health Services 

for Specific Procedures, Not Carried Out 

b. Discharges/Transfers of Neonates with a 

Planned Acute Care Hospital Inpatient 

Readmission 

7. Proposed Medicare Code Editor (MCE) 

Changes 

a. Age Conflict Edit 

b. Discharge Status Code Updates 

8. Surgical Hierarchies 

9. Complications or Comorbidity (CC) 

Exclusions List 

a. Background of the CC List and the CC 

Exclusion List 

b. Proposed CC Exclusions List for FY 2014 

10. Review of Procedure Codes in MS– 

DRGs 981 through 983, 984 through 986, 

and 987 through 989 

a. Moving Procedure Codes from MS–DRGs 

981 through 983 or MS–DRGs 987 

through 989 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 

11. 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 Proposed FY 2014 MS– 

DRG Relative Weights 

1. Data Sources for Developing the 

Proposed Relative Weights 

2. Methodology for Calculation of the 

Proposed Relative Weights 

3. Development of National Average CCRs 

4. Bundled Payments for Care 

Improvement (BPCI) Initiative 

I. Proposed Add-On Payments for New 

Services and Technologies 

1. Background 

2. Public Input Before Publication of a 

Notice of Proposed Rulemaking on AddOn Payments 

3. FY 2014 Status of Technology Approved 

for FY 2013 Add-On Payments 

a. AutoLaser Interstitial Therapy (Auto 

LITTTM) System 

b. Glucarpidase (Trade Brand Voraxaze®) 

c. DIFICIDTM (Fidaxomicin) Tablets 

d. Zenith® Fenestrated Abdominal Aortic 

Aneurysm (AAA) Endovascular Graft 

4. FY 2014 Applications for New 

Technology Add-On Payments 

a. KcentraTM

b. Argus® II Retinal Prosthesis System 

c. Responsive Neurostimulator (RNS) 

System 

d. Zilver® PTX® Drug Eluting Stent 

e. MitraClip® System 

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 2014 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 

2014 Unadjusted Wage Index 

F. Proposed Occupational Mix Adjustment 

to the Proposed FY 2014 Wage Index 

1. Development of Data for the Proposed 

FY 2014 Occupational Mix Adjustment 

Based on the 2010 Occupational Mix 

Survey 

2. New 2013 Occupational Mix Survey for 

the FY 2016 Wage Index 

3. Calculation of the Proposed 

Occupational Mix Adjustment for FY 

2014 

G. Analysis and Implementation of the 

Proposed Occupational Mix Adjustment 

and the Proposed FY 2014 Occupational 

Mix Adjusted Wage Index 

1. Analysis of the Proposed Occupational 

Mix Adjustment and the Proposed 

Occupational Mix Adjusted Wage Index 

2. Proposed Application of the Rural, 

Imputed, and Frontier Floors 

a. Proposed Rural Floor 

b. Proposed Imputed Floor 

c. Proposed Frontier Floor 

3. Proposed FY 2014 Wage Index Tables 

H. Revisions to the Wage Index Based on 

Hospital Redesignations and 

Reclassifications 

1. General Policies and Effects of 

Reclassification/Redesignation 

2. FY 2014 MGCRB Reclassifications 

a. FY 2014 Reclassification Requirements 

and Approvals 

b. Applications for Reclassifications for FY 

2015 

3. Redesignations of Hospitals under 

Section 1886(d)(8)(B) of the Act 

4. Reclassifications under Section 

1886(d)(8)(B) of the Act seeking 

Reclassification by the MGCRB 

5. Waiving Lugar Redesignation for the 

Out-Migration Adjustment 

I. Proposed FY 2014 Wage Index 

Adjustment Based on Commuting 

Patterns of Hospital Employees 

J. Process for Requests for Wage Index Data 

Corrections 

K. Proposed Labor-Related Share for the 

Proposed FY 2014 Wage Index 

IV. Proposed Rebasing and Revision of the 

Hospital Market Baskets for Acute Care 

Hospitals 

A. Background 

B. Rebasing and Revising the IPPS Market 

Basket 

1. Development of Cost Categories and 

Weights 

2. Cost Category Computation 

3. Selection of Price Proxies 

4. Labor-Related Share 

C. Market Basket for Certain Hospitals 

Presently Excluded from the IPPS 

D. Rebasing and Revising the Capital Input 

Price Index (CIPI) 

V. Other Decisions and Proposed Changes to 

the IPPS for Operating Costs and 

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Graduate Medical Education (GME) 

Costs 

A. Proposed Inpatient Hospital Updates for 

FY 2014 (§§ 412.64(d) and 412.211(c)) 

1. Proposed FY 2014 Inpatient Hospital 

Update 

2. Proposed FY 2014 Puerto Rico Hospital 

Update 

B. Rural Referral Centers (RRCs): Annual 

Update to Case-Mix Index (CMI) and 

Discharge Criteria (§ 412.96) 

1. Case-Mix Index (CMI) 

2. Discharges 

C. Proposed Payment Adjustment for LowVolume Hospitals (§ 412.101) 

1. Background 

a. Original Implementation of the LowVolume Hospital Payment Adjustment 

b. Affordable Care Act Provisions for FYs 

2011 and 2012 

2. Provisions of the ATRA for FY 2013 

a. Background 

b. Proposed Conforming Regulatory 

Changes 

3. Proposed Low-Volume Hospital 

Definition and Payment Adjustment for 

FY 2014 and Subsequent Years 

D. Indirect Medical Education (IME) 

Adjustment (§ 412.105) 

1. IME Adjustment Factor for FY 2014 

2. Other Proposed Policy Changes 

Affecting GME 

E. Proposed Payment Adjustment for 

Medicare Disproportionate Share 

Hospitals (DSHs) § 412.106) 

1. Background 

2. Counting of Patient Days Associated 

with Patients Enrolled in Medicare 

Advantage Plans in the Medicare and 

Medicaid Fractions of the 

Disproportionate Share Patient 

Percentage (DPP) Calculation 

3. New Payment Adjustment Methodology 

for Medicare DSH under Section 3133 of 

the Affordable Care Act 

F. Medicare-Dependent, Small Rural 

Hospital (MDH) Program (§ 412.108) 

1. Background 

2. Provisions of the ATRA for FY 2013 

a. Background 

b. Proposed Conforming Regulatory 

Changes 

c. Expiration of the MDH Program 

G. Hospital Readmissions Reduction 

Program: Proposed Changes (§§ 412.150 

through 412.154) 

1. Statutory Basis for the Hospital 

Readmissions Reduction Program 

2. Overview 

3. FY 2014 Proposals for the Hospital 

Readmissions Reduction Program 

a. Overview 

b. Proposed Refinement of the Readmission 

Measures and Related Methodology for 

FY 2014 and Subsequent Years Payment 

Determinations 

c. Proposed Expansion of the Applicable 

Conditions for FY 2015 

d. Proposals for Hospitals Paid under 

Section 1814(b)(3) of the Act, Including 

the Process to be Exempt from the 

Hospital Readmissions Reduction 

Program and Definition of ‘‘Base 

Operating DRG Payment Amount’’ for 

Such Hospitals (§ 412.152 and 

§ 412.154(d)) 

e. Proposed Floor Adjustment Factor for 

FY 2014 (§ 412.154(c)(2)) 

f. Proposed Applicable Period for FY 2014 

g. Proposed Refinements of the 

Methodology to Calculate the Aggregate 

Payments for Excess Readmissions 

h. Clarification of Reporting HospitalSpecific Information, Including 

Opportunity to Review and Submit 

Corrections 

H. Hospital Value-Based Purchasing 

Program (§§ 412.160 through 412.165) 

1. Statutory Background 

2. Overview of the FY 2013 Hospital VBP 

Program 

3. FY 2014 Payment Details 

4. FY 2014 Hospital VBP Program 

Measures 

5. FY 2015 Hospital VBP Program 

Measures 

6. FY 2016 Hospital VBP Program 

Measures 

a. Measures Previously Adopted and 

Proposal to Remove AMI–8a, PN–3b, and 

HF–1 

b. Proposed New Measures for the FY 2016 

Hospital VBP Program 

c. Future Measures for the Efficiency 

Domain 

7. Proposed Performance Periods and 

Baseline Periods 

a. Background 

b. Proposed Clinical Process of Care 

Domain Performance Period and 

Baseline Periods for the FY 2016 

Hospital VBP Program 

c. Proposed Experience of Care Domain 

Performance Period and Baseline Period 

for the FY 2016 Hospital VBP Program 

d. Proposed Efficiency Domain Measure 

Performance Period and Baseline Period 

for the FY 2016 Hospital VBP Program 

e. Proposed Outcome Domain Performance 

Periods and Baseline Periods for the FY 

2017 through FY 2019 Hospital VBP 

Programs 

8. Proposed Performance Standards for the 

Hospital VBP Program 

a. Background 

b. Performance Standards for the FY 2016 

Hospital VBP Program Measures 

c. Certain Performance Standards for the 

FY 2017, FY 2018, and FY 2019 Hospital 

VBP Programs 

9. Proposed FY 2016 Hospital VBP 

Program Scoring Methodology 

a. Proposed General Hospital VBP Program 

Scoring Methodology 

b. Proposed Domain Weighting for the FY 

2016 Hospital VBP Program for Hospitals 

That Receive a Score on All Domains 

c. Proposed Domain Weighting for the FY 

2016 Hospital VBP Program for Hospitals 

Receiving Scores on Fewer than Four 

Domains 

d. Proposed Domain Reclassification and 

Domain Weighting for the FY 2017 

Hospital VBP Program 

e. Proposed Disaster/Extraordinary 

Circumstance Waivers under the 

Hospital VBP Program 

10. Applicability of the Hospital VBP 

Program to Hospitals 

a. Background 

b. Proposed Minimum Numbers of Cases 

and Measures for the FY 2016 Hospital 

VBP Program Outcome Domain 

c. Hospitals Paid under Section 1814(b)(3) 

of the Act 

I. Hospital-Acquired Condition (HAC) 

Reduction Program 

1. Background 

2. Statutory Basis for the HAC Reduction 

Program 

3. Proposals to Implement the HAC 

Reduction Program 

a. Proposed Definitions 

b. Proposed Payment Adjustment under 

the HAC Reduction Program, Including 

Exemptions 

c. Proposed Measure Selection and 

Conditions, Including a Proposed RiskAdjustment and Scoring Methodology 

d. Criteria for Applicable Hospitals and 

Performance Scoring 

e. Reporting Hospital-Specific Information, 

Including the Review and Correction of 

Information 

f. Limitation on Administrative and 

Judicial Review 

J. Payment for Graduate Medical Education 

(GME) and Indirect Medical Education 

(IME) Costs (§§ 412.105, 413.75 through 

413.83) 

1. Background 

2. Proposed Inclusion of Labor and 

Delivery Days in the Calculation of 

Medicare Utilization for Direct GME 

Payment Purposes and for Other 

Medicare Inpatient Days Policy 

3. Notice of Closure of Teaching Hospital 

and Opportunity to Apply for Available 

Slots 

4. Payments for Residents Training in 

Approved Residency Programs at CAHs 

a. Background 

b. Residents in Approved Medical 

Residency Training Programs That Train 

at CAHs 

5. Expiration of Inflation Update Freeze for 

High Per Resident Amounts (PRAs) 

K. Rural Community Hospital 

Demonstration Program 

1. Background 

2. Proposed FY 2014 Budget Neutrality 

Offset Amount 

L. Hospital Emergency Services under 

EMTALA: Technical Change 

(§§ 4189.24(f)) 

M. Hospital Services Furnished under 

Arrangements 

N. Policy Proposal on Admission and 

Medical Review Criteria for Hospital 

Inpatient Services under Medicare Part A 

1. Background 

2. Requirements for Physician Orders 

3. Proposed Inpatient Admission 

Guidelines 

a. Background 

b. Correct Coding Reviews 

c. Complete and Accurate Documentation 

d. Medical Necessity Reviews 

4. Proposed Payment Adjustment 

VI. Proposed Changes to the IPPS for CapitalRelated Costs 

A. Overview 

B. Additional Provisions 

1. Exception Payments 

2. New Hospitals 

3. Hospitals Located in Puerto Rico 

C. Other Proposed Changes for FY 2014— 

Proposed Adjustment to Offset the Cost 

of the Policy Proposal on Admission and 

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Medical Review Criteria for Hospital 

Inpatient Services under Medicare Part A 

D. Proposed Annual Update for FY 2014 

VII. Proposed Changes for Hospitals 

Excluded from the IPPS 

A. Proposed Rate-of-Increase in Payments 

to Excluded Hospitals for FY 2014 

B. Critical Access Hospitals (CAHs): 

Proposed Changes to Conditions of 

Participation (CoPs) Relating to 

Furnishing of Acute Care Inpatient 

Services 

1. Background 

2. Proposed Policy Changes 

VIII. Proposed Changes to the Long-Term 

Care Hospital Prospective Payment 

System (LTCH PPS) for FY 2014 

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 2014 

1. Background 

2. Patient Classifications into MS–LTC– 

DRGs 

a. Background 

b. Proposed Changes to the MS–LTC–DRGs 

for FY 2014 

3. Development of the Proposed FY 2014 

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 2014 

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 

g. Steps for Determining the Proposed FY 

2014 MS–LTC–DRG Relative Weights 

C. Proposed LTCH PPS Payment Rates for 

FY 2014 

1. Overview of Development of the 

Proposed LTCH Payment Rates 

2. Proposed FY 2014 LTCH PPS Annual 

Market Basket Increase 

a. Overview 

b. Revision of Certain Market Basket 

Updates as Required by the Affordable 

Care Act 

c. Adjustment to the Annual Update to the 

LTCH PPS Standard Federal Rate under 

the Long-Term Care Hospital Quality 

Reporting (LTCHQR) Program 

1. Background 

2. Proposed Reduction to the Annual 

Update to the LTCH PPS Standard 

Federal Rate under the LTCHQR Program 

d. Proposed Market Basket Under the 

LTCH PPS for FY 2014 

e. Proposed Annual Market Basket Update 

for LTCHs for FY 2014 

3. Proposed Adjustment for the Second 

Year of the Phase-In of the One-Time 

Prospective Adjustment to the Standard 

Federal Rate under § 412.523(d)(3) 

D. Expiration of Certain Payment Rules for 

LTCH Services—The 25-Percent 

Threshold Payment Adjustment 

E. Research on the Development of a 

Patient Criteria-Based Payment 

Adjustment under the LTCH PPS 

1. Overview 

2. MedPAC’s 2004 Report to Congress 

3. LTCHs in the Medicare Program 

4. CMS’ Research: The RTI Report 

5. CMS’ Report to Congress: Determining 

Medical Necessity and Appropriateness 

of Care for Medicare Long-Term Care 

Hospitals 

6. Current Practices in LTCHs 

7. Identification of Chronically Critically 

Ill/Medically Complex (CCI/MC) Patients 

8. LTCH PPS Payments for CCI/MC 

Patients 

IX. 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. Proposed 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 Rulemaking 

c. Proposed Removal of Hospital IQR 

Program Measures for the FY 2016 

Payment Determination and Subsequent 

Years 

d. Suspension of Data Collection for the FY 

2014 Payment Determination and 

Subsequent Years 

3. Process for Retaining Previously 

Adopted Hospital IQR Program Measures 

for Subsequent Payment Determinations 

4. Additional Considerations in Expanding 

and Updating Quality Measures under 

the Hospital IQR Program 

5. Proposed Changes to Hospital IQR 

Program Measures Previously Adopted 

for the FY 2015 and FY 2016 Payment 

Determinations and Subsequent Years 

a. Previously Adopted Hospital IQR 

Program Measures for the FY 2015 

Payment Determination and Subsequent 

Years 

b. Proposed Refinements to Existing 

Measures in the Hospital IQR Program 

6. Proposed Additional Hospital IQR 

Program Measures for the FY 2016 

Payment Determination and Subsequent 

Years 

a. Proposed Hospital 30-Day, All-Cause, 

Risk-Standardized Readmission Rate 

(RSRR) Following Chronic Obstructive 

Pulmonary Disease (COPD) 

Hospitalization Measure (NQF #1891) 

b. Proposed Hospital 30-Day, All-Cause, 

Risk-Standardized Mortality Rate 

(RSMR) Following Chronic Obstructive 

Pulmonary Disease (COPD) 

Hospitalization Measure (NQF #1893) 

c. Proposed Hospital 30-day, All-Cause 

Risk-Standardized Rate of Readmission 

Following Acute Ischemic Stroke (Stroke 

Readmission) Measure 

d. Proposed Hospital 30-Day, All-Cause 

Risk-Standardized Rate of Mortality 

Following an Admission for Acute 

Ischemic Stroke (Stroke Mortality) 

Measure 

e. Proposed Hospital Risk-Standardized 

Payment Associated with a 30-day 

Episode of Care for Acute Myocardial 

Infarction (AMI) Measure 

7. Electronic Clinical Quality Measures 

8. Possible New Quality Measures and 

Measure Topics for Future Years 

9. Form, Manner, and Timing of Quality 

Data Submission 

a. Background 

b. Procedural Requirements for the FY 

2016 Payment Determination and 

Subsequent Years 

c. Proposed Data Submission Requirements 

for Chart-Abstracted Measures 

d. Proposed Data Submission 

Requirements for Quality Measures That 

May be Voluntarily Electronically 

Reported for the FY 2016 Payment 

Determination 

e. Sampling and Case Thresholds for the 

FY 2016 Payment Determination and 

Subsequent Years 

f. Proposed HCAHPS Requirements for the 

FY 2017 Payment Determination and 

Subsequent Years 

g. Proposed Data Submission Requirements 

for Structural Measures for the FY 2015 

and FY 2016 Payment Determinations 

h. Proposed Data Submission and 

Reporting Requirements for HealthcareAssociated Infection (HAI) Measures 

Reported via NHSN 

10. Proposed Modifications to the 

Validation Process for Chart-Abstracted 

Measures under the Hospital IQR 

Program 

a. Proposed Timing and Number of 

Quarters Included in Validation 

b. Proposed Selection of Measures and 

Sampling of Charts to be Included in 

Validation 

c. Proposed Procedures for Scoring Records 

for Validation 

d. Proposed Procedures to Select Hospitals 

for Validation 

e. Proposed Procedures for Submitting 

Records for Validation 

11. Proposed Data Accuracy and 

Completeness Acknowledgement 

Requirements for the FY 2015 Payment 

Determination and Subsequent Years 

12. Public Display Requirements for the FY 

2016 Payment Determination and 

Subsequent Years 

13. Proposed Reconsideration and Appeal 

Procedures for the FY 2015 Payment 

Determination and Subsequent Years 

14. Hospital IQR Program Extraordinary 

Circumstances Extensions or Waivers 

B. PPS-Exempt Cancer Hospital Quality 

Reporting (PCHQR) Program 

1. Statutory Authority 

2. Covered Entities 

3. Previously Finalized Quality Measures 

for PCHs Beginning with the FY 2014 

Program 

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4. Considerations in the Selection of the 

Quality Measures 

5 Proposed New Quality Measures 

a. Proposed New Measure Beginning with 

FY 2015—NHSN Healthcare-Associated 

Infection (HAI) Measure: Surgical Site 

Infection (SSI) (NQF #0753) 

b. Proposed New Measures Beginning with 

the FY 2016 PQHQR Program 

6. Possible New Quality Measure Topics 

for Future Years 

7. Maintenance of Technical Specifications 

for Quality Measures 

8. Public Display Requirements Beginning 

with FY 2015 Program Year 

9. Form, Manner, and Timing of Data 

Submission Beginning with FY 2015 

Program Year 

a. Background 

b. Proposed Waivers from Program 

Requirements 

c. Proposed Reporting Periods and 

Submission Timelines for the Proposed 

SSI Measure 

d. Proposed Exceptions to Reporting and 

Data Submission for HAI Measures 

(CAUTI, CLABSI, and Proposed SSI) 

e. Proposed Reporting and Data 

Submission Requirements for the 

Proposed Clincial Process/Oncology Care 

Measures 

f. Proposed Reporting and Data Submission 

Requirements for the Proposed SCIP 

Measures 

g. Proposed HCAHPS Requirements 

C. Long-Term Care Hospital Quality 

Reporting (LTCHQR) Program 

1. Statutory History 

2. General Consideratons Used for 

Selection of Quality Measures for the 

LTCHQR Program 

3. Process for Retention of LTCHQR 

Program Measures Adopted in Previous 

Payment Determinations 

4. Process for Adopting Changes to 

LTCHQR Program Measures 

5. Previously Adopted Quality Measures 

for the FY 2014 and FY 2015 Payment 

Determinations and Subsequent Payment 

Determinations 

6. Previously Adopted Quality Measures 

for the FY 2016 Payment Determination 

and Subsequent Payment Determinations 

7. Proposed Revisions to Previously 

Adopted Quality Measures 

a. Proposed Revisions for Influenza 

Vaccination Coverage among Health Care 

Personnel (NQF #0431) 

b. Proposed Revisions for Percent of 

Residents or Patients Who Were 

Assessed and Appropriately Given the 

Seasonal Influenza Vaccine (Short-Stay) 

(NQF #0680) 

c. Proposed Revisions for Percent of 

Residents or Patients with Pressure 

Ulcers That Are New or Worsened 

(Short-Stay) (NQF #0678) 

8. Proposed New LTCHQR Program 

Quality Measures Affecting the FY 2017 

and FY 2018 Payment Determinations 

and Subsequent Payment Determinations 

a. Considerations in Updating and 

Expanding Quality Measures under the 

LTCHQR Program for the FY 2017 

Payment Determination and Subsequent 

Payment Determinations 

b. Proposed New LTCHQR Program 

Quality Measures for the FY 2017 

Payment Determination and Subsequent 

Payment Determinations 

c. Proposed New LTCHQR Program Quality 

Measure for the FY 2018 Payment 

Determination and Subsequent Payment 

Determinations 

d. LTCHQR Program Quality Measures and 

Concepts under Consideration for Future 

Years Payment Determinations 

9. Form, Manner, and Timing of Quality 

Data Submission for the FY 2016 

Payment Determination and Subsequent 

Payment Determinations 

a. Background 

b. Finalized Timeline for Data Submission 

under the LTCHQR Program for the FY 

2016 Payment Determination 

c. Proposed Timeline for Data Submission 

for the NQF #0431 Influenza Vaccination 

Coverage Among Healthcare Personnel 

Measure for the FY 2016 Payment 

Determination and Subsequent Payment 

Determinations 

d. Proposed Timeline for Data Submission 

for the NQF #0680 Percent of Residents 

or Patients Who Were Assessed and 

Appropriately Given the Seasonal 

Influenza Vaccine (Short Stay) Measure 

for the FY 2016 Payment Determination 

and Subsequent Payment Determinations 

e. Proposed Timeline for Data Submission 

under the LTCHQR Program for the FY 

2017 Payment Determination and 

Subsequent Program Determinations 

f. Proposed Timeline for Data Submission 

under the LTCHQR Program for the FY 

2018 Payment Determination and 

Subsequent Payment Determinations 

10. Public Display of Data Quality 

Measures for the LTCHQR Program 

11. Proposed LTCHQR Program 

Submission Waiver Requirements for the 

FY 2015 Payment Determination and 

Subsequent Payment Determinations 

12. Proposed LTCHQR Program 

Reconsideration and Appeals for the FY 

2015 Payment Determination and 

Subsequent Payment Determinations 

D. Inpatient Psychiatric Facilities Quality 

Reporting (IPFQR) Program 

1. Statutory Authority 

2. Application of the Payment Update 

Reduction for Failure to Report for the 

FY 2014 Payment Determination and 

Subsequent Years 

3. Covered Entities 

4. Considerations in Selecting Quality 

Measures 

5. Proposed Quality Measures for the FY 

2015 Payment Determination and 

Subsequent Years 

a. Background 

b. Proposed New Quality Measures 

Beginning with the FY 2016 Payment 

Determination and Subsequent Years 

c. Maintenance of Technical Specifications 

for Quality Measures 

6. Proposed Request for Voluntary 

Information—Facility Assessment of 

Patient Experience of Care 

7. Request for Recommendations for New 

Quality Measures for Future Years 

8. Proposed Public Display Requirements 

for the FY 2014 Payment Determination 

and Subsequent Years 

9. Form, Manner, and Timing of Quality 

Data Submission for the FY 2014 

Payment Determination and Subsequent 

Years 

a. Background 

b. Procedural Requirements 

c. Proposed Submission Requirements for 

the FY 2016 Payment Determination and 

Subsequent Years 

d. Reporting Requirements for the FY 2016 

Payment Determination and Subsequent 

Years 

e. Proposed Population, Sampling, and 

Minimum Case Threshold for the FY 

2016 Payment Determination and 

Subsequent Years 

f. Data Accuracy and Completeness 

Acknowledgement (DACA) 

Requirements 

10. Reconsideration and Appeals 

Procedures for the FY 2014 Payment 

Determination and Subsequent Years 

11. Waivers from Quality Reporting 

Requirements for the FY 2014 Payment 

Determination and Subsequent Years 

12. Electronic Health Records (EHRs) 

E. Electronic Health Records (EHRs) 

Incentive Program and Meaningful Use 

(MU) 

1. Background 

2. Proposed Expanded Electronic 

Submission Period for CQMs 

3. Quality Reporting Data Architecture 

Category III (QRDA–III) Option in 2014 

4. Case Number Threshold Exemption— 

Proposed Requirements Regarding Data 

Submission 

X. Proposed Change to the Medicare Hospital 

Conditions of Participation (CoPs) 

Relating to the Administration of 

Pneumococcal Vaccines 

XI. MedPAC Recommendations 

XII. 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 Proposed Occupational Mix 

Adjustment to the Proposed FY 2014 

Wage Index (Hospital Wage Index 

Occupational Mix Survey) 

4. Hospital Applications for Geographic 

Reclassifications by the MGCRB 

5. ICRs for Application for GME Resident 

Slots 

6. ICRs for the Hospital Inpatient Quality 

Reporting (IQR) Program 

7. ICRs for PPS-Exempt Cancer Hospital 

Quality Reporting (PCHQR) Program 

8. ICRs for Hospital Value-Based 

Purchasing (VBP) Program 

9. ICRs for the Long-Term Care Hospital 

Quality Reporting (LTCHQR) Program 

10. ICRs for the Inpatient Psychiatric 

Facilities Quality Reporting (IPFQR) 

Program 

C. Response to Public Comments 

Regulation Text 

Addendum—Proposed Schedule of 

Standardized Amounts, Update 

Factors, and Rate-of-Increase 

Percentages Effective With Cost 

Reporting Periods Beginning on or 

After October 1, 2013 and Payment 

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Rates for LTCHs Effective With 

Discharges Occurring on or After 

October 1, 2013 

I. Summary and Background 

II. Proposed Changes to the Prospective 

Payment Rates for Hospital Inpatient 

Operating Costs for Acute Care Hospitals 

for FY 2014 

A. Calculation of the Proposed Adjusted 

Standardized Amount 

B. Proposed Adjustments for Area Wage 

Levels and Cost-of-Living 

C. Calculation of the Proposed Prospective 

Payment Rates 

III. Proposed Changes to Payment Rates for 

Acute Care Hospital Inpatient CapitalRelated Costs for FY 2014 

A. Determination of Federal Hospital 

Inpatient Capital-Related Prospective 

Payment Rate Update 

B. Calculation of the Proposed Inpatient 

Capital-Related Prospective Payments for 

FY 2014 

C. Capital Input Price Index 

IV. Proposed Changes to Payment Rates for 

Excluded Hospitals: Rate-of-Increase 

Percentages for FY 2014 

V. Proposed Updates to the Payment Rates 

for the LTCH PPS for FY 2014 

A. Proposed LTCH PPS Standard Federal 

Rate for FY 2014 

B. Proposed Adjustment for Area Wage 

Levels Under the LTCH PPS for FY 2014 

1. Background 

2. Proposed Geographic Classifications/ 

Labor Market Area Definitions 

3. Proposed LTCH PPS Labor-Related 

Share 

4. Proposed LTCH PPS Wage Index for FY 

2014 

5. Proposed Budget Neutrality Adjustment 

for Changes to the Area Wage Level 

Adjustment 

C. Proposed LTCH PPS Cost-of-Living 

Adjustment (COLA) for LTCHs Located 

in Alaska and Hawaii 

D. Proposed Adjustment for LTCH PPS 

High-Cost Outlier (HCO) Cases 

E. Computing the Proposed Adjusted LTCH 

PPS Federal Prospective Payments for 

FY 2014 

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 

E. Hospitals Included in and Excluded 

From the IPPS 

F. Effects on Hospitals and Hospital Units 

Excluded From the IPPS 

G. Quantitative Effects of the Proposed 

Policy Changes Under the IPPS for 

Operating Costs 

1. Basis and Methodology of Estimates 

2. Analysis of Table I 

3. Impact Analysis of Table II 

H. Effects of Other Proposed Policy 

Changes 

1. Effects of Proposed Policy on MS–DRGs 

for Preventable HACs, Including 

Infections 

2. Effects of Proposed Policy Relating to 

New Medical Service and Technology 

Add-On Payments 

3. Effects of Proposed Payment Adjustment 

for Low-Volume Hospitals for FY 2014 

4. Effects of Extension of the MDH Program 

5. Effects of Changes Under the FY 2014 

Hospital Value-Based Purchasing (VBP) 

Program 

6. Effects of the Implementation of the 

HAC Reduction Program 

7. Effects of Proposed Policy Changes 

Relating to Payments for Direct GME and 

IME Costs 

8. Effects of Implementation of Rural 

Community Hospital Demonstration 

Program 

9. Effects of the Extended Effective Date for 

Policy on Hospital Services Furnished 

Under Arrangements 

I. Effects of Proposal Relating to the 

Furnishing of Acute Care Inpatient 

Services by CAHs 

J. Effects of Proposed Changes to the COPs 

for Hospitals Relating to the 

Administration of Pneumococcal 

Vaccines 

K. Effects of Proposed Changes in the 

Capital IPPS 

1. General Considerations 

2. Results 

L. Effects of Proposed Payment Rate 

Changes and Policy Changes Under the 

LTCH PPS 

1. Introduction and General Considerations 

2. Impact on Rural Hospitals 

3. Anticipated Effects of Proposed LTCH 

PPS Payment Rate Changes and Policy 

Changes 

4. Effect on the Medicare Program 

5. Effect on Medicare Beneficiaries 

M. Effects of Proposed Requirements for 

Hospital Inpatient Quality Reporting 

(IQR) Program 

N. Effects of Proposed Changes in the PPSExempt Cancer Hospital Quality 

Reporting (PCHQR) Program 

O. Effects of Proposed Changes in the 

LTCH Quality Reporting (LTCHQR) 

Program 

P. Effects of Proposed Changes in the 

Requirements for the Inpatient 

Psychiatric Facilities Quality Reporting 

(IPFQR) Program 

II. Alternatives Considered 

III. Overall Conclusion 

1. Acute Care Hospitals 

2. LTCHs 

IV. Accounting Statements and Tables 

A. Acute Care Hospitals 

B. LTCHs 

V. Regulatory Flexibility Act (RFA) Analysis 

VI. Impact on Small Rural Hospitals 

VII. Unfunded Mandate Reform Act (UMRA) 

Analysis 

VIII. Executive Order 12866 

Appendix B: Recommendation of Update 

Factors for Operating Cost Rates of 

Payment for Inpatient Hospital Services 

I. Background 

II. Inpatient Hospital Update for FY 2014 

A. Proposed FY 2014 Inpatient Hospital 

Update 

B. Proposed Update for SCHs for FY 2014 

C. Proposed FY 2014 Puerto Rico Hospital 

Update 

D. Proposed Update for Hospitals Excluded 

From the IPPS 

E. Proposed Update for LTCHs for FY 2014 

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 capitalrelated costs of acute care hospitals as 

well as for certain hospitals and hospital 

units excluded from the IPPS. In 

addition, it would make payment and 

policy changes for inpatient hospital 

services provided by long-term care 

hospitals (LTCHs) under the long-term 

care hospital prospective payment 

system (LTCH PPS). It also would make 

policy changes to programs associated 

with Medicare IPPS hospitals, IPPSexcluded 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 2014 and 

subsequent fiscal years. These statutory 

authorities include, but are not limited 

to, the following: 

• Section 1886(d) of the Social 

Security Act (the Act), which sets forth 

a system of payment for the operating 

costs of acute care hospital inpatient 

stays under Medicare Part A (Hospital 

Insurance) based on prospectively set 

rates. Section 1886(g) of the Act requires 

that, instead of paying for capital-related 

costs of inpatient hospital services on a 

reasonable cost basis, the Secretary use 

a prospective payment system (PPS). 

• Section 1886(d)(1)(B) of the Act, 

which specifies that certain hospitals 

and hospital units are excluded from the 

IPPS. These hospitals and units are: 

rehabilitation hospitals and units; 

LTCHs; psychiatric hospitals and units; 

children’s hospitals; and cancer 

hospitals. Religious nonmedical health 

care institutions (RNHCIs) are also 

excluded from the IPPS. 

• 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. 

• Sections 1814(l), 1820, and 1834(g) 

of the Act, which specifies that 

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payments are made to critical access 

hospitals (CAHs) (that is, rural hospitals 

or facilities that meet certain statutory 

requirements) for inpatient and 

outpatient services and that these 

payments are generally based on 101 

percent of reasonable cost. 

• Section 1866(k) of the Act, as added 

by section 3005 of the Affordable Care 

Act, which establishes a quality 

reporting program for hospitals 

described in section 1886(d)(1)(B)(v) of 

the Act, referred to as ‘‘PPS-Exempt 

Cancer Hospitals.’’ 

• Section 1886(d)(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. 

• Section 1886(d)(4)(D) of the Act, 

which addresses certain hospitalacquired 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 evidencebased 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. 

• 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. 

• Section 1886(b)(3)(B)(viii) of the 

Act, which requires the Secretary to 

reduce the applicable percentage 

increase in payments to a subsection (d) 

hospital for a fiscal year if the hospital 

does not submit data on measures in a 

form and manner, and at a time, 

specified by the Secretary. 

• Section 1886(o) of the Act, which 

requires the Secretary to establish a 

Hospital Value-Based Purchasing (VBP) 

Program under which value-based 

incentive payments are made in a fiscal 

year to hospitals meeting performance 

standards established for a performance 

period for such fiscal year. 

• Section 1886(p) of the Act, as added 

by section 3008 of the Affordable Care 

Act, which establishes an adjustment to 

hospital payments for hospital-acquired 

conditions (HACs), or a HospitalAcquired Condition (HAC) Reduction 

Program, under which payments to 

applicable hospitals are adjusted to 

provide an incentive to reduce hospitalacquired conditions, effective for 

discharges beginning on October 1, 

2014. 

• Section 1886(q) of the Act, as added 

by section 3025 of the Affordable Care 

Act and amended by section 10309 of 

the Affordable Care Act, which 

establishes the ‘‘Hospital Readmissions 

Reduction Program’’ effective for 

discharges from an ‘‘applicable 

hospital’’ beginning on or after October 

1, 2012, under which payments to those 

hospitals under section 1886(d) of the 

Act will be reduced to account for 

certain excess readmissions. 

• Section 1886(r) of the Act), as 

added by section 3313 of the Affordable 

Care Act, which provides for a 

reduction to disproportionate share 

payments under section 1886(d)(5)(f) of 

the Act and for a new uncompensated 

care payment to eligible hospitals. 

Specifically, section 1886(r) of the Act 

now requires that, for ‘‘fiscal year 2014 

and each subsequent fiscal year,’’ 

‘‘subsection (d) hospitals’’ that would 

otherwise receive a ‘‘disproportionate 

share payment . . . made under 

subsection (d)(5)(F)’’ will receive two 

separate payments: (1) 25 percent of the 

amount they previously would have 

received under subsection (d)(5)(F) for 

DSH (‘‘the empirically justified 

amount’’), and (2) an additional 

payment for the DSH hospital’s 

proportion of uncompensated care, 

determined as the product of three 

factors. These three factors are: (1) 75 

percent of the payments that would 

otherwise be made under subsection 

(d)(5)(F); (2) 1 minus the percent change 

in the percent of individuals under the 

age of 65 who are uninsured (minus 0.1 

percentage points for FY 2014, and 

minus 0.2 percentage points for FY 2015 

through FY 2017); and (3) a hospital’s 

uncompensated care amount relative to 

the uncompensated care amount of all 

DSH hospitals expressed as a 

percentage. 

• Section 1886(s)(4) of the Act, as 

added and amended by section 3401(f) 

and 10322(a) of the Affordable Care Act, 

respectively, which requires the 

Secretary to implement a quality 

reporting program for inpatient 

psychiatric hospitals and psychiatric 

units. Under this program, known as the 

Inpatient Psychiatric Facility Quality 

Reporting (IPFQR) Program, beginning 

with FY 2014, the Secretary must 

reduce any annual update to a standard 

Federal rate for discharges occurring 

during a fiscal 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 fiscal year. 

2. Summary of the Major Provisions 

a. MS–DRG Documentation and Coding 

Adjustment 

Section 631 of the American Taxpayer 

Relief Act (ATRA, Pub. L. 112–240) 

amended section 7(b)(1)(B) of Public 

Law 110–90 to require the Secretary to 

make a recoupment adjustment to the 

standardized amount of Medicare 

payments to acute care hospitals to 

account for changes in MS–DRG 

documentation and coding that do not 

reflect real changes in case-mix, totaling 

$11 billion over a 4-year period of FYs 

2014, 2015, 2016, and 2017. This 

adjustment represents the amount of the 

increase in aggregate payments as a 

result of not completing the prospective 

adjustment authorized under section 

7(b)(1)(A) of Public Law 110–90 until 

FY 2013. Prior to the ATRA, this 

amount could not have been recovered 

under Public Law 110–90. 

While our actuaries estimate that a 

¥9.3 percent adjustment to the 

standardized amount would be 

necessary if CMS were to fully recover 

the $11 billion recoupment required by 

section 631 of the ATRA in FY 2014, it 

is often our practice to delay or phase 

in rate adjustments over more than one 

year, in order to moderate the effects on 

rates in any one year. Therefore, 

consistent with the policies that we 

have adopted in many similar cases, we 

are proposing a ¥0.8 percent 

recoupment adjustment to the 

standardized amount in FY 2014. 

Although we are not proposing an 

additional prospective adjustment in FY 

2014 for the cumulative MS–DRG 

documentation and coding effects 

through FY 2010, we are soliciting 

public comments as to whether any 

portion of the proposed ¥0.8 percent 

recoupment adjustment to the operating 

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IPPS standardized amount should be 

reduced and instead applied as a 

prospective adjustment to the operating 

IPPS standardized amount (and 

hospital-specific rates) for the 

cumulative MS–DRG documentation 

and coding effect through FY 2010. 

b. Proposed Refinement of the MS–DRG 

Relative Weight Calculation 

Beginning in FY 2007, we 

implemented relative weights for DRGs 

based on cost report data instead of 

charge information. To address the issue 

of charge compression (the hospital 

practice of applying higher charges to 

lower cost items and applying lesser 

charges to higher cost items) when using 

cost report data to set the MS–DRG 

relative weights, in FYs 2009 and 2010, 

we created additional cost centers on 

the Medicare cost report to distinguish 

implantable devices from other medical 

supplies, MRIs and CT scans, 

respectively, from other radiology 

services, and cardiac catheterization 

from other cardiology services. As 

compared to previous years, we 

currently have a significant volume of 

hospitals completing all, or some, of 

these new cost centers on the Medicare 

cost report. In section II.E. of the 

preamble of this proposed rule, we 

provide various data analyses based on 

comparison of the FY 2014 relative 

weights computed using 15 cost-tocharge ratios (CCRs), as we have done in 

the past, and the FY 2014 relative 

weights computed using 19 CCRs, with 

distinct CCRs for implantable devices, 

MRIs, CT scans, and cardiac 

catheterization. 

We believe that the analytic findings 

described in section II.E. of the 

preamble of this proposed rule support 

our original decision to break out and 

create new cost centers for implantable 

devices, MRIs, CT scans, and cardiac 

catheterization. Therefore, beginning in 

FY 2014, we are proposing to calculate 

the MS–DRG relative weights using 19 

CCRs, creating distinct CCRs from cost 

report data for implantable devices, 

MRIs, CT scans, and cardiac 

catheterization. 

c. Proposed Rebasing and Revision of 

the Hospital Market Baskets for Acute 

Care Hospitals 

In section IV. of the preamble of this 

proposed rule, we are proposing to 

rebase and revise the acute care hospital 

operating and capital market baskets 

used to update IPPS payment rates. For 

both market baskets, we are proposing 

to update the base year cost weights 

from a FY 2006 base year to a FY 2010 

base year. We also are proposing to 

recalculate the labor-related share using 

the proposed FY 2010-based hospital 

market basket, for discharges occurring 

on or after October 1, 2013. We would 

use the FY 2010-based market basket in 

developing the FY 2014 update factor 

for the operating and capital prospective 

payment rates and the FY 2014 update 

factor for the excluded hospital rate-ofincrease limits. We also are setting forth 

the data sources used to determine the 

proposed revised market basket relative 

weights. 

d. Reduction of Hospital Payments for 

Excess Readmissions 

We are proposing a number of 

changes in 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 payment 

to account for excess readmissions of 

selected applicable conditions. These 

conditions are acute myocardial 

infarction, heart failure, and 

pneumonia. For FY 2014, we are 

proposing additional exclusions to the 

three existing readmission measures 

(that is, the excess readmission ratio) 

that account for planned readmissions. 

We also are proposing additional 

readmission measures to be used in the 

payment determination for FY 2015. In 

addition, we are proposing that the 

readmissions payment adjustment 

factors for FY 2014 can be no more than 

a 2-percent reduction (there is a 1- 

percent cap in FY 2013), consistent with 

the statute. We are proposing a change 

in the methodology we use to calculate 

the readmissions payment adjustment 

factors to make it more consistent with 

the calculation of the excess 

readmission ratio. 

e. Hospital Value-Based Purchasing 

(VBP) Program 

Section 1886(o) of the Act requires the 

Secretary to establish a Hospital ValueBased 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. 

In this proposed rule, we are outlining 

payment details for the FY 2014 

Hospital VBP Program. In addition, we 

are proposing numerous policies for the 

FY 2016 Hospital VBP Program, 

including measures, performance 

standards, and performance and 

baseline periods. We also are proposing 

a disaster/extraordinary circumstances 

waiver process, domain reclassification 

and weighting based on CMS’ National 

Quality Strategy for the FY 2017 

Hospital VBP Program, and certain 

measures, performance and baseline 

periods, and performance standards for 

the FY 2017 through FY 2019 Programs. 

f. Hospital-Acquired Condition (HAC) 

Reduction Program 

In this proposed rule, we are 

proposing measures, scoring, and risk 

adjustment methodology to implement 

the FY 2015 payment adjustment under 

the HAC Reduction Program. Section 

1886(p) of the Act, as added under 

section 3008(a) of the Affordable Care 

Act, establishes an adjustment to 

hospital payments for HACs, or a HAC 

Reduction program, under which 

payments to applicable hospitals are 

adjusted to provide an incentive to 

reduce HACs, effective for discharges 

beginning on October 1, 2014 and for 

subsequent program years. The amount 

of payment shall be equal to 99 percent 

of the amount of payment that would 

otherwise apply to such discharges 

under section 1886(d) or 1814(b)(3) of 

the Act, as applicable. 

g. Counting of Inpatient Days for 

Medicare Payment or Eligibility 

Purposes 

In response to a comment we received 

on the FY 2013 IPPS/LTCH PPS final 

rule and consistent with the inpatient 

day counting rules for DSH as clarified 

in the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule, we are proposing that patient 

days associated with maternity patients 

who were admitted as inpatients and 

were receiving ancillary labor and 

delivery services at the time the 

inpatient routine census is taken, 

regardless of whether the patient 

actually occupied a routine bed prior to 

occupying an ancillary labor and 

delivery bed and regardless of whether 

the patient occupies a ‘‘maternity suite’’ 

in which labor, delivery recovery, and 

postpartum care all take place in the 

same room, would be included in the 

Medicare utilization calculation. We 

understand that including labor and 

delivery inpatient days in the Medicare 

utilization calculation invariably would 

reduce direct GME payments because 

direct GME payments are based, in part, 

on a hospital’s Medicare utilization ratio 

and the denominator of that ratio, which 

includes the hospital’s total inpatient 

days, would increase at a higher rate 

than the numerator of the ratio, which 

includes the hospital’s Medicare 

inpatient days. However, because the 

Medicare utilization ratio is a 

comparison of a hospital’s total 

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Medicare inpatient days to its total 

inpatient days, we believe that revising 

the ratio to include labor and delivery 

days is appropriate because they are 

inpatient days and therefore should be 

counted as such. We are proposing to 

include labor and delivery days as 

inpatient days in the Medicare 

utilization calculation effective for cost 

reporting periods beginning on or after 

October 1, 2013. 

h. Proposed Changes to the DSH 

Payment Adjustment and the Provision 

of Additional Payment for 

Uncompensated Care 

Section 3133 of the Affordable Care 

Act modified the Medicare 

disproportionate share hospital (DSH) 

payment methodology beginning in FY 

2014. Currently, Medicare DSHs qualify 

for a DSH payment adjustment under a 

statutory formula that considers their 

Medicare utilization due to beneficiaries 

who also receive Supplemental Security 

Income benefits and their Medicaid 

utilization. Under section 1886(r) of the 

Act, which was added by section 3133 

of the Affordable Care Act, starting in 

FY 2014, DSHs will receive 25 percent 

of the amount they previously would 

have received under the current 

statutory formula for Medicare DSH 

payments. The remaining amount, equal 

to 75 percent of what otherwise would 

have been paid as Medicare DSH 

payments, will be paid as additional 

payments after the amount is reduced 

for changes in the percentage of 

individuals that are uninsured. Each 

Medicare DSH will receive its 

additional amount based on its share of 

the total amount of uncompensated care 

for all Medicare DSH hospitals for a 

given time period. In this proposed rule, 

we are proposing to implement these 

statutory changes. 

i. Proposal Relating to Admission and 

Medical Review Criteria for Hospital 

Inpatient Services Under Medicare Part 

A 

To reduce uncertainty regarding the 

requirements for payments to hospitals 

and CAHs under Medicare Part A 

related to when a Medicare beneficiary 

should be admitted as a hospital 

inpatient, in this proposed rule, we are 

proposing to clarify the rules governing 

physician orders of hospital inpatient 

admissions for payment under Medicare 

Part A. We are proposing to clarify and 

specify in the regulations that an 

individual becomes an inpatient of a 

hospital, including a critical access 

hospital, pursuant to an order for 

inpatient admission by a physician or 

other qualified practitioner and, 

therefore, the order is required for 

payment of hospital inpatient services 

under Medicare Part A. We are 

proposing that hospital inpatient 

admissions spanning 2 midnights in the 

hospital would generally qualify as 

appropriate for payment under 

Medicare Part A. This would revise our 

guidance to hospitals and physicians 

relating to when hospital inpatient 

admissions are determined reasonable 

and necessary for payment under Part 

A. We also are proposing to use our 

exceptions and adjustments authority 

under section 1886(d)(5)(I)(i) of the Act 

to offset the additional IPPS 

expenditures under this proposal by 

reducing the standardized amount, the 

hospital-specific amount, and the Puerto 

Rico-specific standardized amount by 

0.2 percent. 

j. Proposed LTCH PPS Standard Federal 

Rate 

In section VIII.A. of the preamble of 

this proposed rule, we present the 

proposed LTCH PPS standard Federal 

rate for FY 2014, which includes a 

proposed adjustment factor of 0.98734 

for the second year of the 3-year phasein of the permanent one-time 

adjustment to the standard Federal rate. 

In addition, under the LTCH Quality 

Reporting (LTCHQR) Program, the 

proposed annual update to the standard 

Federal rate will be reduced by 2 

percentage points for LTCHs that fail to 

submit data for FY 2014 on specific 

measures under section 3004 of the 

Affordable Care Act. 

k. Expiration of Certain Payment Rules 

for LTCH Services and Research on the 

Development of a Patient Criteria-Based 

Payment Adjustment Under the LTCH 

PPS 

In section VIII.D. of the preamble of 

this proposed rule, we note the 

expiration of the moratorium on the full 

implementation of the ‘‘25 percent 

threshold’’ payment adjustment to 

LTCHs under the LTCH PPS for cost 

reporting periods beginning on or after 

October 1, 2013. 

In section VIII.E. of the preamble of 

this proposed rule, we describe the 

results of research being done by a CMS 

contractor, Kennell and Associates 

(Kennell) and its subcontractor, 

Research Triangle Institute, 

International (RTI), on the development 

of a payment adjustment under the 

LTCH PPS based on the establishment 

of LTCH patient criteria. 

l. Hospital Inpatient Quality Reporting 

(IQR) Program 

Under section 1886(b)(3)(B)(viii) of 

the Act, hospitals are required to report 

data on measures selected by the 

Secretary for the Hospital IQR Program 

in order to receive the full annual 

percentage increase. In past rules, we 

have established measures for reporting 

and the process for submittal and 

validation of the data. 

In this proposed rule, we are 

proposing to make several changes to: 

(1) The measure set, including the 

removal of some measures, the 

refinement of some measures, and the 

adoption of several new measures; (2) 

the administrative processes; and (3) the 

validation methodologies. We also are 

proposing to allow hospitals the option 

of reporting the measures in four 

measure sets electronically for the FY 

2016 payment determination. These 

proposed changes would improve the 

timeliness and efficiency of the Hospital 

IQR Program and begin the process of 

incorporating electronic reporting into 

the Hospital IQR Program. 

3. Summary of Costs and Benefits 

• Proposed Adjustment for MS–DRG 

Documentation and Coding Changes. 

We are proposing a ¥0.8 percent 

recoupment adjustment to the 

standardized amount for FY 2014 to 

implement, in part, the requirement of 

section 631 of the ATRA that the 

Secretary make an adjustment totaling 

$11 billion over a 4-year period of FYs 

2014, 2015, 2016, and 2017. This 

recoupment adjustment represents the 

amount of the increase in aggregate 

payments as a result of not completing 

the prospective adjustment authorized 

under section 7(b)(1)(A) of Public Law 

110–90 until FY 2013. Prior to the 

ATRA, this amount could not have been 

recovered under Public Law110–90. 

While our actuaries estimate that a 

¥9.3 percent recoupment adjustment to 

the standardized amount would be 

necessary if CMS were to fully recover 

the $11 billion recoupment required by 

section 631 of the ATRA in FY 2014, it 

is often our practice to delay or phase 

in rate adjustments over more than one 

year, in order to moderate the effects on 

rates in any one year. Therefore, 

consistent with the policies that we 

have adopted in many similar cases, we 

are proposing a ¥0.8 percent 

recoupment adjustment to the 

standardized amount in FY 2014. We 

estimate that this level of adjustment 

would recover $0.96 billion in FY 2014, 

with approximately $10.4 billion 

remaining to be addressed. We are not 

proposing any future adjustments at this 

time but note that if recoupment 

adjustments of approximately ¥0.8 

percent are implemented in FYs 2014, 

2015, 2016, and 2017, we estimate that 

the entire $11 billion will be recovered 

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by the end of the statutory 4-year 

timeline. 

• Proposed Refinement of the MS– 

DRG Relative Weight Calculation. We 

refer readers to section VI.C. of 

Appendix A of this proposed rule for 

the overall IPPS operating impact, 

which includes the impact for the 

proposed refinement of the MS–DRG 

relative weight calculation. This 

proposed impact models payments to 

various hospital types using relative 

weights developed from 19 CCRs as 

compared to 15 CCRs. As with other 

proposed changes to the MS–DRGs, 

these proposed changes are to be 

implemented in a budget neutral 

manner. 

• Proposed Rebasing and Revision of 

the Hospital Market Baskets for Acute 

Care Hospitals. The proposed FY 2010- 

based IPPS market basket update (as 

measured by percentage increase) for FY 

2014 is currently forecasted to be the 

same as the market basket update based 

on the FY 2006-based IPPS market 

basket at 2.5 percent (currently used 

under the IPPS). Therefore, we are 

projecting that there would be no fiscal 

impact on the IPPS operating payment 

rates in FY 2014 as a result of the 

proposed rebasing and revision of the 

IPPS market basket. 

The proposed FY 2010-based IPPS 

capital input price index update (as 

measured by percentage increase) for FY 

2014 is currently forecasted to be 1.2 

percent, 0.2 percentage points lower 

than the update based on the FY 2006- 

based capital input price index. 

Therefore, we are projecting that there 

would be a fiscal impact of ¥$16 

million to the IPPS capital payments in 

FY 2014 as a result of this proposal (0.2 

percentage points * annual capital IPPS 

payments of approximately $8 billion). 

In addition, we are proposing to 

update the labor-related share under the 

IPPS for FY 2014 based on the proposed 

FY 2010-based IPPS market basket, 

which would result in a labor-related 

share of 69.6 percent (compared to the 

FY 2013 labor-related share of 68.8) or 

62 percent, depending on which results 

in higher payments to the hospital. For 

FY 2014, the proposed labor-related 

share for the Puerto Rico-specific 

standardized amount would be either 

63.2 percent or 62 percent, depending 

on which results in higher payments to 

the hospital. We are projecting that 

there would be no impact on aggregate 

IPPS payments as a result of this 

proposal due to the statutory 

requirement that any changes to the 

IPPS area wage adjustment (including 

the labor-related share) are adopted in a 

budget neutral manner. 

• Reduction to Hospital Payments for 

Excess Readmissions. The provisions of 

section 1886(q) of the Act which 

establishes the Hospital Readmissions 

Reduction Program are not budget 

neutral. For FY 2014, a hospital’s 

readmissions payment adjustment factor 

is the higher of a ratio of a hospital’s 

aggregate payments for excess 

readmissions to its aggregate payments 

for all discharges, or 0.98 (that is, or a 

2-percent reduction). In this proposed 

rule, we estimate that the reduction to 

a hospital’s base operating DRG 

payment amount to account for excess 

readmissions of selected applicable 

conditions under the Hospital 

Readmissions Reduction Program will 

result in a 0.2 percent decrease, or 

approximately ¥$175 million, in 

payments to hospitals for FY 2014. 

• Value-Based Incentive Payments 

Under the Hospital Value-Based 

Purchasing (VBP) Program. We estimate 

that there will be no net financial 

impact to the Hospital VBP Program for 

FY 2014 in the aggregate because, by 

law, the amount available for valuebased incentive payments under the 

program in a given fiscal year must be 

equal to the total amount of base 

operating DRG payment amount 

reductions for that year, as estimated by 

the Secretary. The estimated amount of 

base operating DRG payment amount 

reductions for FY 2014, and therefore 

the estimated amount available for 

value-based incentive payments for FY 

2014 discharges, is approximately $1.1 

billion. We believe that the program’s 

benefits will be seen in improved 

patient outcomes, safety, and in the 

patient’s experience of care. We intend 

to provide an updated analysis of the 

program’s estimated dollar impact for 

the FY 2014 program year in the FY 

2014 IPPS/LTCH PPS final rule. 

However, we cannot estimate these 

benefits in actual dollar and patient 

terms. 

• Implementation of the HAC 

Reduction Program for FY 2014. We 

note that there is no payment impact for 

FY 2014 for implementing the HAC 

Reduction Program. For FY 2015, we are 

presenting the overall impact of the 

HAC Reduction Program provision 

along with other IPPS payment 

provision impacts in section I.G. of 

Appendix A of this proposed rule. 

• Counting of Inpatient Days in the 

Medicare Utilization Calculation. We 

believe our proposal to include labor 

and delivery days as inpatient days in 

the Medicare utilization calculation 

would result in a savings of 

approximately $15 million for FY 2014. 

• Changes to the Medicare DSH 

Payment Adjustment and Provision of 

Additional Payment for 

Uncompensated Care. Under section 

1886(r) of the Act (as added by section 

3313 of the Affordable Care Act), 

disproportionate share payments to 

hospitals under section 1886(d)(5)(F) of 

the Act are reduced and an additional 

payment to eligible hospitals will be 

made beginning in FY 2014. Hospitals 

that receive Medicare DSH payments 

will receive 25 percent of the amount 

they previously would have received 

under the current statutory formula for 

Medicare DSH payments. The 

remainder, equal to 75 percent of what 

otherwise would have been paid as 

Medicare DSH payments, will be the 

basis for additional payments after the 

amount is reduced for changes in the 

percentage of individuals that are 

uninsured and additional statutory 

adjustments. Each hospital that receives 

Medicare DSH payments will receive an 

additonal payment based on its share of 

the total uncompensated care amount 

reported by Medicare DSHs. The 

reduction to Medicare DSH payments is 

not budget neutral. 

We are proposing that 75 percent of 

what otherwise would have been paid 

for Medicare DSH payments is adjusted 

to 88.8 percent of that amount for 

changes in the percentage of individuals 

that are uninsured and additional 

statutory adjustments. In other words, 

Medicare DSH payments prior to the 

application of section 3133 are adjusted 

to 66.6 percent (the product of 75 

percent and 88.8 percent) and that 

resulting payment amount is used to 

create an additional payment for a 

hospital’s relative uncompensated care. 

As a result, we project that the 

reduction of Medicare DSH payments 

and the inclusion of the additional 

payments will reduce payments overall 

by 0.9 percent as compared to Medicare 

DSH payments prior to the 

implementation of section 3133. The 

proposed additional payment costs have 

redistributive effects based on a 

hospital’s uncompensated care amount 

relative to the uncompensated care 

amount for all hospitals that are 

estimated to receive Medicare DSH 

payments, and the payment amount is 

not tied to a hospital’s discharges. 

• Proposal Relating to Admission 

and Medical Review Criteria for 

Hospital Inpatient Services Under 

Medicare Part A. In this proposed rule, 

we are making a proposal relating to 

admission and medical review criteria 

for hospital inpatient admissions under 

Medicare Part A. One aspect of this 

proposal is that hospital inpatient 

admissions spanning 2 midnights in the 

hospital would generally qualify as 

appropriate for payment under 

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Medicare Part A. Our actuaries estimate 

that the proposal would increase IPPS 

expenditures by approximately $220 

million due to an expected net increase 

in inpatient encounters. We are 

proposing to use our exceptions and 

adjustments authority under section 

1886(d)(5)(I)(i) of the Act to make a 

reduction of 0.2 percent to the 

standardized amount, the Puerto Rico 

standardized amount, and the hospitalspecific payment rate to offset this 

estimated $220 million in additional 

IPPS expenditures. We also are 

proposing to apply that 0.2 percent 

reduction to the capital Federal rates 

using our authority under section 

1886(g) of the Act. 

• Hospital Inpatient Quality 

Reporting (IQR) Program. We are 

proposing that hospitals participating in 

the Hospital IQR Program will have the 

option to report a subset of measures 

electronically in CY 2014 for the FY 

2016 payment determination. Under 

this proposal, hospitals may choose to 

report the measures in four measure sets 

electronically or as chart-abstracted 

measures in CY 2014. For the FY 2016 

payment determination, we also are 

proposing to remove seven chartabstracted measures and one structural 

measure. We also are proposing to adopt 

five new claims-based measures for the 

FY 2016 payment determination and 

subsequent years. We are proposing, for 

the FY 2016 payment determination and 

subsequent years, to validate two 

additional chart-abstracted HAI 

measures: MRSA bacteremia, and C. 

difficile. We also are proposing to 

reduce the number of records used for 

HAI validation from 48 records per year 

to 36 records per year beginning with 

the FY 2015 payment determination. 

Finally, we are proposing to allow 

hospitals to submit patient charts for 

purposes of validation either in paper 

form or by means of electronic 

transmission. We believe the proposed 

changes to the measure set, processes, 

and validation methodologies, the 

proposal for electronic submission of 

records for validation, as well as the 

proposal to allow hospitals to report 

certain measures electronically for the 

FY 2016 payment determination will 

result in improved program efficiency 

and begin the process of incorporating 

electronic reporting into the program. 

We estimate that the combination of 

these proposed changes and the 

reduction in measures mentioned above 

will reduce burden hours by 700,000 

hours annually. 

• Proposed Update to the LTCH PPS 

Standard Federal Rate and Other 

Payment Factors. Based on the best 

available data for the 423 LTCHs in our 

database, we estimate that the proposed 

changes we are presenting in the 

preamble and Addendum of this 

proposed rule, including the proposed 

update to the standard Federal rate for 

FY 2014, the proposed changes to the 

area wage adjustment for FY 2014, and 

the proposed changes to short-stay 

outliers and high-cost outliers, would 

result in an increase in estimated 

payments from FY 2013 of 

approximately $62 million (or 1.1 

percent). Although we generally project 

an increase in proposed payments for all 

LTCHs in FY 2014 as compared to FY 

2013, we expect rural LTCHs to 

experience slightly lower increases than 

the national average due to decreases in 

their wage index for FY 2014 compared 

to FY 2013. In addition, under current 

law, our moratoria on the full 

implementation of the ‘‘25-percent 

threshold’’ payment adjustment policy 

will expire for certain LTCHs for cost 

reporting periods beginning on or after 

October 1, 2013. These regulatory 

moratoria extended, for an additional 

year, the 5-year statutory 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, 

which expired for cost reporting periods 

beginning on or after October 1, 2012 

(‘‘October LTCHs’’), and for other 

LTCHs and LTCH satellite facilities for 

cost reporting periods beginning on or 

after July 1, 2012 (‘‘July LTCHs’’) (77 FR 

53483 through 53484, as amended by 

the FY 2013 IPPS/LTCH PPS correcting 

amendment (77 FR 63751 through 

63753)), as explained in section VIII.D. 

of the preamble of this proposed rule. 

We estimate that the expiration of the 

regulatory moratoria will result in a 

reduction in payments of $190 million 

to LTCHs. Overall, we estimate that the 

effect of the changes we are proposing 

for FY 2014 in conjunction with the 

expiration of the regulatory moratoria 

would result in a decrease in aggregate 

LTCH PPS payments in FY 2014 relative 

to FY 2013 of approximately ¥$128 

million (that is, the estimated increase 

of $62 million plus the estimated 

reduction of $190 million, as described 

above). 

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 laborrelated 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. 

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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 hospitalspecific 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 hospitalspecific rate. As discussed below, for 

discharges occurring on or after October 

1, 2007, but before October 1, 2013, 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 2013, 

that is, on September 30, 2013.) SCHs 

are the sole source of care in their areas, 

and MDHs are a major source of care for 

Medicare beneficiaries in their areas. 

Specifically, section 1886(d)(5)(D)(iii) of 

the Act defines an SCH as a hospital 

that is located more than 35 road miles 

from another hospital or that, by reason 

of factors such as isolated location, 

weather conditions, travel conditions, or 

absence of other like hospitals (as 

determined by the Secretary), is the sole 

source of hospital inpatient services 

reasonably available to Medicare 

beneficiaries. In addition, certain rural 

hospitals previously designated by the 

Secretary as essential access community 

hospitals are considered SCHs. Section 

1886(d)(5)(G)(iv) of the Act defines an 

MDH as a hospital that is located in a 

rural area, has not more than 100 beds, 

is not an SCH, and has a high 

percentage of Medicare discharges (not 

less than 60 percent of its inpatient days 

or discharges in its cost reporting year 

beginning in FY 1987 or in two of its 

three most recently settled Medicare 

cost reporting years). Both of these 

categories of hospitals are afforded this 

special payment protection in order to 

maintain access to services for 

beneficiaries. 

Section 1886(g) of the Act requires the 

Secretary to pay for the capital-related 

costs of inpatient hospital services ‘‘in 

accordance with a prospective payment 

system established by the Secretary.’’ 

The basic methodology for determining 

capital prospective payments is set forth 

in our regulations at 42 CFR 412.308 

and 412.312. Under the capital IPPS, 

payments are adjusted by the same DRG 

for the case as they are under the 

operating IPPS. Capital IPPS payments 

are also adjusted for IME and DSH, 

similar to the adjustments made under 

the operating IPPS. In addition, 

hospitals may receive outlier payments 

for those cases that have unusually high 

costs. 

The existing regulations governing 

payments to hospitals under the IPPS 

are located in 42 CFR Part 412, Subparts 

A through M. 

2. Hospitals and Hospital Units 

Excluded From the IPPS 

Under section 1886(d)(1)(B) of the 

Act, as amended, certain hospitals and 

hospital units are excluded from the 

IPPS. These hospitals and units are: 

Rehabilitation hospitals and units; longterm 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 of the BBRA and section 

307(b) of the BIPA (as codified under 

section 1886(m)(1) of the Act). During 

the 5-year (optional) transition period, a 

LTCH’s payment under the PPS was 

based on an increasing proportion of the 

LTCH Federal rate 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 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), the Health Care and Education 

Reconciliation Act of 2010 (Pub. L. 111– 

152), and the American Taxpayer Relief 

Act of 2012 (ATRA) (Pub. L. 112–240) 

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 

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the provisions of the Affordable Care 

Act affect the updates to the IPPS and 

the LTCH PPS and providers and 

suppliers. The provisions of the 

Affordable Care Act that were 

applicable to the IPPS and the LTCH 

PPS for FYs 2010, 2011, and 2012 were 

implemented in the June 2, 2010 

Federal Register notice (75 FR 31118), 

the FY 2011 IPPS/LTCH PPS final rule 

(75 FR 50042) and the FY 2012 IPPS/ 

LTCH PPS final rule (76 FR 51476). 

The American Taxpayer Relief Act of 

2012 (ATRA) (Pub. L. 112–240), enacted 

on January 2, 2013, also made a number 

of changes that affect the IPPS. We 

announced changes related to certain 

IPPS provisions for FY 2013 pursuant to 

sections 605 and 606 of Public Law 

112–240 in a notice issued in the 

Federal Register on March 7, 2013 (78 

FR 14689). 

1. The Patient Protection and Affordable 

Care Act (Pub. L. 111–148) and the 

Health Care and Education 

Reconciliation Act of 2010 (Pub. L. 111– 

152) 

In this proposed rule, we are 

proposing to implement, or continue in 

FY 2014 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: 

• Section 3001(a) of Public Law 111– 

148, which requires the establishment of 

a hospital inpatient value-based 

purchasing program under which valuebased incentive payments are made in a 

fiscal year to hospitals that meet 

performance standards for the 

performance period for that fiscal year. 

• Section 3004 of Public Law 111– 

148, which provides for the submission 

of quality data by LTCHs in order for 

them to receive the full annual update 

to the payment rates beginning with the 

FY 2014 rate year. 

• Section 3005 of Public Law 111– 

148, which provides for the 

establishment of a quality reporting 

program for PPS-exempt cancer 

hospitals beginning with FY 2014, and 

for subsequent program years. 

• Section 3008 of Public Law 111– 

148, which establishes the HospitalAcquired Condition (HAC) Reduction 

Program and requires the Secretary to 

make an adjustment to hospital 

payments for applicable hospitals, 

effective for discharges beginning on 

October 1, 2014, and for subsequent 

program years. 

• 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. 

• Section 3133 of Public Law 111– 

148, which modifies the methodologies 

for determining Medicare DSH 

payments and creates a new additional 

payment for uncompensated care. 

• 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. 

• Section 10324 of Public Law 111– 

148, which provides for a wage 

adjustment for hospitals located in 

frontier States. 

• 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 

IPPS and LTCH PPS payment rates for 

FY 2014. 

• 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. 

2. American Taxpayer Relief Act of 2012 

(ATRA) (Pub. L. 112–240) 

In this proposed rule, we are 

proposing to implement or to make 

conforming changes to regulation text in 

accordance with the following 

provisions (or portions of the following 

provisions) of the American Taxpayer 

Relief Act of 2012 that are applicable to 

the IPPS: 

• Section 605, which amended 

sections 1886(d)(12)(B), (C)(i), and (D) of 

the Act to extend changes to the 

payment methodology for the Medicare 

inpatient hospital payment adjustment 

for low-volume hospitals through 

September 30, 2013 (FY 2013). 

Beginning with FY 2014, the preexisting 

low-volume hospital qualifying criteria 

and payment adjustment, as 

implemented in FY 2005, will resume. 

• Section 606(a), which amended 

sections 1886(d)(5)(G)(i) and (ii)(II) of 

the Act to extend the MDH program 

through September 30, 2013 (FY 2013), 

and section 606(b), which made 

conforming amendments to sections 

1886(b)(3)(D)(i) and (iv) of the Act and 

amended section 13501(e)(2) of the 

Omnibus Budget Reconciliation Act of 

1993 to permit hospitals to decline 

reclassification through FY 2013. 

• Section 631, which amended 

section 7(b)(1)(B) of Public Law 110–90 

and requires a recoupment adjustment 

to the standardized amounts under 

section 1886(d) of the Act based upon 

the Secretary’s estimates for discharges 

occurring in FY 2014 through FY 2017 

to fully offset $11 billion (which 

represents the amount of the increase in 

aggregate payments from FYs 2008 

through 2013 for which an adjustment 

was not previously applied). 

D. Summary of the Provisions of This 

Proposed Rule 

In this proposed rule, we are setting 

forth proposed changes to the Medicare 

IPPS for operating costs and for capitalrelated costs of acute care hospitals in 

FY 2014. 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 2014. 

Below is a summary of the major 

changes that we are proposing to make: 

1. Proposed Changes to MS–DRG 

Classifications and Recalibrations of 

Relative Weights 

In section II. of the preamble of this 

proposed rule, we include— 

• Proposed changes to MS–DRG 

classifications based on our yearly 

review. 

• Proposed application of the 

documentation and coding adjustment 

for FY 2014 resulting from 

implementation of the MS–DRG system. 

• A discussion of the Research 

Triangle Institute, International (RTI) 

reports and recommendations relating to 

charge compression, including the 

proposal to calculate the MS–DRG 

relative weights using 19 CCRs. 

• Proposed recalibrations of the MS– 

DRG relative weights. 

• Proposed changes to hospitalacquired 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 2014. 

• A discussion of the FY 2014 status 

of new technologies approved for addon payments for FY 2013 and a 

presentation of our evaluation and 

analysis of the FY 2014 applicants for 

add-on payments for high-cost new 

medical services and technologies 

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(including public input, as directed by 

Pub. L. 108–173, obtained in a town hall 

meeting). 

2. Proposed Changes to the Hospital 

Wage Index for Acute Care Hospitals 

In section III. of the preamble to this 

proposed rule, we are proposing 

revisions to the wage index for acute 

care hospitals and the annual update of 

the wage data. Specific issues addressed 

include the following: 

• The proposed FY 2014 wage index 

update using wage data from cost 

reporting periods beginning in FY 2010. 

• Analysis and implementation of the 

proposed FY 2014 occupational mix 

adjustment to the wage index for acute 

care hospitals, including the proposed 

application of the rural floor, the 

imputed rural floor calculated under the 

original and alternative methodologies, 

and the frontier State floor. 

• Proposed revisions to the wage 

index for acute care hospitals based on 

hospital redesignations and 

reclassifications. 

• The proposed adjustment to the 

wage index for acute care hospitals for 

FY 2014 based on commuting patterns 

of hospital employees who reside in a 

county and work in a different area with 

a higher wage index. 

• The timetable for reviewing and 

verifying the wage data used to compute 

the proposed FY 2014 hospital wage 

index. 

• Determination of the labor-related 

share for the proposed FY 2014 wage 

index. 

3. Proposed Rebasing and Revision of 

the Hospital Market Baskets for Acute 

Care Hospitals 

In section IV. of the preamble of this 

proposed rule, we are proposing to 

rebase and revise the acute care hospital 

operating and capital market baskets to 

be used in developing the FY 2014 

update factor for the operating and 

capital prospective payment rates and 

the FY 2014 update factor for the 

excluded hospital rate-of-increase 

limits. We also are setting forth the data 

sources used to determine the proposed 

revised market basket relative weights. 

4. Other Decisions and Proposed 

Changes to the IPPS for Operating Costs 

and GME Costs 

In section V. of the preamble of this 

proposed rule, we discuss proposed 

changes or clarifications of a number of 

the provisions of the regulations in 42 

CFR Parts 412 and 413, including the 

following: 

• Proposed changes to the inpatient 

hospital update for FY 2014, including 

incorporation of a productivity 

adjustment. 

• The proposed updated national and 

regional case-mix values and discharges 

for purposes of determining RRC status. 

• Proposed payment adjustment for 

low-volume hospitals for FY 2014. 

• The statutorily required IME 

adjustment factor for FY 2014. 

• Proposed changes to the 

methodologies for determining 

Medicare DSH payments and proposals 

to implement the new additional 

payments for uncompensated care. 

• Discussion of the extension of the 

MDH program through FY 2013. 

• Proposed changes to the 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. 

• Proposed changes to the 

requirements and provision of valuebased incentive payments under the 

Hospital Value-Based Purchasing 

Program. 

• Proposed requirements for payment 

adjustments to hospitals under the HAC 

Reduction Program. 

• Proposal for counting labor and 

delivery inpatient days in the 

calculation of Medicare utilization for 

direct GME purposes and for other 

inpatient days policy for payments and 

eligibility. 

• Announcement of an additional 

closed hospital and redistribution of 

resident cap slots relating to direct GME 

and IME payments. 

• Proposed clarifications of policies 

on payments for residents training in 

approved residency programs at CAHs. 

• Announcement of the expiration of 

the inflation update freeze for high per 

resident amounts (PRAs). 

• Discussion of the Rural Community 

Hospital Demonstration Program and a 

proposal for making a budget neutrality 

adjustment for the demonstration 

program. 

• Extending the effective date of 

policies relating to hospital services 

furnished under arrangements. 

• Proposed policy that medical 

review of inpatient admissions will 

include a presumption that hospital 

inpatient admissions are reasonable and 

necessary for beneficiaries who require 

more than 1 Medicare utilization day 

(defined by encounters crossing 2 

midnights) in the hospital receiving 

medically necessary services. 

5. Proposed FY 2014 Policy Governing 

the IPPS for Capital-Related Costs 

In section VI. 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 2014 and 

other related proposed policy changes. 

6. Proposed Changes to the Payment 

Rates for Certain Excluded Hospitals: 

Rate-of-Increase Percentages 

In section VII. of the preamble of this 

proposed rule, we discuss— 

• Proposed changes to payments to 

certain excluded hospitals for FY 2014. 

• Proposed changes to the conditions 

of participation (CoPs) relating to 

administration of pneumococcal vaccine 

and CAH payment for acute care 

inpatient services. 

7. Proposed Changes to the LTCH PPS 

In section VIII. 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 2014. We also note 

that the moratorium on the full 

implementation of the ‘‘25-percent 

threshold’’ payment adjustment will 

expire for certain cost reporting periods 

beginning on or after October 1, 2013. In 

addition, in this section, we describe the 

results of research being done by 

Kennell and Associates (Kennell) and its 

subcontractor, Research Triangle 

Institute, International (RTI), under a 

contract with CMS on the development 

of a payment adjustment under the 

LTCH PPS based on the establishment 

of LTCH patient criteria. 

8. Proposed Changes Relating to Quality 

Data Reporting for Specific Providers 

and Suppliers 

In section IX. of the preamble of this 

proposed rule, we address— 

• Proposed requirements for the 

Hospital Inpatient Quality Reporting 

(IQR) Program as a condition for 

receiving the full applicable percentage 

increase. 

• Proposed changes to the 

requirements for the quality reporting 

program for PPS-exempt cancer 

hospitals (PCHQR Program). 

• Proposed changes to the 

requirements under the LTCH Quality 

Reporting (LTCHQR) Program. 

• Proposed changes to the 

requirements under the Inpatient 

Psychiatric Facility Quality Reporting 

(IPFQR) Program. 

9. 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 2014 prospective 

payment rates for operating costs and 

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capital-related costs for acute care 

hospitals. We are proposing to establish 

the threshold amounts for outlier cases. 

In addition, we address the proposed 

update factors for determining the rateof-increase limits for cost reporting 

periods beginning in FY 2014 for certain 

hospitals excluded from the IPPS. 

10. 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 2014 prospective 

standard Federal rate. We are proposing 

to establish the adjustments for wage 

levels, the labor-related share, the costof-living adjustment, and high-cost 

outliers, including the fixed-loss 

amount, and the LTCH cost-to-charge 

ratios (CCRs) under the LTCH PPS. 

11. 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, 

PCHs, and IPFs. 

12. 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 2014 for the 

following: 

• A single average standardized 

amount for all areas for hospital 

inpatient services paid under the IPPS 

for operating costs of acute care 

hospitals (and hospital-specific rates 

applicable to SCHs). 

• Target rate-of-increase limits to the 

allowable operating costs of hospital 

inpatient services furnished by certain 

hospitals excluded from the IPPS. 

• The standard Federal rate for 

hospital inpatient services furnished by 

LTCHs. 

13. Discussion of Medicare Payment 

Advisory Commission 

Recommendations 

Under section 1805(b) of the Act, 

MedPAC is required to submit a report 

to Congress, no later than March 15 of 

each year, in which MedPAC reviews 

and makes recommendations on 

Medicare payment policies. MedPAC’s 

March 2013 recommendations 

concerning hospital inpatient payment 

policies address the update factor for 

hospital inpatient operating costs and 

capital-related costs under the IPPS, for 

hospitals and distinct part hospital units 

excluded from the IPPS. We address 

these recommendations in Appendix B 

of this proposed rule. For further 

information relating specifically to the 

MedPAC March 2013 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 

diagnosis-related groups (DRGs)) for 

inpatient discharges and adjust 

payments under the IPPS based on 

appropriate weighting factors assigned 

to each DRG. Therefore, under the IPPS, 

Medicare pays for inpatient hospital 

services on a rate per discharge basis 

that varies according to the DRG to 

which a beneficiary’s stay is assigned. 

The formula used to calculate payment 

for a specific case multiplies an 

individual hospital’s payment rate per 

case by the weight of the DRG to which 

the case is assigned. Each DRG weight 

represents the average resources 

required to care for cases in that 

particular DRG, relative to the average 

resources used to treat cases in all 

DRGs. 

Congress recognized that it would be 

necessary to recalculate the DRG 

relative weights periodically to account 

for changes in resource consumption. 

Accordingly, section 1886(d)(4)(C) of 

the Act requires that the Secretary 

adjust the DRG classifications and 

relative weights at least annually. These 

adjustments are made to reflect changes 

in treatment patterns, technology, and 

any other factors that may change the 

relative use of hospital resources. 

B. MS–DRG Reclassifications 

For general information about the 

MS–DRG system, including yearly 

reviews and changes to the MS–DRGs, 

we refer readers to the previous 

discussions in the FY 2010 IPPS/RY 

2010 LTCH PPS final rule (74 FR 43764 

through 43766), the FY 2011 IPPS/LTCH 

PPS final rule (75 FR 50053 through 

50055), the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51485 through 51487), 

and the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53273). 

C. Adoption of the MS–DRGs in FY 2008 

For information on the adoption of 

the MS–DRGs in FY 2008, we refer 

readers to the FY 2008 IPPS final rule 

with comment period (72 FR 47140 

through 47189). 

D. Proposed FY 2014 MS–DRG 

Documentation and Coding Adjustment 

1. Background on the Prospective MS– 

DRG Documentation and Coding 

Adjustments for FY 2008 and FY 2009 

Authorized by 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.) 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 Law 110–90 

reduced the documentation and coding 

adjustment made as a result of the MS– 

DRG system that we adopted in the FY 

2008 IPPS final rule with comment 

period to ¥0.6 percent for FY 2008 and 

¥0.9 percent for FY 2009, and we 

finalized the FY 2008 adjustment 

through rulemaking, effective October 1, 

2007 (72 FR 66886). 

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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. Adjustment to the Average 

Standardized Amounts Required by 

Public Law 110–90 

a. Prospective Adjustment 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. 

b. Recoupment or Repayment 

Adjustments in FYs 2010 Through 2012 

Required by Section 7(b)(1)(B) 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. 

3. 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 IPPS/RY 2010 

LTCH PPS final rule (74 FR 43768 

through 43772). We performed the same 

analysis for FY 2009 claims data using 

the same methodology as we did for FY 

2008 claims (75 FR 50057 through 

50068). The results of the analysis for 

the FY 2011 proposed and final rules, 

and subsequent evaluations in FY 2012, 

supported that the 5.4 percent estimate 

accurately reflected the FY 2009 

increases in documentation and coding 

under the MS–DRG system. We were 

persuaded by both MedPAC’s analysis 

(as discussed in the FY 2011 IPPS/LTCH 

PPS final rule (75 FR 50064 through 

50065)) and our own review of the 

methodologies recommended by various 

commenters that the methodology we 

employed to determine the required 

documentation and coding adjustments 

was sound. 

As in prior years, the FY 2008, FY 

2009, and FY 2010 MedPAR files are 

available to the public to allow 

independent analysis of the FY 2008 

and FY 2009 documentation and coding 

effects. Interested individuals may still 

order these files through the Web site at: 

http://www.cms.gov/Research-StatisticsData-and-Systems/Files-for-Order/ 

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. 

4. Prospective Adjustments for FY 2008 

and FY 2009 Authorized by Section 

7(b)(1)(A) of Public Law 110–90 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR 43767 through 

43777), we opted to delay the 

implementation of any documentation 

and coding adjustment until a full 

analysis of case-mix changes based on 

FY 2009 claims data could be 

completed. We refer readers to the FY 

2010 IPPS/RY LTCH PPS final rule for 

a detailed description of our proposal, 

responses to comments, and finalized 

policy. After analysis of the FY 2009 

claims data for the FY 2011 IPPS/LTCH 

PPS final rule (75 FR 50057 through 

50073), we found a total prospective 

documentation and coding effect of 

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 

the law provided some discretion as to 

the manner in which we applied the 

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prospective adjustment of ¥3.9 percent. 

As we discussed extensively in the FY 

2011 IPPS/LTCH PPS final rule, it has 

been our practice to moderate payment 

adjustments when necessary to mitigate 

the effects of significant downward 

adjustments on hospitals, to avoid what 

could be widespread, disruptive effects 

of such adjustments on hospitals. 

Therefore, we stated that we believed it 

was appropriate to not implement the 

¥3.9 percent prospective adjustment in 

FY 2011 because we finalized a ¥2.9 

percent recoupment adjustment for that 

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 

implemented the requisite adjustment) 

would be higher than they would have 

been if we had implemented an 

adjustment under section 7(b)(1)(A) of 

Public Law 110–90. 

In the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51489 and 51497), we 

indicated that because further delay of 

this prospective adjustment 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 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. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53274 through 53276), we 

completed the prospective portion of 

the adjustment required under section 

7(b)(1)(A) of Public Law 110–90 by 

finalizing a ¥1.9 percent adjustment to 

the standardized amount for FY 2013. 

We stated that this adjustment would 

remove the remaining effect of the 

documentation and coding changes that 

do not reflect real changes in case-mix 

that occurred in FY 2008 and FY 2009. 

We believe it was imperative to 

implement the full remaining 

adjustment, as any further delay would 

result in an overstated standardized 

amount in FY 2013 and any future years 

until a full adjustment is made. 

We note again that delaying full 

implementation of the prospective 

portion of the adjustment required 

under section 7(b)(1)(A) of Public Law 

110–90 until FY 2013 resulted in 

payments in FY 2010 through FY 2012 

being overstated. These overpayments 

could not be recovered by CMS as 

section 7(b)(1)(B) of Public Law 110–90 

limited recoupments to overpayments 

made in FY 2008 and FY 2009. 

5. Recoupment or Repayment 

Adjustment Authorized by Section 

7(b)(1)(B) of 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). 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 yearto-year change in the standardized 

amount due to this recoupment 

adjustment for FY 2012. In the FY 2013 

IPPS/LTCH PPS final rule (77 FR 

53276), we made a final +2.9 percent 

adjustment to the standardized amount, 

completing the recoupment portion of 

section 7(b)(1)(B) of Public Law 110–90. 

We note that with this positive 

adjustment, according to our estimates, 

all overpayments made in FY 2008 and 

FY 2009 have been fully recaptured 

with appropriate interest, and the 

standardized amount has been returned 

to the appropriate baseline. 

6. Recoupment or Repayment 

Adjustment Authorized by Section 631 

of the American Taxpayer Relief Act of 

2012 (ATRA) 

Section 631 of the ATRA amended 

section 7(b)(1)(B) of Public Law 110–90 

to require the Secretary to make a 

recoupment adjustment or adjustments 

totaling $11 billion by FY 2017. This 

adjustment represents the amount of the 

increase in aggregate payments as a 

result of not completing the prospective 

adjustment authorized under section 

7(b)(1)(A) of Public Law 110–90 until 

FY 2013. As discussed earlier, this delay 

in implementation resulted in 

overstated payment rates in FYs 2010, 

2011, and 2012. The resulting 

overpayments could not have been 

recovered under Public Law 110–90. 

Similar to the adjustments authorized 

under section 7(b)(1)(B) of Public Law 

110–90, the adjustment required under 

section 631 of the ATRA is a one-time 

recoupment of a prior overpayment, not 

a permanent reduction to payment rates. 

Therefore, any adjustment made to 

reduce rates in one year would 

eventually be offset by a positive 

adjustment, once the necessary amount 

of overpayment is recovered. 

Our actuaries estimate that a ¥9.3 

percent adjustment to the standardized 

amount would be necessary if CMS 

were to fully recover the $11 billion 

recoupment required by section 631 of 

the ATRA in FY 2014. In its March 2013 

‘‘Report to Congress: Medicare Payment 

Policy,’’ MedPAC estimates that a ¥2.4 

percent adjustment made in FY 2014, 

and not removed until FY 2018, also 

would recover the required recoupment 

amount. It is often our practice to delay 

or 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, we are proposing a ¥0.8 percent 

recoupment adjustment to the 

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standardized amount in FY 2014. We 

estimate that this level of adjustment 

will recover up to $0.96 billion in FY 

2014, with at least $10.04 billion 

remaining to be recovered by FY 2017. 

If adjustments of approximately ¥0.8 

percent are implemented in FYs 2014, 

2015, 2016, and 2017, using standard 

inflation factors, we estimate that the 

entire $11 billion will be accounted for 

by the end of the statutory 4-year 

timeline. As estimates of any future 

adjustments are subject to slight 

variations in total savings, we are not 

proposing specific adjustments for FYs 

2015, 2016, or 2017 at this time. We 

believe that this level of adjustment for 

FY 2014 is a reasonable and fair 

approach that satisfies the requirements 

of the statute while mitigating extreme 

annual fluctuations in payment rates. 

We again note that this ¥0.8 percent 

recoupment adjustment, and future 

adjustments under this authority, will 

be eventually offset by an equivalent 

positive adjustment once the full $11 

billion recoupment requirement has 

been realized. 

7. Additional Prospective Adjustments 

for the MS–DRG Documentation and 

Coding Effect Through FY 2010 

Authorized 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 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 

public 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 

appropriate to ensure that the 

introduction of MS–DRGs was 

implemented in a budget neutral 

manner. 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 additional 

prospective documentation and coding 

effect of 0.8 percent through FY 2010 

and found that this effect was present 

for both IPPS hospitals paid with the 

standardized amount and IPPS hospitals 

paid using their hospital-specific 

payment rates. 

In the FY 2013 IPPS/LTCH PPS 

proposed rule (77 FR 27890), we 

proposed an additional ¥0.8 percent 

prospective adjustment to the 

standardized amount to account for this 

effect. We indicated that this additional 

prospective adjustment of ¥0.8 percent, 

when combined with the other 

prospective MS–DRG documentation 

and coding adjustments already made or 

proposed would eliminate the future 

effect of MS–DRG documentation and 

coding that did not reflect real changes 

in case-mix for discharges occurring 

through FY 2010. As discussed in the 

FY 2013 IPPS/LTCH PPS final rule (77 

FR 53278 through 53280), numerous 

commenters objected to the CMS 

proposal to make an adjustment to 

account for payment increases due to 

MS–DRG documentation and coding 

that did not reflect real changes in casemix for discharges occurring through FY 

2010. Many commenters continued to 

assert that our estimates of 

documentation and coding were 

overstated, and could be explained by 

other factors. These commenters also 

focused on part of the analysis provided 

by MedPAC in its FY 2012 public 

comment letter indicating that a slightly 

smaller additional prospective 

adjusment of ¥0.55 percent rather than 

¥0.8 percent might be required to offset 

the cumulative MS–DRG documentation 

and coding effect through FY 2010. 

Specifically, while MedPAC supported 

the overall methodology, it suggested 

that it was possible that changes in 

documentation and coding to optimize 

payments under the MS–DRG 

GROUPERs and weights may have 

resulted in slightly less than optimal 

payments under the FY 2007 GROUPER 

and weights (the denominator of the 

documentation and coding change 

estimate). Many commenters requested 

that, given the MedPAC analysis, if CMS 

were to apply an additional prospective 

adjustment to the MS–DRG 

documentation and coding effect 

through FY 2010, it should subtract 0.25 

percentage points from its estimate, for 

an adjustment of ¥0.55 percent. 

After considering the public 

comments, we recognized that the issue 

of the estimate to use for the cumulative 

MS–DRG documentation and coding 

effect through FY 2010 may merit 

further consideration. Therefore, as 

discussed in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53278 through 

53280), we decided not to finalize the 

proposed ¥0.8 percent adjustment to 

the standardized amount and the 

hospital-specific rate until more 

analysis could be completed. 

CMS is continuing to consider 

whether MedPAC’s recommendation 

that an adjustment to offset the 

cumulative documentation and coding 

effects through FY 2010 under section 

1886(d)(3)(A)(vi) of the Act is 

appropriate and supported by a review 

of the claims data. After further 

consideration of the MedPAC analysis 

and the request by many public 

commenters, if we were to apply an 

additional prospective adjustment for 

the cumulative MS–DRG documentation 

and coding effect through FY 2010, we 

believe the most appropriate additional 

adjustment is ¥0.55 percent. 

It is often our practice to delay or 

phase-in adjustments to mitigate 

negative financial impacts. Because we 

are proposing a ¥0.8 percent 

recoupment adjustment, as discussed in 

section II.D.6. of the preamble of this 

proposed rule, we are not proposing a 

prospective adjustment in FY 2014 for 

the cumulative MS–DRG documentation 

and coding effect through FY 2010. 

However, we are soliciting public 

comments as to whether any portion of 

the proposed ¥0.8 percent recoupment 

adjustment should be reduced and 

instead applied to a prospective 

adjustment for the cumulative MS–DRG 

documentation and coding effect 

through FY 2010. For example, we 

could apply a ¥0.25 percent 

recoupment adjustment, and a ¥0.55 

prospective adjustment, for a total FY 

2014 adjustment of ¥0.8 percent. 

Reducing the recoupment adjustment in 

FY 2014 would require relatively larger 

adjustments for FYs 2015, 2016, and/or 

2017, but making a prospective 

adjustment of ¥0.55 percent would 

eliminate future payment increases due 

to MS–DRG documentation and coding 

that did not reflect real changes in casemix for discharges occurring through FY 

2010. As we discuss above, because the 

documentation and coding effect 

through FY 2010 was found for both 

IPPS hospitals paid with the 

standardized amount and IPPS hospitals 

paid under their hospital-specific 

payment rate, if we were to apply a 

prospective adjustment to remove this 

effect, we also would apply such an 

adjustment to the hospital-specific 

payment rate, using the Secretary’s 

broad authority under section 

1886(d)(5)(I)(i) of the Act (77 FR 53276 

through 53277). Therefore, if we 

attribute a portion of the ¥0.8 percent 

adjustment for FY 2014 to the 

prospective adjustment, we also would 

make appropriate adjustments to the 

hospital-specific payment rates. Puerto 

Rico-specific rates would not be 

affected, as we previously found no 

significant additional MS–DRG 

documentation and coding effect for FY 

2010 that would warrant any additional 

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adjustment to the Puerto Rico-specific 

rate (77 FR 53279). 

E. Proposed Refinement of the MS–DRG 

Relative Weight Calculation 

1. Background 

Beginning in FY 2007, we 

implemented relative weights for DRGs 

based on cost report data instead of 

charge information. We refer readers to 

the FY 2007 IPPS final rule (71 FR 

47882) for a detailed discussion of our 

final policy for calculating the costbased 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 addition, we refer 

readers to RTI’s July 2008 final report 

titled ‘‘Refining Cost to Charge Ratios 

for Calculating APC and MS–DRG 

Relative Payment Weights’’ (http://www.

rti.org/reports/cms/HHSM-500-2005- 

0029I/PDF/Refining_Cost_to_

Charge_Ratios_200807_Final.pdf). 

In the FY 2009 IPPS/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 for ‘‘Implantable 

Devices Charged to Patients’’ was 

created in July 2009. This new 

subscripted cost center has been 

available for use for cost reporting 

periods beginning on or after May 1, 

2009. 

As we discussed in the FY 2009 IPPS 

final rule (73 FR 48458) and in the CY 

2009 OPPS/ASC final rule with 

comment period (73 FR 68519 through 

68527), in addition to the findings 

regarding implantable devices, RTI also 

found that the costs and charges of 

computed tomography (CT) scans, 

magnetic resonance imaging (MRI), and 

cardiac catheterization differ 

significantly from the costs and charges 

of other services included in the 

standard associated cost center. RTI also 

concluded that both the IPPS and the 

OPPS relative weights would better 

estimate the costs of those services if 

CMS were to add standard cost centers 

for CT scans, MRIs, and cardiac 

catheterization in order for hospitals to 

report separately the costs and charges 

for those services and in order for CMS 

to calculate unique CCRs to estimate the 

costs from charges on claims data. In the 

FY 2011 IPPS/LTCH PPS final rule (75 

FR 50075 through 50080), we finalized 

our proposal to create standard cost 

centers for CT scans, MRIs, and cardiac 

catheterization, and to require that 

hospitals report the costs and charges 

for these services under new cost 

centers on the revised Medicare cost 

report Form CMS–2552–10. (We refer 

readers to the FY 2011 IPPS/LTCH PPS 

final rule (75 FR 50075 through 50080) 

for a detailed discussion of the reasons 

for the creation of standard cost centers 

for CT scans, MRIs, and cardiac 

catheterization.) The new standard cost 

centers for CT scans, MRIs, and cardiac 

catheterization are effective for cost 

report periods beginning on or after May 

1, 2010, on the revised cost report Form 

CMS–2552–10. 

In the FY 2009 IPPS final rule (73 FR 

48468), we stated that, due to what is 

typically a 3-year lag between the 

reporting of cost report data and the 

availability for use in ratesetting, we 

anticipated that we might be able to use 

data from the new ‘‘Implantable Devices 

Charged to Patients’’ cost center to 

develop a CCR for ‘‘Implantable Devices 

Charged to Patients’’ in the FY 2012 or 

FY 2013 IPPS rulemaking cycle. 

However, as noted in the FY 2010 IPPS/ 

RY 2010 LTCH PPS final rule (74 FR 

43782), due to delays in the issuance of 

the revised cost report Form CMS 2552– 

10, we determined that a new CCR for 

‘‘Implantable Devices Charged to 

Patients’’ might not be available before 

FY 2013. Similarly, when we finalized 

the decision in the FY 2011 IPPS/LTCH 

PPS final rule to add new cost centers 

for CT scans, MRIs, and cardiac 

catheterization, we explained that data 

from any new cost centers that may be 

created will not be available until at 

least 3 years after they are first used (75 

FR 50077). In preparation for the FY 

2012 IPPS rulemaking, we checked the 

availability of data in the ‘‘Implantable 

Devices Charged to Patients’’ cost center 

on the FY 2009 cost reports, but we did 

not believe that there was a sufficient 

amount of data from which to generate 

a meaningful analysis in this particular 

situation. Therefore, we did not propose 

to use data from the ‘‘Implantable 

Devices Charged to Patients’’ cost center 

to create a distinct CCR for ‘‘Implantable 

Devices Charged to Patients’’ for use in 

calculating the MS–DRG relative 

weights for FY 2012. We indicated that 

we would reassess the availability of 

data for the ‘‘Implantable Devices 

Charged to Patients’’ cost center for the 

FY 2013 IPPS/LTCH PPS rulemaking 

cycle and, if appropriate, we would 

propose to create a distinct CCR at that 

time. 

During the development of the FY 

2013 IPPS/LTCH PPS proposed and 

final rules, hospitals were still in the 

process of transitioning from the 

previous cost report Form CMS–2552– 

96 to the new cost report Form CMS– 

2552–10. Therefore, we were able to 

access only those cost reports in the FY 

2010 HCRIS with fiscal year begin dates 

on or after October 1, 2009, and before 

May 1, 2010; that is, those cost reports 

on Form CMS–2552–96. Data from the 

Form CMS–2552–10 cost reports were 

not available because cost reports filed 

on the Form CMS–2552–10 were not 

accessible in the HCRIS. Further 

complicating matters was that, due to 

additional unforeseen technical 

difficulties, the corresponding 

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information regarding charges for 

implantable devices on hospital claims 

was not yet available to us in the 

MedPAR file. Without the breakout in 

the MedPAR file of charges associated 

with implantable devices to correspond 

to the costs of implantable devices on 

the cost report, we believed that we had 

no choice but to continue computing the 

relative weights with the current CCR 

that combines the costs and charges for 

supplies and implantable devices. We 

stated in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53281 through 53283) 

that when we do have the necessary 

data for supplies and implantable 

devices on the claims in the MedPAR 

file to create distinct CCRs for the 

respective cost centers for supplies and 

implantable devices, we hoped that we 

would also have data for an analysis of 

creating distinct CCRs for CT scans, 

MRIs, and cardiac catheterization, 

which could then be finalized through 

rulemaking. 

2. Discussion and Proposal for FY 2014 

To calculate the proposed FY 2014 

MS–DRG relative weights, we are 

proposing to continue our current 

methodology of using the two most 

recent data sources: the December 2012 

update of the FY 2012 MedPAR file as 

the claims data source and the 

December 2012 update of FY 2011 

HCRIS as the cost data source. We 

currently have a substantial number of 

hospitals completing all, or some, of 

these new cost centers on the FY 2011 

Medicare cost reports, compared to 

prior years. Specifically, using the 

December 2012 update of FY 2011 

HCRIS, we were able to calculate a valid 

implantable device CCR for 2,285 IPPS 

hospitals, a valid MRI CCR for 1,402 

IPPS hospitals, a valid CT scan CCR for 

1,470 IPPS hospitals, and a valid cardiac 

catheterization CCR for 1,022 IPPS 

hospitals. In the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53281), we stated 

that prior to proposing to create these 

CCRs, we would first thoroughly 

analyze and determine the impacts of 

the data, and that distinct CCRs for 

these new cost centers would be used in 

the calculation of the relative weights 

only if they were first finalized through 

rulemaking. 

We believe that there is a sufficient 

amount of data in the FY 2011 cost 

reports from which to generate a 

meaningful analysis of using distinct 

CCRs for implantable devices, MRIs, CT 

scans, and cardiac catheterization. In 

addition, the corresponding charge data 

on hospital claims for implantable 

devices, MRIs, CT scans, and cardiac 

catheterization are available in the FY 

2012 MedPAR file. Therefore, we are 

providing various data analyses below 

based on comparison of the FY 2014 

relative weights computed using 15 

CCRs, as we have done in the past, and 

the FY 2014 relative weights computed 

using 19 CCRs, with distinct CCRs for 

implantable devices, MRIs, CT scans, 

and cardiac catheterization. 

Specifically, rather than having a single 

CCR for ‘‘Supplies and Equipment’’ 

which includes low-cost supplies and 

high-cost implantable devices, a distinct 

CCR would be carved out of the 

‘‘Supplies and Equipment’’ CCR, leaving 

one CCR for ‘‘Supplies’’ and one CCR 

for ‘‘Implantable Devices.’’ Regarding 

the Radiology CCR, which currently is 

comprised of general radiology ancillary 

services and MRIs and CT scans, the 

costs for MRIs and CT scans would be 

separated from general radiology, 

creating two distinct CCRs, one for MRIs 

and one for CT scans, respectively. 

Finally, by separating the costs of 

cardiac catheterization out of the CCR 

for general cardiology, a distinct CCR 

would be created for cardiac 

catheterization. Thus, by breaking out 

these 4 additional CCRs, the number of 

CCRs used to calculate the relative 

weights would increase from 15 to 19. 

For comparison purposes, the 

following table shows the final FY 2013 

CCRs, the potential FY 2014 CCRs 

computed with the existing 15 cost 

centers, and the potential FY 2014 CCRs 

computed with 19 cost centers, with 4 

new CCRs for implantable devices, 

MRIs, CT scans, and cardiac 

catheterization. 

Group 

Final 

FY 2013 

15 CCRs 

Potential 

FY 2014 

15 CCRs 

Potential 

FY 2014 

19 CCRs 

Routine days ............................................................................................................................................ 0.514 0.502 0.502 

Intensive days .......................................................................................................................................... 0.442 0.423 0.423 

Drugs ....................................................................................................................................................... 0.199 0.193 0.193 

Supplies & Equipment ............................................................................................................................. 0.335 0.327 0.293 

Implantable Devices ................................................................................................................................ n/a n/a 0.361 

Therapy Services ..................................................................................................................................... 0.370 0.355 0.355 

Laboratory ................................................................................................................................................ 0.143 0.133 0.133 

Operating Room ...................................................................................................................................... 0.238 0.225 0.225 

Cardiology ................................................................................................................................................ 0.145 0.134 0.132 

Cardiac Catheterization ........................................................................................................................... n/a n/a 0.135 

Radiology ................................................................................................................................................. 0.136 0.128 0.170 

MRI .......................................................................................................................................................... n/a n/a 0.091 

CT Scans ................................................................................................................................................. n/a n/a 0.045 

Emergency Room .................................................................................................................................... 0.226 0.207 0.207 

Blood ........................................................................................................................................................ 0.389 0.371 0.371 

Other Services ......................................................................................................................................... 0.397 0.399 0.399 

Labor & Delivery ...................................................................................................................................... 0.450 0.445 0.445 

Inhalation Therapy ................................................................................................................................... 0.189 0.187 0.187 

Anesthesia ............................................................................................................................................... 0.109 0.120 0.120 

In order to model the effects on the 

relative weights in medical MS–DRGs 

versus surgical MS–DRGs, we compared 

a set of relative weights calculated with 

15 CCRs and 19 CCRs. Overall, if 19 

CCRs are used to calculate the relative 

weights for FY 2014, relative weights for 

medical MS–DRGs would be expected 

to decrease by approximately 1.1 

percent, and those for surgical MS– 

DRGs would be expected to increase by 

approximately 1.2 percent. In addition, 

as shown in the table below, at the MDC 

level, payments would increase by 

approximately 0.64 percent (0.39 + 0.25) 

within orthopedic and cardiac MDCs, 

with most of the reductions in payment 

resulting to the medical MS–DRGs in 

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the nervous system, digestive system, 

and respiratory system MDCs. 

MDC Description 

Estimated 

percentage 

change 

within MDC 

(percent) 

08 .............. Musculoskeletal System and Connective Tissue ............................................................................................................. 0.39 

05 .............. Circulatory System ........................................................................................................................................................... 0.25 

01 .............. Nervous System ............................................................................................................................................................... ¥0.16 

06 .............. Digestive System .............................................................................................................................................................. ¥0.10 

04 .............. Respiratory System .......................................................................................................................................................... ¥0.08 

The largest estimated increase in MS– 

DRG relative weights would likely occur 

for MS–DRGs associated with cardiac 

catheterization and implantable cardiac 

devices. The largest estimated 

reductions in MS–DRG relative weights 

would likely occur for MS–DRGs 

associated with traumatic head injury 

and concussion, which are high users of 

CT scanning and MRI services. We are 

including in the table below the top 10 

(nonlabor and delivery) MS–DRGs that 

we predict would experience the largest 

increases and decreases in relative 

weights if 19 CCRs would be used as 

compared to 15 CCRs. 

MS–DRG Type Title 

Potential 

relative 

weight with 

15 CCRs 

Potential 

relative 

weights with 

19 CCRs 

Percentage 

change 

MS–DRGs that would experience the largest decrease in relative weight 

090 ........... MED ........ Concussion without CC/MCC ...................................................................... 0.7614 0.7013 ¥7.9 

084 ........... MED ........ Traumatic Stupor & Coma, Coma >1 Hour without CC/MCC ..................... 0.9137 0.8516 ¥6.8 

087 ........... MED ........ Traumatic Stupor & Coma, Coma <1 Hour without CC/MCC ..................... 0.7899 0.7369 ¥6.7 

965 ........... MED ........ Other Multiple Significant Trauma without CC/MCC ................................... 1.0450 0.980 ¥6.1 

185 ........... MED ........ Major Chest Trauma without CC/MCC ........................................................ 0.7281 0.6845 ¥6.0 

089 ........... MED ........ Concussion with CC .................................................................................... 0.9959 0.9366 ¥6.0 

123 ........... MED ........ Neurological Eye Disorder ........................................................................... 0.7355 0.6920 ¥5.9 

343 ........... SURG ...... Appendectomy without Complicated Principal Diagnosis without CC/MCC 0.9880 0.9517 ¥5.7 

053 ........... MED ........ Spinal Disorders & Injuries without CC/MCC .............................................. 0.9355 0.8825 ¥5.7 

066 ........... MED ........ Intracranial Hemorrhage or Cerebral Infarction without CC/MCC ............... 0.8034 0.7579 ¥5.7 

MS–DRGs that would experience the largest increase in relative weight 

454 ........... SURG ...... Combined Anterior/Posterior Spinal Fusion with CC .................................. 7.6399 8.0563 5.5 

455 ........... SURG ...... Combined Anterior/Posterior Spinal Fusion Without CC/MCC ................... 5.9862 6.3133 5.5 

484 ........... SURG ...... Major Joint & Limb Reattachment Procedure of Upper Extremity without 

CC/MCC.

2.1211 2.2380 5.5 

225 ........... SURG ...... Cardiac Defibrillator Implant with Cardiac Catheterization without AMI/HF/ 

Shock without MCC.

5.6298 5.9530 5.7 

223 ........... SURG ...... Cardiac Defibrillator Implant with Cardiac Catheterization with AMI/HF/ 

Shock without MCC.

6.0956 6.4482 5.8 

458 ........... SURG ...... Spinal Fusion Except Cervical with Spinal Curve/Malignant/Infection OR 

9+ Fusion without CC/MCC.

4.8794 5.1630 5.8 

245 ........... SURG ...... AICD Generator Procedures ........................................................................ 4.4627 4.7320 6.0 

849 ........... MED ........ Radiotherapy ................................................................................................ 1.3423 1.4258 6.2 

946 ........... MED ........ Rehabilitation without CC/MCC ................................................................... 1.1295 1.2024 6.5 

227 ........... SURG ...... Cardiac Defibrillator Implant without Cardiac Catheterization without MCC 5.2193 5.5714 6.7 

After computing the analyses 

described above by comparing both sets 

of MS–DRG relative weights computed 

with FY 2011 cost report data, we 

revisited RTI’s July 2008 final report. 

We note that the impacts on relative 

weight and at the MDC level are 

generally consistent with those 

estimated by RTI in its modeling. RTI 

found that disaggregating the CCRs for 

medical supplies and devices would 

have the most impact on reducing 

charge compression, and that the largest 

impact was for MS–DRG 227. Similarly, 

as shown in the chart above, we 

estimate that the potential relative 

weight for MS–DRG 227 would 

experience the largest increase, 6.7 

percent. Cardiac implants and spinal 

fusion procedures accounted for most of 

the 10 MS–DRGs with the largest 

incremental increases. In addition, RTI’s 

July 2008 final report (pages 103 

through 107) indicates that among the 

largest expected reductions are the MS– 

DRG relative weights for MS–DRGs 

associated with traumatic head injury 

and concussion, which are high users of 

CT scanning and MRI services. RTI’s 

analyses were highly predictive for 

many of the MS–DRGs most sensitive to 

the effects of charge compression. 

As we have stated in prior rulemaking 

(77 FR 53281 through 53283), once we 

determined that cost report data were 

available for analysis, we would 

propose, if appropriate, to use the 

distinct CCRs described above in the 

calculation of the MS–DRG relative 

weights. We believe that the analytic 

findings described above using the FY 

2011 cost report data and FY 2012 

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claims data support our original 

decision to break out and create new 

cost centers for implantable devices, 

MRIs, CT scans, and cardiac 

catheterization, and we see no reason to 

further delay proposing to implement 

the CCRs of each of these cost centers. 

Therefore, beginning in FY 2014, we are 

proposing to calculate the MS–DRG 

relative weights using 19 CCRs, creating 

distinct CCRs from cost report data for 

implantable devices, MRIs, CT scans, 

and cardiac catheterization. We 

welcome public comments on this 

proposal and the impacts that it may 

have. We refer readers to section VI.C. 

of Appendix A of this proposed rule for 

the overall IPPS operating impact of this 

proposal, which models payments to 

various hospital types using relative 

weights developed from 19 CCRs as 

compared to 15 CCRs. In addition, each 

year, as part of the IPPS proposed rule 

and final rule, we issue Table 5, which 

lists all of the MS–DRGs and their 

relative weights. As part of this FY 2014 

IPPS/LTCH PPS proposed rule, in 

addition to providing Table 5, which 

lists the proposed MS–DRGs and their 

relative weights using 19 CCRs 

(available 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 2014 IPPS Proposed 

Rule Home Page’’ or ‘‘Acute Inpatient— 

Files for Download’’), we are providing 

a separate table that lists all MS–DRGs 

and their relative weights if computed 

using 15 CCRs (available at the same 

CMS Web site cited above). These two 

formats will allow readers to compare 

our proposal to calculate the MS–DRG 

relative weights using 19 CCRs with the 

relative weights of MS–DRGs if 

computed using 15 CCRs. 

F. Adjustment to MS–DRGs for 

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 affected in a manner shown in the 

diagram below. 

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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); the FY 2012 IPPS/LTCH PPS 

proposed rule (76 FR 25810 through 

25816) and final rule (76 FR 51504 

through 51522); and the FY 2013 IPPS/ 

LTCH PPS proposed rule (77 FR 27892 

through 27898) and final rule (77 FR 

53283 through 53303). A complete list 

of the 11 current categories of HACs is 

included on the CMS Web site at: http:// 

www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/HospitalAcqCond/ 

Hospital-Acquired_Conditions.html. 

3. Present on Admission (POA) 

Indicator Reporting 

Collection of POA indicator data is 

necessary to identify which conditions 

were acquired during hospitalization for 

the HAC payment provision as well as 

for broader public health uses of 

Medicare data. In previous rulemaking, 

we provided both CMS and CDC Web 

site resources that are available to 

hospitals for assistance in this reporting 

effort. For detailed information 

regarding these sites and materials, 

including the application and use of 

POA indicators, we refer the reader to 

the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51506 through 51507). 

Currently, as we discussed in the 

prior rulemaking cited above, the POA 

indicator reporting requirement only 

applies to IPPS hospitals because they 

are subject to this HAC provision. NonIPPS hospitals, including CAHs, LTCHs, 

IRFs, IPFs, cancer hospitals, children’s 

hospitals, hospitals in Maryland 

operating under waivers, RNHCIs, and 

the Department of Veterans Affairs/ 

Department of Defense hospitals, are 

exempt from POA reporting. We note 

that hospitals in Maryland operating 

under their waiver are not paid under 

the IPPS but rather are paid under the 

provisions of section 1814(b)(3) of the 

Act. This waiver applies to the amount 

paid to providers of services, and does 

not extend to billing requirements and 

other reporting requirements. In fact, 

hospitals in Maryland are required to 

submit Medicare claims for Medicare 

payment and also to submit the same 

information on their Medicare claims as 

hospitals in other parts of the country 

paid under the IPPS. Therefore, we 

believe it is inappropriate to continue to 

exempt hospitals in Maryland from the 

POA indicator reporting requirement. 

Under current policy, hospitals in 

Maryland will continue to be exempt 

from the application of this HAC 

provision so long as they are not paid 

under the IPPS. However, we believe it 

is appropriate to require them to use 

POA indicator reporting on their claims 

so that we can include their data and 

have as complete a dataset as possible 

when we analyze trends and make 

further payment policy determinations, 

such as those authorized under section 

1886(p) of the Act. (We refer readers to 

section V.I. of the preamble to this 

proposed rule for a discussion of our 

proposals to implement section 1886(p) 

of the Act.) Therefore, we are proposing 

that hospitals in Maryland operating 

under their waiver under section 

1814(b)(3) of the Act will no longer be 

exempted from the POA indicator 

reporting requirement beginning with 

claims submitted on or after October 1, 

2013, including all claims for discharges 

on or after October 1, 2013. We are 

inviting public comment regarding this 

proposal. 

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 


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48486 through 48487); the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule 

(74 FR 24106) and final rule (74 FR 

43784 through 43785); the FY 2011 

IPPS/LTCH PPS proposed rule (75 FR 

23881 through 23882) and final rule (75 

FR 50081 through 50082); the FY 2012 

IPPS/LTCH PPS proposed rule (76 FR 

25812 through 25813) and final rule (76 

FR 51506 through 51507); and the FY 

2013 IPPS/LTCH PPS proposed rule (77 

FR 27893 through 27894) and final rule 

(77 FR 53284 through 53285). 

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. 

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. 

In addition, as discussed elsewhere in 

section III.G.10. 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 and the 

September 19, 2012 meetings 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/ 

Medicare/Coding/ICD10/ICD-10-MSDRG-Conversion-Project.html. The 

translations can be found under the link 

titled ‘‘ICD–10–CM/PCS MS–DRG v30 

Definitions Manual Table of Contents— 

Full Titles—HTML Version in 

Appendix I—Hospital Acquired 

Conditions (HACs).’’ The above CMS 

Web site regarding the ICD–10–MS– 

DRG Conversion Project is also available 

on the CMS Web site at: http:// 

www.cms.gov/Medicare/Medicare-Feefor-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. Proposals Regarding Current HACs 

and Previously Considered Candidate 

HACs 

We are not proposing to add or 

remove categories of HACs at this time. 

However, we continue to encourage 

public dialogue about refinements to the 

HAC list by written stakeholder 

comments about both previously 

selected and potential candidate HACs. 

We refer readers to section II.F.6. of the 

FY 2008 IPPS final rule with comment 

period (72 FR 47202 through 47218) and 

to section II.F.7. of the FY 2009 IPPS 

final rule (73 FR 48774 through 48491) 

for detailed discussion supporting our 

determination regarding each of these 

conditions. We also refer readers to 

section III.F.5. of the FY 2013 IPPS/ 

LTCH PPS proposed rule (77 FR 27892 

through 27898) and the FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53285 

through 53292) for the HAC policy for 

FY 2013. In addition, readers may find 

updated information on evidence-based 

guidelines on the CMS Web site at: 

http://www.cms.gov/Medicare/ 

Medicare-Fee-for-Service-Payment/ 

HospitalAcqCond/HospitalAcquired_Conditions.html. 

6. RTI Program Evaluation 

On September 30, 2009, a contract 

was awarded to RTI to evaluate the 

impact of the Hospital-Acquired 

Condition-Present on Admission (HAC– 

POA) provisions on the changes in the 

incidence of selected conditions, effects 

on Medicare payments, impacts on 

coding accuracy, unintended 

consequences, and infection and event 

rates. This was an intra-agency project 

with funding and technical support 

from CMS, OPHS, AHRQ, and CDC. The 

evaluation also examined the 

implementation of the program and 

evaluated additional conditions for 

future selection. The contract with RTI 

ended on November 30, 2012. Summary 

reports of RTI’s analysis of the FYs 

2009, 2010, and 2011 MedPAR data files 

for the HAC–POA program evaluation 

were included in the FY 2011 IPPS/ 

LTCH PPS final rule (75 FR 50085 

through 50101), the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51512 through 

51522), and the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53292 through 

53302). Summary and detailed data also 

were made publicly available on the 

CMS Web site at: http://www.cms.gov/ 

HospitalAcqCond/01_Overview.asp and 

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the RTI Web site at: http://www.rti.org/ 

reports/cms/. 

In addition to the evaluation of HAC 

and POA MedPAR claims data, RTI also 

conducted analyses on readmissions 

due to HACs, the incremental costs of 

HACs to the healthcare system, a study 

of spillover effects and unintended 

consequences, as well as an updated 

analysis of the evidence-based 

guidelines for selected and previously 

considered HACs. Reports on these 

analyses have been made publicly 

available on the CMS Web site at: http:// 

www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/HospitalAcqCond/ 

index.html. 

7. Current and Previously Considered 

Candidate HACs—RTI Report on 

Evidence-Based Guidelines 

The RTI program evaluation includes 

a report that provides references for all 

evidence-based guidelines available for 

each of the selected and previously 

considered candidate HACs that provide 

recommendations for the prevention of 

the corresponding conditions. 

Guidelines were primarily identified 

using the AHRQ National Guidelines 

Clearing House (NGCH) and the CDC, 

along with relevant professional 

societies. Guidelines published in the 

United States were used, if available. In 

the absence of U.S. guidelines for a 

specific condition, international 

guidelines were included. 

Evidence-based guidelines that 

included specific recommendations for 

the prevention of the condition were 

identified for each of the selected 

conditions. In addition, evidence-based 

guidelines also were found for the 

previously considered candidate 

conditions. RTI prepared a final report 

to summarize its findings regarding 

evidence-based guidelines. This report 

can be found on the CMS Web site at: 

http://www.cms.gov/Medicare/ 

Medicare-Fee-for-Service-Payment/ 

HospitalAcqCond/HospitalAcquired_Conditions.html. Subsequent 

to this final report, RTI has been 

awarded an FY 2014 Evidence-Based 

Guidelines Monitoring contract. Under 

the contract, RTI will provide a 

summary report of all evidence-based 

guidelines available for each of the 

selected and previously considered 

candidate HACs that provide 

recommendations for the prevention of 

the corresponding conditions. Updates 

to the guidelines will be made available 

to the public. 

G. Proposed Changes to Specific MS– 

DRG Classifications 

In this FY 2014 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 also are 

discussed below. In some cases, we are 

proposing changes to the MS–DRG 

classifications based on our analysis of 

claims data. In other cases, we are 

proposing to maintain the existing MS– 

DRG classification based on our analysis 

of claims data. 

CMS encourages input from our 

stakeholders concerning the annual 

IPPS updates when that input is made 

available to us by early December of the 

year prior to the next annual proposed 

rule update. For example, to be 

considered for any updates or changes 

in FY 2014, comments and suggestions 

should have been submitted by early 

December 2012. The comments that 

were submitted in a timely manner are 

discussed below in this section. 

1. Pre-Major Diagnostic Categories (PreMDCs): Heart Transplants and Liver 

Transplants 

We received a request from an 

organization that represents transplant 

surgeons to eliminate the severity levels 

for the heart and liver transplants MS– 

DRGs. The MS–DRGs for heart 

transplants are: 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). The MS– 

DRGs for liver transplants are: MS–DRG 

005 (Liver Transplant with MCC or 

Intestinal Transplant) and MS–DRG 006 

(Liver Transplant without MCC). We 

received this comment during the 

comment period for the FY 2013 IPPS/ 

LTCH PPS proposed rule. We referred to 

this comment briefly in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 

53325), but we did not address the issue 

because we considered this comment 

outside of the scope of the proposed 

rule. However, we are addressing this 

issue in this FY 2014 proposed rule. 

The commenter stated that there are 

no ‘‘uncomplicated’’ heart transplants or 

liver transplants, and indicated that all 

of these transplant procedures are 

highly complex, involving numerous 

complicating conditions, only some of 

which may be recognized by the MS– 

DRGs. The commenter expressed 

concern that the continued bifurcation 

of the MS–DRGs for heart and liver 

transplants will result in unsustainable 

payment for these cases that are 

assigned to the ‘‘without MCC’’ MS– 

DRGs 002 and 006. According to the 

commenter, in light of the relatively 

small number of Medicare patients 

involved and the significant cost 

variation involved, it would be 

preferable to eliminate the bifurcation of 

these procedures, thereby increasing the 

stability of the DRG weights for these 

procedures. 

We examined claims data from the FY 

2012 MedPAR file for heart and liver 

transplant cases assigned to MS–DRGs 

001, 002, 005, and 006. The following 

table illustrates our findings: 

MS–DRGs Number of 

cases 

Average 

length of 

stay 

Average 

costs 

MS–DRG 001 .......................................................................................................................................... 1,247 33.27 $158,556 

MS–DRG 002 .......................................................................................................................................... 284 18 97,932 

MS–DRGs 001 and 002—All cases ........................................................................................................ 1,531 30.4 147,310 

MS–DRG 005 .......................................................................................................................................... 828 19 66,746 

MS–DRG 006 .......................................................................................................................................... 282 8.75 30,873 

MS–DRGs 005 and 006—All cases ........................................................................................................ 1,110 16.3 57,632 

The data showed that the majority of 

the heart transplant cases, a total of 

1,247, are assigned to MS–DRG 001, 

with average costs of approximately 

$158,556 and an average length of stay 

of approximately 33.27 days. There 

were 284 cases assigned to MS–DRG 

002, with average costs of 

approximately $97,932 and an average 

length of stay of approximately 18 days. 

This table shows that there are 

significant differences in average 

lengths of stay and average costs for the 

severity level for the heart transplant 

MS–DRGs that justify the existing split 

in MS–DRGs 001 and 002. If we were to 

combine the heart transplant cases in 

MS–DRGs 001 and 002 as suggested by 

the commenter, the payment for the 

majority of cases with an MCC would be 

lower. 

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The majority of the liver transplant 

cases, 828 cases, were assigned to MS– 

DRG 005, with average costs of 

approximately $66,746 and an average 

length of stay of approximately 19 days. 

There were 282 cases assigned to MS– 

DRG 006, with average costs of 

approximately $30,873 and an average 

length of stay of approximately 8.75 

days. The data showed that there are 

significant differences in average costs 

and average lengths of stay in the 

severity levels for the liver transplant 

MS–DRGs. Again, if we were to combine 

all the liver transplant cases into one 

MS–DRG as requested by the 

commenter, the majority of the cases 

would receive lower payment. 

Based on these findings, we believe 

that it would not be prudent to 

eliminate the severity levels for the 

heart and liver transplant MS–DRGs. 

Our clinical advisors concur with this 

analysis that two severity levels are 

justified for the heart and liver 

transplant MS–DRGs. Therefore, for FY 

2014, we are not proposing to make any 

changes to the severity levels for heart 

and liver transplant MS–DRGs 001, 002, 

005, and 006. 

We are inviting public comments on 

this issue. 

2. MDC 1 (Diseases and Disorders of the 

Nervous System): Tissue Plasminogen 

Activator (tPA) (rtPA) Administration 

Within 24 Hours Prior to Admission 

During the comment period for the FY 

2013 IPPS/LTCH PPS proposed rule, we 

received a public comment that we 

considered to be outside the scope of 

that proposed rule. We stated in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53325) that we would consider this 

issue in future rulemaking as part of our 

annual review process. The commenter 

requested that CMS conduct an analysis 

of diagnosis code V45.88 (Status post 

administration of tPA (rtPA) in a 

different facility within the last 24 hours 

prior to admission to current facility). 

Diagnosis code V45.88 was created for 

use beginning October 1, 2008, to 

identify patients who are given tissue 

plasminogen activator (tPA) at one 

institution and then transferred and 

admitted to a comprehensive stroke 

center for further care. This situation 

has been referred to as the ‘‘drip-andship’’ issue and was discussed at length 

in the FY 2009 IPPS proposed rule (73 

FR 23563 through 23564) and final rule 

(73 FR 48493 through 48495), as well as 

the FY 2011 IPPS/LTCH PPS proposed 

rule (75 FR 23899 through 23900) and 

final rule (75 FR 50102 through 50106). 

We refer readers to these previous 

discussions for detailed background 

information regarding this topic. 

Similar to previous requests, 

according to the commenter, the 

concern at the receiving facilities is that 

the costs associated with [caring for] 

more complex stroke patients that 

receive tPA are much higher than the 

cost of the drug, presumably because 

stroke patients initially needing tPA 

have more complicated strokes and 

outcomes. However, because these 

patients do not receive the tPA at the 

second or transfer hospital, the 

receiving hospital will not be able to 

assign the case to one of the higherweighted tPA stroke MS–DRGs when it 

admits these patients whose care 

requires the use of intensive resources. 

The MS–DRGs that currently include 

the diagnosis code for the use of tPA 

are: MS–DRG 061 (Acute Ischemic 

Stroke with Use of Thrombolytic Agent 

with MCC); MS–DRG 062 (Acute 

Ischemic Stroke with Use of 

Thrombolytic Agent with CC); and MS– 

DRG 063 (Acute Ischemic Stroke with 

Use of Thrombolytic Agent without CC/ 

MCC). These MS–DRGs have higher 

relative weights than the other MS– 

DRGs relating to stroke or cerebral 

infarction. The commenter requested an 

analysis of diagnosis code V45.88 to 

determine whether new claims data 

warrant any change in the MS–DRG 

structure. 

For this proposed rule, we analyzed 

MedPAR claims data from FY 2012. We 

included claims for patient cases 

assigned to the following MS–DRGs: 

• 061 (Acute Ischemic Stroke with 

Use of Thrombolytic Agent with MCC) 

• 062 (Acute Ischemic Stroke with 

Use of Thrombolytic Agent with CC) 

• 063 (Acute Ischemic Stroke with 

Use of Thrombolytic Agent without CC/ 

MCC) 

• 064 (Intracranial Hemorrhage or 

Cerebral Infarction with MCC) 

• 065 (Intracranial Hemorrhage or 

Cerebral Infarction with CC) 

• 066 (Intracranial Hemorrhage or 

Cerebral Infarction without CC/MCC). 

Our data analysis included MS–DRGs 

064, 065, and 066 because claims 

involving diagnosis code V45.88 also 

would be properly reported in the data 

for these MS–DRGs. The following table 

reflects the results of our analysis of the 

MedPAR data in which diagnosis code 

V45.88 was reported as a secondary 

diagnosis for FY 2012. 

MS–DRG Number of 

cases 

Average 

length of 

stay 

Average 

costs 

MS–DRG 061—All cases ........................................................................................................................ 3,369 7.48 $18,556 

MS–DRG 061—Cases with secondary diagnosis code V45.88 ............................................................. 140 7.51 19,008 

MS–DRG 062—All cases ........................................................................................................................ 5,277 4.92 12,935 

MS–DRG 062—Cases with secondary diagnosis code V45.88 ............................................................. 179 5.03 13,317 

MS–DRG 063—All cases ........................................................................................................................ 1,709 3.45 10,363 

MS–DRG 063—Cases with secondary diagnosis code V45.88 ............................................................. 48 3.15 9,372

MS–DRG 064—All cases ........................................................................................................................ 64,095 6.30 11,654 

MS–DRG 064—Cases with secondary diagnosis code V45.88 ............................................................. 955 7.06 14,432 

MS–DRG 065—All cases ........................................................................................................................ 101,011 4.29 7,414 

MS–DRG 065—Cases with secondary diagnosis code V45.88 ............................................................. 1,259 4.91 9,471 

MS–DRG 066—All cases ........................................................................................................................ 56,620 2.92 5,414 

MS–DRG 066—Cases with secondary diagnosis code V45.88 ............................................................. 493 3.28 6,682 

Based on our review of the data for all 

of the cases in MS–DRGs 064, 065, and 

066, compared to the subset of cases 

containing diagnosis code V45.88 as the 

secondary diagnosis, we again 

concluded that the movement of cases 

with diagnosis code V45.88 as a 

secondary diagnosis from MS–DRGs 

064, 065, and 066 to MS–DRGs 061, 062, 

and 063 is not warranted. We 

determined that the differences in the 

average lengths of stay and the average 

costs are too small to warrant an 

assignment to the higher-weighted MS– 

DRGs. 

However, the data does reflect that the 

average costs for cases reporting 

diagnosis code V45.88 as a secondary 

diagnosis in MS–DRG 066 are more 

similar to the average costs of higher 

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severity level cases in MS–DRG 065. 

Therefore, for FY 2014, we are 

proposing to move cases with diagnosis 

code V45.88 from MS–DRG 066 to MS– 

DRG 065, and to revise the title of MS– 

DRG 065 to reflect the patients status 

post tPA administration within 24 

hours. The proposed revised MS–DRG 

title would be: MS–DRG 065 

(Intracranial Hemorrhage or Cerebral 

Infarction with CC or tPA in 24 Hours). 

We are inviting public comments on 

our proposal. 

3. MDC 4 (Diseases and Disorders of the 

Ear, Nose, Mouth and Throat) 

a. Endoscopic Placement of a Bronchial 

Value 

In response to the FY 2013 IPPS/ 

LTCH PPS proposed rule, we received a 

request to modify the MS–DRG 

assignment for bronchial valve(s) 

insertion, which we considered to be 

outside of the scope of that proposed 

rule (77 FR 53325 through 53326). The 

requestor asked that cases in MS–DRGs 

190, 191, and 192 (Chronic Obstructive 

Pulmonary Disease with MCC, with CC, 

and without MCC/CC, respectively) that 

involve insertion of a bronchial valve be 

assigned instead to MS–DRGs 163, 164, 

and 165 (Major Chest Procedures with 

MCC, with CC, and without MCC/CC, 

respectively). The procedures are 

captured by procedure codes 33.71 

(Endoscopic insertion or replacement of 

bronchial valve(s), single lobe) and 

33.73 (Endoscopic insertion or 

replacement of bronchial valve(s), 

multiple lobes), which are considered 

nonoperating procedures and do not 

affect the MS–DRG assignment. When 

reported without any other operating 

room (OR) procedure code, the 

admission would be assigned to a 

medical MS–DRG. 

The Spiration® IBV Valve System 

device, a bronchial valve, was approved 

for new technology add-on payments in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 43819 through 43823) 

with a maximum payment rate of 

$3,437.50. In the FY 2012 IPPS/LTCH 

PPS final rule, the new technology addon payments were discontinued for FY 

2012 (76 FR 51575 through 51576). The 

bronchial valve device is used to place, 

via bronchoscopy, small, one-way 

valves into selected small airways in the 

lung in order to limit airflow into 

selected portions of lung tissue that 

have prolonged air leaks following 

surgery while still allowing mucus, 

fluids, and air to exit, and thereby 

reducing the amount of air that enters 

the pleural space. The device is 

intended to control prolonged air leaks 

following three specific surgical 

procedures: lobectomy, segmentectomy, 

or lung volume reduction surgery 

(LVRS). According to Spiration®, an air 

leak that is present on postoperative day 

7 is considered ‘‘prolonged’’ unless 

present only during forced exhalation or 

cough. In order to help prevent valve 

migration, there are five anchors with 

tips that secure the valve to the airway. 

The implanted valves are intended to be 

removed no later than 6 weeks after 

implantation. 

New technology add-on payments 

were limited to cases involving 

prolonged air leaks following 

lobectomy, segmentectomy, and LVRS 

in MS–DRGs 163, 164, and 165 in the 

FY 2010 IPPS/RY 2010 LTCH PPS final 

rule (74 FR 43823). This limitation was 

based on the indications for use 

approved by the FDA in the FDA 

Humanitarian Device Exemption (HDE) 

approval process set forth in section 

520(m) of the Federal Food, Drug & 

Cosmetic Act. A humanitarian use 

device (HUD) is a device that is 

intended to benefit patients by treating 

or diagnosing a disease or condition that 

affects or is manifested in fewer than 

4,000 individuals in the United States 

per year. Devices that receive HUD 

designation may be eligible for 

marketing approval, subject to certain 

restrictions, under an HDE application. 

To obtain marketing approval for an 

HUD, an HDE application must be 

submitted to the FDA. An HDE 

application is a premarket approval 

(PMA) application submitted to the FDA 

under 21 CFR 814.104 that seeks 

exemption from the PMA requirement 

under 21 CFR 814.20 demonstrating a 

reasonable assurance of effectiveness. A 

device that has received HUD 

designation may receive HDE approval 

if, among other things, the FDA 

determines that the device will not 

expose patients to an unreasonable or 

significant risk of illness or injury and 

the probable benefit to health from use 

of the device 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. In 

addition, the applicant must 

demonstrate that no comparable devices 

are available to treat or diagnose the 

disease or condition (other than another 

device approved under an HDE 

application or a device under an 

approved Investigational Device 

Exemption), and that the device would 

not otherwise be available unless an 

HDE is granted. An approved HDE 

authorizes marketing of the HUD. 

However, an HUD generally may be 

used in facilities only after prior 

approval by an Institutional Review 

Board (IRB). 

FDA’s approval of the HDE 

application limited the use of the 

Spiration® IBV Valve System device to 

cases involving prolonged air leaks 

following lobectomy, segmentectomy, or 

LVRS. 

The requested MS–DRG change 

would initiate the same payment for 

chronic obstructive pulmonary disease 

(COPD) cases with a bronchial valve 

inserted without a major chest 

procedure as for cases where both a 

major chest procedure and a bronchial 

valve insertion were performed. The 

following table shows the COPD cases 

that involved the insertion of a 

bronchial valve as well as data on cases 

assigned to MS–DRGs 163, 164, and 

165. 

MS–DRGs Number of 

cases 

Average 

length of 

stay 

Average 

costs 

COPD Cases 

MS–DRG 190—All cases ...................................................................................................................... 133,566 5 .07 $7,815 

MS–DRG 190—Cases with procedure code 33.71 .............................................................................. 0 0 0 

MS–DRG 190—Cases with procedure code 33.73 .............................................................................. 2 14 .0 47,034 

MS–DRG 191—All cases ...................................................................................................................... 129,231 4 .18 6,245 

MS–DRG 191—Cases with procedure code 33.71 .............................................................................. 0 0 0 

MS–DRG 191—Cases with procedure code 33.73 .............................................................................. 0 0 0 

MS–DRG 192—All cases ...................................................................................................................... 93,507 3 .32 4,776 

MS–DRG 192—Cases with procedure code 33.71 .............................................................................. 0 0 0 

MS–DRG 192—Cases with procedure code 33.73 .............................................................................. 0 0 0 

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MS–DRGs Number of 

cases 

Average 

length of 

stay 

Average 

costs 

Major Chest Procedures 

MS–DRG 163—All cases ...................................................................................................................... 11,287 13 .33 32,728 

MS–DRG 164—All cases ...................................................................................................................... 16,113 6 .69 17,494 

MS–DRG 165—All cases ...................................................................................................................... 9,280 3 .94 12,209 

There were only two COPD cases that 

had bronchial valves inserted in MS– 

DRGs 190, 191, and 192. While the 

charges were high, these cases were 

assigned to the highest severity level 

MS–DRG (MS–DRG 190 with MCC). 

Given the small number of cases, it is 

not possible to determine if the high 

average costs were due to the bronchial 

valve insertion or to other factors such 

as other secondary diagnoses. The 

average length of stay for these two 

cases was approximately 14 days 

compared to approximately 5.07 days 

for all other cases within MS–DRG 190. 

Because the additional 10 days cannot 

be clinically attributed to the bronchial 

valve insertion, our clinical advisors 

have determined that other factors must 

have impacted these two cases. 

Cases in MS–DRGs 163, 164, and 165 

include those cases with a major chest 

procedure and those cases with both a 

major chest procedure as well as a 

bronchial valve insertion as discussed 

above. Our clinical advisors do not 

support moving COPD cases that have 

only a bronchial valve insertion and no 

other major chest procedure from MS– 

DRGs 190, 191, and 192 to MS–DRGs 

163, 164, and 165. They do not believe 

the bronchial valve procedures are 

clinically similar to other major chest 

procedures that require significantly 

more resources to perform. Our clinical 

advisors point out that the limited 

circumstances where this procedure 

would be used led the sponsor to seek 

HDE approval from the FDA rather than 

a standard PMA. The indications for use 

approved by the FDA are still limited to 

post-surgery. Our clinical advisors 

recommended that we not modify the 

MS–DRG logic so that COPD cases with 

bronchial valve insertions would be 

assigned to MS–DRGs 163, 164, and 

165. 

Given the limited number of cases for 

this procedure and the advice from our 

clinical advisors, we are not proposing 

any MS–DRG changes for bronchial 

valve(s) insertion for FY 2014. We also 

are not proposing to change the MS– 

DRG assignment for procedures 

involving bronchial valve(s) insertion 

(procedure codes 33.71 and 33.73) 

within MS–DRGs 190, 191, and 192. 

We are inviting public comment on 

this issue. 

b. Pulmonary Thromboendarterectomy 

(PTE) with Full Circulatory Arrest 

We received a request from a 

university medical center to create a 

new MS–DRG or to reassign cases 

reporting a unique approach to 

pulmonary thromboendarterectomy 

(PTE) surgery performed with full 

cardiac arrest and hypothermia. The 

requestor asked that we move cases 

from MS–DRGs 163, 164, and 165 

(Major Chest Procedures with MCC, 

with CC, and without CC/MCC, 

respectively) to MS–DRGs 228, 229, and 

230 (Other Cardiothoracic Procedures 

with MCC, with CC, and without CC/ 

MCC, respectively). Currently, MS– 

DRGs 163, 164, and 165 are grouped 

within MDC 4 (Diseases and Disorders 

of the Respiratory System) while MS– 

DRGs 228, 229, and 230 are grouped 

within MDC 5 (Diseases and Disorders 

of the Circulatory System). 

The requestor identified two 

conditions for which a pulmonary 

endarterectomy procedure is typically 

performed. These conditions are 

identified by ICD–9–CM diagnosis codes 

415.19 (Other pulmonary embolism and 

infarction) and 416.2 (Chronic 

pulmonary embolism). However, the 

requestor noted that diagnosis code 

415.19 is usually associated with 

traditional PTE for acute pulmonary 

embolism while diagnosis code 416.2 is 

associated with the medical center’s 

unique approach to PTE performed with 

full cardiac arrest and hypothermia. 

Currently, there is not a specific ICD– 

9–CM procedure code to accurately 

describe PTE surgery performed with 

full cardiac arrest and hypothermia. 

Rather, a subset of existing ICD–9–CM 

procedure codes may be used to identify 

the various components involved in this 

unique approach to PTE surgery; for 

example, ICD–9–CM procedure codes 

38.15 (Endarterectomy, other thoracic 

vessels); 39.61 (Extracorporeal 

circulation auxiliary to open heart 

surgery); 39.62 (Hypothermia (systemic) 

incidental to open heart surgery); and 

39.63 (Cardioplegia). However, it is not 

clear if the requestor reports any of 

these codes or a combination of these 

codes to identify its unique approach to 

the procedure. 

According to the requestor, its 

approach to PTE surgery is significantly 

different from traditional pulmonary 

endarterectomy procedures in terms of 

complexity, resource use, and the 

population for which the procedure is 

performed. The requestor noted that the 

surgery is ‘‘conducted under profound 

hypothermia and circulatory arrest 

which involves placing the patient on 

cardiopulmonary bypass and cooling 

the body to 20 degrees centigrade or 

lower.’’ In addition, the requestor 

explained that ‘‘during this period of 

cooling and cardiac arrest, the heart is 

arrested and all of the patient’s blood is 

removed from the body.’’ Following 

this, circulation is stopped completely 

allowing for ‘‘optimal and extensive 

dissection of the pulmonary arteries and 

identification of an endarterectomy 

plane which can be delicately incised 

into the deepest pulmonary 

vasculature.’’ The requestor further 

noted that ‘‘due to the complexity of the 

surgical technique, a very high degree of 

skill is required and the procedure is 

currently only performed by a handful 

of surgeons world-wide.’’ Lastly, the 

requestor stated the average operating 

time for a traditional PTE is 

approximately 3 to 4 hours compared to 

the university medical center’s 

approach to PTE, which averages 

approximately 10 to 12 hours. 

We analyzed claims data from the FY 

2012 MedPAR file for cases reporting a 

principal diagnosis code of 415.19 or a 

principal diagnosis code of 416.2 along 

with procedure codes 38.15, 39.61, 

39.62, and 39.63. As displayed in the 

table below, there were a total of 11,287 

cases in MS–DRG 163 with an average 

length of stay of approximately 13.33 

days and average costs of approximately 

$32,728. Using the combination of 

diagnosis and procedure codes as 

described above, the total number of 

cases found in MS–DRG 163 was 12, 

with average costs ranging from 

approximately $46, 959 to $53,048 and 

an average length of stay ranging from 

approximately 13.50 days to 16.20 days. 

We acknowledge that the average length 

of stay and average costs for these cases 

are somewhat higher in comparison to 

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the average lengths of stay and average 

costs of all the other cases in MS–DRG 

163. However, the volume of cases was 

very low. The data reflect similar results 

for MS–DRG 164. Only 4 cases were 

identified in the analysis, with average 

costs ranging from approximately 

$21,669 to $37,447 and average lengths 

of stay ranging from approximately 7 

days to 10 days. 

In total, there were only 16 cases 

reflected in the data using the 

combination of diagnosis codes and 

proxy procedure codes. We believe 

there may be other factors contributing 

to the increased lengths of stay and 

costs. (We note that, there were no cases 

found for a principal diagnosis code of 

415.19 with procedure code 38.15 only. 

There also were no cases found in MS– 

DRG 165 using the combination of 

diagnosis and procedure codes.) 

MS–DRG Number of 

cases 

Average 

length 

of stay 

Average 

costs 

MS–DRG 163—All cases ........................................................................................................................ 11,287 13.33 $32,728 

MS–DRG 163—Cases with principal diagnosis code 415.19 with procedure code 38.15 and 39.61 or 

39.62 or 39.63 ...................................................................................................................................... 4 13.50 46,959 

MS–DRG 163—Cases with principal diagnosis code 416.2 with procedure code 38.15 only ............... 3 14.33 53,048 

MS–DRG 163—Cases with principal diagnosis code 416.2 with procedure code 38.15 and 39.61 or 

39.62 or 39.63 ...................................................................................................................................... 5 16.20 50,393 

MS–DRG 164—All cases ........................................................................................................................ 16,113 6.69 17,494 

MS–DRG 164—Cases with principal diagnosis code 415.19 with procedure code 38.15 with 39.61 or 

39.62 or 39.63 ...................................................................................................................................... 2 10.00 37,447 

MS–DRG 164—Cases with principal diagnosis code 416.2 with procedure code 38.15 only ............... 0 0 0 

MS–DRG 164—Cases with principal diagnosis code 416.2 with procedure code 38.15 and 39.61 or 

39.62 or 39.63 ...................................................................................................................................... 2 7.00 21,669 

As stated in previous rulemaking 

discussion, 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, our 

clinical advisors agree that the current 

MS–DRG assignment for this unique 

procedure is appropriate. 

We also analyzed claims data from the 

FY 2012 MedPAR file for MS–DRGs 

228, 229, and 230 as illustrated below. 

MS–DRG Number of 

cases 

Average 

length of 

stay 

Average 

costs 

MS–DRG 228—Other cardiothoracic procedures with MCC .................................................................. 1,643 13.26 $46,758 

MS–DRG 229—Other cardiothoracic procedures with CC ..................................................................... 1,841 7.77 30,432 

MS–DRG 230—Other cardiothoracic procedures without CC/MCC ....................................................... 506 5.08 25,068

ICD–9–CM procedure code 38.15 is 

designated as an operating room (OR) 

procedure code and currently groups to 

MS–DRGs 163, 164, and 165 in MDC 4 

when either diagnosis code 415.19 or 

416.2 are reported as the principal 

diagnosis. As diagnosis codes can only 

be assigned to one MDC within the 

GROUPER logic, it is not possible for a 

patient to have diagnosis code 415.19 or 

diagnosis code 416.2 reported along 

with procedure code 38.15 and grouped 

to MDC 5, which is where MS–DRGs 

228, 229, and 230 are assigned. 

Therefore, another aspect of this MS– 

DRG request involved the evaluation of 

moving ICD–9–CM diagnosis code 416.2 

from MDC 4 to MDC 5. Our clinical 

advisors do not support moving 

diagnosis code 416.2 from MDC 4 to 

MDC 5 in order to accommodate this 

rare procedure performed by only a 

small number of physicians worldwide. 

They pointed out that a basic change 

such as moving diagnosis code 416.2 

from MDC 4 to MDC 5 would impact a 

large number of patients who do not 

undergo this procedure. It also would 

disrupt trend data from over 30 years of 

DRG and MS–DRG reporting. Given the 

very small number of potential cases, 

and the advice of our clinical advisors, 

we do not believe a MS–DRG 

modification is warranted at this time. 

Therefore, we are not proposing to 

create a new MS–DRG or to reassign 

cases reporting this university medical 

center’s approach to pulmonary 

thromboendarterectomy. We are inviting 

public comments on this issue. 

4. MDC 5 (Diseases and Disorders of the 

Circulatory System) 

a. Discharge/Transfer to Designated 

Disaster Alternative Care Site 

We are proposing to add new patient 

discharge status code 69 (Discharged/ 

transferred to a designated disaster 

alternative care site) to the MS–DRG 

GROUPER logic for MS–DRGs 280 

(Acute Myocardial Infarction 

Discharged Alive with MCC), 281 

(Acute Myocardial Infarction 

Discharged Alive with CC), and 282 

(Acute Myocardial Infarction 

Discharged Alive without CC/MCC) to 

identify patients who are discharged or 

transferred to an alternative site that 

will provide basic patient care during a 

disaster response. As discussed in 

section II.G.7. of the preamble of this 

proposed rule, this new discharge status 

code is also being added to the Medicare 

Code Editor (MCE) software. We are 

inviting public comments on this 

proposal. 

b. Discharges/Transfers With a 

Planned Acute Care Hospital Inpatient 

Readmission 

We also are proposing to add 15 new 

discharge status codes to the MS–DRG 

GROUPER logic for MS–DRGs 280, 281, 

and 282 that will identify patients who 

are discharged with a planned acute 

care hospital inpatient readmission. As 

discussed in section II.G.7. of the 

preamble of this proposed rule, these 

new discharge status codes are being 

proposed for addition to the MCE as 

well. 

Shown in the table below are the 

current discharge status codes that are 

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assigned to the GROUPER logic for MS– 

DRGs 280, 281, and 282, along with the 

proposed new discharge status codes 

and their titles. 

Current code New 

code Title 

01 ................... 81 Discharged to home or self care with a planned acute care hospital inpatient readmission. 

02 ................... 82 Discharged/transferred to a short term general hospital for inpatient care with a planned acute care hospital inpatient 

readmission. 

03 ................... 83 Discharged/transferred to a skilled nursing facility (SNF) with Medicare certification with a planned acute care hospital 

inpatient readmission. 

04 ................... 84 Discharged/transferred to a facility that provides custodial or supportive care with a planned acute care hospital inpatient readmission. 

05 ................... 85 Discharged/transferred to a designated cancer center or children’s hospital with a planned acute care hospital inpatient 

readmission. 

06 ................... 86 Discharged/transferred to home under care of organized home health service organization with a planned acute care 

hospital inpatient readmission. 

21 ................... 87 Discharged/transferred to court/law enforcement with a planned acute care hospital inpatient readmission. 

43 ................... 88 Discharged/transferred to a federal health care facility with a planned acute care hospital inpatient readmission. 

61 ................... 89 Discharged/transferred to a hospital-based Medicare approved swing bed with a planned acute care hospital inpatient 

readmission. 

62 ................... 90 Discharged/transferred to an inpatient rehabilitation facility (IRF) including rehabilitation distinct part units of a hospital 

with a planned acute care hospital inpatient readmission. 

63 ................... 91 Discharged/transferred to a Medicare certified long term care hospital (LTCH) with a planned acute care hospital inpatient readmission. 

64 ................... 92 Discharged/transferred to a nursing facility certified under Medicaid but not certified under Medicare with a planned 

acute care hospital inpatient readmission. 

65 ................... 93 Discharged/transferred to a psychiatric distinct part unit of a hospital with a planned acute care hospital inpatient readmission. 

66 ................... 94 Discharged/transferred to a critical access hospital (CAH) with a planned acute care hospital inpatient readmission. 

70 ................... 95 Discharged/transferred to another type of health care institution not defined elsewhere in this code list with a planned 

acute care hospital inpatient readmission. 

We are inviting public comments on 

our proposal to add the above listed 

new discharge status codes to the 

GROUPER logic for MS–DRGs 280, 281, 

and 282. 

5. MDC 8 (Diseases and Disorders of the 

Musculoskeletal System and Connective 

Tissue) 

a. Reverse Shoulder Procedures 

We received a request to change the 

MS–DRG assignment for reverse 

shoulder replacement procedures which 

is captured with procedure code 81.88 

(Reverse total shoulder replacement). 

The requestor did not suggest a specific 

new MS–DRG assignment, but requested 

that reverse shoulder replacement 

procedures be reassigned from MS– 

DRGs 483 and 484 (Major Joint/Limb 

Reattachment Procedure of, Upper 

Extremities with CC/MCC and without 

CC/MCC, respectively) or that we create 

a new MS–DRG for reverse shoulder 

replacement procedures. 

Biomechanically, the reverse shoulder 

devices move the center of rotation of 

the arm laterally and change the 

direction of the pull of the deltoid 

muscle, allowing the deltoid muscle to 

elevate the arm without functioning 

rotator cuff tendons. The requestor 

stated that the use of traditional total 

shoulder devices in patients with a 

nonfunctioning rotator cuff frequently 

leads to long-term complications and 

unsatisfactory functional results. 

Patients with damaged rotator cuffs or 

rotator cuff syndrome have poor 

outcomes with traditional shoulder 

replacement devices. The reverse 

shoulder replacement procedure was 

created to address the clinical needs for 

patients who would have poor outcomes 

with a traditional shoulder replacement. 

The requestor stated that reverse 

shoulder replacement devices were 

designed to provide a superior 

functionality and outcomes for patients 

with damaged rotator cuffs. 

The requestor stated that the reverse 

shoulder replacement procedure is 

technically more complex and requires 

a higher level of expertise than 

traditional shoulder procedures and 

involves several issues that make the 

surgery more complex. Patients who 

have had prior rotator cuff surgery have 

anchors and scar tissue that must be 

surgically addressed. Often, there also 

are severe deformities that must be 

addressed in order to establish stability. 

The requestor acknowledged that the 

reverse shoulder replacement procedure 

is an upper extremity procedure like 

other procedures assigned to MS–DRGs 

483 and 484. These MS–DRGs include 

the longstanding total shoulder 

replacement procedures as well as 

partial shoulder replacements. While 

the procedure is similar to other 

procedures in MS–DRGs 483 and 484, 

the requestor stated there are significant 

differences between the technical 

complexity and indications for usage 

from the other procedures. The 

requestor stated there are significant 

differences in resource usage and 

clinical coherence between 

longstanding approaches to shoulder 

replacement and other procedures 

assigned to MS–DRGs 483 and 484 and 

the reverse shoulder replacement 

procedure. The requestor stated not only 

was the resource consumption 

significantly higher, the individual 

supply costs for reserve shoulder 

replacement procedures were higher 

than the costs of other procedures 

assigned to MS–DRGs 483 and 484. 

MS–DRGs 483 and 484 contain the 

following procedures: 

• 81.73 (Total wrist replacement) 

• 81.80 (Other total shoulder 

replacement) 

• 81.81 (Partial shoulder 

replacement) 

• 81.84 (Total elbow replacement) 

• 81.88 (Reverse total shoulder 

replacement) 

• 84.23 (Forearm, wrist, or hand 

reattachment) 

• 84.24 (Upper arm reattachment). 

As can be seen from this list, MS– 

DRGs 483 and 484 contain total and 

partial shoulder replacements, as well 

as replacement and attachment 

procedures on the wrist and upper arm. 

Both the newer shoulder replacement 

techniques as well as the longstanding 

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shoulder replacement techniques are 

included in these MS–DRGs. 

MS–DRG Number of 

cases 

Average 

length of 

stay 

Average 

costs 

MS–DRG 483—All cases ........................................................................................................................ 13,113 3.33 $17,039 

MS–DRG 483—Cases with procedure code 81.88 ................................................................................ 5,690 3.30 19,023 

MS–DRG 484—All cases ........................................................................................................................ 21,073 2.01 14,448 

MS–DRG 484—Cases with procedure code 81.88 ................................................................................ 7,505 2.08 16,890 

As the above table illustrates, the 

average costs for reverse total shoulder 

replacement are approximately $2,000 

higher than the average costs for all 

other procedures within MS–DRGs 483 

and 484 and have similar average 

lengths of stays. While the average costs 

were higher, each MS–DRG has some 

cases that are higher and some cases 

that are lower than the average costs for 

the entire MS–DRG. We believe the 

average costs for the reverse shoulder 

replacement procedures are not 

inappropriately high compared to other 

procedures grouped within MS–DRGs 

483 and 484. Therefore, the claims data 

do not support reassigning these cases 

or creating a new MS–DRG. 

Our clinical advisors reviewed this 

issue and determined that the cases are 

appropriately assigned to MS–DRGs 483 

and 484. As stated earlier, MS–DRGs 

483 and 484 contain other types of 

shoulder replacements. Our clinical 

advisors believe it is appropriate to have 

all total shoulder replacement 

procedures within the same set of MS– 

DRGs. They do not believe it is 

appropriate to reassign those that use a 

different technique to accomplish the 

same goal, a total shoulder replacement. 

Therefore, our clinical advisors 

determined that this is an appropriate 

assignment for reverse shoulder 

replacement procedures from a clinical 

perspective. They also do not believe it 

is appropriate to move these cases to 

any other surgical, orthopedic MS– 

DRGs because of differences in the 

clinical makeup of the other surgical 

orthopedic MS–DRGs. Our clinical 

advisors recommended not creating a 

new MS–DRG for reverse shoulder 

replacement procedures because they 

believe the procedures are appropriately 

assigned to MS–DRGs 483 and 484. 

Therefore, based on claims data and 

clinical analysis, we are not proposing 

to reassign these cases to any other MS– 

DRGs or to create a new MS–DRG. 

Based on the claims data and our 

clinical analysis, we are not proposing 

to reassign cases reporting procedure 

code 81.88 from their current 

assignment to MS–DRGs 483 and 484 or 

to create a new MS–DRG. We are 

inviting public comments on this issue. 

b. Total Ankle Replacement Procedures 

In response to the FY 2013 IPPS/ 

LTCH PPS proposed rule, we received a 

request to develop a new MS–DRG for 

total ankle replacements, which we 

considered to be outside the scope of 

that proposed rule (77 FR 53325). We 

are addressing this request as part of 

this FY 2014 IPPS/LTCH PPS proposed 

rule. The cases are captured by 

procedure code 81.56 (Total ankle 

replacement) and are assigned to MS– 

DRGs 469 and 470 (Major Joint 

Replacement or Reattachment of Lower 

Extremity with MCC and without MCC, 

respectively). 

The commenter stated that total ankle 

procedures are much more clinically 

complex than total hip or total knee 

replacement procedures, which have 

their own distinct MS–DRGs. The 

commenter also stated that total ankle 

replacement is surgery that involves the 

replacement of the damaged parts of the 

three bones that make up the ankle 

joint, as compared to two bones in most 

other total joint procedures such as hip 

or knee replacement. The commenter 

stated that average costs of total ankle 

replacements are higher than those for 

total knee and hip replacements. 

Therefore, a new MS–DRG should be 

created for total ankle replacements. As 

an alternative, the commenter suggested 

that these cases be reassigned to MS– 

DRG 469 even if the cases do not have 

an MCC as a secondary diagnosis. 

MS–DRGs 469 and 470 include a 

variety of procedures of the lower 

extremities including the procedures 

listed below. This group of lower 

extremity joint replacement and 

reattachment procedures was developed 

because they were considered to be 

clinically cohesive and to have similar 

resource consumptions. 

• 00.85 (Resurfacing hip, total, 

acetabulum and femoral head) 

• 00.86 (Resurfacing hip, partial, 

femoral head) 

• 00.87 (Resurfacing hip, partial, 

acetabulum) 

• 81.51 (Total hip replacement) 

• 81.52 (Partial hip replacement) 

• 81.54 (Total knee replacement) 

• 81.56 (Total ankle replacement) 

• 84.26 (Foot reattachment) 

• 84.27 (Lower leg or ankle 

reattachment) 

• 84.28 (Thigh reattachment) 

As the table below shows, there were 

1,275 cases reporting total ankle 

replacements with 21 cases in MS–DRG 

469 and 1,254 cases in MS–DRG 470. 

The 1,254 cases in MS–DRG 470 have 

higher costs than other cases in MS– 

DRG 470 (approximately $17,242 

compared to approximately $13,984). 

The 21 cases in MS–DRG 469 had 

average costs of approximately $23,360 

compared to approximately $21,186 in 

average costs for all cases within MS– 

DRG 469. While these procedures are 

higher in average costs than other 

procedures within the MS–DRGs, we 

point out that cases are grouped together 

based on similar clinical and resource 

criteria. Some cases will have average 

costs higher than the overall average 

costs for the MS–DRG, while other cases 

will have lower average costs. Total 

ankle replacements represent 0.3 

percent of the total number of cases 

within MS–DRGs 469 and 470. 

MS–DRGs Number of 

cases 

Average 

length of 

stay 

Average 

costs 

MS–DRG 469—All cases ........................................................................................................................ 25,618 7.33 $21,186 

MS–DRG 469—Cases with procedure code 81.56 ................................................................................ 21 6.81 23,360 

MS–DRG 470—All cases ........................................................................................................................ 390,518 3.37 13,984 

MS–DRG 470—Cases with procedure code 81.56 ................................................................................ 1,254 2.19 17,242 

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MS–DRGs Number of 

cases 

Average 

length of 

stay 

Average 

costs 

Total—All cases ....................................................................................................................................... .................... .................... 416,136 

Total—Cases with procedure code 81.56 ............................................................................................... .................... .................... 1,275 

Our clinical advisors reviewed this 

issue and determined that the total 

ankle replacements are appropriately 

classified within MS–DRGs 469 and 

470. They do not support the 

commenter’s contention that these cases 

are significantly more complex than 

knee and hip replacements. They 

believe that total ankle replacements are 

clinically consistent with other types of 

lower extremity joint replacements 

within MS–DRGs 469 and 470. Our 

clinical advisors do not support creating 

a new MS–DRG for total ankle 

replacements. After considering the 

results of examination of the claims 

data, the recommendations from our 

clinical advisors, and the small number 

of total ankle replacements, we are not 

proposing to create a new MS–DRG at 

this time. 

We also examined the request to move 

all total ankle replacements to the 

highest severity level, MS–DRG 469, 

even when no secondary diagnosis on 

the MCC list was reported. Moving all 

total ankle replacements to MS–DRG 

469 would lead to overpayments of 

approximately $3,944 per case because 

the average costs of total ankle 

replacements in MS–DRG 470 was 

approximately $17,242, while the 

average costs of all cases in MS–DRG 

469 was approximately $21,186. After 

considering the claims data as well as 

the input from our clinical advisors, we 

are not proposing that all total ankle 

procedures be assigned to MS–DRG 469 

even when the case does not have an 

MCC reported as a secondary diagnosis. 

We believe the current MS–DRGs are 

appropriate for total ankle replacements. 

We are not proposing to create a new 

total ankle replacement MS–DRG or to 

reassign all total ankle replacements to 

MS–DRG 469. We are proposing to 

maintain the current MS–DRG 

assignments for total ankle 

replacements. We are inviting public 

comment on our proposal. 

6. MDC 15 (Newborns and Neonates 

With Conditions Originating in the 

Neonatal Period) 

a. Persons Encountering Health Services 

for Specific Procedures, Not Carried Out 

We received a request to evaluate the 

MS–DRG assignment of ICD–9–CM 

diagnosis codes V64.00 through V64.04, 

and V64.06 through V64.43 in MS–DRG 

794 (Neonate with Other Significant 

Problems) under MDC 15. The requestor 

noted that the assignment of diagnosis 

code V64.05 (Vaccination not carried 

out because of caregiver refusal) was 

addressed in the FY 2011 IPPS/LTCH 

PPS final rule (75 FR 50111 through 

50112). We removed diagnosis code 

V64.05 from MS–DRG 794 and added it 

to the ‘‘only secondary diagnosis’’ list 

for MS–DRG 795 (Normal Newborn). 

The requestor asked that we consider 

the reassignment of these diagnosis 

codes from MS–DRG 794 to MS–DRG 

795. The codes under existing MS–DRG 

794 include: 

• V64.00 (Vaccination not carried out, 

unspecified reason) 

• V64.01 (Vaccination not carried out 

because of acute illness) 

• V64.02 (Vaccination not carried out 

because of chronic illness or condition) 

• V64.03 (Vaccination not carried out 

because of immune compromised state) 

• V64.04 (Vaccination not carried out 

because of allergy to vaccine or 

component) 

• V64.06 (Vaccination not carried out 

because of patient refusal) 

• V64.07 (Vaccination not carried out 

for religious reasons) 

• V64.08 (Vaccination not carried out 

because patient had disease being 

vaccinated against) 

• V64.09 (Vaccination not carried out 

for other reason) 

• V64.1 (Surgical or other procedure 

not carried out because of 

contraindication) 

• V64.2 (Surgical or other procedure 

not carried out because of patient’s 

decision) 

• V64.3 (Procedure not carried out for 

other reasons) 

• V64.41 (Laparoscopic surgical 

procedure converted to open procedure) 

• V64.42 (Thoracoscopic surgical 

procedure converted to open procedure) 

• V64.43 (Arthroscopic surgical 

procedure converted to open 

procedure). 

In a newborn case with one of these 

diagnosis codes reported as a secondary 

diagnosis, the case would be assigned to 

MS–DRG 794. The commenter believed 

that these diagnosis codes, when 

reported as a secondary diagnosis for a 

newborn case, should be assigned to 

MS–DRG 795 instead of MS–DRG 794. 

Our clinical advisors reviewed this 

request and concur with the commenter 

that diagnosis codes V64.00 through 

V64.04, and V64.06 through V64.3 

should not continue to be assigned to 

MS–DRG 794, as there is no clinically 

usable information reported in those 

codes identifying significant problems. 

However, our clinical advisors 

recommend that diagnosis codes 

V64.41, V64.42, and V64.43, which 

identify that a surgical procedure 

converted to an open procedure, 

continue to be assigned to MS–DRG 794. 

These diagnosis codes may indicate a 

more significant encounter that required 

a surgical intervention. 

Therefore, for FY 2014, we are 

proposing to reassign diagnosis codes 

V64.00 through V64.04, and V64.06 

through V64.3 from MS–DRG 794 to 

MS–DRG 795. Diagnosis codes V64.00 

through V64.04, and V64.06 through 

V64.3 would be added to the ‘‘only 

secondary diagnosis’’ list for MS–DRG 

795. Diagnosis codes V64.41, V64.42, 

and V64.43 would continue to be 

assigned to MS–DRG 794. We are 

inviting public comments on this 

proposal. 

b. Discharges/Transfers of Neonates 

With a Planned Acute Care Hospital 

Inpatient Readmission 

We are proposing to add the patient 

discharge status codes shown in the 

table below to the MS–DRG GROUPER 

logic for MS–DRG 789 (Neonates, Died 

or Transferred to Another Acute Care 

Facility) to identify neonates that are 

transferred to a designated facility with 

a planned acute care hospital inpatient 

readmission. 

New code Title 

82 ........................................ Discharged/transferred to a short term general hospital for inpatient care with a planned acute care hospital inpatient readmission. 

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New code Title 

85 ........................................ Discharged/transferred to a designated cancer center or children’s hospital with a planned acute care hospital inpatient readmission. 

94 ........................................ Discharged/transferred to a critical access hospital (CAH) with a planned acute care hospital inpatient readmission. 

Currently, the GROUPER logic for 

MS–DRG 789 contains discharge status 

codes 02 (Discharged/transferred to a 

short term general hospital for inpatient 

care), 05 (Discharged/transferred to a 

designated cancer center or children’s 

hospital), and 66 (Discharged/ 

transferred to a critical access hospital 

(CAH)). 

As discussed in section II.G.7. of the 

preamble of this proposed rule, these 

new discharge status codes are also 

being proposed for addition to the 

Medicare Code Editor (MCE). We are 

inviting public comments on our 

proposal. 

7. 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. 

a. Age Conflict Edit 

We received a request to review three 

ICD–9–CM diagnosis codes currently 

listed under the age conflict edit within 

the MCE. The age conflict edit detects 

inconsistencies between a patient’s age 

and any diagnosis on the patient’s 

record. Specifically, the requestor 

recommended that CMS consider the 

removal of diagnosis codes 751.1 

(Atresia and stenosis of small intestine), 

751.2 (Atresia and stenosis of large 

intestine, rectum, and anal canal), and 

751.61 (Biliary atresia) from the 

pediatric age conflict edit. Generally, 

diagnoses included in the list for the 

pediatric age conflict edit are applicable 

for ages 0 through 17. 

The requestor noted that diagnosis 

code 751.1 was removed from the 

Integrated Outpatient Code Editor 

(IOCE) effective January 1, 2006. Our 

clinical advisors agree that patients 

described with any one of the above 

listed codes, although congenital 

anomalies, may require a revision 

procedure in adulthood. Therefore, we 

believe that the removal of these codes 

appears appropriate and also would be 

consistent with the IOCE. 

We are inviting public comments on 

our proposal to remove diagnosis codes 

751.1, 751.2, and 751.61 from the 

pediatric age conflict edit effective 

October 1, 2013. 

b. Discharge Status Code Updates 

To reflect changes in the UB–04 code 

set maintained by the National Uniform 

Billing Committee (NUBC), we are 

proposing to add the following new 

discharge status codes to the CMS 

GROUPER and the MCE logic effective 

October 1, 2013. 

One of the new discharge status codes 

corresponds to an alternative care site. 

This alternative care site discharge 

status code is intended to identify 

patients being discharged or transferred 

to an alternative site that will provide 

basic patient care during a disaster 

response. The new discharge status code 

is 69 (Discharged/transferred to a 

designated disaster alternative care site). 

In addition, 15 new discharge status 

codes correspond with identifying 

planned acute care hospital inpatient 

readmissions. Shown below are the 

existing ‘‘base’’ discharge status codes 

and the new codes that will better 

identify patients who are discharged 

with a planned readmission. 

Base 

code 

New 

code Title 

01 ............... 81 ............. Discharged to home or self care with a planned acute care hospital inpatient readmission. 

02 ............... 82 ............. Discharged/transferred to a short term general hospital for inpatient care. 

03 ............... 83 ............. Discharged/transferred to a skilled nursing facility (SNF) with Medicare certification with a planned acute care hospital inpatient readmission. 

04 ............... 84 ............. Discharged/transferred to a facility that provides custodial or supportive care with a planned acute care hospital inpatient readmission. 

05 ............... 85 ............. Discharged/transferred to a designated cancer center or children’s hospital with a planned acute care hospital inpatient readmission. 

06 ............... 86 ............. Discharged/transferred to home under care of organized home health service organization with planned acute care 

hospital inpatient readmission. 

21 ............... 87 ............. Discharged/transferred to court/law enforcement with a planned acute care hospital inpatient readmission. 

43 ............... 88 ............. Discharged/transferred to federal health care facility with a planned acute care hospital inpatient readmission. 

61 ............... 89 ............. Discharged/transferred to a hospital-based Medicare approved swing bed with a planned acute care hospital inpatient readmission. 

62 ............... 90 ............. Discharged/transferred to an inpatient rehabilitation facility (IRF) including rehabilitation distinct part units of a hospital with a planned acute care hospital inpatient readmission. 

63 ............... 91 ............. Discharged/transferred to a Medicare certified long term care hospital (LTCH) with a planned acute care hospital inpatient readmission. 

64 ............... 92 ............. Discharged/transferred to a nursing facility certified under Medicaid but not certified under Medicare with a planned 

acute care hospital inpatient readmission. 

65 ............... 93 ............. Discharged/transferred to a psychiatric distinct part unit of a hospital with a planned acute care hospital inpatient readmission. 

66 ............... 94 ............. Discharged/transferred to a critical access hospital (CAH) with a planned acute care hospital inpatient readmission. 

70 ............... 95 ............. Discharged/transferred to another type of health care institution not defined elsewhere in this code list with a 

planned acute care hospital inpatient readmission. 

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We are inviting public comments on 

our proposal to add the above listed 

new discharge status codes to the 

GROUPER and the MCE logic effective 

October 1, 2013 (FY 2014). 

8. Surgical Hierarchies 

Some inpatient stays entail multiple 

surgical procedures, each one of which, 

occurring by itself, could result in 

assignment of the case to a different 

MS–DRG within the MDC to which the 

principal diagnosis is assigned. 

Therefore, it is necessary to have a 

decision rule within the GROUPER by 

which these cases are assigned to a 

single MS–DRG. The surgical hierarchy, 

an ordering of surgical classes from 

most resource-intensive to least 

resource-intensive, performs that 

function. Application of this hierarchy 

ensures that cases involving multiple 

surgical procedures are assigned to the 

MS–DRG associated with the most 

resource-intensive surgical class. 

Because the relative resource intensity 

of surgical classes can shift as a function 

of MS–DRG reclassification and 

recalibrations, for FY 2014, 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 001 and 002 and 

surgical class B includes MS–DRGs 003, 

004, and 005. Assume also that the 

average costs of MS–DRG 001 are higher 

than that of MS–DRG 003, but the 

average costs of MS–DRGs 004 and 005 

are higher than the average costs of MS– 

DRG 002. To determine whether 

surgical class A should be higher or 

lower than surgical class B in the 

surgical hierarchy, we would weigh the 

average costs of each MS–DRG in the 

class by frequency (that is, by the 

number of cases in the MS–DRG) to 

determine average resource 

consumption for the surgical class. The 

surgical classes would then be ordered 

from the class with the highest average 

resource utilization to that with the 

lowest, with the exception of ‘‘other 

O.R. procedures’’ as discussed below. 

This methodology may occasionally 

result in assignment of a case involving 

multiple procedures to the lowerweighted 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 with cases assigned to the MDC 

with these diagnoses. Therefore, 

assignment to these surgical classes 

should only occur if no other surgical 

class more closely related to the 

diagnoses in the MDC is appropriate. 

A second example occurs when the 

difference between the average costs for 

two surgical classes is very small. We 

have found that small differences 

generally do not warrant reordering of 

the hierarchy because, as a result of 

reassigning cases on the basis of the 

hierarchy change, the average costs are 

likely to shift such that the higherordered surgical class has lower average 

costs than the class ordered below it. 

In this proposed rule, we are 

proposing limited changes to the MS– 

DRG classifications for FY 2014, as 

discussed in sections II.G.2. and 5. of 

this preamble. In our review of these 

proposed changes, we did not identify 

any needed changes to the surgical 

hierarchy. Therefore, in this proposed 

rule, we are not proposing any changes 

to the surgical hierarchy for Pre-MDCs 

and MDCs for FY 2014. 

9. Complications or Comorbidity (CC) 

Exclusions List 

a. Background of the CC List and the CC 

Exclusions List 

Under the IPPS MS–DRG 

classification system, we have 

developed a standard list of diagnoses 

that are considered CCs. Historically, we 

developed this list using physician 

panels that classified each diagnosis 

code based on whether the diagnosis, 

when present as a secondary condition, 

would be considered a substantial 

complication or comorbidity. A 

substantial complication or comorbidity 

was defined as a condition that, because 

of its presence with a specific principal 

diagnosis, would cause an increase in 

the length of stay by at least 1 day in 

at least 75 percent of the patients. 

However, depending on the principal 

diagnosis of the patient, some diagnoses 

on the basic list of complications and 

comorbidities may be excluded if they 

are closely related to the principal 

diagnosis. In FY 2008, we evaluated 

each diagnosis code to determine its 

impact on resource use and to 

determine the most appropriate CC 

subclassification (non-CC, CC, or MCC) 

assignment. We refer readers to sections 

II.D.2. and 3. of the preamble of the FY 

2008 IPPS final rule with comment 

period for a discussion of the refinement 

of CCs in relation to the MS–DRGs we 

adopted for FY 2008 (72 FR 47152 

through 47171). 

b. Proposed CC Exclusions List for FY 

2014 

In the September 1, 1987 final notice 

(52 FR 33143) concerning changes to the 

DRG classification system, we modified 

the GROUPER logic so that certain 

diagnoses included on the standard list 

of CCs would not be considered valid 

CCs in combination with a particular 

principal diagnosis. We created the CC 

Exclusions List for the following 

reasons: (1) To preclude coding of CCs 

for closely related conditions; (2) to 

preclude duplicative or inconsistent 

coding from being treated as CCs; and 

(3) to ensure that cases are appropriately 

classified between the complicated and 

uncomplicated DRGs in a pair. As we 

indicated above, we developed a list of 

diagnoses, using physician panels, to 

include those diagnoses that, when 

present as a secondary condition, would 

be considered a substantial 

complication or comorbidity. In 

previous years, we have made changes 

to the list of CCs, either by adding new 

CCs or deleting CCs already on the list. 

In the May 19, 1987 proposed notice 

(52 FR 18877) and the September 1, 

1987 final notice (52 FR 33154), we 

explained that the excluded secondary 

diagnoses were established using the 

following five principles: 

• Chronic and acute manifestations of 

the same condition should not be 

considered CCs for one another; 

• Specific and nonspecific (that is, 

not otherwise specified (NOS)) 

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27522 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

1We refer readers to the FY 1989 final rule (53 

FR 38485, September 30, 1988) for the revision 

made for the discharges occurring in FY 1989; the 

FY 1990 final rule (54 FR 36552, September 1, 

1989) for the FY 1990 revision; the FY 1991 final 

rule (55 FR 36126, September 4, 1990) for the FY 

1991 revision; the FY 1992 final rule (56 FR 43209, 

August 30, 1991) for the FY 1992 revision; the FY 

1993 final rule (57 FR 39753, September 1, 1992) 

for the FY 1993 revision; the FY 1994 final rule (58 

FR 46278, September 1, 1993) for the FY 1994 

revisions; the FY 1995 final rule (59 FR 45334, 

September 1, 1994) for the FY 1995 revisions; the 

FY 1996 final rule (60 FR 45782, September 1, 

1995) for the FY 1996 revisions; the FY 1997 final 

rule (61 FR 46171, August 30, 1996) for the FY 1997 

revisions; the FY 1998 final rule (62 FR 45966, 

August 29, 1997) for the FY 1998 revisions; the FY 

1999 final rule (63 FR 40954, July 31, 1998) for the 

FY 1999 revisions; the FY 2001 final rule (65 FR 

47064, August 1, 2000) for the FY 2001 revisions; 

the FY 2002 final rule (66 FR 39851, August 1, 

2001) for the FY 2002 revisions; the FY 2003 final 

rule (67 FR 49998, August 1, 2002) for the FY 2003 

revisions; the FY 2004 final rule (68 FR 45364, 

August 1, 2003) for the FY 2004 revisions; the FY 

2005 final rule (69 FR 49848, August 11, 2004) for 

the FY 2005 revisions; the FY 2006 final rule (70 

FR 47640, August 12, 2005) for the FY 2006 

revisions; the FY 2007 final rule (71 FR 47870) for 

the FY 2007 revisions; the FY 2008 final rule (72 

FR 47130) for the FY 2008 revisions; the FY 2009 

final rule (73 FR 48510); the FY 2010 final rule (74 

FR 43799); the FY 2011 final rule (75 FR 50114); 

the FY 2012 final rule (76 FR 51542); and the FY 

2013 final rule (77 FR 53315). 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. 

diagnosis codes for the same condition 

should not be considered CCs for one 

another; 

• Codes for the same condition that 

cannot coexist, such as partial/total, 

unilateral/bilateral, obstructed/ 

unobstructed, and benign/malignant, 

should not be considered CCs for one 

another; 

• Codes for the same condition in 

anatomically proximal sites should not 

be considered CCs for one another; and 

• Closely related conditions should 

not be considered CCs for one another. 

The creation of the CC Exclusions List 

was a major project involving hundreds 

of codes. We have continued to review 

the remaining CCs to identify additional 

exclusions and to remove diagnoses 

from the master list that have been 

shown not to meet the definition of a 

CC.1

(1) No Proposed Revisions Based on 

Changes to the ICD–9–CM Diagnosis 

Codes for FY 2014 

For FY 2014, there were no changes 

made to the ICD–9–CM coding system 

effective October 1, 2013, due to the 

partial code freeze. (We refer readers to 

section II.G.10. of the preamble of this 

proposed rule for a discussion of the 

ICD–9–CM coding system.) 

(2) Suggested Changes to the MS–DRG 

Diagnosis Codes for FY 2014 

(A) Coronary Atherosclerosis Due to 

Calcified Coronary Lesion 

We received a request that we 

consider changing the severity levels for 

the following ICD–9–CM diagnosis 

code: 414.4 (Coronary atherosclerosis 

due to calcified coronary lesion). The 

requestor suggested that we change the 

severity level for diagnosis code 414.4 

from a non-CC to an MCC. 

The following chart shows the 

analysis of the MedPAR claims data for 

FY 2012 for ICD–9–CM diagnosis code 

414.4. 

Code Diagnosis description CC level Cnt 1 Cnt 1 

impact Cnt 2 Cnt 2 impact Cnt 3 Cnt 3 impact 

414.4 ..... Coronary atherosclerosis due to calcified lesion.Non-CC 1,390 1.58 2,174 2.31 2,001 3.11 

We ran the above data as described in 

the FY 2008 IPPS final rule with 

comment period (72 FR 47158 through 

47161). The C1 value reflects a patient 

with no other secondary diagnosis or 

with all other secondary diagnoses that 

are non-CCs. The C2 value reflects a 

patient with at least one other secondary 

diagnosis that is a CC, but none that is 

an MCC. The C3 value reflects a patient 

with at least one other secondary 

diagnosis that is an MCC. 

The chart above shows that the C1 

finding is 1.58. A value close to 1.0 in 

the C1 field suggests that the diagnosis 

produces the same expected value as a 

non-CC. A value close to 2.0 suggests 

the condition is more like a CC than a 

non-CC, but not as significant in 

resource usage as an MCC. A value close 

to 3.0 suggests the condition is expected 

to consume resources more similar to an 

MCC than a CC or a non-CC. 

The C2 finding was 2.31. A C2 value 

close to 2.0 suggests the condition is 

more like a CC than a non-CC, but not 

as significant in resource usage as an 

MCC when there is at least one other 

secondary diagnosis that is a CC but 

none that is an MCC. 

While the C1 value of 1.58 is above 

the 1.0 value for a non-CC, it does not 

support reclassification to an MCC. As 

stated earlier, a value close to 3.0 

suggests the condition is expected to 

consume resources more similar to an 

MCC than a CC or a non-CC. The C2 

finding of 2.31 also does not support 

reclassifying this diagnosis code to an 

MCC. We also considered reclassifying 

the severity level of diagnosis code 

414.4 to a CC; however, the C1 finding 

of 1.58 also does not support 

reclassifying the severity level to a CC. 

Our clinical advisors reviewed the data 

and evaluated this condition. They 

recommended that we not change the 

severity level of diagnosis code 414.4 

from a non-CC to an MCC or a CC. They 

do not believe that this diagnosis would 

increase the severity level of patients. 

They pointed out that a similar code, 

diagnosis code 414.2 (Chronic total 

occlusion of coronary artery), is a nonCC. Our clinical advisors believe that 

diagnosis code 414.4 represents patients 

who are less severe than diagnosis code 

414.2. Considering the C1 and C2 

ratings and the input from our clinical 

advisors, we are not proposing to 

reclassify diagnosis code 414.4 to an 

MCC; the diagnosis code would 

continue to be considered a non-CC. 

Therefore, based on the data and 

clinical analysis, we are proposing to 

maintain diagnosis code 414.4 as a nonCC. We are inviting public comment on 

our proposal. 

(B) Acute Cholecystitis Diagnosis Code 

We received a comment 

recommending that we add diagnosis 

code 575.0 (Acute cholecystitis) to the 

CC Exclusion List when reported as a 

secondary diagnosis code with a 

principal diagnosis code 574.00 

(Calculus of gallbladder with acute 

cholecystitis without mention of 

obstruction). We note that, there is an 

‘‘excludes note’’ under diagnosis code 

575.0 which excludes ‘‘that with 

cholelithiasis (574.00)’’. Therefore, 

diagnosis codes 575.0 and 574.00 

should not be reported on the same 

claim. However, the commenter stated 

that there may be double reporting. 

Our clinical advisors agree with the 

commenter that diagnosis codes 575.0 

and 574.00 capture the same clinical 

context. Therefore, we are proposing to 

add diagnosis code 575.0 to the CC 

Exclusion List when reported as a 

secondary diagnosis code with a 

principal diagnosis code 574.00. We are 

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Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 27523 

inviting public comments on our 

proposal. 

(C) Chronic Total Occlusion (CTO) of 

Artery of the Extremities Diagnosis Code 

We received a request to consider 

removing atherosclerosis and aneurysm 

codes from the CC Exclusion List for 

diagnosis code 440.4 (Chronic total 

occlusion of artery of the extremities). 

For FY 2013, we changed the 

designation of diagnosis code 440.4 

from a non-CC level to a CC level. The 

CC Exclusion List for diagnosis code 

440.4 includes the following diagnosis 

codes: 

Diagnosis code Code description 

440.20 .................................. Atherosclerosis of native arteries of the extremities, unspecified. 

440.21 .................................. Atherosclerosis of native arteries of the extremities with intermittent claudication. 

440.22 .................................. Atherosclerosis of native arteries of the extremities with rest pain. 

440.23 .................................. Atherosclerosis of native arteries of the extremities with ulceration. 

440.24 .................................. Atherosclerosis of native arteries of the extremities with gangrene. 

440.29 .................................. Other atherosclerosis of native arteries of the extremities. 

440.30 .................................. Atherosclerosis of unspecified bypass graft of the extremities. 

440.31 .................................. Atherosclerosis of autologous vein bypass graft of the extremities. 

440.32 .................................. Atherosclerosis of nonautologous biological bypass graft of the extremities. 

440.4 .................................... Chronic total occlusion of artery of the extremities. 

441.00 .................................. Dissection of aorta, unspecified site. 

441.01 .................................. Dissection of aorta, thoracic. 

441.02 .................................. Dissection of aorta, abdominal. 

441.03 .................................. Dissection of aorta, thoracoabdominal. 

441.1 .................................... Thoracic aneurysm, ruptured. 

441.2 .................................... Thoracic aneurysm without mention of rupture. 

441.3 .................................... Abdominal aneurysm, ruptured. 

441.4 .................................... Abdominal aneurysm without mention of rupture. 

441.5 .................................... Aortic aneurysm of unspecified site, ruptured. 

441.6 .................................... Thoracoabdominal aneurysm, ruptured. 

441.7 .................................... Thoracoabdominal aneurysm, without mention of rupture. 

441.9 .................................... Aortic aneurysm of unspecified site without mention of rupture. 

442.0 .................................... Aneurysm of artery of upper extremity. 

442.2 .................................... Aneurysm of iliac artery. 

442.3 .................................... Aneurysm of artery of lower extremity. 

442.9 .................................... Aneurysm of unspecified site. 

443.22 .................................. Dissection of iliac artery. 

443.29 .................................. Dissection of other artery. 

443.81 .................................. Peripheral angiopathy in diseases classified elsewhere. 

443.82 .................................. Erythromelalgia. 

443.89 .................................. Other specified peripheral vascular diseases. 

443.9 .................................... Peripheral vascular disease, unspecified. 

444.01 .................................. Saddle embolus of abdominal aorta. 

444.09 .................................. Other arterial embolism and thrombosis of abdominal aorta. 

444.1 .................................... Embolism and thrombosis of thoracic aorta. 

444.21 .................................. Arterial embolism and thrombosis of upper extremity. 

444.22 .................................. Arterial embolism and thrombosis of lower extremity. 

444.81 .................................. Embolism and thrombosis of iliac artery. 

444.89 .................................. Embolism and thrombosis of other specified artery. 

444.9 .................................... Embolism and thrombosis of unspecified artery. 

445.01 .................................. Atheroembolism of upper extremity. 

445.02 .................................. Atheroembolism of lower extremity. 

445.81 .................................. Atheroembolism of kidney. 

445.89 .................................. Atheroembolism of other site. 

447.0 .................................... Arteriovenous fistula, acquired. 

447.1 .................................... Stricture of artery. 

447.2 .................................... Rupture of artery. 

447.5 .................................... Necrosis of artery. 

447.6 .................................... Arteritis, unspecified. 

447.70 .................................. Aortic ectasia, unspecified site. 

447.71 .................................. Thoracic aortic ectasia. 

447.72 .................................. Abdominal aortic ectasia. 

447.73 .................................. Thoracoabdominal aortic ectasia. 

449 ....................................... Septic arterial embolism. 

Diagnosis code 440.4 is a CC except 

if one of the diagnosis codes listed 

above is reported as a principal 

diagnosis. If one of the diagnosis codes 

listed above is reported on a claim as a 

principal diagnosis and code 440.4 is 

reported as a secondary diagnosis, code 

440.4 would not be counted as a CC. 

The commenter requested that we 

remove atherosclerosis codes 440.20 

through 440.32, 443.22, 443.29, 443.81 

through 443.9, and aneurysm codes 

441.00 through 441.03, 441.1 through 

441.7, 441.9, 442.0, 442.2, 442.3, and 

442.9 from the CC Exclusion List for 

diagnosis code 440.4. 

According to the commenter, 

aneurysm diagnoses are not closely 

related clinically to peripheral CTOs. 

Aneurysm physiology, clinical 

symptomology, and patient risk profile 

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27524 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

2The 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 

are fundamentally different than CTOs. 

Aneurysms result from the weakening of 

an artery wall and manifest in an outpouched pocket of the lumen. 

Conversely, patients with CTOs present 

with extended segments of diseased and 

narrowed vessels and in most cases, 

complex lesions containing fibrocalcified plaques. The commenter stated 

that CTOs represent a high severity 

complication, which is not closely 

related to basic atherosclerosis. 

Our clinical advisors agree with the 

commenter that the aneurysm and most 

of the atherosclerosis codes should be 

removed from the CC Exclusion List for 

diagnosis code 440.4. A case with a 

principal diagnosis of aneurysm with 

CTO adds substantial complexity and 

does not necessarily have the same 

immediate cause. A case with a 

principal diagnosis of atherosclerosis 

with CTO reported represents a more 

severe form of the disease and, 

therefore, is more complex. Our clinical 

advisors do not agree with the 

commenter that diagnosis codes 443.81 

through 443.9 (Other and unspecified 

peripheral vascular diseases) should be 

removed from the CC Exclusion List. 

These cases are more likely related to 

CTO and meet one of the principles for 

exclusion that we previously outlined 

above. 

Therefore, for FY 2014, we are 

proposing to remove the following 

diagnosis codes from the CC Exclusion 

List for diagnosis code 440.4: 

atherosclerosis codes 440.20 through 

440.32, 443.22, and 443.29, and 

aneurysm codes 441.00 through 441.03, 

441.1 through 441.7, 441.9, 442.0, 442.2, 

442.3, and 442.9. Diagnosis codes 

443.81 through 443.9 would remain on 

the CC Exclusion List for diagnosis code 

440.4. We are inviting public comments 

on this proposal. 

For FY 2014, we are proposing 

changes to Table 6G (Additions to the 

CC Exclusion List) and Table 6H 

(Deletions from the CC Exclusion List). 

As we discussed earlier, we are not 

proposing changes to the severity level 

for diagnosis code 414.4. These tables, 

which contain codes that are effective 

for discharges occurring on or after 

October 1, 2013, 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/ 

Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/ 

index.html. Each of these principal 

diagnosis codes 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/ 

Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/ 

index.html. Beginning with discharges 

on or after October 1 of each fiscal year, 

the indented diagnoses are not 

recognized by the GROUPER as valid 

CCs for the asterisked principal 

diagnosis. 

There are no new, revised, or deleted 

diagnosis codes for FY 2014. Therefore, 

there are no Tables 6A, 6C, and 6E 

published for FY 2014. 

There are no proposed additions or 

deletions to the MS–DRG MCC List for 

FY 2014. There also are no proposed 

additions or deletions to the MS–DRG 

CC List for FY 2014. Therefore, there are 

no Tables 6I.1 through 6I.2 and 6J.1 

through 6J.2 published for FY 2014. 

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 30.0, 

is available on a CD for $225.00. Version 

31.0 of this manual, which will include 

the final FY 2014 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. 

10. Review of Procedure Codes in MS 

DRGs 981 Through 983; 984 Through 

986; and 987 Through 989 

Each year, we review cases assigned 

to former CMS DRG 468 (Extensive O.R. 

Procedure Unrelated to Principal 

Diagnosis), CMS DRG 476 (Prostatic 

O.R. Procedure Unrelated to Principal 

Diagnosis), and CMS DRG 477 

(Nonextensive O.R. Procedure Unrelated 

to Principal Diagnosis) to determine 

whether it would be appropriate to 

change the procedures assigned among 

these CMS DRGs. Under the MS–DRGs 

that we adopted for FY 2008, CMS DRG 

468 was split three ways and became 

MS–DRGs 981, 982, and 983 (Extensive 

O.R. Procedure Unrelated to Principal 

Diagnosis with MCC, with CC, and 

without CC/MCC, respectively). CMS 

DRG 476 became MS–DRGs 984, 985, 

and 986 (Prostatic O.R. Procedure 

Unrelated to Principal Diagnosis with 

MCC, with CC, and without CC/MCC, 

respectively). CMS DRG 477 became 

MS–DRGs 987, 988, and 989 

(Nonextensive O.R. Procedure Unrelated 

to Principal Diagnosis with MCC, with 

CC, and without CC/MCC, respectively). 

MS–DRGs 981 through 983, 984 

through 986, and 987 through 989 

(formerly CMS DRGs 468, 476, and 477, 

respectively) are reserved for those cases 

in which none of the O.R. procedures 

performed are related to the principal 

diagnosis. These MS–DRGs are intended 

to capture atypical cases, that is, those 

cases not occurring with sufficient 

frequency to represent a distinct, 

recognizable clinical group. MS–DRGs 

984 through 986 (previously CMS DRG 

476) are assigned to those discharges in 

which one or more of the following 

prostatic procedures are performed and 

are unrelated to the principal diagnosis: 

• 60.0 (Incision of prostate) 

• 60.12 (Open biopsy of prostate) 

• 60.15 (Biopsy of periprostatic 

tissue) 

• 60.18 (Other diagnostic procedures 

on prostate and periprostatic tissue) 

• 60.21 (Transurethral prostatectomy) 

• 60.29 (Other transurethral 

prostatectomy) 

• 60.61 (Local excision of lesion of 

prostate) 

• 60.69 (Prostatectomy, not elsewhere 

classified) 

• 60.81 (Incision of periprostatic 

tissue) 

• 60.82 (Excision of periprostatic 

tissue) 

• 60.93 (Repair of prostate) 

• 60.94 (Control of (postoperative) 

hemorrhage of prostate) 

• 60.95 (Transurethral balloon 

dilation of the prostatic urethra) 

• 60.96 (Transurethral destruction of 

prostate tissue by microwave 

thermotherapy) 

• 60.97 (Other transurethral 

destruction of prostate tissue by other 

thermotherapy) 

• 60.99 (Other operations on prostate) 

All remaining O.R. procedures are 

assigned to MS–DRGs 981 through 983 

and 987 through 989, with MS–DRGs 

987 through 989 assigned to those 

discharges in which the only procedures 

performed are nonextensive procedures 

that are unrelated to the principal 

diagnosis.2

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final rule (58 FR 46279), the FY 1995 final rule (59 

FR 45336), the FY 1996 final rule (60 FR 45783), 

the FY 1997 final rule (61 FR 46173), and the FY 

1998 final rule (62 FR 45981), we moved several 

other procedures from DRG 468 to DRG 477, and 

some procedures from DRG 477 to DRG 468. No 

procedures were moved in FY 1999, as noted in the 

final rule (63 FR 40962), in the FY 2000 (64 FR 

41496), in the FY 2001 (65 FR 47064), or in the FY 

2002 (66 FR 39852). In the FY 2003 final rule (67 

FR 49999), we did not move any procedures from 

DRG 477. However, we did move procedure codes 

from DRG 468 and placed them in more clinically 

coherent DRGs. In the FY 2004 final rule (68 FR 

45365), we moved several procedures from DRG 

468 to DRGs 476 and 477 because the procedures 

are nonextensive. In the FY 2005 final rule (69 FR 

48950), we moved one procedure from DRG 468 to 

477. In addition, we added several existing 

procedures to DRGs 476 and 477. In FY 2006 (70 

FR 47317), we moved one procedure from DRG 468 

and assigned it to DRG 477. In FY 2007, we moved 

one procedure from DRG 468 and assigned it to 

DRGs 479, 553, and 554. In FYs 2008, 2009, 2010, 

2011, 2012, and 2013, no procedures were moved, 

as noted in the FY 2008 final rule with comment 

period (72 FR 46241), in the FY 2009 final rule (73 

FR 48513), in the FY 2010 final rule (74 FR 43796), 

in the FY 2011 final rule (75 FR 50122), in the FY 

2012 final rule (76 FR 51549), and in the FY 2013 

final rule (77 FR 53321). 

Our review of MedPAR claims data 

showed that there were no cases that 

merited movement or should logically 

be assigned to any of the other MDCs. 

Therefore, for FY 2014, 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 2014, 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 costs and the 

length of stay. We look at the data for 

trends such as shifts in treatment 

practice or reporting practice that would 

make the resulting MS–DRG assignment 

illogical. If we find these shifts, we 

would propose to move cases to keep 

the MS–DRGs clinically similar or to 

provide payment for the cases in a 

similar manner. Generally, we move 

only those procedures for which we 

have an adequate number of discharges 

to analyze the data. 

There were no cases representing 

shifts in treatment practice or reporting 

practice that would make the resulting 

MS–DRG assignment illogical, or that 

merited movement so that cases should 

logically be assigned to any of the other 

MDCs. Therefore, for FY 2014, we are 

not proposing to move any procedure 

codes among these MS–DRGs. 

c. Adding Diagnosis or Procedure Codes 

to MDCs 

Based on the review of cases in the 

MDCs as described above in sections 

II.G.1. through 6. of this preamble, we 

are not proposing to add any diagnosis 

or procedure codes to MDCs for FY 

2014. 

11. 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, 

cochaired 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 list of valid ICD–9–CM 

diagnosis and procedure codes can be 

found on the CMS Web site at: http:// 

cms.hhs.gov/Medicare/Coding/ 

ICD9ProviderDiagnosticCodes/ 

codes.html. 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 2014 at a public meeting held on 

September 19, 2012, and finalized the 

coding changes after consideration of 

comments received at the meetings and 

in writing by November 16, 2012. There 

were no changes to the ICD–9–CM 

coding system for FY 2014. There were 

no new, revised or deleted diagnosis or 

procedure codes for FY 2014. 

The Committee held its 2013 meeting 

on March 5, 2013. Any new codes for 

which there was consensus of public 

support and for which complete tabular 

and indexing changes will be made by 

May 2013 will be included in the 

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October 1, 2013 update to ICD–9–CM. 

Any code revisions that were discussed 

at the March 5, 2013 Committee meeting 

but that could not be finalized in time 

to include them in the tables listed in 

section VI. of the Addendum to this 

proposed rule will be included in Table 

6B, which is listed in section VI. of the 

Addendum to the final rule and 

available via the Internet on the CMS 

Web site, and will be marked with an 

asterisk (*). 

For FY 2014, there were no changes 

to the ICD–9–CM coding system due to 

the partial code freeze or for new 

technology. Therefore, there are no new, 

revised, or deleted diagnosis codes and 

no new, revised, or deleted 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, there are no Tables 

6A through 6F published as part of this 

proposed rule for FY 2014. We note 

that, there may be ICD–9–CM coding 

changes finalized after this proposed 

rule based on public comments that we 

receive after the March 5, 2013 ICD–9– 

CM Coordination and Maintenance 

Committee meeting. If there are changes, 

we will include these changes in the 

final rule. 

Copies of the minutes of the 

procedure codes discussions at the 

Committee’s September 19, 2012 

meeting and March 5, 2013 meeting can 

be obtained from the CMS Web site at: 

http://cms.hhs.gov/Medicare/Coding/ 

ICD9ProviderDiagnosticCodes/ 

index.html?redirect=/ 

icd9ProviderDiagnosticCodes/ 

03_meetings.asp. The minutes of the 

diagnosis codes discussions at the 

September 19, 2012 meeting and March 

5, 2013 meeting are found at: http:// 

www.cdc.gov/nchs/icd.htm. These Web 

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, CoChairperson, ICD–9–CM Coordination 

and Maintenance Committee, NCHS, 

Room 2402, 3311 Toledo Road, 

Hyattsville, MD 20782. Comments may 

be sent by Email to: dfp4@cdc.gov. 

Questions and comments concerning 

the procedure codes should be 

addressed to: Patricia E. Brooks, CoChairperson, 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 

Email to: patricia.brooks2@cms.hhs.gov. 

In the September 7, 2001 final rule 

implementing the IPPS new technology 

add-on payments (66 FR 46906), we 

indicated we would attempt to include 

proposals for procedure codes that 

would describe new technology 

discussed and approved at the Spring 

meeting as part of the code revisions 

effective the following October. 

Section 503(a) of 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 Meeting minutes. The public 

agreed that there was a need to hold the 

fall meetings earlier, in September or 

October, in order to meet the new 

implementation dates. The public 

provided comment that additional time 

would be needed to update hospital 

systems and obtain new code books and 

coding software. There was considerable 

concern expressed about the impact this 

new April update would have on 

providers. 

In the FY 2005 IPPS final rule, we 

implemented section 1886(d)(5)(K)(vii) 

of the Act, as added by section 503(a) 

of 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 

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requests approved for an expedited 

April l, 2013 implementation of an ICD– 

9–CM code at the September 19, 2012 

Committee meeting. Therefore, there 

were no new ICD–9–CM codes 

implemented on April 1, 2013. 

Current addendum and code title 

information is published on the CMS 

Web site at: http://www.cms.hhs.gov/ 

Medicare/Coding/ 

ICD9ProviderDiagnosticCodes/ 

index.html?redirect=/ 

icd9ProviderDiagnosticCodes/ 

01overview.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. Therefore, although 

we publish the code titles in the IPPS 

proposed and final rules, they are not 

subject to comment in the proposed or 

final rules. We will continue to publish 

the October code updates in this manner 

within the IPPS proposed and final 

rules. For codes that are implemented in 

April, we will assign the new procedure 

code to the same MS–DRG in which its 

predecessor code was assigned so there 

will be no MS–DRG impact as far as 

MS–DRG assignment. Any midyear 

coding updates will be available 

through the Web sites indicated above 

and through the Coding Clinic for ICD– 

9–CM. Publishers and software vendors 

currently obtain code changes through 

these sources in order to update their 

code books and software systems. We 

will strive to have the April 1 updates 

available through these Web sites 5 

months prior to implementation (that is, 

early November of the previous year), as 

is the case for the October 1 updates. 

b. Code Freeze 

The International Classification of 

Diseases, 10th Revision (ICD–10) coding 

system applicable to hospital inpatient 

services was to be implemented on 

October 1, 2013, as described in the 

Health Insurance Portability and 

Accountability Act of 1996 (HIPAA) 

Administrative Simplification: 

Modifications to Medical Data Code Set 

Standards to Adopt ICD–10–CM and 

ICD–10–PCS final rule (74 FR 3328 

through 3362, January 16, 2009). 

However, the Secretary of Health and 

Human Services issued a final rule that 

delays, 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 final rule, CMS– 

0040–F, was published in the Federal 

Register on September 5, 2012 (77 FR 

54664) and is available for viewing on 

the Internet at: http://www.gpo.gov/ 

fdsys/pkg/FR-2012-09-05/pdf/2012- 

21238.pdf. 

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. 

HHS responded to comments in the 

ICD–10 final rule that the ICD–9–CM 

Coordination and Maintenance 

Committee has jurisdiction over any 

action impacting the ICD–9–CM and 

ICD–10 code sets. Therefore, HHS 

indicated that the issue of consideration 

of a moratorium on updates to the ICD– 

9–CM, ICD–10–CM, and ICD–10–PCS 

code sets in anticipation of the adoption 

of ICD–10–CM and ICD–10–PCS would 

be addressed through the Committee at 

a future public meeting. 

The code freeze was discussed at 

multiple meetings of the ICD–9–CM 

Coordination and Maintenance 

Committee and public comment was 

actively solicited. The Committee 

evaluated all comments from 

participants attending the Committee 

meetings as well as written comments 

that were received. The Committee also 

considered the delay in implementation 

of ICD–10 until October 1, 2014. There 

was an announcement at the September 

19, 2012 ICD–9–CM Coordination and 

Maintenance Committee meeting that a 

partial freeze of both ICD–9–CM and 

ICD–10 codes will be implemented as 

follows: 

• The last regular annual update to 

both ICD–9–CM and ICD–10 code sets 

was made on October 1, 2011. 

• On October 1, 2012 and October 1, 

2013, there will be only limited code 

updates to both ICD–9–CM and ICD–10 

code sets to capture new technology and 

new diseases. 

• On October 1, 2014, there were to 

be only limited code updates to ICD–10 

code sets to capture new technology and 

diagnoses as required by section 503(a) 

of Public Law 108–173. There were to 

be no updates to ICD–9–CM on October 

1, 2014, as the system would no longer 

be a HIPAA standard and, therefore, no 

longer be used for reporting. 

• On October 1, 2015, one year after 

the implementation of ICD–10, regular 

updates to ICD–10 will begin. 

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, 2015, 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.hhs.gov/Medicare/ 

Coding/ICD9ProviderDiagnosticCodes/ 

meetings.html. A summary of the 

September 19, 2012 Committee meeting, 

along with both written and audio 

transcripts of this meeting, are posted 

on the Web site at: http:// 

www.cms.hhs.gov/Medicare/Coding/ 

ICD9ProviderDiagnosticCodes/ICD-9- 

CM-C-and-M-Meeting-Materials-Items/ 

2012-09-19-MeetingMaterials.html. 

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, 

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2011, hospitals could submit up to 25 

diagnoses 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 

stated earlier, the Secretary of Health 

and Human Services has delayed the 

compliance date of ICD–10 from 

October 1, 2013 to October 1, 2014 (77 

FR 54664). 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://cms.hhs.gov/ 

Medicare/Coding/ICD10/ICD-10-MSDRG-Conversion-Project.html. We have 

continued to keep the public updated 

on our maintenance efforts for ICD–10– 

CM and ICD 10–PCS coding systems, as 

well as the General Equivalence 

Mappings that assist in conversion 

through the ICD–9–CM Coordination 

and Maintenance Committee. 

Information on these committee 

meetings can be found on the CMS Web 

site at: http://www.cms.hhs.gov/ 

Medicare/Coding/ 

ICD9ProviderDiagnosticCodes/ 

index.html. 

During FY 2011, we developed and 

posted Version 28.0 of the ICD–10 MS– 

DRGs based on the FY 2011 MS–DRGs 

(Version 28.0) that we finalized in the 

FY 2011 IPPS/LTCH PPS final rule on 

the CMS Web site. This ICD–10 MS– 

DRGs Version 28.0 also included the CC 

Exclusion List and the ICD–10 version 

of the hospital-acquired conditions 

(HACs), which was not posted with 

Version 26.0. We also discussed this 

update at the September 15–16, 2010 

and the March 9–10, 2011 meetings of 

the ICD–9–CM Coordination and 

Maintenance Committee. The minutes 

of these two meetings are posted on the 

CMS Web site at: http:// 

www.cms.hhs.gov/Medicare/Coding/ 

ICD9ProviderDiagnosticCodes/ 

index.html. 

We reviewed comments on the ICD– 

10 MS–DRGs Version 28.0 and made 

updates as a result of these comments. 

We called the updated version the ICD– 

10 MS DRGs Version 28 R1. We posted 

a Definitions Manual of ICD–10 MS– 

DRGs Version 28 R1 on our ICD–10 MS– 

DRG Conversion Project Web site at: 

http://cms.hhs.gov/Medicare/Coding/ 

ICD10/ICD10-MS-DRG-ConversionProject.html. 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–DRG 

Conversion Project Web site. We also 

prepared a document that describes 

changes made from Version 28.0 to 

Version 29.0 to facilitate a review. The 

ICD–10 MS–DRGs Version 29.0 was 

discussed at the ICD–9–CM 

Coordination and Maintenance 

Committee meeting on March 5, 2012. 

Information was provided on the types 

of updates made. Once again the public 

was encouraged to review and comment 

on the most recent update to the ICD– 

10 MS–DRGs. 

CMS prepared the ICD–10 MS–DRGs 

Version 30.0 based on the FY 2013 MS– 

DRGs (Version 30.0) that we finalized in 

the FY 2013 IPPS/LTCH PPS final rule. 

We posted a Definitions Manual of the 

ICD–10 MS–DRGs Version 30.0 on our 

ICD–10 MS–DRG Conversion Project 

Web site at: http://www.cms.hhs.gov/ 

Medicare/Coding/ICD10/ICD-10-MSDRG-Conversion-Project.html. We also 

prepared a document that describes 

changes made from Version 29.0 to 

Version 30.0 to facilitate a review. We 

produced mainframe and computer 

software for Version 30.0, which was 

made available to the public in February 

2013. Information on ordering the 

mainframe and computer software 

through NTIS can be found on the CMS 

Web site at: http://cms.hhs.gov/ 

Medicare/Coding/ICD10/ICD-10-MSDRG-Conversion-Project.html under the 

‘‘Related Links’’ section. This ICD–10 

MS–DRGs Version 30.0 computer 

software should facilitate additional 

review of the ICD–10 MS–DRGs 

conversion. 

We provided information on a study 

conducted on the impact on converting 

MS–DRGs to ICD–10. Information on 

this study is summarized in a paper 

entitled ‘‘Impact of the Transition to 

ICD–10 on Medicare Inpatient Hospital 

Payments.’’ This paper was posted on 

the CMS ICD–10 MS–DRGs Conversion 

Project Web site and was distributed 

and discussed at the September 15, 2010 

ICD–9–CM Coordination and 

Maintenance Committee meeting. The 

paper described CMS’ approach to the 

conversion of the MS–DRGs from ICD– 

9–CM codes to ICD–10 codes. The study 

was undertaken using the ICD–9–CM 

MS–DRGs Version 27.0 (FY 2010) 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 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. 

CMS provided an overview of this 

hospital payment impact study at the 

March 5, 2012 ICD–9–CM Coordination 

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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.

hhs.gov/Medicare/Coding/ICD9Provider

DiagnosticCodes/index.html. At this 

March 2012 meeting, CMS announced 

that it would produce an update on this 

impact study based on an updated 

version of the ICD 10 MS–DRGs. This 

update of the impact study was 

presented at the March 5, 2013 ICD–9– 

CM Coordination and Maintenance 

Committee meeting. The updated paper 

is posted on CMS’ Web site at: http://

cms.hhs.gov/Medicare/Coding/ICD10/

ICD-10-MS-DRG-ConversionProject.html under the ‘‘Downloads’’ 

section. Information on the March 5, 

2013 ICD–9–CM Coordination and 

Maintenance Committee meeting can be 

found on the CMS Web site at: http:// 

cms.hhs.gov/Medicare/Coding/ICD9

ProviderDiagnosticCodes/ICD-9-CM-Cand-M-Meeting-Materials.html. This 

update of the impact paper and the ICD– 

10 MS–DRG Version 30.0 software will 

provide additional information to the 

public who are evaluating the 

conversion of the MS–DRGs to ICD–10 

MS–DRG. 

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 the Proposed FY 

2014 MS–DRG Relative Weights 

1. Data Sources for Developing the 

Proposed Relative Weights 

In developing the proposed FY 2014 

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 2012 

MedPAR data used in this proposed rule 

include discharges occurring on October 

1, 2011, through September 30, 2012, 

based on bills received by CMS through 

December 31, 2012, 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 

2012 MedPAR file used in calculating 

the proposed relative weights includes 

data for approximately 10,364,125 

Medicare discharges from IPPS 

providers. Discharges for Medicare 

beneficiaries enrolled in a Medicare 

Advantage managed care plan are 

excluded from this analysis. These 

discharges are excluded when the 

MedPAR ‘‘GHO Paid’’ indicator field on 

the claim record is equal to ‘‘1’’ or when 

the MedPAR DRG payment field, which 

represents the total payment for the 

claim, is equal to the MedPAR ‘‘Indirect 

Medical Education (IME)’’ payment 

field, indicating that the claim was an 

‘‘IME only’’ claim submitted by a 

teaching hospital on behalf of a 

beneficiary enrolled in a Medicare 

Advantage managed care plan. In 

addition, the December 31, 2012 update 

of the FY 2012 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 2014 

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 costbased relative weighting methodology is 

the Medicare cost report data files from 

the HCRIS. Normally, we use the HCRIS 

dataset that is 3 years prior to the IPPS 

fiscal year. Specifically, we used cost 

report data from the December 31, 2012 

update of the FY 2011 HCRIS for 

calculating the proposed FY 2014 costbased relative weights. 

2. Methodology for Calculation of the 

Proposed Relative Weights 

As we explain in section II.E.2. of the 

preamble of this proposed rule, we are 

proposing to calculate the relative 

weights based on 19 CCRs, instead of 

the 15 CCRs previously used. The 

methodology we used to calculate the 

proposed FY 2014 MS–DRG cost-based 

relative weights based on claims data in 

the FY 2012 MedPAR file and data from 

the FY 2011 Medicare cost reports is as 

follows: 

• To the extent possible, all the 

claims were regrouped using the 

proposed FY 2014 MS–DRG 

classifications discussed in sections II.B. 

and II.G. of the preamble of this 

proposed rule. 

• The transplant cases that were used 

to establish the 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 Medicareapproved transplant centers that have 

cases in the FY 2011 MedPAR file. 

(Medicare coverage for heart, heart-lung, 

liver and/or intestinal, and lung 

transplants is limited to those facilities 

that have received approval from CMS 

as transplant centers.) 

• Organ acquisition costs for kidney, 

heart, heart-lung, liver, lung, pancreas, 

and intestinal (or multivisceral organs) 

transplants continue to be paid on a 

reasonable cost basis. Because these 

acquisition costs are paid separately 

from the prospective payment rate, it is 

necessary to subtract the acquisition 

charges from the total charges on each 

transplant bill that showed acquisition 

charges before computing the average 

cost for each MS–DRG and before 

eliminating statistical outliers. 

• Claims with total charges or total 

lengths of stay less than or equal to zero 

were deleted. Claims that had an 

amount in the total charge field that 

differed by more than $10.00 from the 

sum of the routine day charges, 

intensive care charges, pharmacy 

charges, special equipment charges, 

therapy services charges, operating 

room charges, cardiology charges, 

laboratory charges, radiology charges, 

other service charges, labor and delivery 

charges, inhalation therapy charges, 

emergency room charges, blood charges, 

and anesthesia charges were also 

deleted. 

• At least 92.7 percent of the 

providers in the MedPAR file had 

charges for 14 of the 19 cost centers. All 

claims of providers that did not have 

charges greater than zero for at least 14 

of the 19 cost centers were deleted. In 

other words, a provider must have no 

more than five blank cost centers. If a 

provider did not have charges greater 

than zero in more than five cost centers, 

the claims for the provider were deleted. 

For FY 2014, as explained in section 

II.E.2. of the preamble of this proposed 

rule, we are proposing to calculate the 

relative weights using 19 cost centers 

instead of the 15 cost centers previously 

used in calculating the FY 2013 relative 

weights. In calculating the FY 2014 

relative weights, we also are proposing 

to continue to remove claims of 

providers with more than five blank cost 

centers from the dataset used to 

calculate the relative weights. (We refer 

readers to the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53326) for the edit 

threshold related to FY 2013 and prior 

fiscal years). In recent years, this trim 

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kept approximately 96 percent of IPPS 

providers in the MedPAR file upon 

which we base our relative weight 

calculations. (For examples of our FYs 

2012 and 2013 relative weight 

calculations, we refer readers to the FY 

2012 IPPS/LTCH PPS final rule (76 FR 

51558) and the FY 2013 IPPS/LTCH PPS 

final rule 77 FR 53326).) However, 

under the proposal presented in this 

proposed rule to add 4 cost centers to 

the relative weight calculations, this 

trim kept approximately 92.7 percent of 

the IPPS providers in the MedPAR file 

upon which we base our proposed FY 

2014 relative weight calculations. 

Although this trim is now removing a 

greater percentage of providers’ claims 

from the relative weight calculations 

than were previously removed, we 

believe that it is appropriate to propose 

to continue to remove providers’ claims 

that do not have charges greater than 

zero in more than five cost centers. We 

believe that this proposal is appropriate 

because we are not introducing new 

costs into the relative weight 

calculation; we are only proposing to 

make use of more refined, granular costs 

by breaking out implantable devices 

from the Supplies and Equipment CCR, 

MRIs and CT scans from the Radiology 

CCR, and cardiac catheterization from 

the Cardiology CCR. Furthermore, 

because we are proposing to make use 

of more refined cost report data for these 

cost centers, we believe that it is also 

appropriate to edit the claims with a 

more refined threshold. We are inviting 

public comments on the proposal to 

trim the data used in our relative weight 

calculations. 

• Statistical outliers were eliminated 

by removing all cases that were beyond 

3.0 standard deviations from the 

geometric mean of the log distribution 

of both the total charges per case and 

the total charges per day for each MS– 

DRG. 

• Effective October 1, 2008, because 

hospital inpatient claims include a POA 

indicator field for each diagnosis 

present on the claim, only for purposes 

of relative weight-setting, the POA 

indicator field was reset to ‘‘Y’’ for 

‘‘Yes’’ for all claims that otherwise have 

an ‘‘N’’ (No) or a ‘‘U’’ (documentation 

insufficient to determine if the 

condition was present at the time of 

inpatient admission) in the POA field. 

Under current payment policy, the 

presence of specific HAC codes, as 

indicated by the POA field values, can 

generate a lower payment for the claim. 

Specifically, if the particular condition 

is present on admission (that is, a ‘‘Y’’ 

indicator is associated with the 

diagnosis on the claim), it is not a HAC, 

and the hospital is paid for the higher 

severity (and, therefore, the higher 

weighted MS–DRG). If the particular 

condition is not present on admission 

(that is, an ‘‘N’’ indicator is associated 

with the diagnosis on the claim) and 

there are no other complicating 

conditions, the DRG GROUPER assigns 

the claim to a lower severity (and, 

therefore, the lower weighted MS–DRG) 

as a penalty for allowing a Medicare 

inpatient to contract a HAC. While the 

POA reporting meets policy goals of 

encouraging quality care and generates 

program savings, it presents an issue for 

the relative weight-setting process. 

Because cases identified as HACs are 

likely to be more complex than similar 

cases that are not identified as HACs, 

the charges associated with HAC cases 

are likely to be higher as well. 

Therefore, if the higher charges of these 

HAC claims are grouped into lower 

severity MS–DRGs prior to the relative 

weight-setting process, the relative 

weights of these particular MS–DRGs 

would become artificially inflated, 

potentially skewing the relative weights. 

In addition, we want to protect the 

integrity of the budget neutrality process 

by ensuring that, in estimating 

payments, no increase to the 

standardized amount occurs as a result 

of lower overall payments in a previous 

year that stem from using weights and 

case-mix that are based on lower 

severity MS–DRG assignments. If this 

would occur, the anticipated cost 

savings from the HAC policy would be 

lost. 

To avoid these problems, we reset the 

POA indicator field to ‘‘Y’’ only for 

relative weight-setting purposes for all 

claims that otherwise have an ‘‘N’’ or a 

‘‘U’’ in the POA field. This resetting 

‘‘forced’’ the more costly HAC claims 

into the higher severity MS–DRGs as 

appropriate, and the relative weights 

calculated for each MS–DRG more 

closely reflect the true costs of those 

cases. 

Once the MedPAR data were trimmed 

and the statistical outliers were 

removed, the charges for each of the 19 

cost groups for each claim were 

standardized to remove the effects of 

differences in area wage levels, IME and 

DSH payments, and for hospitals 

located in Alaska and Hawaii, the 

applicable cost-of-living adjustment. 

Because hospital charges include 

charges for both operating and capital 

costs, we standardized total charges to 

remove the effects of differences in 

geographic adjustment factors, cost-ofliving adjustments, and DSH payments 

under the capital IPPS as well. Charges 

were then summed by MS–DRG for each 

of the 19 cost groups so that each MS– 

DRG had 19 standardized charge totals. 

These charges were then adjusted to 

cost by applying the national average 

CCRs developed from the FY 2011 cost 

report data. 

The 19 cost centers that we used in 

the proposed relative weight calculation 

are shown in the following table. The 

table shows the lines on the cost report 

and the corresponding revenue codes 

that we used to create the 19 national 

cost center CCRs. (We note that we have 

made several changes to the table, most 

importantly, to remove the columns 

listing the cost centers from the CMS 

Form 2552–96 cost reports. Because we 

are proposing to use data from FY 2011 

cost reports, which were filed on the 

CMS Form 2552–10, the columns 

referencing the CMS Form 2552–96 cost 

report are no longer relevant. We also 

have updated and refined the table to 

reflect the proposed 19 CCRs, instead of 

the current 15, and we have made some 

minor corrections to revenue codes and 

cost report cost centers that are grouped 

with each CCR.) 

Cost center group 

name (19 total) 

MedPAR 

charge field 

Revenue codes 

contained in 

MedPAR 

charge field 

Cost report line 

description 

Cost from HCRIS 

(worksheet 

C, part 1, 

column 5 

and line number) 

form 

CMS–2552–10 

Charges from 

HCRIS 

(worksheet 

C, part 1, 

column 6 & 7 

and line number) 

form 

CMS–2552–10 

Medicare charges 

from HCRIS 

(worksheet D–3, 

column and line 

number) 

form CMS–2552–10 

Routine Days ............ Private Room 

Charges.

011X and 014X ....... Adults & Pediatrics 

(General Routine 

Care).

C_1_C5_30 .............. C_1_C6_30 .............. D3_HOS_C2_30 

Semi-Private Room 

Charges.

012X, 013X and 

016X-019X.

Ward Charges ......... 015X.

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Cost center group 

name (19 total) 

MedPAR 

charge field 

Revenue codes 

contained in 

MedPAR 

charge field 

Cost report line 

description 

Cost from HCRIS 

(worksheet 

C, part 1, 

column 5 

and line number) 

form 

CMS–2552–10 

Charges from 

HCRIS 

(worksheet 

C, part 1, 

column 6 & 7 

and line number) 

form 

CMS–2552–10 

Medicare charges 

from HCRIS 

(worksheet D–3, 

column and line 

number) 

form CMS–2552–10 

Intensive Days .......... Intensive Care 

Charges.

020X ........................ Intensive Care Unit C_1_C5_31 .............. C_1_C6_31 .............. D3_HOS_C2_31 

Coronary Care 

Charges.

021X ........................ Coronary Care Unit C_1_C5_32 .............. C_1_C6_32 .............. D3_HOS_C2_32 

Burn Intensive Care 

Unit.

C_1_C5_33 .............. C_1_C6_33 .............. D3_HOS_C2_33 

Surgical Intensive 

Care Unit.

C_1_C5_34 .............. C_1_C6_34 .............. D3_HOS_C2_34 

Other Special Care 

Unit.

C_1_C5_35 .............. C_1_C6_35 .............. D3_HOS_C2_35 

Drugs ......................... Pharmacy Charges 025X, 026X and 

063X.

Intravenous Therapy C_1_C5_64 .............. C_1_C6_64 .............. D3_HOS_C2_64 

C_1_C7_64.

Drugs Charged To 

Patient.

C_1_C5_73 .............. C_1_C6_73 .............. D3_HOS_C2_73 

C_1_C7_73.

Supplies and Equipment.Medical/Surgical 

Supply Charges.

0270, 0271, 0272, 

0273, 0274, 0277, 

and 0621, 0622, 

0623.

Medical Supplies 

Charged to Patients.

C_1_C5_71 .............. C_1_C6_71 .............. D3_HOS_C2_71 

C_1_C7_71.

Durable Medical 

Equipment 

Charges.

0290, 0291, 0292 

and 0294-0299.

DME-Rented ............ C_1_C5_96 .............. C_1_C6_96 .............. D3_HOS_C2_96 

C_1_C7_96.

Used Durable Medical Charges.0293 ........................ DME-Sold ................ C_1_C5_67 .............. C_1_C6_97 .............. D3_HOS_C2_97 

C_1_C7_97.

Implantable Devices .. 0275, 0276, 0278, 

0624.

Implantable Devices 

Charged to Patients.

C_1_C5_72 .............. C_1_C6_72 .............. D3_HOS_C2_72 

C_1_C7_72.

Therapy Services ...... Physical Therapy 

Charges.

042X ........................ Physical Therapy ..... C_1_C5_66 .............. C_1_C6_66 .............. D3_HOS_C2_66 

C_1_C7_66.

Occupational Therapy Charges.043X ........................ Occupational Therapy.C_1_C5_67 .............. C_1_C6_67 .............. D3_HOS_C2_67 

C_1_C7_67.

Speech Pathology 

Charges.

044X and 047X ....... Speech Pathology ... C_1_C5_68 .............. C_1_C6_68 .............. D3_HOS_C2_68 

C_1_C7_68.

Inhalation Therapy .... Inhalation Therapy 

Charges.

041X and 046X ....... Respiratory Therapy C_1_C5_65 .............. C_1_C6_65 .............. D3_HOS_C2_65 

C_1_C7_65.

Operating Room ........ Operating Room 

Charges.

036X ........................ Operating Room ...... C_1_C5_50 .............. C_1_C6_50 .............. D3_HOS_C2_50 

C_1_C7_50.

071X ........................ Recovery Room ...... C_1_C5_51 .............. C_1_C6_51 .............. D3_HOS_C2_51 

C_1_C7_51.

Labor & Delivery ....... Operating Room 

Charges.

072X ........................ Delivery Room and 

Labor Room.

C_1_C5_52 .............. C_1_C6_52 .............. D3_HOS_C2_52 

C_1_C7_52.

Anesthesia ................ Anesthesia Charges 037X ........................ Anesthesiology ........ C_1_C5_53 .............. C_1_C6_53 .............. D3_HOS_C2_53 

C_1_C7_53.

Cardiology ................. Cardiology Charges 048X and 073X ....... Electrocardiology ..... C_1_C5_69 .............. C_1_C6_69 .............. D3_HOS_C2_69 

C_1_C7_69.

Cardiac Catheterization.0481 ........................ Cardiac Catheterization.C_1_C5_59 .............. C_1_C6_59 .............. D3_HOS_C2_59 

C_1_C7_59.

Laboratory ................. Laboratory Charges 030X, 031X, and 

075X.

Laboratory ............... C_1_C5_60 .............. C_1_C6_60 .............. D3_HOS_C2_60 

C_1_C7_60.

PBP Clinic Laboratory Services.C_1_C5_61 .............. C_1_C6_61 .............. D3_HOS_C2_61 

C_1_C7_61.

074X, 086X Electro-encephalography.C_1_C5_70 .............. C_1_C6_70 .............. D3_HOS_C2_70 

C_1_C7_70.

Radiology .................. Radiology Charges .. 032X, 040X ............. Radiology—Diagnostic.C_1_C5_54 .............. C_1_C6_54 .............. D3_HOS_C2_54 

C_1_C7_54.

028x, 0331, 0332, 

0333, 0335, 0339, 

0342.

Radiology—Therapeutic.C_1_C5_55 .............. C_1_C6_55 .............. D3_HOS_C2_55 

0343 and 344 .......... Radioisotope ........... C_1_C5_56 .............. C_1_C6_56 .............. D3_HOS_C2_56 

C_1_C7_56.

Computed Tomography (CT) Scan.CT Scan Charges ... 035X ........................ Computed Tomography (CT) Scan.C_1_C5_57 .............. C_1_C6_57 .............. D3_HOS_C2_57 

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Cost center group 

name (19 total) 

MedPAR 

charge field 

Revenue codes 

contained in 

MedPAR 

charge field 

Cost report line 

description 

Cost from HCRIS 

(worksheet 

C, part 1, 

column 5 

and line number) 

form 

CMS–2552–10 

Charges from 

HCRIS 

(worksheet 

C, part 1, 

column 6 & 7 

and line number) 

form 

CMS–2552–10 

Medicare charges 

from HCRIS 

(worksheet D–3, 

column and line 

number) 

form CMS–2552–10 

C_1_C7_57.

Magnetic Resonance 

Imaging (MRI).

MRI Charges ........... 061X ........................ Magnetic Resonance 

Imaging (MRI).

C_1_C5_58 .............. C_1_C6_58 .............. D3_HOS_C2_58 

C_1_C7_58.

Emergency Room ..... Emergency Room 

Charges.

045x ......................... Emergency .............. C_1_C5_91 .............. C_1_C6_91 .............. D3_HOS_C2_91 

C_1_C7_91.

Blood and Blood 

Products.

Blood Charges ........ 038x ......................... Whole Blood & 

Packed Red Blood 

Cells.

C_1_C5_62 .............. C_1_C6_62 .............. D3_HOS_C2_62 

C_1_C7_62.

Blood Storage/Processing.039x ......................... Blood Storing, Processing, & 

Transfusing.

C_1_C5_63 .............. C_1_C6_63 ..............

C_1_C7_63 ..............

D3_HOS_C2_63 

Other Services .......... Other Service 

Charge.

0002–0099, 022X, 

023X, 024X, 052X, 

053X.

055X–060X, 064X– 

070X, 076X–078X, 

090X–095X and 

099X.

Renal Dialysis ......... 0800X ...................... Renal Dialysis ......... C_1_C5_74 .............. C_1_C6_74 .............. D3_HOS_C2_74 

ESRD Revenue Setting Charges.080X and 082X– 

088X.

C_1_C7_74.

Home Program Dialysis.C_1_C5_94 .............. C_1_C6_94 ..............

C_1_C7_94 ..............

D3_HOS_C2_94 

Outpatient Service 

Charges.

049X ........................ ASC (Non Distinct 

Part).

C_1_C5_75 .............. C_1_C6_75 ..............

C_1_C7_75 ..............

D3_HOS_C2_75 

Lithotripsy Charge ... 079X. .

Other Ancillary ......... C_1_C5_76 .............. C_1_C6_76 .............. D3_HOS_C2_76 

C_1_C7_76.

Clinic Visit Charges 051X ........................ Clinic ........................ C_1_C5_90 .............. C_1_C6_90 ..............

C_1_C7_90 ..............

D3_HOS_C2_90 

.

Observation beds .... C_1_C5_92.01 ......... C_1_C6_92.01 ......... D3_HOS_C2_92.01 

C_1_C7_92.01.

Professional Fees 

Charges.

096X, 097X, and 

098X.

Other Outpatient 

Services.

C_1_C5_93 .............. C_1_C6_93 ..............

C_1_C7_93 ..............

D3_HOS_C2_93 

.

Ambulance Charges 054X ........................ Ambulance .............. C_1_C5_95 .............. C_1_C6_95 ..............

C_1_C7_95 ..............

D3_HOS_C2_95 

.

Rural Health Clinic .. C_1_C5_88 .............. C_1_C6_88 .............. D3_HOS_C2_88 

C_1_C7_88.

FQHC ...................... C_1_C5_89 .............. C_1_C6_89 .............. D3_HOS_C2_89 

C_1_C7_89.

3. Development of National Average 

CCRs 

We developed the national average 

CCRs as follows: 

Using the FY 2011 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 Medicarespecific CCR was determined by taking 

the Medicare charges for each line item 

from Worksheet D–3 and deriving the 

Medicare-specific costs by applying the 

hospital-specific departmental CCRs to 

the Medicare-specific charges for each 

line item from Worksheet D–3. Once 

each hospital’s Medicare-specific costs 

were established, we summed the total 

Medicare-specific costs and divided by 

the sum of the total Medicare-specific 

charges to produce national average, 

charge-weighted CCRs. 

After we multiplied the total charges 

for each MS–DRG in each of the 19 cost 

centers by the corresponding national 

average CCR, we summed the 19 ‘‘costs’’ 

across each MS–DRG to produce a total 

standardized cost for the MS–DRG. The 

average standardized cost for each MS– 

DRG was then computed as the total 

standardized cost for the MS–DRG 

divided by the transfer-adjusted case 

count for the MS–DRG. The average cost 

for each MS–DRG was then divided by 

the national average standardized cost 

per case to determine the relative 

weight. 

The proposed FY 2014 cost-based 

relative weights were then normalized 

by an adjustment factor of 1.6122128377 

so that the average case weight after 

recalibration was equal to the average 

case weight before recalibration. The 

normalization adjustment is intended to 

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ensure that recalibration by itself 

neither increases nor decreases total 

payments under the IPPS, as required by 

section 1886(d)(4)(C)(iii) of the Act. 

The proposed 19 national average 

CCRs for FY 2014 are as follows: 

Group CCR 

Routine Days .................................... 0.502 

Intensive Days .................................. 0.423 

Drugs ................................................ 0.193 

Supplies & Equipment ...................... 0.293 

Implantable Devices ......................... 0.361 

Therapy Services .............................. 0.355 

Laboratory ......................................... 0.133 

Operating Room ............................... 0.225 

Cardiology ......................................... 0.132 

Cardiac Catheterization .................... 0.135 

Radiology .......................................... 0.170 

MRIs ................................................. 0.091 

CT Scans .......................................... 0.045 

Emergency Room ............................. 0.207 

Blood and Blood Products ................ 0.371 

Other Services .................................. 0.399 

Labor & Delivery ............................... 0.445 

Inhalation Therapy ............................ 0.187 

Anesthesia ........................................ 0.120 

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 2014 

proposed rule, we are proposing to use 

that same case threshold in recalibrating 

the proposed MS–DRG weights for FY 

2014. Using data from the FY 2012 

MedPAR file, there were 7 MS–DRGs 

that contain fewer than 10 cases. Under 

the MS–DRGs, we have fewer lowvolume 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 2014, 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 2013 weights by the percentage 

change in the average weight of the 

cases in other MS–DRGs. The crosswalk 

table is shown below: 

Low-volume MS–DRG MS–DRG title Crosswalk to MS–DRG 

789 ....................................... Neonates, Died or Transferred to Another Acute Care 

Facility.

FY 2013 FR weight (adjusted by percent change in average weight of the cases in other MS–DRGs). 

790 ....................................... Extreme Immaturity or Respiratory Distress Syndrome, 

Neonate.

FY 2013 FR weight (adjusted by percent change in average weight of the cases in other MS–DRGs). 

791 ....................................... Prematurity with Major Problems .................................... FY 2013 FR weight (adjusted by percent change in average weight of the cases in other MS–DRGs). 

792 ....................................... Prematurity without Major Problems ............................... FY 2013 FR weight (adjusted by percent change in average weight of the cases in other MS–DRGs). 

793 ....................................... Full-Term Neonate with Major Problems ........................ FY 2013 FR weight (adjusted by percent change in average weight of the cases in other MS–DRGs). 

794 ....................................... Neonate with Other Significant Problems ....................... FY 2013 FR weight (adjusted by percent change in average weight of the cases in other MS–DRGs). 

795 ....................................... Normal Newborn ............................................................. FY 2013 FR weight (adjusted by percent change in average weight of the cases in other MS–DRGs). 

4. Bundled Payments for Care 

Improvement (BPCI) Initiative 

The Bundled Payments for Care 

Improvement (BPCI) initiative, 

developed under the authority of 

section 3021 of the Affordable Care Act 

(codified at section 1115A of the Act), 

is comprised of four broadly defined 

models of care, which link payments for 

multiple services beneficiaries receive 

during an episode of care. Under the 

BPCI initiative, organizations enter into 

payment arrangements that include 

financial and performance 

accountability for episodes of care. On 

January 31, 2013, CMS announced the 

health care organizations selected to 

participate in the BPCI initiative. For 

additional information on the BPCI 

initiative, we refer readers to the CMS’ 

Center for Medicare and Medicaid 

Innovation’s Web site at http://

innovation.cms.gov/initiatives/BundledPayments/index.html and to section 

IV.H.4. of the preamble of the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53341 

through 53343) for a discussion on the 

BPCI initiative. 

In the FY 2013 IPPS/LTCH PPS final 

rule, for FY 2013 and subsequent fiscal 

years, we finalized a policy to treat 

hospitals that participate in the BPCI 

initiative the same as prior fiscal years 

for the IPPS payment modeling and 

ratesetting process without regard to a 

hospital’s participation within these 

bundled payment models (that is, as if 

a hospital were not participating in 

those models under the BPCI initiative). 

Therefore, for FY 2014, we are 

proposing to continue to include all 

applicable data from subsection (d) 

hospitals participating in BPCI Models 

1, 2, and 4 in our IPPS payment 

modeling and ratesetting calculations. 

We refer readers to the FY 2013 IPPS/ 

LTCH PPS final rule for a complete 

discussion on our final policy for the 

treatment of hospitals participating in 

the BPCI initiative in our ratesetting 

process. 

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 

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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 § 412.87(b)(2), a specific medical 

service or technology will be considered 

‘‘new’’ for purposes of new medical 

service or technology add-on payments 

until such time as Medicare data are 

available to fully reflect the cost of the 

technology in the MS–DRG weights 

through recalibration. We note that we 

do not consider a service or technology 

to be new if it is substantially similar to 

one or more existing technologies. That 

is, even if a technology receives a new 

FDA approval, it may not necessarily be 

considered ‘‘new’’ for purposes of new 

technology add-on payments if it is 

‘‘substantially similar’’ to a technology 

that was approved by FDA and has been 

on the market for more than 2 to 3 years. 

In the FY 2006 IPPS final rule (70 FR 

47351) and the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 43813 and 

43814), we explained our policy 

regarding substantial similarity in 

detail. 

Under the second criterion, 

§ 412.87(b)(3) further provides that, to 

be eligible for the add-on payment for 

new medical services or technologies, 

the MS–DRG prospective payment rate 

otherwise applicable to the discharge 

involving the new medical services or 

technologies must be assessed for 

adequacy. Under the cost criterion, to 

assess the adequacy of payment for a 

new technology paid under the 

applicable MS–DRG prospective 

payment rate, we evaluate whether the 

charges for cases involving the new 

technology exceed certain threshold 

amounts. Table 10 that was released 

with the FY 2013 IPPS/LTCH PPS final 

rule contains the final thresholds that 

will be used to evaluate applications for 

new technology add-on payments for FY 

2014. We refer readers to the CMS Web 

site at: http://www.cms.gov/Medicare/

Medicare-Fee-for-Service-Payment/

AcuteInpatientPPS/FY–2013–IPPSFinal-Rule-Home-Page.html for a 

complete viewing of Table 10 from the 

FY 2013 IPPS/LTCH PPS final rule. 

In the September 7, 2001 final rule 

that established the new technology 

add-on payment regulations (66 FR 

46917), we discussed the issue of 

whether the Health Insurance 

Portability and Accountability Act 

(HIPAA) Privacy Rule at 45 CFR Parts 

160 and 164 applies to claims 

information that providers submit with 

applications for new technology add-on 

payments. We refer readers to the FY 

2012 IPPS/LTCH PPS final rule (76 FR 

51573) for complete information on this 

issue. 

Under the third criterion, 

§ 412.87(b)(1) of our existing regulations 

provides that a new technology is an 

appropriate candidate for an additional 

payment when it represents ‘‘an 

advance that substantially improves, 

relative to technologies previously 

available, the diagnosis or treatment of 

Medicare beneficiaries.’’ For example, a 

new technology represents a substantial 

clinical improvement when it reduces 

mortality, decreases the number of 

hospitalizations or physician visits, or 

reduces recovery time compared to the 

technologies previously available. (We 

refer readers to the September 7, 2001 

final rule for a more detailed discussion 

of this criterion (66 FR 46902).) 

The new medical service or 

technology add-on payment policy 

under the IPPS provides additional 

payments for cases with relatively high 

costs involving eligible new medical 

services or technologies while 

preserving some of the incentives 

inherent under an average-based 

prospective payment system. The 

payment mechanism is based on the 

cost to hospitals for the new medical 

service or technology. Under § 412.88, if 

the costs of the discharge (determined 

by applying cost-to-charge ratios (CCRs) 

as described in § 412.84(h)) exceed the 

full DRG payment (including payments 

for IME and DSH, but excluding outlier 

payments), Medicare will make an addon payment equal to the lesser of: (1) 50 

percent of the estimated costs of the 

new technology (if the estimated costs 

for the case including the new 

technology exceed Medicare’s payment); 

or (2) 50 percent of the difference 

between the full DRG payment and the 

hospital’s estimated cost for the case. 

Unless the discharge qualifies for an 

outlier payment, the additional 

Medicare payment is limited to the full 

MS–DRG payment plus 50 percent of 

the estimated costs of the new 

technology. 

Section 503(d)(2) of Public Law 108– 

173 provides that there shall be no 

reduction or adjustment in aggregate 

payments under the IPPS due to add-on 

payments for new medical services and 

technologies. Therefore, in accordance 

with section 503(d)(2) of Public Law 

108–173, add-on payments for new 

medical services or technologies for FY 

2005 and later years have not been 

subjected to budget neutrality. 

In the FY 2009 IPPS final rule (73 FR 

48561 through 48563), we modified our 

regulations at § 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 § 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 cochaired by the Director of the Center for 

Clinical Standards and Quality (CCSQ) 

and the Director of the Center for 

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Medicare (CM), who is also designated 

as the CTI’s Executive Coordinator. 

The specific processes for coverage, 

coding, and payment are implemented 

by CM, CCSQ, and the local claimspayment 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 highquality, 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 userfriendly format. This guide was 

published in August 2008 and is 

available on the CMS Web site at: 

http://www.cms.gov/CouncilonTech

Innov/Downloads/InnovatorsGuide5_

10_10.pdf. 

As we indicated in the FY 2009 IPPS 

final rule (73 FR 48554), we invite any 

product developers or manufacturers of 

new medical technologies to contact the 

agency early in the process of product 

development if they have questions or 

concerns about the evidence that would 

be needed later in the development 

process for the agency’s coverage 

decisions for Medicare. 

The CTI aims to provide useful 

information on its activities and 

initiatives to stakeholders, including 

Medicare beneficiaries, advocates, 

medical product manufacturers, 

providers, and health policy experts. 

Stakeholders with further questions 

about Medicare’s coverage, coding, and 

payment processes, or who want further 

guidance about how they can navigate 

these processes, can contact the CTI at 

CTI@cms.hhs.gov. 

We note that applicants for add-on 

payments for new medical services or 

technologies for FY 2015 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.gov/

Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/

newtech.html. To allow interested 

parties to identify the new medical 

services or technologies under review 

before the publication of the proposed 

rule for FY 2015, 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 AddOn Payments 

Section 1886(d)(5)(K)(viii) of the Act, 

as amended by section 503(b)(2) of 

Public Law 108–173, provides for a 

mechanism for public input before 

publication of a notice of proposed 

rulemaking regarding whether a medical 

service or technology represents a 

substantial clinical improvement or 

advancement. The process for 

evaluating new medical service and 

technology applications requires the 

Secretary to— 

• Provide, before publication of a 

proposed rule, for public input 

regarding whether a new service or 

technology represents an advance in 

medical technology that substantially 

improves the diagnosis or treatment of 

Medicare beneficiaries; 

• Make public and periodically 

update a list of the services and 

technologies for which applications for 

add-on payments are pending; 

• Accept comments, 

recommendations, and data from the 

public regarding whether a service or 

technology represents a substantial 

clinical improvement; and 

• Provide, before publication of a 

proposed rule, for a meeting at which 

organizations representing hospitals, 

physicians, manufacturers, and any 

other interested party may present 

comments, recommendations, and data 

regarding whether a new medical 

service or technology represents a 

substantial clinical improvement to the 

clinical staff of CMS. 

In order to provide an opportunity for 

public input regarding add-on payments 

for new medical services and 

technologies for FY 2014 prior to 

publication of this FY 2014 IPPS/LTCH 

PPS proposed rule, we published a 

notice in the Federal Register on 

November 23, 2012 (77 FR 70163 

through 70165), and held a town hall 

meeting at the CMS Headquarters Office 

in Baltimore, MD, on February 5, 2013. 

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 2014 new medical service and 

technology add-on payment 

applications before the publication of 

this FY 2014 proposed rule. 

Approximately 60 individuals 

registered to attend the town hall 

meeting in person, while additional 

individuals listened over an open 

telephone line. We also live-streamed 

the town hall meeting over the Internet 

and received very positive feedback 

from the public on use of this option. 

We are considering no longer holding an 

in-person town hall meeting in 

Baltimore, MD, and instead holding a 

virtual town hall meeting that would be 

live-streamed on the Internet. We are 

inviting public comments on the 

possibility of holding a virtual town hall 

meeting instead of an in-person town 

hall meeting in Baltimore, MD. Four of 

the five FY 2014 applicants presented 

information on their technologies, 

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 February 26, 2013, in our 

evaluation of the new technology addon payment applications for FY 2014 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 2014 new 

technology add-on payments. We 

summarize these comments below or, if 

applicable, indicate that there were no 

comments received, at the end of each 

discussion of the individual 

applications in this proposed rule. 

A number of attendees at the new 

technology town hall meeting provided 

comments that were unrelated to 

‘‘substantial clinical improvement.’’ As 

explained above and in the Federal 

Register notice announcing the new 

technology town hall meeting (77 FR 

70163 through 70165), the purpose of 

the new technology town hall meeting 

was specifically to discuss the 

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substantial clinical improvement 

criterion in regard to pending new 

technology applications for FY 2014. 

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 2014 Status of Technologies 

Approved for FY 2013 Add-On 

Payments 

a. Auto Laser Interstitial Thermal 

Therapy (AutoLITTTM) System 

Monteris Medical submitted an 

application for new technology add-on 

payments for FY 2011 for the 

AutoLITTTM. AutoLITTTM 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 AutoLITTTM received a 510(k) 

FDA clearance in May 2009. The 

AutoLITTTM is indicated for use to 

necrotize or coagulate soft tissue 

through interstitial irradiation or 

thermal therapy in medicine and 

surgery in the discipline of 

neurosurgery with 1064 nm lasers. The 

AutoLITTTM may be used in patients 

with glioblastoma multiforme brain 

tumors. The applicant stated in its 

application and through supplemental 

information that, due to required 

updates, the technology was actually 

introduced to the market in December 

2009. After evaluation of the newness, 

costs, and substantial clinical 

improvement criteria for new 

technology add-on payments for the 

AutoLITTTM and consideration of the 

public comments we received in 

response to the FY 2011 IPPS/LTCH 

PPS proposed rule, including the 

additional analysis of clinical data and 

supporting information submitted by 

the applicant, we approved the 

AutoLITTTM for new technology add-on 

payments for FY 2011. In the FY 2013 

IPPS/LTCH PPS proposed rule (77 FR 

27935 through 27936), based on the 

original information provided by the 

applicant, we believed that the newness 

date for the AutoLITTTM began in 

December 2009. However, as 

summarized in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53345 through 

53346), the applicant submitted a public 

comment (in response to the FY 2013 

proposed rule) demonstrating that the 

AutoLITTTM was first available on May 

11, 2010. The manufacturer explained 

that some of the sterile disposable 

products were not released from 

quarantine until May 11, 2010, which 

prevented the AutoLITTTM from being 

used prior to May 11, 2010. Therefore, 

the manufacturer asserted that the first 

time the AutoLITTTM was available on 

the market was May 11, 2010. As a 

result of this information, we continued 

to make new technology add-on 

payments for the AutoLITTTM in FY 

2013. (We refer readers to the FY 2013 

IPPS/LTCH PPS final rule for a 

complete discussion on this issue). 

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 AutoLITTTM in MS–DRGs 

025 (Craniotomy and Endovascular 

Intracranial Procedures with Major 

Complications or Comorbidities (MCC)), 

026 (Craniotomy and Endovascular 

Intracranial Procedures with 

Complications or Comorbidities (CC)), 

and 027 (Craniotomy and Endovascular 

Intracranial Procedures without CC or 

MCC). Cases involving the AutoLITTTM

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 AutoLITTTM 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 AutoLITTTM is 

reported as $10,600 per case. Under 

§ 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 

AutoLITTTM 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 service or technology’’ 

(§ 412.87(b)(2)). Our practice has been to 

begin and end new technology add-on 

payments on the basis of a fiscal year, 

and we have generally followed a 

guideline that uses a 6-month window 

before and after the start of the fiscal 

year to determine whether to extend the 

new technology add-on payment for an 

additional fiscal year. In general, we 

extend add-on payments for an 

additional year only if the 3-year 

anniversary date of the product’s entry 

on the market occurs in the latter half 

of the fiscal year (70 FR 47362). With 

regard to the newness criterion for the 

AutoLITTTM, as stated above, we 

consider the beginning of the newness 

period for the device to commence 

when the AutoLITTTM was first 

available on May 11, 2010. Because the 

3-year anniversary date of the 

AutoLITTTM entry onto the market will 

expire May 11, 2013, which is prior to 

the beginning of FY 2014, we are 

proposing to discontinue new 

technology add-on payments for the 

AutoLITTTM for FY 2014. We are 

inviting public comments on this 

proposal. 

b. Glucarpidase (Trade Brand 

Voraxaze®) 

BTG International, Inc. submitted an 

application for new technology add-on 

payments for Glucarpidase (trade brand 

Voraxaze®) for FY 2013. Glucarpidase is 

used in the treatment of patients who 

have been diagnosed with toxic 

methotrexate (MTX) concentrations as 

of result of renal impairment. The 

administration of Glucarpidase causes a 

rapid and sustained reduction of toxic 

MTX concentrations. 

Voraxaze® was approved by the FDA 

on January 17, 2012. Beginning in 1993, 

certain patients could obtain expanded 

access for treatment use to Voraxaze® as 

an investigational drug. Since 2007, the 

applicant has been authorized to recover 

the costs of making Voraxaze® available 

through its expanded access program. 

We describe expanded access for 

treatment use of investigational drugs 

and authorization to recover certain 

costs of investigational drugs in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53346 through 53350). Voraxaze® was 

available on the market in the United 

States as a commercial product to the 

larger population as of April 30, 2012. 

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In the FY 2013 IPPS/LTCH PPS 

proposed rule (77 FR 27936 through 

27939), we expressed concerns about 

whether Voraxaze® could be considered 

new for FY 2013. After consideration of 

all of the public comments received, in 

the FY 2013 IPPS/LTCH PPS final rule, 

we stated that we considered Voraxaze®

to be ‘‘new’’ as of April 30, 2012, which 

is the date of market availability. 

After evaluation of the newness, costs, 

and substantial clinical improvement 

criteria for new technology payments for 

Voraxaze® and consideration of the 

public comments we received in 

response to the FY 2013 IPPS/LTCH 

PPS proposed rule, we approved 

Voraxaze® for new technology add-on 

payments for FY 2013. Cases of 

Voraxaze® are identified with ICD–9– 

CM procedure code 00.95 (Injection or 

infusion of glucarpidase). The cost of 

Voraxaze® is $22,500 per vial. The 

applicant stated that an average of four 

vials is used per Medicare beneficiary. 

Therefore, the average cost per case for 

Voraxaze® is $90,000 ($22,500 × 4). 

Under § 412.88(a)(2), new technology 

add-on payments are limited to the 

lesser of 50 percent of the average cost 

of the technology or 50 percent of the 

costs in excess of the MS–DRG payment 

for the case. As a result, the maximum 

new technology add-on payment for 

Voraxaze® is $45,000 per case. 

As stated above, the new technology 

add-on payment regulations provide 

that ‘‘a medical service or technology 

may be considered new within 2 or 3 

years after the point at which data begin 

to become available reflecting the ICD– 

9–CM code assigned to the new service 

or technology’’ (§ 412.87(b)(2)). With 

regard to the newness criterion for 

Voraxaze®, as stated above, we consider 

the beginning of the newness period to 

commence when Voraxaze® was first 

available on the market on April 30, 

2012. Because Voraxaze® is still within 

the 3-year newness period, we are 

proposing to continue new technology 

add-on payments for this technology for 

FY 2014. We are inviting public 

comments on this proposal. 

c. DIFICIDTM (Fidaxomicin) Tablets 

Optimer Pharmaceuticals, Inc. 

submitted an application for new 

technology add-on payments for FY 

2013 for the use of DIFICIDTM tablets. 

As indicated on the labeling submitted 

to the FDA, the applicant noted that 

Fidaxomicin is taken twice a day as a 

daily dosage (200 mg tablet twice daily 

= 400 mg per day) as an oral antibiotic. 

The applicant asserted that Fidaxomicin 

provides potent bactericidal activity 

against C. Diff., and moderate 

bactericidal activity against certain 

other gram-positive organisms, such as 

enterococcus and staphylococcus. 

Unlike other antibiotics used to treat 

CDAD, the applicant noted that the 

effects of Fidaxomicin preserve 

bacteroides organisms in the fecal flora. 

These are markers of normal anaerobic 

microflora. The applicant asserted that 

this helps prevent pathogen 

introduction or persistence, which 

potentially inhibits the re-emergence of 

C. Diff., and reduces the likelihood of 

overgrowths as a result of vancomycinresistant Enterococcus (VRE). Because of 

this narrow spectrum of activity, the 

applicant asserted that Fidaxomicin 

does not alter this native intestinal 

microflora. 

In the FY 2013 IPPS/LTCH PPS 

proposed rule (77 FR 27939 through 

27941), we expressed concern that 

DIFICIDTM may not be eligible for new 

technology add-on payments because 

eligibility is limited to new technologies 

associated with procedures described by 

ICD–9–CM codes. We further stated that 

drugs that are only taken orally (such as 

DIFICIDTM) may not be eligible for 

consideration for new technology addon payments because there is no 

procedure associated with these drugs 

and, therefore, no ICD–9–CM code(s). In 

the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53350 through 53358), after 

consideration of the public comments 

received, we revised our policy to allow 

the use of National Drug Codes (NDCs) 

to identify oral medications that have no 

inpatient procedure for the purposes of 

new technology add-on payments. The 

revised policy is effective for payments 

for discharges occurring on or after 

October 1, 2012. We refer readers to the 

FY 2013 IPPS/LTCH PPS final rule for 

a complete discussion on this issue. 

With regard to the newness criterion, 

Fidaxomicin was approved by the FDA 

on May 27, 2011, for the treatment of 

CDAD in adult patients, 18 years of age 

and older. In the FY 2013 IPPS/LTCH 

PPS final rule, we established that the 

beginning of the newness period for this 

technology is its FDA approval date of 

May 27, 2011. 

After evaluation of the newness, costs, 

and substantial clinical improvement 

criteria for new technology add-on 

payments for DIFICIDTM and 

consideration of the public comments 

we received in response to the FY 2013 

IPPS/LTCH PPS proposed rule, we 

approved DIFICIDTM for new technology 

add-on payments for FY 2013. Cases of 

DIFICIDTM are identified with ICD–9– 

CM diagnosis code 008.45 (Intestinal 

infection due to Clostridium difficile) in 

combination with NDC code 52015– 

0080–01. Providers must report the NDC 

on the 837i Health Care Claim 

Institutional form (in combination with 

ICD–9–CM diagnosis code 008.45) in 

order to receive the new technology 

add-on payment. According to the 

applicant, the cost of DIFICIDTM is 

$2,800 for a 10-day dosage. The average 

cost per day for DIFICIDTM is $280 

($2,800/10). Cases of DIFICIDTM within 

the inpatient setting typically incur an 

average dosage of 6.2 days, which 

results in an average cost per case for 

DIFICIDTM of $1,736 ($280 × 6.2). Under 

§ 412.88(a)(2), new technology add-on 

payments are limited to the lesser of 50 

percent of the average cost of the 

technology or 50 percent of the costs in 

excess of the MS–DRG payment for the 

case. As a result, the maximum new 

technology add-on payment for FY 2013 

for DIFICIDTM is $868. 

As stated above, the new technology 

add-on payment regulations provide 

that ‘‘a medical service or technology 

may be considered new within 2 or 3 

years after the point at which data begin 

to become available reflecting the ICD– 

9–CM code assigned to the new service 

or technology’’ (§ 412.87(b)(2)). Our 

practice has been to begin and end new 

technology add-on payments on the 

basis of a fiscal year, and we have 

generally followed a guideline that uses 

a 6-month window before and after the 

start of the fiscal year to determine 

whether to extend the new technology 

add-on payment for an additional fiscal 

year. In general, we extend add-on 

payments for an additional year only if 

the 3-year anniversary date of the 

product’s entry on the market occurs in 

the latter half of the fiscal year (70 FR 

47362). With regard to the newness 

criterion for DIFICIDTM, as stated above, 

we consider the beginning of the 

newness period to commence when 

DIFICIDTM was first approved by the 

FDA on May 27, 2011. Because the 3- 

year anniversary date of DIFICIDTM will 

occur in the second half of the fiscal 

year (after April 1, 2014), we are 

proposing to continue new technology 

add-on payments for DIFICIDTM for FY 

2014. We are inviting public comments 

on this proposal. 

d. Zenith® Fenestrated Abdominal 

Aortic Aneurysm (AAA) Endovascular 

Graft 

Cook® Medical submitted an 

application for new technology add-on 

payments for the Zenith® Fenestrated 

Abdominal Aortic Aneurysm (AAA) 

Endovascular Graft (Zenith® F. Graft) for 

FY 2013. The applicant stated that the 

current treatment for patients who have 

had an AAA is an endovascular graft. 

The applicant explained that the 

Zenith® F. Graft is an implantable 

device designed to treat patients who 

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have an AAA and who are anatomically 

unsuitable for treatment with currently 

approved AAA endovascular grafts 

because of the length of the infrarenal 

aortic neck. The applicant noted that, 

currently, an AAA is treated through an 

open surgical repair or medical 

management for those patients not 

eligible for currently approved AAA 

endovascular grafts. 

With respect to newness, the 

applicant stated that FDA approval for 

the use of the Zenith® F. Graft was 

granted on April 4, 2012. In the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53360 

through 53365), we stated that because 

the Zenith® F. Graft was approved by 

the FDA on April 4, 2012, we believed 

that the Zenith® F. Graft met the 

newness criterion as of that date. 

After evaluation of the newness, costs, 

and substantial clinical improvement 

criteria for new technology add-on 

payments for the Zenith® F. Graft and 

consideration of the public comments 

we received in response to the FY 2013 

IPPS/LTCH PPS proposed rule, we 

approved the Zenith® F. Graft for new 

technology add-on payments for FY 

2013. Cases involving the Zenith® F. 

Graft that are eligible for new 

technology add-on payments are 

identified by ICD–9–CM procedure code 

39.78 (Endovascular implantation of 

branching or fenestrated graft(s) in 

aorta). In the application, the applicant 

provided a breakdown of the costs of the 

Zenith® F. Graft. The total cost of the 

Zenith® F. Graft utilizing bare metal 

(renal) alignment stents was $17,264. Of 

the $17,264 in costs for the Zenith® F. 

Graft, $921 are for components that are 

used in a standard Zenith AAA 

Endovascular Graft procedure. Because 

the costs for these components are 

already reflected within the MS–DRGs 

(and are no longer ‘‘new’’), in the FY 

2013 IPPS/LTCH PPS final rule, we 

stated that we do not believe it is 

appropriate to include these costs in our 

calculation of the maximum cost to 

determine the maximum add-on 

payment for the Zenith® F. Graft. 

Therefore, the total maximum cost for 

the Zenith® F. Graft is $16,343 ($17,264 

¥ $921). Under § 412.88(a)(2), new 

technology add-on payments are limited 

to the lesser of 50 percent of the average 

cost of the device or 50 percent of the 

costs in excess of the MS–DRG payment 

for the case. As a result, the maximum 

add-on payment for a case involving the 

Zenith® F. Graft is $8,171.50. 

As stated above, the new technology 

add-on payment regulations provide 

that ‘‘a medical service or technology 

may be considered new within 2 or 3 

years after the point at which data begin 

to become available reflecting the ICD– 

9–CM code assigned to the new service 

or technology’’ (§ 412.87(b)(2)). With 

regard to the newness criterion for the 

Zenith® F. Graft, as stated above, we 

consider the beginning of the newness 

period to commence when the Zenith®

F. Graft was approved by the FDA on 

April 4, 2012. Because the Zenith® F. 

Graft is still within the 3-year newness 

period, we are proposing to continue 

new technology add-on payments for 

this technology for FY 2014. We are 

inviting public comments on this 

proposal. 

4. FY 2014 Applications for New 

Technology Add-On Payments 

We received five applications for new 

technology add-on payments for FY 

2014. 

a. KcentraTM

CSL Behring submitted an application 

for new technology add-on payments for 

KcentraTM for FY 2014. KcentraTM is a 

replacement therapy for fresh frozen 

plasma (FFP) for patients with an 

acquired coagulation factor deficiency 

due to warfarin and who are 

experiencing a severe bleed. KcentraTM

contains the Vitamin K dependent 

coagulation factors II, VII, IX and X, 

together known as the prothrombin 

complex, and antithrombotic proteins C 

and S. Factor IX is the lead factor for the 

potency of the preparation. The product 

is a heat-treated, non-activated, virus 

filtered and lyophilized plasma protein 

concentrate made from pooled human 

plasma. KcentraTM is available as a 

lyophilized powder that needs to be 

reconstituted with sterile water prior to 

administration via intravenous infusion. 

The product is dosed based on Factor IX 

units. Concurrent Vitamin K treatment 

is recommended to maintain blood 

clotting factor levels once the effects of 

KcentraTM have diminished. 

The applicant expects to receive FDA 

approval for KcentraTM in the second 

quarter of 2013. The technology is not 

described by any current ICD–9–CM 

procedure codes. The applicant applied 

for a new ICD–9–CM procedure code for 

consideration at the March 5, 2013 ICD– 

9–CM Coordination and Maintenance 

Committee Meeting. More information 

on this request can be found on the CMS 

Web site at: http://cms.gov/Medicare/ 

Coding/ICD9ProviderDiagnosticCodes/

ICD-9-CM-C-and-M-Meeting-MaterialsItems/2013-03-05-Meeting

Materials.html. We note that any final 

decisions on new codes approved at the 

March 5, 2013 ICD–9–CM Coordination 

and Maintenance Committee meeting 

will be included in the ICD–9–CM code 

addendum posted on the CMS Web site 

in June 2013 at: http://cms.hhs.gov/ 

Medicare/Coding/ICD9Provider

DiagnosticCodes/addendum.html. In 

addition, code revisions that were 

discussed at the March 5, 2013 ICD–9– 

CM Coordination and Maintenance 

Committee meeting but that could not 

be finalized in time to include them in 

the tables for this proposed rule will be 

included in the appropriate table for the 

final rule (the tables for both the 

proposed rule and the final rule are 

available via the Internet on the CMS 

Web site). 

We note that we are concerned that 

KcentraTM may be substantially similar 

to FFP and/or Vitamin K therapy. If so, 

KcentraTM would not meet the newness 

criterion because costs associated with 

FFP and/or Vitamin K therapy are 

already reflected within the MS–DRGs. 

In the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 43813 through 43814), 

we established criteria for evaluating 

whether a new technology is substantial 

similar to an existing technology, 

specifically: (1) whether a product uses 

the same or a similar mechanism of 

action to achieve a therapeutic outcome; 

(2) whether a product is assigned to the 

same or a different MS–DRG; and (3) 

whether the new use of the technology 

involves the treatment of the same or 

similar type of disease and the same or 

similar patient population. If a 

technology meets all three of the criteria 

above, it would be considered 

substantially similar to an existing 

technology and would not be 

considered ‘‘new’’ for purposes of new 

technology add-on payments. 

In evaluating the first criterion, we 

believe that both FFP and KcentraTM use 

the same mechanism of action of 

Vitamin K dependent coagulation to 

reverse the anti-coagulation effects of 

warfarin. With respect to the second 

criterion, we believe that cases 

involving both FFP and KcentraTM

would be assigned to the same MS– 

DRGs. Finally, with respect to the third 

criterion, we believe that both 

technologies treat the same disease and 

patient population. Specifically, the 

patient population for both KcentraTM

and FFP are patients with an acquired 

coagulation factor deficiency due to 

warfarin and who are experiencing a 

severe bleed. Delay of treatment of these 

patients can lead to an increase in 

complications as well as an increase of 

the severity of the bleed. Although FFP 

needs to thaw for a couple of hours 

before it can be administered (thus 

delaying treatment) compared to 

KcentraTM, which can be used instantly, 

we believe that both KcentraTM and FFP 

treat the same patient population. Based 

on evaluation of the similarity criteria, 

it appears that KcentraTM is 

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3Sarode R, et al., Efficacy and Safety of a Four 

Factor Prothrombin Complex Concentrate in 

Patients on Vitamin K Antagonists Presenting with 

Major Bleeding: A Randomized, Plasma Controlled, 

Phase IIIb Study. Circulation. Submitted October 

31, 2012. Copy to be provided upon acceptance. 

4Hanke A, et al., Efficacy and Long-Term Safety 

of a Pasteurized Nanofiltrated Prothrombin 

Complex Concentrate (BERIPLEX® P/N), 2009, J 

Thromb Haemost, Vol. 7 (Suppl.2) PP–WE–697. 

5 Goldstein, Joshua N., et al., Timing of Fresh 

Frozen Plasma Administration and Rapid 

Correction of Coagulopathy in Warfarin-Related 

Intracerebral Hemorrhage, Stroke 37.1 (2006):151– 

155. 

substantially similar to FFP. Therefore, 

KcentraTM may not be considered 

‘‘new’’ for purposes of new technology 

add-on payments. We are inviting 

public comments regarding whether 

KcentraTM is substantially similar to 

existing technologies and whether 

KcentraTM meets the newness criterion. 

According to the applicant, the 

technology is eligible to be used across 

all MS–DRGs. To demonstrate that it 

meets the cost criterion, the applicant 

searched the FY 2011 MedPAR file 

(across all MS DRGs) for cases reporting 

a primary or secondary diagnosis of 

E934.2 (Adverse events due to 

anticoagulants), V58.61 (Long term 

(current) use of anticoagulants), or 964.2 

(Poisoning by anticoagulants) in 

combination with procedure code 99.07 

(Transfusion of the serum). The 

applicant believed that this combination 

identified cases that suggest the use of 

a Vitamin K antagonist therapy as well 

as a major bleed. 

The applicant found 66,749 cases 

across all MS–DRGs and noted that 18 

percent of all cases would map to MS– 

DRGs 377 (Gastrointestinal Hemorrhage 

with MCC), 378 (Gastrointestinal 

Hemorrhage with CC), and 379 

(Gastrointestinal Hemorrhage without 

CC/MCC), while the top 20 MS–DRGs 

would account for 41 percent of all 

cases. The applicant standardized 

charges (for all 66,749 cases) and 

removed charges for FFP therapy, which 

equated to a case-weighted average 

standardized charge per case of $49,748. 

The applicant calculated a caseweighted threshold of $46,068 across all 

MS–DRGs. The applicant asserted that 

the average case-weighted standardized 

charge per case without including 

charges for KcentraTM exceeded the 

case-weighted threshold of $46,068. 

Therefore, the applicant maintained that 

it meets the cost criterion. We are 

inviting public comments regarding 

whether KcentraTM meets the cost 

criterion, particularly with regard to the 

assumptions and methodology used in 

the applicant’s analysis. 

With regard to substantial clinical 

improvement, according to the 

applicant, KcentraTM is the first 

prothrombin complex concentrate (PCC) 

that will be FDA-approved for rapid 

warfarin reversal in patients 

experiencing an acute major bleed. The 

manufacturer maintained that 

KcentraTM represents a substantial 

clinical improvement in the treatment of 

patients with acute severe bleeding who 

require immediate reversal of their 

Vitamin K antagonist (VKA) therapy by 

(1) providing a rapid, beneficial 

resolution of the patient’s blood clotting 

factor deficiency, (2) decreasing the risk 

of exposure to blood borne pathogens, 

and (3) reducing the rate of transfusionassociated complications. 

The applicant cited its pivotal study 

(a noninferior, randomized clinical 

trial) 3 and noted that KcentraTM was 

able to reverse the effects of warfarin to 

a target International Normalized Ratio 

(INR) of less than or equal to 1.3 within 

30 minutes in 62 percent of patients 

compared to less than 10 percent 

success for plasma. Also, serum levels 

of the key coagulant and anti-thrombotic 

proteins were normalized in less than 

an hour with KcentraTM, but remained 

depressed with plasma for hours. 

The applicant also explained that 

KcentraTM undergoes a dedicated 

pathogen removal process and plasma 

does not. The applicant asserted that 

this drastically reduces the risk of 

transmitting both known and unknown 

blood borne pathogens. The applicant 

cited a retrospective analysis of 

scientific publications 4 on the use of 

KcentraTM in the European Union (EU), 

including the pharmacovigilance 

database from 1996 through 2008. The 

applicant noted that an estimated 

350,000 patients have been treated with 

KcentraTM (known as Beriplex in the 

EU) with no cases of viral transmission. 

The applicant also stated that, in the 

United States, blood suppliers follow a 

strict set of regulations for screening and 

testing the blood supply, but these tests 

and donor questionnaires do not 

account for emerging pathogens that 

could contaminate the blood supply. 

The applicant explained that parasitic 

infections and diseases (such as 

babesiosis and Chaga’s disease) have 

already been documented in U.S. 

patients as a result of transfusion. 

However, there is no screening test to 

date for some of these parasitic 

infections and diseases. The applicant 

believed that the multi-step 

manufacturing process for KcentraTM, 

including heat treatment and 

nanofiltration, reduces the risk of 

transmitting such infections and 

diseases. 

The applicant also noted that another 

benefit of KcentraTM is the ability to 

rapidly prepare and administer the 

product in an emergency situation. In 

addition to the benefit of room 

temperature storage, KcentraTM can be 

rapidly reconstituted. In the clinical 

study, the applicant found that the 

average administration time for 

KcentraTM was less than 30 minutes. 

However, the applicant stated, other 

treatments such as FFP and intravenous 

Vitamin K therapies act slowly, and FFP 

can be difficult to use. The applicant 

explained that FFP therapy requires 

blood-type matching, usually requires 

thawing, and is often located away from 

the point of care. The applicant also 

cited a study 5 that demonstrated the 

median time from time of diagnosis to 

plasma infusion was 90 minutes, which 

did not include time to infuse the 

plasma which can take hours. 

The applicant further noted that 

essential blood coagulation factors in 

one vial of KcentraTM are approximately 

25 times more concentrated than the 

equivalent plasma dose. According to 

the applicant, this translated to an 

infusion volume that was 87 percent 

greater in the plasma group of patients 

as seen in the pivotal study. The 

applicant explained that high 

transfusion volumes of treatments such 

as FFP therapy can lead to transfusionassociated circulator overload (TACO). 

According to the applicant, when TACO 

occurs, acute left ventricular failure may 

occur resulting in shortness of breath, 

tachypnea (rapid breathing), and other 

harmful effects. 

Finally, the applicant noted that 

KcentraTM is the standard of care in the 

new guidelines issued by the American 

College of Chest Physicians (ACCP). In 

addition, the applicant noted that the 

American Association of Blood Banks 

(AABB) stated that plasma should no 

longer be used to reverse warfarin in 

bleeding patients when specific factor 

concentrates are available. 

In conclusion, the applicant 

maintained that KcentraTM represents a 

substantial clinical improvement over 

existing technologies. We are inviting 

public comments regarding whether 

KcentraTM meets the substantial clinical 

improvement criterion. 

We note, if KcentraTM were to be 

approved for new technology add-on 

payments, we do not believe such 

payments would be available with 

respect to discharges for which the 

hospital receives an add-on payment for 

blood clotting factor administered to a 

Medicare beneficiary with hemophilia 

who is a hospital inpatient. Under 

section 1886(d)(1)(A)(iii) of the Act, the 

national adjusted DRG prospective 

payment rate is ‘‘the amount of the 

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payment with respect to the operating 

costs of inpatient hospital services (as 

defined in subsection (a)(4) of this 

section)’’ for discharges on or after April 

1, 1988. Section 1886(a)(4) of the Act 

excludes from the term ‘‘operating costs 

of inpatient hospital services’’ the costs 

with respect to administering blood 

clotting factors to individuals with 

hemophilia. The costs of administering 

blood clotting factor to Medicare 

beneficiaries who have hemophilia and 

are hospital inpatients are paid 

separately from the IPPS. (For 

information on how the clotting factor 

add-on payment is made, we refer 

readers to section 20.7.3 of Chapter 

Three of the Medicare Claims 

Processing Manual, which can be 

downloaded from the CMS Web site at: 

http://cms.gov/Regulations-andGuidance/Guidance/Manuals/ 

Downloads/clm104c03.pdf.) If 

KcentraTM is approved by FDA as a 

blood clotting factor, we believe that it 

may be eligible for clotting factor addon payments when administered to 

Medicare beneficiaries with hemophilia. 

CMS would make an add-on payment 

for KcentraTM for such discharges in 

accordance with our policy for payment 

of blood clotting factor, and it would be 

excluded from the operating costs of 

inpatient hospital services as set forth in 

section 1886(a)(4) of the Act. 

Section 1886(d)(5)(K)(i) of the Act 

requires the Secretary to ‘‘establish a 

mechanism to recognize the costs of 

new medical services and technologies 

under the payment system established 

under this subsection’’ beginning with 

discharges on or after October 1, 2001. 

We believe it is reasonable to interpret 

this requirement to mean that the 

payment mechanism established by the 

Secretary recognizes only costs for those 

items that would otherwise be paid 

based on the prospective payment 

system (that is, ‘‘the payment system 

established under this subsection’’). As 

noted above, under section 

1886(d)(1)(A)(iii) of the Act, the national 

adjusted DRG prospective payment rate 

is the amount of payment for the 

operating costs of inpatient hospital 

services, as defined in section 1886(a)(4) 

of the Act, for discharges on or after 

April 1, 1988. We understand this to 

mean that a new medical service or 

technology must be an operating cost of 

inpatient hospital services paid based 

on the prospective payment system, and 

not excluded from such costs, in order 

to be eligible for the new technology 

add-on payment. We point out that new 

technology add-on payments are based 

on the operating costs per case relative 

to the prospective payment rate as 

described in 42 CFR 412.88. Therefore, 

we believe that new technology add-on 

payments are appropriate only when the 

new technology is an operating cost of 

inpatient hospital services and are not 

appropriate when the new technology is 

excluded from such costs. 

If KcentraTM were to be approved for 

new technology add-on payments, we 

believe that hospitals may only receive 

that add-on payment for discharges 

where KcentraTM is an operating cost of 

inpatient hospital services. In other 

words, we do not believe a hospital 

could be eligible to receive the new 

technology add-on payment when it is 

administering KcentraTM in treating a 

Medicare beneficiary who has 

hemophilia. In those instances, 

KcentraTM is specifically excluded from 

the operating costs of inpatient hospital 

services in accordance with section 

1886(a)(4) of the Act and paid separately 

from the IPPS. However, when a 

hospital administers KcentraTM to a 

Medicare beneficiary who does not have 

hemophilia, the hospital could be 

eligible for a new technology add-on 

payment because KcentraTM would not 

be excluded from the operating costs of 

inpatient hospital services. Therefore, 

we do not believe that discharges where 

the hospital receives a clotting factor 

add-on payment are eligible for a new 

technology add-on payment for the 

blood clotting factor. 

To summarize, we believe it would be 

inappropriate to make an add-on 

payment for new technology for a blood 

clotting factor when a blood clotting 

factor add-on payment has been made. 

We welcome public comment on our 

proposal to only make new technology 

add-on payments for KcentraTM in cases 

when it is included in the operating 

costs of inpatient hospital services (that 

is, when no add-on payment is made for 

clotting factor). 

b. Argus® II Retinal Prosthesis System 

Second Sight Medical Products, Inc. 

submitted an application for new 

technology add-on payments for the 

Argus® II Retinal Prosthesis System 

(Argus® II System) for FY 2014. The 

Argus® II System is an active 

implantable medical device that is 

intended to provide electrical 

stimulation of the retina to induce 

visual perception in patients who are 

profoundly blind due to retinitis 

pigmentosa (RP). These patients have 

bare or no light perception in both eyes. 

The system employs electrical signals to 

bypass dead photo-receptor cells and 

stimulate the overlying neurons 

according to a real-time video signal 

that is wirelessly transmitted from an 

externally worn video camera. The 

Argus® II implant is intended to be 

implanted in a single eye, typically the 

worse-seeing eye. Currently, bilateral 

implants are not intended for this 

technology. According to the applicant, 

the surgical implant procedure takes 

approximately 4 hours and is performed 

under general anesthesia. 

The Argus® II System consists of three 

primary components: (1) An implant 

which is an epiretinal prosthesis that is 

fully implanted on and in the eye (that 

is, there are no percutaneous leads); (2) 

external components worn by the user; 

and (3) a ‘‘fitting’’ system for the 

clinician that is periodically used to 

perform diagnostic tests with the system 

and to custom-program the external unit 

for use by the patient. We describe these 

components more fully below. 

• Implant: The retinal prosthesis 

implant is responsible for receiving 

information from the external 

components of the system and 

electrically stimulating the retina to 

induce visual perception. The retinal 

implant consists of: (a) a receiving coil 

for receiving information and power 

from the external components of the 

Argus® II System; (b) electronics to 

drive stimulation of the electrodes; and 

(c) an electrode array. The receiving coil 

and electronics are secured to the 

outside of the eye using a standard 

scleral band and sutures, while the 

electrode array is secured to the surface 

of the retina inside the eye by a retinal 

tack. A cable, which passes through the 

eye wall, connects the electronics to the 

electrode array. A pericardial graft is 

placed over the extra-ocular portion on 

the outside of the eye. 

• External Components: The implant 

receives power and data commands 

wirelessly from an external unit of 

components, which include the Argus II 

Glasses and Video Processing Unit 

(VPU). A small lightweight video 

camera and transmitting coil are 

mounted on the glasses. The telemetry 

coils and radio-frequency system are 

mounted on the temple arm of the 

glasses for transmitting data from the 

VPU to the implant. The glasses are 

connected to the VPU by a cable. This 

VPU is worn by the patient, typically on 

a belt or a strap, and is used to process 

the images from the video camera and 

convert the images into electrical 

stimulation commands, which are 

transmitted wirelessly to the implant. 

• ‘‘Fitting System’’: To be able to use 

the Argus® II System, a patient’s VPU 

needs to be custom-programmed. This 

process, which the applicant called 

‘‘fitting’’, occurs in the hospital/clinic 

shortly after the implant surgery and 

then periodically thereafter as needed. 

The clinician/physician also uses the 

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‘‘Fitting System’’ to run diagnostic tests 

(for example, to obtain electrode and 

impedance waveform measurements or 

to check the radio-frequency link 

between the implant and external unit). 

This ‘‘Fitting System’’ can also be 

connected to a ‘‘Psychophysical Test 

System’’ to evaluate patients’ 

performance with the Argus® II System 

on an ongoing basis. 

These three components work 

together to stimulate the retina and 

allow a patient to perceive phosphenes 

(spots of light), which they then need to 

learn to interpret. While using the 

Argus® II System, the video camera on 

the patient-worn glasses captures a 

video image. The video camera signal is 

sent to the VPU, which processes the 

video camera image and transforms it 

into electrical stimulation patterns. The 

electrical stimulation data are then sent 

to a transmitter coil mounted on the 

glasses. The transmitter coil sends both 

data and power via radio-frequency (RF) 

telemetry to the implanted retinal 

prosthesis. The implant receives the RF 

commands and delivers stimulation to 

the retina via an array of electrodes that 

is secured to the retina with a retinal 

tack. 

In patients with RP, the photoreceptor 

cells in the retina, which normally 

transduce incoming light into an 

electro-chemical signal, have lost most 

of their function. The stimulation pulses 

delivered to the retina via the electrode 

array of the Argus® II Retinal Prosthesis 

System are intended to mimic the 

function of these degenerated 

photoreceptors cells. These pulses 

induce cellular responses in the 

remaining, viable retinal nerve cells that 

travel through the optic nerve to the 

visual cortex where they are perceived 

as phosphenes (spots of light). Patients 

learn to interpret the visual patterns 

produced by these phosphenes. 

With respect to the newness criterion, 

according to the applicant, the FDA 

designated the Argus® II System a 

Humanitarian Use Device in May 2009 

(HUD designation #09–0216). The 

applicant submitted a Humanitarian 

Device Exemption (HDE) application 

(#H110002) to the FDA in May 2011 to 

obtain market approval for the Argus® II 

System. The HDE was referred to the 

Ophthalmic Devices Panel of the FDA’s 

Medical Devices Advisory Committee 

for review and recommendation. At the 

Panel’s meeting held on September 28, 

2012, the Panel voted 19 to 0 that the 

probable benefits of the Argus® II 

System outweigh the risks of the system 

for the proposed indication for use. The 

applicant received the HDE approval 

from the FDA on February 14, 2013. 

Currently there are no other approved 

treatments for patients with severe to 

profound RP. The Argus® II System has 

an IDE number of G050001 and is a 

Class III device. There are no existing 

ICD–9–CM or ICD–10–CMS/PCS codes 

for the implantation of a retina 

prosthesis. The applicant applied for 

three new ICD–9–CM procedure codes 

for consideration at the March 5, 2013 

ICD–9–CM Coordination and 

Maintenance Committee meeting. More 

information on this request can be 

found on the CMS Web site at: http:// 

cms.gov/Medicare/Coding/ICD9Provider

DiagnosticCodes/ICD-9-CM-C-and-MMeeting-Materials-Items/2013-03-05- 

MeetingMaterials.html. We note that 

any final decisions on new codes 

approved at the March 5, 2013 

Coordination and Maintenance 

Committee meeting will be included in 

the ICD–9–CM code addendum posted 

on the CMS Web site in June 2013 at: 

http://cms.hhs.gov/Medicare/Coding/

ICD9ProviderDiagnosticCodes/

addendum.html. In addition, code 

revisions that were discussed at the 

March 5, 2013 Committee meeting but 

that could not be finalized in time to 

include them in the tables for this 

proposed rule will be included in the 

appropriate table in the final rule (the 

tables for both the proposed rule and the 

final rule are made available via the 

Internet on the CMS Web site). We are 

inviting public comments on whether 

the Argus® II System meets the newness 

criterion. 

With regard to the cost criterion, the 

applicant identified all discharges from 

claims in the FY 2011 MedPAR file for 

MS–DRGs 116 (Intraocular Procedures 

with CC/MCC) and 117 (Intraocular 

Procedures without CC/MCC) with the 

presence of ICD–9–CM procedure code 

14.73 (Anterior vitrectomy), or 14.74 

(Posterior vitrectomy). (We note that 

because no procedure code exists for 

this technology, these cases would 

include patients that are not eligible for 

or would not otherwise receive this 

technology.) The applicant found 199 

cases (47.6 percent of all cases) in MS– 

DRG 116 and 219 cases (52.3 percent of 

all cases) in MS–DRG 117. This resulted 

in an average charge per case of $40,957 

for MS–DRG 116 and $20,621 for MS– 

DRG 117, equating to a case-weighted 

average charge per case of $24,011. 

The applicant then standardized the 

charges using the FY 2011 final rule 

impact file and converted the cost of the 

device to a charge by dividing the 

operating costs by a CCR of 0.50 (which 

equates to a 100 percent markup). 

Although the applicant submitted data 

related to the estimated cost of the 

Argus® II System, the applicant noted 

that the cost of the technology was 

proprietary information. The applicant 

then added the charges related to the 

device to the case-weighted average 

standardized charge per case and 

determined a final case-weighted 

average standardized charge per case of 

$311,180. Using the FY 2014 Table 10 

thresholds, the case-weighted threshold 

for MS–DRGs 116 and 117 was $30,328 

(all calculations above were performed 

using unrounded numbers). Because the 

final case-weighted average 

standardized charge per case for the 

applicable MS–DRGs exceed the caseweighted threshold amount, the 

applicant maintained that the Argus® II 

System would meet the cost criterion. 

We note that, although we cannot 

disclose the cost of the technology, the 

device is very costly. Because of its high 

costs, the technology would easily 

exceed the case-weighted threshold. In 

addition, because of the high cost of the 

device it is likely that claims with the 

device would receive an outlier 

payment. The applicant anticipates that 

approximately 65 Argus® II Systems 

will be sold in FY 2014, of which 

approximately 50 systems would be 

provided to Medicare patients. The 

target disease population is extremely 

limited as required and supported by 

the HDE application. Most patients for 

whom this technology is indicated may 

be eligible for Medicare based on their 

age or a disability that is associated with 

profound blindness. 

We also note that these types of 

procedures are often performed in the 

outpatient setting. We are concerned 

that if new technology add-on payments 

were to be approved, this would serve 

as a financial incentive to 

inappropriately shift utilization from an 

outpatient to an inpatient setting, 

although medical review may result in 

very few of these cases being paid as 

inpatient hospital services if the patient 

can be appropriately treated as an 

outpatient. We continue to emphasize 

that it is critical that physicians use 

their clinical judgment in determining 

the medical necessity of an inpatient 

admission and stress that care should be 

provided in the appropriate setting. We 

are inviting public comments on 

whether the Argus® II System meets the 

cost criterion, particularly based on the 

assumptions and methodology used in 

the applicant’s analysis. We also have 

general concerns relating to the 

descriptions of the medical necessity of 

performing this procedure on an 

inpatient basis. Therefore, we are 

inviting public comments to further our 

understanding regarding whether 

approving new technology add-on 

payments for the Argus® II System 

would create a financial incentive that 

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would shift utilization inappropriately 

from an outpatient to an inpatient 

setting. 

With regard to the substantial clinical 

improvement criterion, the Argus® II 

System is intended to provide electrical 

stimulation of the retina to induce 

visual perception in blind patients with 

the indication of severe to profound RP 

with bare or no light perception in both 

eyes. According to the applicant, an 

estimated 1 in 3,037 Americans suffers 

from RP, and the incidence of people 

with severe to profound RP is 

significantly lower. According to the 

applicant, the need for treatments for RP 

is high, given the impact of loss of 

vision. 

According to the applicant, numerous 

experimental research programs are 

currently underway to slow, stop, or 

reverse the progress of RP, including 

gene therapy, tissue and cell 

transplants, and some pharmacologic 

neuroprotection therapies. However, 

these approaches so far have had fairly 

limited success in treating RP patients, 

and some approaches are intended for 

an extremely small segment of the RP 

population. Currently there are no other 

approved treatments for patients with 

severe to profound RP. Therefore, the 

Argus® II device treats a patient 

population that has no other treatment 

options. 

The applicant submitted the results of 

a clinical trial to demonstrate 

substantial clinical improvement. This 

clinical trial enrolled 30 patients. The 

median age of patients was 57.9 years at 

the time of implantation and the range 

was 28 to 77 years of age. Thirty percent 

of the patients were female, and 70 

percent were male. All of the patients 

had bare or no light perception in both 

eyes. Fourteen of the patients were 

Medicare eligible. As part of the 

methods for the study, the applicant 

stated that while working within the 

framework of clinical trials for other 

ophthalmic devices, the manufacturer 

and its team of scientific advisors 

selected or designed several tests that 

would address the main elements of the 

system that should be assessed for these 

types of devices—visual function (that 

is, how the eye as an organ works [for 

example, visual acuity]), functional 

vision (that is, how the patient performs 

in vision-related activities of daily 

living), and quality of life. The 

endpoints that were selected provided a 

mixture of objective and subjective data. 

The study design was strengthened by 

the fact that controlled observations 

could be obtained by performing 

assessments with the Argus® II System 

‘‘on’’ and ‘‘off’’ (that is, control was 

available at each time point). 

According to the applicant, there were 

no unexpected adverse events. Nonserious adverse events represented the 

majority of events. The safety review 

concluded that the Argus® II System has 

a reasonable safety profile for an 

ophthalmic device that requires 

vitreoretinal surgery to implant. In 

addition, the applicant noted that the 

device can be extracted and is 

reversible. The Argus® II System 

provided all 30 patients with benefit as 

measured by high-contrast visual 

function tests. The applicant stated that 

the degree of benefit varied from patient 

to patient and provided the following 

results: 

• All subjects were able to see visual 

percepts when the Argus® II System was 

electrically activated. 

• On the Square Localization Test 

(that is, object localization), patients (on 

average) performed better with the 

system ‘‘on’’ rather than ‘‘off’’ at all 

follow-up time points. At 24 months, on 

average, patients missed the target by 

approximately 50 pixels with the system 

‘‘on’’ versus approximately 250 pixels 

with the system ‘‘off’’. 

• On the Direction of Motion Test, 

which tested the patients’ ability to 

determine the direction of a moving bar, 

patients had higher mean accuracy with 

the system ‘‘on’’ than they did with the 

system ‘‘off’’ at all follow-up time 

points, indicating that the Argus® II 

System improved their performance on 

a spatial vision task. At 24 months, the 

mean response error was approximately 

60° with the system ‘‘on’’ versus more 

than 80° with the system ‘‘off’’. 

According to the applicant, this is 

nearly the error expected by chance. 

• On the Grating Visual Acuity Test, 

which assessed the patients’ visual 

acuity using the principles of acuity 

charts designed for extremely low vision 

patients, 27 percent of the patients were 

able to score on the scale (between 1.6 

and 2.9 log MAR) at least once with the 

system ‘‘on’’, while none of the Argus®

II patients were able to score on the 

scale with the system ‘‘off.’’ 

• A large number of patients were 

able to recognize large letters and 

numbers with the system ‘‘on’’ (but not 

with the system ‘‘off’’), and some of the 

patients were able to read short words. 

The median percent correct with the 

system ‘‘on’’ was approximately 50 

percent higher than with the system 

‘‘off.’’ 

• The trial also measured objectivelyscored functional vision tests. The 

patients performed better with the 

Argus® II System ‘‘on’’ versus ‘‘off’’ on 

orientation and mobility tests (finding a 

door and following a line) and on 

functional vision tasks (sorting white, 

black, and grey socks, following an 

outdoor sidewalk, and determining the 

direction of a person walking by). 

• Analysis of the Functional Lowvision Observer Rated Assessment 

(FLORA) results showed that threequarters of the patients received a 

positive benefit in terms of well-being 

and/or functional vision, while none of 

the patients experienced a negative 

effect. 

We note that we are concerned that 

the study did not have pre-specified 

endpoints and changed measurements 

mid trial. In addition, we are concerned 

about the reliability of the measures 

used for the tests and the inconsistency 

of the results across different patients, 

which lead us to question the long-term 

benefits associated with this device. We 

are inviting public comments on 

whether the Argus® II System meets the 

substantial clinical improvement 

criterion, specifically in regard to the 

measures used in the study and the lack 

of pre-specified endpoints. 

We received two comments on the 

Argus®II System during the town hall 

meeting’s public comment period. 

These comments are summarized below. 

Comment: Several commenters 

supported approving the Argus® II 

System for new technology add-on 

payments. One commenter, a society of 

retina specialists, stated that the Argus®

II System is the first and only approved 

treatment in the United States for 

patients suffering from severe to 

profound cases of retinitis pigmentosa 

with bare or no light perception in both 

eyes. The commenter explained that 

while the Argus® II System does not 

restore vision, it provides visual 

information that can range, depending 

on the patient, from light detection to 

form detection. The commenter asserted 

that, for patients with bare or no light 

perception, even limited restoration of 

vision can make a substantial difference, 

restoring a patient’s ability to visually 

connect and interact with others and 

providing greater independence. 

Another commenter, a foundation for 

supporting blindness, stated that it is 

essential that CMS is progressive in 

making therapies like the Argus® II 

System accessible for these patients who 

have no other treatment alternatives. 

The commenter recommended 

approving the Argus® II System for new 

technology add-on payments. The 

commenter noted that for patients with 

rare retinal diseases like retinitis 

pigmentosa, the Argus® II System 

represents the first approved 

breakthrough to help restore sight and 

improve quality of life. 

Response: We appreciate the 

commenters’ support. We considered 

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these comments presented during the 

town hall meeting’s public comment 

period in the development of this 

proposed rule. As stated above, we are 

inviting additional public comments on 

whether the Argus® II System meets the 

substantial clinical improvement 

criterion, specifically in regard to the 

measures used in the study and the lack 

of pre-specified endpoints. 

c. Responsive Neurostimulator (RNS®) 

System 

NeuroPace, Inc. submitted an 

application for new technology add-on 

payments for FY 2014 for the use of the 

RNS® System. Seizures occur when 

brain function is disrupted by abnormal 

electrical activity. Epilepsy is a brain 

disorder characterized by recurrent, 

unprovoked seizures. According to the 

applicant, the RNS® System is the first 

implantable medical device (developed 

by NeuroPace, Inc.) for treating persons 

with epilepsy whose partial onset 

seizures have not been adequately 

controlled with antiepileptic 

medications. The applicant further 

stated that the RNS® System is the first 

closed loop, responsive system to treat 

partial onset seizures. Responsive 

electrical stimulation is delivered 

directly to the seizure focus in the brain 

when abnormal brain activity is 

detected. A cranially implanted 

programmable neurostimulator senses 

and records brain activity through one 

or two electrode-containing leads that 

are placed at the patient’s seizure focus/ 

foci. The neurostimulator detects 

electrographic patterns previously 

identified by the physician as abnormal, 

and then provides brief pulses of 

electrical stimulation through the leads 

to interrupt those patterns. Stimulation 

is delivered only when abnormal 

electrocorticographic activity is 

detected. The typical patient is treated 

with a total of 5 minutes of stimulation 

a day. The RNS® incorporates remote 

monitoring, which allows patients to 

share information with their physicians 

remotely. 

With respect to the newness criterion, 

the applicant stated that some patients 

with partial onset seizures that cannot 

be controlled with antiepileptic 

medications may be candidates for the 

vagus nerve stimulator (VNS) or for 

surgical removal of the seizure focus. 

According to the applicant, these 

treatments are not appropriate or 

helpful for all patients. Therefore, the 

applicant believed that there is an 

unmet clinical need for additional 

therapies for partial onset seizures. The 

applicant further stated that the RNS®

System addresses this unmet clinical 

need by providing a novel treatment 

option for treating persons with 

medically intractable partial onset 

seizures. The applicant anticipates FDA 

premarket approval of the RNS® System 

in the second quarter of 2013. 

The following ICD-9-CM procedure 

codes are used to identify this 

technology: 01.20 (Cranial implantation 

or replacement of neurostimulator pulse 

generator); 01.29 (Removal of cranial 

neurostimulator pulse generator); and 

02.93 (Implantation or replacement of 

intracranial neurostimulator lead(s)). 

We are inviting public comments on 

whether the technology meets the 

newness criterion. 

With regard to the cost criterion, the 

applicant stated that cases eligible for 

the RNS® System would map to MS– 

DRG 024 (Craniotomy with Major 

Device Implant/Acute Complex Central 

Nervous System Principal Diagnosis 

without MCC). The applicant further 

stated that while it was possible for 

cases to occur in MS–DRG 023 

(Craniotomy with Major Device 

Implant/Acute Complex Central 

Nervous System Principal Diagnosis 

with MCC or Chemotherapy Implant), it 

would be extremely rare because the 

applicant believed that these major 

complications and/or comorbidities 

would probably preclude a patient from 

receiving the technology because the 

technology is an elective procedure. 

The applicant submitted two analyses 

to demonstrate that it meets the cost 

criterion. For the first analysis, the 

applicant used clinical trial claims data 

collected in the RNS® System Pivotal 

Clinical Investigation to calculate the 

anticipated average standardized charge. 

The applicant maintained that this 

analysis best represents the anticipated 

charges for the technology because it is 

based on actual cases treated with this 

technology. The applicant analyzed 163 

claims from 28 hospitals participating in 

the clinical trial. Five claims from one 

site were excluded because no hospitalspecific information regarding 

standardization was available. The 

resulting 158 claims included dates of 

service ranging from May 2006 through 

May 2009. The average charge per case 

for these 158 claims was $54,961. 

The applicant then standardized the 

charges for each claim. The applicant 

noted that it was not necessary to 

remove any charges from these claims 

because the technology was provided at 

no charge in the trial. After 

standardizing the charges, the applicant 

inflated each claim using the Consumer 

Price Index for Inpatient Hospital 

Services (CPI–IP) to inflate the data to 

the same period. Specifically, because 

the publicly available FY 2011 MedPAR 

data do not identify the month of the 

discharge on inpatient claims but 

identify the calendar quarter, the 

applicant used a mid-month convention 

to determine the relevant monthly CPI– 

IP for each calendar quarter. The 

applicant then calculated the percentage 

change from the relevant quarter to the 

quarter of the most recently available 

CPI–IP, which was the August 2012 

CPI–IP. Specifically, the applicant used 

the following assumptions: 

FY 2011 Calendar quarter Midpoint of quarter CPI IP 

Percent 

change to 

August 2012 

Q4 2010 ........................................................................ Nov–10 ......................................................................... 227.186 9.54 

Q1 2011 ........................................................................ Feb–11 .......................................................................... 232.933 6.84 

Q2 2011 ........................................................................ May–11 ......................................................................... 235.567 5.64 

Q3 2011 ........................................................................ Aug–11 ......................................................................... 237.219 4.91 

Most recent as of application ....................................... Aug–12 ......................................................................... 248.856 ........................

Source as cited by applicant: Bureau of Labor Statistics’ Web site, accessed October 15, 2012; Base Period: December 1996 = 100. 

After inflating the charges, the 

applicant estimated charges for the 

RNS® System by multiplying the device 

cost to the hospital by an anticipated 

hospital markup of 100 percent, or 

conversely by dividing the device cost 

by a CCR of 0.50. The applicant based 

its estimated CCR on four analyses. 

First, the applicant reviewed the 2007 

and 2008 reports prepared by RTI for 

CMS on charge compression, which 

found that the national aggregate CCR 

for devices and implants was 0.43 and 

0.467 in the respective reports. Second, 

the applicant queried hospitals 

participating in the RNS® System 

Pivotal trial, and these queries yielded 

a mean and median CCR for implantable 

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devices of 0.37 and 0.36, respectively. 

Third, the applicant reviewed data from 

the (all payor) Premier database for 

cases performed in 2000 through 2010 

that reported ICD–9 CM procedure 

codes 02.93 and/or 86.95 on a claim and 

calculated a mean and median CCR for 

implanted leads and neurostimulators of 

0.50 and 0.44, respectively. The 

applicant then reviewed other 

discussions of past new technology addon payment applications published in 

the Federal Register and noted that 

other applicants used lower CCRs 

(higher markups) for implanted devices 

than the 0.50 CCR used in the 

applicant’s analyses. 

Using this approach, the applicant 

added the anticipated hospital charge 

for the implantable RNS® System to the 

inflated average standardized charge per 

case and determined a final inflated 

average standardized charge per case of 

$121,990. Although the applicant 

submitted data related to the estimated 

cost of the RNS® System, the applicant 

noted that the cost of the technology 

was proprietary information. Using the 

FY 2014 Table 10 thresholds, the 

threshold for MS–DRG 024 is $78,039. 

Because the final inflated average 

standardized charge per case of 

$121,990 for MS–DRG 024 exceeds the 

threshold amount, the applicant 

maintained that the RNS® System 

would meet the cost criterion. 

In the second analysis, which the 

applicant characterizes as 

supplementary, the applicant searched 

the FY 2011 MedPAR file for cases 

reporting the combination of ICD–9–CM 

procedures codes 02.93 (Implantation or 

replacement of intracranial 

neurostimulator lead(s)) and 86.95 

(Insertion or replacement of multiple 

array neurostimulator pulse generator, 

not specified as rechargeable), or the 

combination of ICD–9–CM procedures 

codes 02.93 (Implantation or 

replacement of intracranial 

neurostimulator lead(s)) and 01.20 

(Cranial implantation or replacement of 

neurostimulator pulse generator) that 

mapped to MS–DRG 024. 

The applicant found 565 claims 

reporting the combination of ICD–9–CM 

procedures codes 02.93 and 01.20, and 

pointed out that these cases were coded 

with procedure code 01.20 in error 

because no new RNS® System 

implantations occurred after May 2009. 

The applicant analyzed these 565 claims 

and found that more than 90 percent of 

these cases had a primary or secondary 

diagnosis of Parkinson’s disease, 

essential tremor, or dystonia. These 

diagnoses are FDA-approved indications 

for deep brain stimulation (DBS). In 

addition, the applicant noted that the 

total covered charges for these cases 

were less than the estimated charges for 

a full DBS system and hypothesized that 

these cases did not represent 

implantation of a full DBS system but 

implementation of leads only. The 

applicant contacted two hospitals that 

reported claims where total covered 

charges were less than the charges for a 

full DBS system, and the hospitals 

confirmed that their claims represented 

lead implantation alone. Therefore, for 

this second analysis, the applicant 

included all of the cases in MS–DRG 

024 reported with a combination of 

ICD–9–CM procedures codes 02.93 and 

86.95 and all of the cases in MS–DRG 

024 reported with ICD–9–CM 

procedures codes 02.93 and 01.20 where 

the covered charges were greater than or 

equal to the estimated charges of a full 

DBS system. The applicant maintained 

that 485 claims from 130 providers met 

these criteria and that these data 

represented claims from the fourth 

calendar quarter of 2010 through the 

third calendar quarter of 2011, or FY 

2011. Based on this assumption, the 

applicant calculated an average charge 

per case of $60,955. The applicant then 

removed DBS charges from the average 

charge per case. The applicant estimated 

charges for DBS and maintained that the 

average cost for a DBS system was 

$25,979. Similar to its first analysis, the 

applicant assumed a CCR of 0.50, or 100 

percent markup, which resulted in 

estimated charges for DBS of $51,958. 

After removing DBS charges, the 

applicant standardized charges and then 

inflated the charges to the current 

period using the same methodology in 

the first analysis. The applicant then 

added charges for the RNS® System and 

determined a final inflated average 

standardized charge per case of 

$118,408. As noted above, although the 

applicant submitted data that related to 

the estimated cost of the RNS® System, 

the applicant noted that the cost of the 

technology was proprietary information. 

Using the FY 2014 Table 10 thresholds, 

the threshold for MS–DRG 024 is 

$78,039. Because the final inflated 

average standardized charge per case of 

$118,408 for MS–DRG 024 exceeds the 

threshold amount, the applicant 

maintained that the RNS® System 

would meet the cost criterion. 

Under either analysis, the applicant 

maintained that the final inflated 

average standardized charge per case 

would exceed the case-weighted 

threshold. We are inviting public 

comments on whether the RNS® System 

meets the cost criterion, particularly 

based on the assumptions and 

methodology used in the applicant’s 

analyses. 

With regard to substantial clinical 

improvement, as previously stated, 

some patients with partial onset 

seizures may not be able to control their 

seizures with antiepileptic medications, 

VNS, or with surgical removal of the 

seizure focus. The applicant stated that 

the RNS® System provides treatment for 

those patients who fail treatment with 

antiepileptic medications, or fail VNS 

therapy and are ineligible for respective 

surgery due to the extent and/or 

location of the seizure, or patients who 

do not elect surgery. According to the 

applicant, the RNS® System clinical 

trials provide Class I evidence that 

treatment with the RNS® System 

substantially reduces disabling seizures 

in patients with severe epilepsy who 

have tried and failed treatment with 

antiepileptic medications, and in many 

cases VNS or epilepsy surgery. The 

applicant maintained that the results 

from their clinical trials demonstrate 

significant and sustained improvements 

in health outcomes over the controlled 

period and over the long term. 

The applicant stated that their pivotal 

trial met its primary effectiveness 

endpoint by proving that there was a 

statistically significant greater reduction 

in seizures in the treatment group 

compared to the control group (p = 

0.012). Significant improvements at 1 

and 2 years post-implant included: 

• A significant reduction in disabling 

seizures of 44 percent and 53 percent at 

1 and 2 years, respectively; and 

• Significant improvements in overall 

quality of life as well as individual 

quality of life measures including 

memory, language, attention, 

concentration and medication effects. 

The applicant asserted that there was 

no negative effect of treatment with the 

RNS® System on neuropsychological 

function (including verbal functioning, 

visual-spatial processing, and memory) 

or mood. The applicant concluded that 

the RNS® System Pivotal trial provides 

Class I evidence that responsive cortical 

stimulation is effective in significantly 

reducing seizure frequency in adults 

with 1 or 2 seizure foci who have failed 

2 or more antiepileptic medication 

trials. The applicant stated that 

experience across all of the RNS®

System trials demonstrates the 

reduction in seizure frequency of 

disabling partial seizures improves over 

time. In addition, the applicant noted 

that sustained improvements were also 

seen in quality of life. Finally, the 

applicant noted that safety and 

tolerability compares favorably to 

alternative treatments such as 

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Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 27545 

antiepileptic medications, VNS, and 

epilepsy surgery. 

With regard to the substantial clinical 

improvement criterion, we are 

concerned that the average age of 

patients in the applicant’s study was 35 

years. Although the applicant 

maintained that 31 percent of the 

patients enrolled in the pivotal trial 

were Medicare beneficiaries, we are 

unsure of the extent to which this 

technology would be used by Medicare 

beneficiaries due to the relatively young 

age of the majority of patients enrolled 

in the pivotal trial. We also are 

concerned that further clarification on 

how the RNS® System compares to 

other neurostimulation treatments was 

not provided by the applicant. The 

applicant did provide the following 

comparison of VNS to the RNS® System: 

KEY DIFFERENCES BETWEEN THE RNS® SYSTEM AND DBS AND VNS SYSTEMS

RNS® System Deep brain stimulator (DBS) Vagus nerve stimulator (VNS) 

Type of stimulation ......................... Closed loop: responsive ............... Open loop: scheduled. 

Stimulation time/day ...................... About 5 minutes ...........................

Stimulation target ........................... Cortical; varies according to seizure focus.Deep brain nuclei ......................... Ascending vagus nerve. 

Neurostimulator .............................. Cranially implanted ....................... Subcutaneously (pectorally) implanted. 

Programming changes ................... According to clinical and electrographic response.According to clinical response. 

Information from device ................. Device data, detections, stimulations and electrocorticograms.Device data. 

Physician data review .................... At time of programming as well as 

online access to stored data.

At time of programming.

Because the applicant included 

claims with DBS in one of its cost 

analyses, we believe that the similarities 

and differences between DBS and the 

RNS® System may also be relevant 

under the substantial clinical 

improvement criterion. In addition, we 

are concerned that the time period in 

the clinical trial may not be sufficient to 

confirm durability. In the RNS® System 

Pivotal Clinical Investigation, the 

primary effectiveness endpoint 

considered seizure frequency over the 

last 3 months of the blinded period of 

the trial. We note that the applicant is 

currently conducting a 5-year study. We 

are inviting public comments on 

whether the RNS® System meets the 

substantial clinical improvement 

criterion, particularly in regard to the 

degree in which the technology would 

be used by Medicare beneficiaries, the 

comparison to other neurostimulation 

treatments, and its durability. 

We received two comments on the 

RNS® System during the town hall 

meeting’s public comment period. 

These comments are summarized below. 

Comment: One commenter stated that 

it looked forward to the RNS® System’s 

commercial availability and encouraged 

CMS to approve the RNS® System for 

new technology add-on payments. The 

commenter noted that the benefits of the 

RNS® System therapy include a 

significant reduction in seizure 

frequency and severity, and for some 

patients, extended periods of seizure 

freedom. The commenter asserted that 

this reduction in seizure frequency 

improves over time and is sustained 

over several years of follow-up, and can 

result in improved cognition and a 

better quality of life. The commenter 

added that, most impressively, these 

positive results were achieved with no 

chronic side effects from stimulation. 

The commenter also noted that a 

significant number of these individuals 

are eligible for Medicare due to their 

disability. 

Another commenter stated that the 

pivotal trial findings, in both the 

blinded period and the open-label 

period, have provided compelling 

support for what had previously been an 

only theoretical concept for non-ablative 

intervention. The commenter explained 

that those patients with seizure foci in 

eloquent areas or with hi-hippocampal 

seizure onset, the most difficult patient 

cohort to address, have been well-suited 

to RNS and often substantially benefited 

from this intervention. The commenter 

noted that in the functional and 

stereotactic neurosurgical community, 

the most exciting and compelling 

advances have arisen from those nonresective strategies by which 

maladaptive pathophysiology and its 

symptoms have been ameliorated by 

targeted electrical stimulation and 

neural function preserved with the 

NeuroPace experience—the most 

compelling in epilepsy. 

The commenter concluded with the 

following: the RNS® System has had a 

remarkable and reassuring safety track 

record; the surgery for its 

implementation is comparable to that of 

deep brain stimulation system 

placement; the permanent and serious 

morbidity have been extremely low and 

the serious and life-threatening risks 

associated with medically intractable 

epilepsy, in comparison, are generally 

underappreciated and substantially 

higher. 

Response: We appreciate the 

commenters’ support. We considered 

these comments presented during the 

town hall meeting’s public comment 

period in the development of this 

proposed rule. As stated above, we are 

inviting additional public comments on 

whether the RNS® System meets the 

substantial clinical improvement 

criterion, particularly in regard to the 

degree in which the technology would 

be used by Medicare beneficiaries, the 

comparison to other neurostimulation 

treatments, and its durability. 

d. Zilver® PTX® Drug Eluting Peripheral 

Stent 

Cook® Medical submitted an 

application for new technology add-on 

payments for the Zilver® PTX® Drug 

Eluting Peripheral Stent (Zilver® PTX®) 

for FY 2014. The Zilver® PTX® is 

intended for use in the treatment of 

peripheral artery disease (PAD) of the 

above-the-knee femoropopliteal arteries 

(superficial femoral arteries). According 

to the applicant, the stent is 

percutaneously inserted into the 

artery(s), usually by accessing the 

common femoral artery in the groin. The 

applicant stated that an introducer 

catheter is inserted over the wire guide 

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27546 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

6 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), Paclitaxeleluting 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. 

and into the target vessel where the 

lesion will first be treated with an 

angioplasty balloon to prepare the 

vessel for stenting. The applicant 

indicated that the stent is selfexpanding, made of nitinol (nickel 

titanium), and is coated with the drug 

Paclitaxel. Paclitaxel is a drug approved 

for use as an anticancer agent and for 

use with coronary stents to reduce the 

risk of renarrowing of the coronary 

arteries after stenting procedures. 

The applicant received FDA approval 

on November 15, 2012, for the Zilver®

PTX®. The applicant maintains that the 

Zilver® PTX® is the first drug-eluting 

stent used for superficial femoral 

arteries. The technology is currently 

described by ICD–9–CM procedure code 

00.60 (Insertion of drug-eluting stent(s) 

of the superficial femoral artery). We are 

inviting public comments regarding 

how the Zilver® PTX® meets the 

newness criterion. 

With regard to the cost criterion, the 

applicant believed 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 

2010 MedPAR file for cases reporting 

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), or 440.24 

(Atherosclerosis of the extremities with 

gangrene). The applicant noted that the 

Zilver® PTX® is available in an 80 mm 

size and is approved for lesions in 

native vascular disease of the above-theknee femoropopliteal arteries having 

reference vessel diameter from 4 mm to 

9 mm and total lesion lengths up to 140 

mm per limb. The applicant further 

noted that bare metal stents typically are 

available up to lengths of 200 mm. 

Therefore, in order to target cases 

eligible for the Zilver® PTX®, the 

applicant believed it was only 

appropriate to target those cases with 

one or two bare metal stents. The 

applicant was able to identify the 

amount of stents used per claim by 

searching for ICD–9–CM procedure 

codes 00.45 (Insertion of one vascular 

stent) and 00.46 (Insertion of two 

vascular stents). The applicant 

submitted two methodologies: one with 

cases that received one bare metal stent 

and the other with cases that received 

one or two bare metal stents. 

Under the first methodology (one bare 

metal stent), the applicant found 2,062 

cases (or 19.7 percent of all cases) in 

MS–DRG 252, 3,385 cases (or 32.3 

percent of all cases) in MS–DRG 253, 

and 5,019 cases (or 48 percent of all 

cases) in MS–DRG 254. The average 

charge per case was $89,194 for MS– 

DRG 252, $67,965 for MS–DRG 253, and 

$46,539 for MS–DRG 254, equating to a 

case-weighted average charge per case of 

$60,855. 

The case-weighted average charge per 

case above does not include charges 

related to the Zilver® PTX®. Therefore, 

it is first necessary to remove the 

amount of charges related to the nondrug-eluting peripheral vessel stent and 

replace them with charges related to the 

Zilver® PTX®. The applicant multiplied 

the use of the single stent 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 hospital-specific CCR 

(from the FY 2010 IPPS impact file). The 

applicant removed the appropriate 

amount of charges per case and then 

standardized the charges per case. 

Because the applicant used FY 2010 

MedPAR data, it was necessary to 

inflate the charges from FY 2010 to FY 

2013. 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 7 percent. To 

determine the amount of Zilver® PTX®

stents per case, instead of using the 

amount of stents used per case based on 

the ICD–9–CM codes above, the 

applicant used an average of 1.9 stents 

per case based on the Zilver® PTX®

Global Registry Clinical Study 6. 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 non-drug-eluting peripheral vessel 

stent typically ranges from 80mm to 120 

mm, while the length of the Zilver®

PTX® is 80 mm (which could cause a 

variance in the actual amount of stents 

used per case when using the Zilver®

PTX®). The applicant then multiplied 

the average of 1.9 stents used per case 

by the future market price for the 

Zilver® PTX® 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 2010 

IPPS impact file). The applicant then 

added the amount of charges related to 

the Zilver® PTX® to the inflated average 

standardized charge per case and 

determined a final inflated caseweighted average standardized charge 

per case of $58,419. Although the 

applicant submitted data that related to 

the estimated cost of the Zilver® PTX®, 

the applicant noted that the cost of the 

technology was proprietary information. 

Using the FY 2014 Table 10 thresholds, 

the case-weighted threshold for MS– 

DRGs 252, 253, and 254 was $54,547 (all 

calculations above were performed 

using unrounded numbers). Because the 

final inflated case-weighted average 

standardized charge per case for the 

applicable MS–DRGs exceeded the caseweighted threshold amount, the 

applicant maintained that the Zilver®

PTX® would meet the cost criterion. 

The applicant used the same 

methodology above to demonstrate that 

it meets the cost criterion with the only 

difference being that it included cases 

that used one or two bare metal stents 

instead of just one bare metal stent. 

Using this methodology, the applicant 

determined a final inflated caseweighted average standardized charge 

per case of $62,455. Using the FY 2014 

Table 10 thresholds, the case-weighted 

threshold for MS–DRGs 252, 253, and 

254 was $54,474 (all calculations above 

were performed using unrounded 

numbers). Because the final inflated 

case-weighted average standardized 

charge per case for the applicable MS– 

DRGs exceeded the case-weighted 

threshold amount, the applicant 

maintained that the Zilver® PTX®

would meet the cost criterion. 

We are inviting public comments on 

whether or not the Zilver® PTX® meets 

the cost criterion. In addition, we are 

inviting public comments 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 and the number of stents required 

for each case. 

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 asserted 

that the Zilver® PTX® meets the 

substantial clinical improvement 

criterion because it decreases the 

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Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 27547 

7 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), 

Paclitaxeleluting 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. 

8 Dake, MD., VIVA 2012, October 10, 2012; Las 

Vegas, Nevada. 

9 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. 

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 479-patient, 

multicenter, multinational randomized 

controlled trial that compared the 

Zilver® PTX® to balloon angioplasty 7; 

an additional component of the study 

allowed a direct comparison of the 

Zilver® PTX® to a bare (uncoated) metal 

Zilver® stent. Patients were randomized 

to treatment with the Zilver® PTX®

stent (treatment group) or with PTA 

(control group). Recognizing that 

balloon angioplasty may not be 

successful acutely, the trial design 

mandated provisional stent placement 

immediately after failure of balloon 

angioplasty in instances of acute PTA 

failure. Therefore, patients with 

suboptimal (failed) PTA underwent a 

secondary randomization to stenting 

with either Zilver® PTX® or bare Zilver 

stents. This secondary randomization 

allows evaluation of the Zilver® PTX®

stent compared to a bare metal 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 re-narrowing). 

We note that we are concerned that 

other endpoints such as walking, 

walking speed, and climbing were not 

considered as primary endpoints to 

demonstrate the effectiveness of the 

Zilver® PTX®. 

According to the applicant, the 

Zilver® PTX® had an EFS of 90.4 

percent compared to balloon 

angioplasty, which had an EFS of 83.9 

percent, at 12 months demonstrating 

that the Zilver® PTX® is as safe or safer 

than balloon angioplasty. The applicant 

further stated that this benefit was 

maintained at 24 months. In addition, 

the applicant noted that the Zilver®

PTX® 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 for 

the Zilver® PTX® was 82.7 percent, 

which compared favorably to the 

balloon angioplasty patency rate of 32.7 

percent. In the provisional stenting arm 

of the study, which allowed a direct 

comparison of the Zilver® PTX® and a 

bare metal stent, the Zilver® PTX®

primary patency exceeded the bare 

metal stent patency by nearly 20 percent 

(87.3 percent versus 72.3 percent at 12 

months). 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 submitted 3 years of 

follow-up data, which the applicant 

maintained support that the Zilver®

PTX® is more effective in maintaining 

primary patency.8

The applicant also cited a 

prospective, multicenter, multinational, 

787-patient single arm study on the 

Zilver® PTX® 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®

PTX® of 89.0 percent and an 86.2 

percent primary patency rate. According 

to the applicant, these results confirm 

the safety and effectiveness of the 

Zilver® PTX®, and compare favorably to 

current results for angioplasty and bare 

metal stenting. The applicant further 

stated 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.9

We also are concerned that on April 

24, 2013, the FDA announced that, 

based on its investigation into a small 

number of complaints that the delivery 

system of the device had separated at 

the tip of the inner catheter, Cook 

Medical has initiated a nationwide/ 

global voluntary recall of its Zilver®

PTX® Drug Eluting Peripheral Stent. We 

refer readers to http://www.fda.gov/

Safety/Recalls/ucm349421.htm?source=

govdelivery for more information 

regarding this announcement. 

We are inviting public comments 

regarding whether the Zilver® PTX®

meets the substantial clinical 

improvement criterion. We note that we 

did not receive any public comments on 

the Zilver® PTX® during the new 

technology town hall meeting’s public 

comment period. 

e. MitraClip® System 

Abbott Vascular submitted an 

application for new technology add-on 

payments for the MitraClip® System for 

FY 2014. The MitraClip® System is a 

transcatheter mitral valve system that 

includes a MitraClip® device implant, a 

Steerable Guide Catheter, and a Clip 

Delivery System. It is designed to 

perform reconstruction of the 

insufficient mitral valve for high risk 

patients who are not candidates for 

conventional open mitral valve surgery. 

Mitral regurgitation (MR), also 

referred to as mitral insufficiency or 

mitral incompetence, occurs when the 

mitral valve fails to close completely 

causing the blood to leak or flow 

backwards (regurgitate) into the mitral 

valve as the heart contracts. If the 

amount of blood that leaks back into the 

mitral valve is minimal then 

intervention is usually not necessary. 

However, if the amount of blood 

becomes significant this can cause the 

left ventricle to work harder to meet the 

body’s need for oxygenated blood. 

Severity levels of MR can range from 

grade 1+ through grade 4+. If left 

untreated, severe mitral regurgitation 

can lead to heart failure and death. The 

American College of Cardiology (ACC) 

and the American Heart Association 

(AHA) issued practice guidelines in 

2006 recommending intervention for 

moderate-severe or severe MR (3+ to 

4+). The applicant stated that the 

MitraClip® System is intended ‘‘for 

patients with symptomatic, significant 

mitral regurgitation who have been 

determined by a cardiac surgeon to be 

too high risk for open mitral valve 

surgery and in whom existing comorbidities would not preclude the 

expected benefit from correction of the 

mitral regurgitation.’’ 

The MitraClip® System performs 

percutaneous mitral valve repair. The 

applicant noted that the MitraClip®

mitral valve repair procedure is based 

on the double-orifice surgical repair 

technique that has been used as a 

surgical technique in open chest, 

arrested-heart surgery for the treatment 

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27548 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

10Maisano, F., et al., The double-orifice 

technique as a standardized approach to treat mitral 

regurgitation due to severe myxomatous disease: 

surgical technique, Eur J Cardiothorac Surg, 2000, 

17(3): p. 201–5. 

11Maisano, F., et al., The edge-to-edge technique: 

a simplified method to correct mitral insufficiency, 

Eur J Cardiothorac Surg, 1998, 13(3): p. 240–5; 

discussion 245–6. 

12Totaro, P., et al., Mitral valve repair for isolated 

prolapse of the anterior leaflet: an 11-year followup, Eur J Cardiothorac Surg, 1999, 15(2): p. 119–26. 

13Umana, J.P., et al., ‘‘Bow-tie’’ mitral valve 

repair: an adjuvant technique for ischemic mitral 

regurgitation, Ann Thorac Surg, 1998, 66(5): p. 

1640–6. 

14Alfieri, O. and F. Maisano, An effective 

technique to correct anterior mitral leaflet prolapse, 

J Card Surg, 1999, 14(6): p. 468–70. 

of MR since the early 1990s.10 11 12 13 14

According to the applicant, in utilizing 

the double-orifice technique, a portion 

of the anterior leaflet is sutured to the 

corresponding portion of the posterior 

leaflet using standard techniques and 

forceps and suture, creating a point of 

permanent coaptation 

(‘‘approximation’’) of the two leaflets. 

As a result, when the suture is placed 

in the middle of the valve, the valve will 

have a functional double orifice during 

diastole, thus the alternate name for the 

procedure ‘‘Double Orifice Repair.’’ 

With regard to the newness criterion, 

the manufacturer submitted a Premarket 

Approval (PMA) application in support 

of obtaining FDA approval for the 

MitraClip® System. Effective October 1, 

2010, ICD–9–CM procedure code 35.97 

(Percutaneous mitral valve repair with 

implant) was created to identify and 

describe the MitraClip® technology. On 

March 20, 2013, a meeting was held by 

the Circulatory System Devices Panel of 

the Medical Devices Advisory 

Committee of the FDA to discuss, make 

recommendations, and vote on 

information related to the PMA 

application for the MitraClip® System. 

Specifically, the Committee was charged 

with determining if the data presented 

by the applicant demonstrated a 

reasonable assurance of safety and 

effectiveness. We refer readers to the 

following FDA Web site for additional 

detailed information and meeting 

materials regarding the MitraClip®

System http://www.fda.gov/Advisory

Committees/Calendar/ucm339809.htm. 

In addition, a summary of the March 20, 

2013 meeting can be located on the 

following FDA Web site http://www.fda.

gov/downloads/AdvisoryCommittees/

CommitteesMeetingMaterials/Medical

Devices/MedicalDevicesAdvisory

Committee/CirculatorySystemDevices

Panel/UCM345235.pdf. We are inviting 

public comments regarding how the 

MitraClip® System meets the newness 

criterion. 

With regard to the cost criterion, the 

applicant conducted four separate 

analyses. The applicant noted that while 

ICD–9–CM procedure code 35.97 groups 

to MS–DRGs 246 (Percutaneous 

Cardiovascular Procedure with DrugEluting Stent with Major Complication 

or Comorbidity (MCC) or 4+ Vessels/ 

Stents), 247 (Percutaneous 

Cardiovascular Procedure with DrugEluting Stent without MCC), 248 

(Percutaneous Cardiovascular Procedure 

with Non-Drug-Eluting Stent with MCC 

or 4+ Vessels/Stents), 249 (Percutaneous 

Cardiovascular Procedure with NonDrug-Eluting Stent without MCC), 250 

(Percutaneous Cardiovascular Procedure 

without Coronary Artery Stent or AMI 

with MCC), and 251 (Percutaneous 

Cardiovascular Procedure without 

Coronary Artery Stent or AMI without 

MCC), clinical experience with the 

MitraClip® has demonstrated that it is 

extremely rare for a patient to receive 

stents concurrently with the MitraClip®

procedure. The applicant further cited 

the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 55308) which stated, ‘‘According 

to the Food and Drug Administration’s 

(FDA’s) terms of the clinical trial for 

MitraClipTM, the device is to be 

implanted in patients without any 

additional surgeries performed. 

Therefore, based on these terms, we 

stated that while the procedure code is 

assigned to MS–DRGs 246 through 251, 

the most likely MS–DRG assignments 

would be MS–DRGs 250 and 251.’’ As 

a result, the applicant stated that it 

conducted its analyses solely for MS– 

DRGs 250 and 251 to demonstrate that 

the cases involving MitraClip® meet the 

incremental cost thresholds provided in 

Table 10 for those MS–DRGs. 

The applicant included two analyses 

that utilize the FY 2011 MedPAR file 

and two analyses of hospital UB–04 

claims data from the EVEREST II 

Continued Access Study that were 

collected during FY 2012. Below is a 

summary of the applicant’s four data 

analyses, including the methodology 

and the findings for each. 

• Analysis 1: The applicant searched 

the FY 2011 MedPAR file for cases 

reporting procedure code 35.97 that 

mapped to MS–DRGs 250 and 251. 

According to the applicant, this search 

yielded actual MitraClip® procedures 

that were performed in an IDE study 

setting where hospitals obtained the 

MitraClip® System at a reduced 

investigational price; the applicant 

stated that it is likely that hospitals did 

not bill at all for the investigational 

device or submitted billed charges that 

were significantly less than the actual 

device acquisition costs (we refer 

readers to the explanation below). The 

applicant found 39 cases in MS–DRG 

250 (29 percent of all cases), and 94 

cases in MS–DRG 251 (71 percent of all 

cases), which resulted in a caseweighted average charge per case of 

$97,918. The applicant then 

standardized the charges using the FY 

2011 final rule impact file and inflated 

the standardized charges using two 

different inflation factors. The first 

approach used a factor of 4.6 percent, 

which was based on data from the U.S. 

Department of Labor’s Bureau of Labor 

Statistics non-seasonally adjusted 

Consumer Price Index for All Urban 

Consumers between January 2011 and 

January 2013. This resulted in an 

inflated case-weighted average 

standardized charge per case of $79,346. 

The second approach used a factor of 

18.6 percent based on the growth in 

charges between 2009 and 2011 in MS– 

DRGs 250 and 251 and adjusting for 

case-mix year over year. This resulted in 

an inflated case-weighted average 

standardized charge per case of $89,986. 

The applicant noted that both 

approaches used to determine the 

inflated case-weighted average 

standardized charge per case were 

calculated without any adjustments to 

reflect the reduced investigational price 

or inadequate hospital billing. 

In order to determine if hospitals 

adequately billed for the device, the 

applicant analyzed the cost of the 

device on each claim by summing the 

charges that map to the 15 CMS IPPS 

cost centers (77 FR 53340). The 

applicant then calculated the 

standardized cost for this subset of 

charges by multiplying the standardized 

charges in each cost center by the CMS 

national CCR for each cost center in the 

FY 2013 IPPS/LTCH PPS final rule (77 

FR 53340). The applicant asserted that, 

whereas all hospitals in the study were 

charged a uniform investigational price 

for the MitraClip® System, this analysis 

confirmed that some hospitals did not 

bill at all for the device or charged 

substantially less than the actual 

hospital acquisition cost, which is likely 

due to the investigational status of the 

technology. The applicant explained 

that the mean total standardized costs in 

the ‘‘Supplies and Equipment’’ cost 

center in the FY 2011 MedPAR file for 

MitraClip® cases were remarkably low 

for MS–DRGs 250 and 251, respectively. 

According to the applicant, the mean 

total standardized costs in the ‘‘Supplies 

and Equipment’’ cost center reflect only 

50 percent of the actual MitraClip®

System costs not inclusive of other 

supply and equipment costs associated 

with the MitraClip® procedure and 

hospital stay. Therefore, the applicant 

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Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 27549 

believed that Analysis 1 severely 

underestimated the actual hospital 

costs. 

Using the FY 2014 Table 10 

thresholds, the case-weighted threshold 

for MS–DRGs 250 and 251 was $63,097 

(all calculations above were performed 

using unrounded numbers). Because the 

inflated case-weighted average 

standardized charge per case for the 

applicable MS–DRGs for both 

approaches discussed above exceeds the 

case-weighted threshold amount, the 

applicant maintained that the 

MitraClip® System would meet the cost 

criterion. 

• Analysis 2: The second analysis is 

identical to the first analysis (the 

applicant searched the FY 2011 

MedPAR file for cases reporting 

procedure code 35.97 that mapped to 

MS–DRGs 250 and 251) except that the 

applicant excluded hospital claims that 

either did not include any charge for the 

device-dependent procedure or 

included a charge that was significantly 

less than the actual device acquisition 

cost. The applicant believed that these 

exclusions would provide more accurate 

data on the costs associated with the 

MitraClip® procedure in the IDE study 

when hospitals obtained the MitraClip®

System at a reduced investigational 

price. The applicant explained that it 

included only those cases where the 

standardized charge for the ‘‘Supplies 

and Equipment’’ cost center, reduced by 

each hospital’s average hospital-wide 

CCR (rather than using CMS national 

CCRs for each cost center), was greater 

than $10,000, which is lower than the 

acquisition cost for the MitraClip®

System. The applicant stated that this 

analysis reflects a conservative but more 

appropriate estimate of the actual costs 

incurred by the hospitals during the 

clinical trial than the first analysis. 

Using the methodology above, the 

applicant found 12 cases in MS–DRG 

250 (22 percent of all cases) and 43 

cases in MS–DRG 251 (78 percent of all 

cases), which resulted in a caseweighted average charge per case of 

$112,434. The applicant then 

standardized the charges using the FY 

2011 final rule impact file and inflated 

the standardized charges using two 

different inflation factors. The first 

approach used a factor of 4.6 percent, 

which was based on data from the U.S. 

Department of Labor’s Bureau of Labor 

Statistics non-seasonally adjusted 

Consumer Price Index for All Urban 

Consumers between January 2011 and 

January 2013. This resulted in an 

inflated case-weighted average 

standardized charge per case of $97,289. 

The second approach used a factor of 

18.6 percent based on the growth in 

charges between 2009 and 2011 in MS– 

DRGs 250 and 251 and adjusting for 

case-mix year over year. This resulted in 

an inflated case-weighted average 

standardized charge per case of 

$110,335. 

Using the FY 2014 Table 10 

thresholds, the case-weighted threshold 

for MS–DRGs 250 and 251 was $61,896 

(all calculations above were performed 

using unrounded numbers). Because the 

inflated case-weighted average 

standardized charge per case for the 

applicable MS–DRGs for both charge 

inflation approaches discussed above 

exceeds the case-weighted threshold 

amount, the applicant maintained that 

the MitraClip® System would meet the 

cost criterion. 

• Analysis 3: Because the first two 

analyses sought only to estimate 

standardized charges for the MitraClip®

procedure in an investigational setting 

with a reduced price for the device, the 

applicant submitted two additional 

analyses using hospital charges in a 

commercial setting and a commercial 

device price. Rather than using MedPAR 

data, the applicant utilized hospital UB– 

04 claims collected from the ongoing 

EVEREST II Continued Access Study in 

addition to claims from compassionateuse cases. The applicant stated that 

patient characteristics and charges for 

both of these cases were not 

significantly different. 

The applicant analyzed 98 claims 

from 21 sites (for discharges on or after 

October 1, 2011 through discharges on 

or before September 30, 2012 (FY 2012 

claims data)) and excluded 18 cases 

because the cases either did not map to 

MS–DRGs 250 or 251, or the patient was 

below the age of 65 years. Of these 

remaining 80 cases, 17 mapped to MS– 

DRG 250 (21.3 percent of all cases) and 

63 mapped to MS–DRG 251 (78.8 

percent of all cases), which resulted in 

a case-weighted average charge per case 

of $112,509. The case-weighted average 

charge per case above includes clinical 

trial charges related to the MitraClip®

System, which does not reflect the full 

commercial charge for the MitraClip®

System. Therefore, the applicant 

removed the amount of clinical trial 

charges related to the MitraClip®

System. The applicant then 

standardized the charges using the FY 

2012 final rule impact file and inflated 

the standardized charges using the two 

different approaches described in the 

first and second analyses (an inflation 

factor of 4.6 percent and 18.6 percent, 

respectively). 

The applicant then added commercial 

charges for the device to the inflated 

standardized charges (for both charge 

inflation approaches). Although the 

applicant submitted data that related to 

the estimated cost of the MitraClip®

System, the applicant noted that the 

cost of the technology was proprietary 

information. To compute the 

commercial charges for the MitraClip®

System, the applicant took the European 

commercial price of the MitraClip®

System, converted the cost to U.S. 

dollars by multiplying the amount by an 

exchange rate of 1.38, and then divided 

the result by the ‘‘Supplies and 

Equipment’’ cost center CCR (in the FY 

2013 IPPS/LTCH PPS final rule) of 

0.335. This resulted in an inflated caseweighted average standardized charge 

per case of $129,019 and $132,372 

under the first and second charge 

inflation approaches, respectively. 

Using the FY 2014 Table 10 

thresholds, the case-weighted threshold 

for MS–DRGs 250 and 251 was $61,805 

(all calculations above were performed 

using unrounded numbers). Because the 

inflated case-weighted average 

standardized charge per case for the 

applicable MS–DRGs for both charge 

inflation approaches exceeds the caseweighted threshold amount, the 

applicant maintained that the 

MitraClip® System would meet the cost 

criterion. 

• Analysis 4: The fourth analysis was 

similar to the third analysis. However, 

instead of basing commercial charges on 

the European commercial price, the 

applicant used the anticipated U.S. 

commercial price to determine the 

commercial charges for the device. 

Similar to above, the applicant 

determined a case-weighted average 

charge per case of $112,509. The 

applicant then removed the clinical trial 

charges related to the MitraClip®

System (for each claim), standardized 

the charges using the FY 2012 final rule 

impact file, and inflated the 

standardized charges using both charge 

inflation approaches discussed above. 

The applicant then added commercial 

charges for the device to the inflated 

standardized charges (for both charge 

inflation approaches). As mentioned 

above, although the applicant submitted 

data that related to the estimated cost of 

the MitraClip® System, the applicant 

noted that the cost of the technology 

was proprietary information. To 

compute the commercial charges for the 

MitraClip® System, the applicant used 

the anticipated U.S. commercial price of 

the MitraClip® System and divided the 

amount by the ‘‘Supplies and 

Equipment’’ cost center CCR (in the FY 

2013 IPPS/LTCH PPS final rule) of 

0.335. This resulted in an inflated caseweighted average standardized charge 

per case of $136,183 and $139,535 

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27550 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

15Whitlow et al., Acute and 12-Month Results 

With Catheter-Based Mitral Valve Leaflet Repair: 

The EVEREST II (Endovascular Valve Edge-to-Edge 

Repair) High Risk Study. JACC 2012;59:130–139. 

16Feldman et al., Percutaneous Repair or Surgery 

for Mitral Regurgitation. NEJM 2011;364:1395– 

1406. 

17Mirabel M, Iung B, Baron G, et al. What are the 

characteristics of patients with severe, 

symptomatic, mitral regurgitation who are denied 

surgery? Eur Heart J. 2007 Jun;28(11):1358–65. 

18Patel JB, Borgeson DD, Barnes ME, Rihal CS, 

Daly RC, Redfield MM.: Mitral regurgitation in 

patients with advanced systolic heart failure. J Card 

Fail. 2004 Aug;10(4):285–91. 

19Trichon BH, Felker GM, Shaw LK, Cabell CH, 

O’Connor CM: Relation of frequency and severity of 

mitral regurgitation to survival among patients with 

left ventricular systolic dysfunction and heart 

failure, Am J Cardiol. 2003 Mar 1. 91(5):538–43. 

under the first and second charge 

inflation approaches, respectively. 

Using the FY 2014 Table 10 

thresholds, the case-weighted threshold 

for MS–DRGs 250 and 251 was $61,805 

(all calculations above were performed 

using unrounded numbers). Because the 

inflated case-weighted average 

standardized charge per case for the 

applicable MS–DRGs for both charge 

inflation approaches exceeds the caseweighted threshold amount, the 

applicant maintained that the 

MitraClip® System would meet the cost 

criterion. 

We are inviting public comments on 

whether or not the MitraClip® System 

meets the cost criterion. In addition, we 

are inviting public comments on the 

methodologies used by the applicant in 

its four analyses. 

The applicant asserted that the 

MitraClip® System meets the substantial 

clinical improvement criterion. The 

applicant explained that studies have 

indicated that a significant proportion of 

patients are not eligible for mitral valve 

repair and/or replacement surgery 

because of risk factors including 

reduced left ventricular function, 

significant comorbidities, and advanced 

age. As a result, the applicant stated that 

there is a significant unmet clinical 

need for patients with severe MR who 

are too high risk for surgery and 

receiving palliative medical 

management. 

The applicant further stated that 

although many of the patients who are 

refused surgery die in the intervening 

months to years, the economic burden 

to the healthcare system of mitral 

regurgitation in elderly patients not 

deemed suitable for conventional open 

chest surgery is considerable. The 

applicant noted that the vast majority of 

such patients are repeatedly 

hospitalized, often with prolonged 

lengths of in-hospital stays, and, even 

when returned to the community, they 

consume additional resources from the 

primary care and social services. The 

applicant asserted that the quality of life 

enjoyed by these patients is also poor 

and their mortality rates are high. The 

applicant cited the 2012 European 

Society of Cardiology (ESC) and 

European Association for CardioThoracic Surgery (EACTS) clinical 

practice guideline for valvular heart 

disease, which recommended that the 

MitraClip® procedure be considered in 

high surgical risk patients with 

symptomatic severe secondary MR. 

The applicant also stated that it 

would meet the substantial clinical 

improvement criterion based on clinical 

studies that have consistently shown 

that the MitraClip® procedure leads to 

a significant reduction of MR, 

improvements in left ventricular (LV) 

function including LV volumes and 

dimensions, improved patient outcomes 

as measured by improvements in New 

York Heart Association (NYHA) 

functional class, health-related quality 

of life and reductions in heart-failure 

related hospitalizations, and 

significantly lower mortality than 

predicted surgical mortality. 

The applicant cited clinical data from 

the EVEREST II High Risk Study 15 and 

from the EVEREST II Continued Access 

Study/Registry (REALISIM) 16. The 

applicant also cited clinical data from a 

high risk cohort of patients (EVEREST II 

High Risk Cohort), which is an 

integrated analysis of the following: (1) 

Patients within the EVEREST II High 

Risk Study who met eligibility criteria 

for being too high risk to undergo mitral 

valve surgery; and (2) patients within 

the EVEREST II Continued Access 

Study/Registry who were too high risk 

for surgery using identical eligibility 

inclusion criteria. 

In addition to the published clinical 

experience from the EVEREST studies, 

the applicant cited data on the use of 

the MitraClip® device in a ‘‘real-world’’ 

setting published recently by a select 

number of European centers as part of 

their individual and/or multi-center 

commercial experience or enrollment in 

the MitraClip® device group of the 

ACCESS–EU post-approval clinical trial 

in Europe. The European use of the 

MitraClip® device is focused on patients 

who are too high risk for surgery and 

patients are selected for therapy using a 

multi-disciplinary ‘‘heart team’’ 

approach. 

The applicant stated that published 

reports of the MitraClip® procedure 

have consistently demonstrated a 

significant reduction in MR that is 

durable out to 1, 2, and 3 years. The 

applicant cited the EVEREST II High 

Risk Study, which demonstrated that 

the MitraClip® procedure successfully 

reduced MR for high-risk patients with 

results durable out to 2 years. The 

applicant also noted that the proportion 

of patients with significant MR (MR 

grade ≥3+) was reduced from 99 percent 

at baseline to 22 percent at 1 year 

follow-up (p<0.0001). The applicant 

further noted that reduction of MR was 

also associated with significant 

improvements in left ventricular 

dimensions including LV end diastolic 

and systolic volumes (p<0.0001) 

consistent with positive ventricular 

remodeling. 

According to the applicant, the most 

recent available data from the EVEREST 

II High Risk Cohort submitted to the 

FDA for high-risk patients demonstrated 

a significant reduction in severe MR 

from 86 percent at baseline to 13 

percent at 2 years (p<0.0001), 

improvements in LV dimensions and 

volumes sustained at 2 years, and a 48- 

percent reduction in rates of heart 

failure-related hospitalizations between 

the baseline and the 12-month followup period after the MitraClip®

procedure (p<0.0001). 

The applicant noted that patients 

treated with MitraClip® reported 

substantial clinical improvements in 

NYHA functional class from baseline at 

both 1 and 2 year followup. The 

applicant explained that the NYHA 

classification system assigns patients 

into one of four categories representing 

the extent of heart failure based on how 

much they are limited during physical 

activity. In the EVEREST II High-Risk 

Cohort, the applicant stated that the 

proportion of patients with NYHA class 

III/IV representing marked or severe 

limitations in activity was significantly 

reduced from 82 percent at baseline to 

17 percent at 1 year (p<0.0001). The 

applicant noted that these results also 

have been consistently shown in 

multiple other published studies. 

Based on data from the EVEREST II 

High Risk Cohort, the applicant cited 

additional data demonstrating that the 

MitraClip® treatment is associated with 

clinically and statistically significant 

improvements in general health-related 

quality of life. The applicant explained 

that the RAND SF–36 health survey, a 

quality of life instrument, demonstrated 

similar physical and mental component 

scores after 30 days and 1 year. In 

addition, the applicant stated that the 

MitraClip® is associated with lower 

than predicted mortality rates at 30 days 

as measured by the Society for Thoracic 

Surgery (STS) Mortality Risk Score. 

Also, mortality at 1 year is favorable 

when (1) comparing the MitraClip® to 

published literature 17 18 19 20 21 22 23 and 

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20Bursi F, Enriquez-Sarano M, Nkomo VT, 

Jacobsen SJ, Weston SA, Meverden RA, Roger VL: 

Heart failure and death after myocardial infarction 

in the community: the emerging role of mitral 

regurgitation. Circulation. 2005 Jan 25;111(3):295– 

301.34. 

21 Grigioni F, Enriquez-Sarano M, Zehr KJ, Bailey 

KR, Tajik AJ: Ischemic mitral regurgitation: longterm outcome and prognostic implications with 

quantitative Doppler assessment. Circulation. 2001 

Apr 3;103(13):1759–64. 

22 Koelling TM, Aaronson KD, Cody RJ, Bach DS, 

Armstrong WF: Prognostic significance of mitral 

regurgitation and tricuspid regurgitation in patients 

with left ventricular systolic dysfunction, Am Heart 

J. 2002 Sep;144(3):524–9. 

23Cioffi G, Tarantini L, De Feo S, Pulignano G, 

Del Sindaco D, Stefenelli C, Di Lenarda A, Opasich 

C.: Functional mitral regurgitation predicts 1-year 

mortality in elderly patients with systolic chronic 

heart failure. Eur J Heart Fail. 2005 Dec;7(7):1112– 

7. 

(2) comparing MitraClip® mortality to a 

high-risk concurrent control group of 

patients treated with medical 

management. 

In conclusion, the applicant cited data 

from the ACCESS–EU study as 

presented at the European Society of 

Cardiology Congress in August 2012, 

which demonstrated improvement in 

disease-specific quality of life measures 

including the Minnesota Living with 

Heart Failure Questionnaire and Six 

Minute Walk Test. 

We note that, similar to the FDA, as 

referenced above, we are concerned that 

the applicant performed post hoc 

analyses on a different patient 

population and revised the initial 

indication for use for the MitraClip®

after learning that the FDA expressed 

concern regarding the PMA based on 

insufficient data resulting from the 

initial indication for use and patient 

population in the EVEREST II RCT. As 

we discuss below, data results from 2 

years of the EVEREST II RCT also 

demonstrated that surgery reduced 

mitral regurgitation more than the 

percutaneous MitraClip® System. 

However, both the surgical patients and 

the MitraClip® patients showed 

comparable results for improved left 

ventricular function, NYHA functional 

class, and quality of life. Subsequent to 

this trial, the applicant conducted a 

retrospective review of registry data to 

support the revised indication for use. 

This retrospective analysis involved 

pooling two registry data sets (the 

EVEREST II High Risk Registry (HRR) 

and the REALISM HRR Continued 

Access Protocol (CAP)) in a post hoc 

manner, which resulted in major design 

flaws and data interpretation 

limitations. The pooled registry data 

sets were referred to as the Integrated 

High Surgical Risk Cohort. 

We note that, the EVEREST II HRR 

and the REALISM HRR CAP were not 

intended to be used as pivotal data sets. 

The applicant was previously informed 

by the FDA that without positive pivotal 

trial results, the PMA application could 

not be approved based on the data 

results of the EVEREST II RCT by itself. 

Therefore, the FDA suggested the 

additional studies (the EVEREST II HRR 

and the REALISM HRR CAP) to 

complement the randomized study and, 

therefore, could be considered 

adjunctive to the EVEREST II RCT. 

In our review of the clinical trials’ 

data, we agree with the FDA regarding 

the following key points: 

• Post hoc analyses of pooled data 

sets retain all of the individual 

shortcomings of the individual data sets; 

• Pooling does not enhance the utility 

and scientific value of uncontrolled 

single arm registries with no 

comparators; and 

• Inappropriate pooling introduces 

additional confounders. 

It is also unclear what the appropriate 

target population for the MitraClip®

System is because clinical trials 

conducted by the applicant included 

patients with both functional and 

degenerative mitral regurgitation, which 

makes it difficult to determine which 

group of patients may benefit more or 

less from the technology. For example, 

in a subgroup analysis of the EVEREST 

II RCT, authors concluded that older 

patients and those patients with 

functional mitral regurgitation or 

abnormal left ventricular function had 

results more comparable to surgical 

repair. Data results from 2 years of the 

EVEREST II RCT also demonstrated that 

surgery reduced mitral regurgitation 

more than the percutaneous MitraClip®

System. However, both the surgical 

patients and the MitraClip® System’s 

patients showed comparable results for 

improved left ventricular function, 

NYHA functional class, and quality of 

life. 

We are inviting public comments on 

whether this technology meets the 

substantial clinical improvement 

criterion, particularly in comparison to 

other surgical therapies such as mitral 

valve repair or replacement, and also 

with regard to the appropriate target 

population for this technology. 

We received nine comments on the 

MitraClip® System during the town hall 

meeting’s public comment period. 

These comments are summarized below. 

Comment: Several commenters 

expressed support for new technology 

add-on payments for the MitraClip®

System and recommended that the 

technology be reassigned from MS– 

DRGs 250 and 251 (Percutaneous 

Cardiovascular Procedure without 

Coronary Artery Stent or AMI with and 

without MCC, respectively) to MS– 

DRGs 216, 217, 218, 219, 220, and 221 

(Cardiac Valve and Other Major 

Cardiothoracic Procedure with and 

without Cardiac Catheterization with 

MCC, CC, and without CC/MCC, 

respectively). 

Response: We appreciate the 

commenters’ support. However, we note 

that we did not request public 

comments nor propose to make any 

changes to the MS–DRG classification 

for the MitraClip® System. Because 

these comments are outside the scope of 

the new technology add-on payment 

application included in this proposed 

rule, we are not providing a complete 

summary of and response to these 

comments. We encourage the 

commenters to review the process for 

submitting comments regarding MS– 

DRG classifications as outlined in 

section II.G. of the preamble of this 

proposed rule. 

Comment: Several commenters stated 

that they supported the application for 

new technology add-on payments for 

the MitraClip® System because it is a 

novel technology utilizing the 

transcatheter approach to repair the 

mitral valve and has demonstrated 

substantial clinical improvement. 

According to the commenters, the 

technology is intended to be used for 

high-risk patients who do not have other 

treatment options available due to the 

severity of their mitral regurgitation and 

other comorbidities, such as heart 

failure. The commenters noted that the 

percutaneous MitraClip® System results 

in significant improvement in quality of 

life for this group of patients for whom 

conventional surgery is contraindicated. 

One commenter stated that another 

benefit of the MitraClip® System is that 

it offers patients with all forms of mitral 

regurgitation the opportunity to receive 

treatment much earlier, thereby 

resulting in improved cardiac function, 

reduced heart failure, and increased 

savings to the healthcare system. 

Another commenter expressed 

support for the MitraClip® System and 

noted that surgery for this high-risk 

patient population is not a viable 

alternative and neither are the currently 

available medical therapy options, as 

evidenced by the readmission rates for 

congestive heart failure exacerbations in 

this group of patients. This commenter 

also noted that the MitraClip® device 

has proven to reduce the degree of 

mitral regurgitation as shown in a 

number of high-risk patient registries 

and clinical trials. The commenter 

further noted that savings could be 

realized with the reductions in 

readmissions for heart failure 

exacerbations for this group of patients. 

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27552 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

One commenter indicated that the 

MitraClip® System meets the substantial 

clinical improvement criterion because 

it offers nonoperative patients a device 

that could ‘‘potentially revolutionize 

management of nonsurgical patients 

with severe mitral regurgitation.’’ 

Another commenter stated that the 

MitraClip® System ‘‘represents a 

landmark in our ability to perform 

mitral valve surgeries with less risk.’’ 

This commenter further stated that the 

‘‘MitraClip® joins TAVR (Transcatheter 

aortic valve replacement) and TPVI 

(Transcatheter pulmonary valve 

implantation) as new percutaneous 

surgical therapies for patients with 

valvular heart disease who are not 

candidates for traditional valve 

replacement or repair.’’ 

Another commenter noted that the 

MitraClip® System has shown 

substantial clinical improvement in 

patients considered too high risk for 

surgery as demonstrated by the 

EVEREST II cohort, including 

improvement in patients NYHA 

functional class, reduced 

hospitalizations, and improved left 

ventricular function. 

Response: We appreciate the 

commenters’ support. We have 

considered these comments received 

during the town hall meeting’s public 

comment period in this proposed rule. 

As stated above, we are inviting 

additional public comments on whether 

the MitraClip® System meets the 

substantial clinical improvement 

criterion, particularly in comparison to 

other surgical therapies such as mitral 

valve repair or replacement, and also 

with regard to the appropriate target 

population for this technology. 

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.’’ 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 2014 

hospital wage index based on the 

statistical areas appears under section 

III.B. of the preamble of this proposed 

rule. 

Section 1886(d)(3)(E) of the Act 

requires the Secretary to update the 

wage index annually and to base the 

update on a survey of wages and wagerelated costs of short-term, acute care 

hospitals. This provision also requires 

that any updates or adjustments to the 

wage index be made in a manner that 

ensures that aggregate payments to 

hospitals are not affected by the change 

in the wage index. The proposed 

adjustment for FY 2014 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 2014 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, 2013 (the FY 2014 wage 

index) appears under section III.F. of the 

preamble of this proposed rule. 

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. 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. The 

current statistical areas are based on 

OMB standards published on December 

27, 2000 (65 FR 82228) and Census 2000 

data and Census Bureau population 

estimates for 2007 and 2008 (OMB 

Bulletin No. 10–02). For a discussion of 

OMB’s delineations of CBSAs and our 

implementation of the CBSA 

definitions, we refer readers to the 

preamble of the FY 2005 IPPS final rule 

(69 FR 49026 through 49032). We also 

discussed in the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51582) and the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53365) that, in 2013, OMB plans to 

announce new area delineations based 

on new standards adopted in 2010 (75 

FR 37246) and the 2010 Census of 

Population and Housing data. On 

February 28, 2013, OMB issued OMB 

Bulletin No. 13–01, which established 

revised delineations for Metropolitan 

Statistical Areas, Micropolitan 

Statistical Areas, and Combined 

Statistical Areas, and provides guidance 

on the use of the delineations of these 

statistical areas. A copy of this bulletin 

may be obtained at http://www.

whitehouse.gov/sites/default/files/omb/

bulletins/2013/b-13-01.pdf. According 

to OMB, ‘‘[t]his bulletin provides the 

delineations of all Metropolitan 

Statistical Areas, Metropolitan 

Divisions, Micropolitan Statistical 

Areas, Combined Statistical Areas, and 

New England City and Town Areas in 

the United States and Puerto Rico based 

on the standards published on June 28, 

2010, in the Federal Register (75 FR 

37246–37252) and Census Bureau data.’’ 

In order to implement these changes 

for the IPPS, it is necessary to identify 

the new area designation for each 

county and hospital in the country. 

While the revisions OMB published on 

February 28, 2013 are not as sweeping 

as the changes OMB announced in 2003, 

the February 28, 2013 bulletin does 

contain a number of significant changes. 

For example, there are new CBSAs, 

urban counties that become rural, rural 

counties that become urban, and 

existing CBSAs that have been split 

apart. In addition, the effect of the new 

designations on various hospital 

reclassifications, the outmigration 

adjustment (established by section 505 

of Pub. L. 108–173), and treatment of 

hospitals located in certain rural 

counties (that is, ‘‘Lugar’’ hospitals) 

provided for under section 1886(d)(8)(B) 

of the Act must be considered. These are 

just a few of the many issues that need 

to be considereed regarding the effects 

of the new designations prior to 

proposing and establishing policies. 

However, because the bulletin was 

not issued until February 28, 2013, with 

supporting data not available until later, 

and because the changes made by the 

bulletin and their ramifications must be 

extensively reviewed and verified, we 

were unable to undertake such a lengthy 

process before publication of this FY 

2014 proposed rule. By the time the 

bulletin was issued, the FY 2014 IPPS 

proposed rule was in the advanced 

stages of development. We had already 

developed the FY 2014 proposed wage 

index based on the previous OMB 

definitions. We note that, in June 2003, 

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OMB announced changes resulting from 

the 2000 Census, and at that time, CMS 

proposed and implemented the changes 

during the following year’s rulemaking 

cycle for FY 2005. Although OMB 

published the data earlier than June this 

year, we still are in essentially the same 

situation as we were in 2003 because 

the data are not available in time to be 

incorporated into this year’s rulemaking 

cycle. To allow for sufficient time to 

assess the new changes and their 

ramifications, we intend to propose 

changes to the wage index based on the 

newest CBSA changes in the FY 2015 

proposed rule. We refer readers to the 

FY 2005 IPPS final rule (69 FR 49026 

through 49034) for those interested in 

learning about the issues we may need 

to address next year in proposing to 

implement the latest OMB update for 

FY 2015, and some of the policy 

decisions that we may consider making. 

C. Worksheet S–3 Wage Data for the 

Proposed FY 2014 Wage Index 

The proposed FY 2014 wage index 

values are based on the data collected 

from the Medicare cost reports 

submitted by hospitals for cost reporting 

periods beginning in FY 2010 (the FY 

2013 wage indices were based on data 

from cost reporting periods beginning 

during FY 2009). 

1. Included Categories of Costs 

The proposed FY 2014 wage index 

includes the following categories of data 

associated with costs paid under the 

IPPS (as well as outpatient costs): 

• Salaries and hours from short-term, 

acute care hospitals (including paid 

lunch hours and hours associated with 

military leave and jury duty); 

• Home office costs and hours; 

• Certain contract labor costs and 

hours (which includes direct patient 

care, certain top management, 

pharmacy, laboratory, and nonteaching 

physician Part A services, and certain 

contract indirect patient care services 

(as discussed in the FY 2008 final rule 

with comment period (72 FR 47315 

through 47318)); and 

• Wage-related costs, including 

pension costs (based on policies 

adopted in the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51586 through 51590)) 

and other deferred compensation costs. 

2. Excluded Categories of Costs 

Consistent with the wage index 

methodology for FY 2013, the proposed 

wage index for FY 2014 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 2014 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 through 45398). 

3. Use of Wage Index Data by Providers 

Other Than Acute Care Hospitals Under 

the IPPS 

Data collected for the IPPS wage 

index are also currently used to 

calculate wage 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 proposed FY 

2014 wage index were obtained from 

Worksheet S–3 of the Medicare cost 

report for cost reporting periods 

beginning on or after October 1, 2009, 

and before October 1, 2010. For wage 

index purposes, we refer to cost reports 

during this period as the ‘‘FY 2010 cost 

report,’’ the ‘‘FY 2010 wage data,’’ or the 

‘‘FY 2010 data.’’ Instructions for 

completing the wage index sections of 

Worksheet S–3 are included in the 

Provider Reimbursement Manual (PRM), 

Part 2 (Pub. No. 15–2), Chapter 36, 

Sections 3605.2 and 3605.3 for Form 

CMS–2552–96 and Chapter 40, Sections 

4005.2 through 4005.4 for Form CMS– 

2552–10. Hospitals with cost reporting 

periods beginning on or after October 1, 

2009 and before May 1, 2010 reported 

FY 2010 data on Form CMS–2552–96. 

Hospitals with cost reporting periods 

beginning on or after May 1, 2010 and 

before October 1, 2010 reported FY 2010 

data on the new Form CMS–2552–10. 

The data file used to construct the wage 

index includes FY 2010 data submitted 

to us as of March 1, 2013. As in past 

years, we performed an extensive 

review of the wage data, mostly through 

the use of edits designed to identify 

aberrant data. 

We asked our fiscal intermediaries/ 

MACs to revise or verify data elements 

that result in specific edit failures. For 

the proposed FY 2014 wage index, we 

identified and excluded 44 providers 

with data that were too aberrant to 

include in the proposed wage index, 

although if data elements for some of 

these providers are corrected, we intend 

to include some of these providers in 

the final FY 2014 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 10, 2013. We intend 

that all unresolved data elements will be 

resolved by the date the FY 2014 final 

rule is issued. The revised data will be 

reflected in the FY 2014 IPPS final rule. 

In constructing the proposed FY 2014 

wage index, we included the wage data 

for facilities that were IPPS hospitals in 

FY 2010, 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 through 45398). For this 

proposed rule, we removed 4 hospitals 

that converted to CAH status on or after 

February 14, 2012, the cut-off date for 

CAH exclusion from the FY 2013 wage 

index, and through and including 

February 14, 2013, the cut-off date for 

CAH exclusion from the FY 2014 wage 

index. After removing hospitals with 

aberrant data and hospitals that 

converted to CAH status, the proposed 

FY 2014 wage index is calculated based 

on 3,427 hospitals. 

For the proposed FY 2014 wage 

index, we allotted the wages and hours 

data for a multicampus hospital among 

the different labor market areas where 

its campuses are located in the same 

manner that we allotted such hospitals’ 

data in the FY 2013 wage index (77 FR 

53366). Table 2 containing the proposed 

FY 2014 wage index associated with 

this proposed rule (available on the 

CMS Web site) includes separate wage 

data for the campuses of six 

multicampus hospitals (two additional 

multicampus hospitals have been added 

to the wage index calculation for FY 

2014). 

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E. Method for Computing the Proposed 

FY 2014 Unadjusted Wage Index 

The method used to compute the 

proposed FY 2014 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) and which 

we discussed and used for the FY 2013 

final wage index without an 

occupational mix adjustment (77 FR 

53366 through 53367). 

As discussed in the FY 2012 final 

rule, in ‘‘Step 5,’’ for each hospital, we 

adjust the total salaries plus wagerelated 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, 2009, 

through April 15, 2011, 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 2014. The factors used to adjust the 

hospital’s data were based on the 

midpoint of the cost reporting period, as 

indicated below. 

MIDPOINT OF COST REPORTING PERIOD

After Before Adjustment 

factor 

10/14/2009 ............................................................................................................................................................... 11/15/2009 1.02682 

11/14/2009 ............................................................................................................................................................... 12/15/2009 1.02490 

12/14/2009 ............................................................................................................................................................... 01/15/2010 1.02299 

01/14/2010 ............................................................................................................................................................... 02/15/2010 1.02116 

02/14/2010 ............................................................................................................................................................... 03/15/2010 1.01941 

03/14/2010 ............................................................................................................................................................... 04/15/2010 1.01768 

04/14/2010 ............................................................................................................................................................... 05/15/2010 1.01591 

05/14/2010 ............................................................................................................................................................... 06/15/2010 1.01412 

06/14/2010 ............................................................................................................................................................... 07/15/2010 1.01235 

07/14/2010 ............................................................................................................................................................... 08/15/2010 1.01064 

08/14/2010 ............................................................................................................................................................... 09/15/2010 1.00898 

09/14/2010 ............................................................................................................................................................... 10/15/2010 1.00738 

10/14/2010 ............................................................................................................................................................... 11/15/2010 1.00584 

11/14/2010 ............................................................................................................................................................... 12/15/2010 1.00434 

12/14/2010 ............................................................................................................................................................... 01/15/2011 1.00288 

01/14/2011 ............................................................................................................................................................... 02/15/2011 1.00143 

02/14/2011 ............................................................................................................................................................... 03/15/2011 1.00000 

03/14/2011 ............................................................................................................................................................... 04/15/2011 0.99860 

For example, the midpoint of a cost 

reporting period beginning January 1, 

2010, and ending December 31, 2010, is 

June 30, 2010. An adjustment factor of 

1.01235 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 2013 IPPS/LTCH PPS final 

rule, the proposed FY 2014 national 

average hourly wage (unadjusted for 

occupational mix) is $38.2384. The 

proposed FY 2014 Puerto Rico overall 

average hourly wage (unadjusted for 

occupational mix) is $16.4873. 

F. Proposed Occupational Mix 

Adjustment to the Proposed FY 2014 

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 Proposed 

FY 2014 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 2013 IPPS/ 

LTCH PPS final rule (77 FR 53367 

through 53368), the occupational mix 

adjustment to the FY 2013 wage index 

was based on data collected on the 2010 

Medicare Wage Index Occupational Mix 

Survey (Form CMS–10079 (2010)). For 

the FY 2014 wage index, we are 

proposing to again use occupational mix 

data collected on the 2010 survey to 

compute the occupational mix 

adjustment for FY 2014. We are 

including data for 3,188 hospitals that 

also have wage data included in the 

proposed FY 2014 wage index. 

2. New 2013 Occupational Mix Survey 

for the FY 2016 Wage Index 

As stated earlier, section 304(c) of 

Public Law 106–554 amended section 

1886(d)(3)(E) of the Act to require CMS 

to collect data every 3 years on the 

occupational mix of employees for each 

short-term, acute care hospital 

participating in the Medicare program. 

We used occupational mix data 

collected on the 2010 survey to compute 

the occupational mix adjustment for FY 

2013 and the proposed FY 2014 wage 

index associated with this proposed 

rule. We also plan to use the 2010 

survey data for the FY 2015 wage index. 

Therefore, a new measurement of 

occupational mix will be required for 

FY 2016. 

On December 7, 2012, we published 

in the Federal Register a notice 

soliciting comments on the proposed 

2013 Medicare Wage Index 

Occupational Mix Survey (77 FR 73032 

through 73033). The new 2013 survey 

includes the same data elements and 

definitions as the 2010 survey and 

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provides for the collection of hospitalspecific wages and hours data for 

nursing employees for calendar year 

2013 (that is, payroll periods ending 

between January 1, 2013 and December 

31, 2013). The comment period for the 

notice ended on February 5, 2013. After 

considering the public comments that 

we received on the December 2012 

notice, we made a few minor editorial 

changes and published the 2013 survey 

in the Federal Register on February 28, 

2013 (78 FR 13679). This survey is 

pending OMB review, and is available 

on the CMS Web site at: http:// 

www.cms.hhs.gov/PaperworkReduction

Actof1995 by clicking on ‘‘PRA 

Listings.’’ (The OMB control number for 

this collection of information is 0938– 

0907.) Hospitals are required to submit 

their completed 2013 surveys to their 

fiscal intermediaries/MACs by July 1, 

2014. The preliminary, unaudited 2013 

survey data will be released afterward, 

along with the FY 2012 Worksheet S–3 

wage data, for the FY 2016 wage index 

review and correction process. 

3. Calculation of the Proposed 

Occupational Mix Adjustment for FY 

2014 

For FY 2014, we are proposing to 

calculate the occupational mix 

adjustment factor using the same 

methodology that we used for the FY 

2012 and FY 2013 wage indices (76 FR 

51582 through 51586, and 77 FR 53367 

through 53368, respectively). As a result 

of applying this methodology, the 

proposed FY 2014 occupational mix 

adjusted national average hourly wage is 

$38.2094. The proposed FY 2014 

occupational mix adjusted Puerto Ricospecific average hourly wage is 

$16.5300. 

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 2014 wage index. For the 

FY 2010 survey, the response rate was 

91.7 percent. In the proposed FY 2014 

wage index established in this proposed 

rule, we applied proxy data for 

noncompliant hospitals, new hospitals, 

or hospitals that submitted erroneous or 

aberrant data in the same manner that 

we applied proxy data for such 

hospitals in the FY 2012 wage index 

occupational mix adjustment (76 FR 

51586). 

In the FY 2011 IPPS/LTCH PPS 

proposed rule and final rule (75 FR 

23943 and 75 FR 50167, respectively), 

we stated that, in order to gain a better 

understanding of why some hospitals 

are not submitting the occupational mix 

data, we will require hospitals that do 

not submit occupational mix data to 

provide an explanation for not 

complying. This requirement was 

effective beginning with the 2010 

occupational mix survey. We instructed 

fiscal intermediaries/MACs to continue 

gathering this information as part of the 

FY 2014 wage index desk review 

process. We will review these data for 

future analysis and consideration of 

potential penalties for noncompliant 

hospitals. 

G. Analysis and Implementation of the 

Proposed Occupational Mix Adjustment 

and the Proposed FY 2014 Occupational 

Mix Adjusted Wage Index 

1. Analysis of the Proposed 

Occupational Mix Adjustment and the 

Proposed Occupational Mix Adjusted 

Wage Index 

As discussed in section III.F. of this 

preamble, for FY 2014, we are proposing 

to apply the proposed occupational mix 

adjustment to 100 percent of the 

proposed FY 2014 wage index. We 

calculated the proposed occupational 

mix adjustment using data from the 

2010 occupational mix survey data, 

using the methodology described in the 

FY 2012 IPPS/LTCH PPS final rule (76 

FR 51582 through 51586). 

Using the occupational mix survey 

data and applying the occupational mix 

adjustment to 100 percent of the 

proposed FY 2014 wage index results in 

a proposed national average hourly 

wage of $38.2094 and a proposed 

Puerto-Rico specific average hourly 

wage of $16.5300. After excluding data 

of hospitals that either submitted 

aberrant data that failed critical edits, or 

that do not have FY 2010 Worksheet S– 

3, Parts II and III, cost report data for use 

in calculating the proposed FY 2014 

wage index, we calculated the proposed 

FY 2014 wage index using the 

occupational mix survey data from 

3,188 hospitals. Using the Worksheet S– 

3, Parts II and III, cost report data of 

3,427 hospitals and occupational mix 

survey data from 3,188 hospitals 

represents a 93.0 percent survey 

response rate. The proposed FY 2014 

national average hourly wages for each 

occupational mix nursing subcategory 

as calculated in Step 2 of the 

occupational mix calculation are as 

follows: 

Occupational mix nursing 

subcategory 

Proposed 

average 

hourly wage 

National RN ........................ 37.432120148 

Occupational mix nursing 

subcategory 

Proposed 

average 

hourly wage 

National LPN and Surgical 

Technician ....................... 21.773706724 

National Nurse Aide, Orderly, and Attendant ........ 15.327583858 

National Medical Assistant 17.213605923 

National Nurse Category .... 31.811167234 

The proposed national average hourly 

wage for the entire nurse category as 

computed in Step 5 of the occupational 

mix calculation is $31.811167234. 

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 43.44 

percent, and the national percentage of 

hospital employees in the all other 

occupations category is 56.56 percent. 

At the CBSA level, the percentage of 

hospital employees in the nurse 

category ranged from a low of 21.9 

percent in one CBSA, to a high of 62.0 

percent in another CBSA. 

We compared the proposed FY 2014 

occupational mix adjusted wage indices 

for each CBSA to the proposed 

unadjusted wage indices for each CBSA. 

As a result of applying the proposed 

occupational mix adjustment to the 

wage data, the proposed wage index 

values for 204 (52.2 percent) urban areas 

and 32 (66.7 percent) rural areas would 

increase. One hundred and eighteen 

(30.2 percent) urban areas would 

increase by 1 percent or more, and 4 

(1.02 percent) urban areas would 

increase by 5 percent or more. Thirteen 

(27.1 percent) rural areas would 

increase by 1 percent or more, and no 

rural areas would increase by 5 percent 

or more. However, the proposed wage 

index values for 186 (47.6 percent) 

urban areas and 16 (33.3 percent) rural 

areas would decrease. Seventy-nine 

(20.2 percent) urban areas would 

decrease by 1 percent or more, and 1 

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 6.61 

percent for an urban area and 2.66 

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percent for a rural area. The largest 

negative impacts are 5.28 percent for an 

urban area and 3.17 percent for a rural 

area. One urban area’s wage index, but 

no rural area wage indices, would 

remain unchanged by application of the 

proposed occupational mix adjustment. 

These results indicate that a larger 

percentage of rural areas (66.7 percent) 

would benefit from the proposed 

occupational mix adjustment than 

would urban areas (52.2 percent). 

However, approximately one-third (33.3 

percent) of rural CBSAs would still 

experience a decrease in their proposed 

wage indices as a result of the proposed 

occupational mix adjustment. 

2. Proposed Application of the Rural, 

Imputed, and Frontier Floors 

a. Proposed Rural Floor 

Section 4410(a) 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 proposed FY 2014 wage index 

associated with this proposed rule and 

available on the CMS Web site, we 

estimated that 434 hospitals would 

receive an increase in their FY 2014 

proposed wage index due to the 

application of the rural floor. 

b. Proposed Imputed Floor 

In the FY 2005 IPPS final rule (69 FR 

49109 through 49111), we adopted the 

‘‘imputed floor’’ policy as a temporary 

3-year regulatory measure to address 

concerns from hospitals in all-urban 

States that have argued that they are 

disadvantaged by the absence of rural 

hospitals to set a wage index floor for 

those States. Since its initial 

implementation, we have extended the 

imputed floor policy three times, the 

last of which was adopted in the FY 

2013 IPPS/LTCH PPS final rule and is 

set to expire on September 30, 2014 (we 

refer readers to the discussion in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53368 through 53369) and to our 

regulations at 42 CFR 412.64(h)(4)). 

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 method as of FY 2012 for 

computing the imputed floor, which we 

will refer to as the original 

methodology, benefitted only New 

Jersey, and not Rhode Island. 

In computing the imputed floor for an 

all-urban State under the original 

methodology, we calculated the ratio of 

the lowest-to-highest CBSA wage index 

for each all-urban State (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 compared the State’s own 

ratio to the average ratio for all-urban 

States and whichever is higher was 

multiplied by the highest CBSA wage 

index value in the State—the product of 

which established 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 was equal to its original CBSA 

wage index value. Conversely, New 

Jersey has 10 CBSAs. Because the 

average ratio of New Jersey and Rhode 

Island was higher than New Jersey’s 

own ratio, the original methodology 

provided a benefit for New Jersey, but 

not for Rhode Island. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53368 through 53369), for 

the FY 2013 wage index, the final year 

of the extension of the imputed floor 

policy under § 412.64(h)(4), we did not 

make any changes to the original 

methodology and we finalized a 

proposed alternative, temporary 

methodology for computing the imputed 

floor wage index to address the concern 

that the then-current imputed floor 

methodology guaranteed a benefit for 

one all-urban State with multiple wage 

indices but could not benefit the other. 

The alternative methodology for 

calculating the imputed floor was 

established using data from the 

application of the rural floor policy for 

FY 2013. We first determined 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 the FY 2013 rule, which 

is available on the CMS Web site, 

included the CBSAs receiving a State’s 

rural floor wage index.) The lowest postreclassified 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 established the State’s alternative 

imputed floor. We refer to this 

methodology as the alternative 

methodology. We also adopted a policy 

that, 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 the original methodology or the 

value computed using the alternative 

methodology. We amended 

§ 412.64(h)(4) of the regulations to add 

new paragraph (vi) to incorporate the 

finalized alternative methodology 

policies, and to make conforming 

references in paragraph (v). 

We stated that we intended 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. For FY 2014, we are 

proposing to extend the imputed floor 

policy (both the original methodology 

and the alternative methodology) for 

one additional year, through September 

30, 2014, while we continue to explore 

potential wage index reforms. We are 

proposing to revise the regulations at 

§ 412.64(h)(4) to reflect the proposed 1- 

year extension. We are inviting public 

comments regarding the 1-year 

extension of the imputed floor. 

The wage index and impact tables 

associated with this FY 2014 proposed 

rule that are available on the CMS Web 

site include the application of the 

proposed imputed floor policy at 

§ 412.64(h)(4) and a proposed national 

budget neutrality adjustment for the 

proposed rural floor (which includes the 

proposed imputed floor). There are 35 

hospitals in New Jersey that would 

receive an increase in their FY 2014 

wage index due to the imputed floor 

policy. The proposed wage index and 

impact tables for this proposed rule also 

reflect the application of the alternative 

methodology for computing the imputed 

floor, which will benefit four hospitals 

in Rhode Island. 

c. Proposed 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 

regulations at 42 CFR 412.64(m) and to 

a discussion of the implementation of 

this provision in the FY 2011 IPPS/ 

LTCH PPS final rule (75 FR 50160 

through 50161). Forty-six hospitals 

would receive the frontier floor value of 

1.0000 for their proposed FY 2014 wage 

index in this proposed rule. These 

hospitals are located in Montana, North 

Dakota, South Dakota, and Wyoming. 

Although Nevada is also defined as a 

frontier State, its proposed FY 2014 

rural floor value of 1.1503 is greater 

than 1.0000, and therefore no Nevada 

hospitals would receive a frontier floor 

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value for their proposed FY 2014 wage 

index. 

The areas affected by the proposed 

rural, imputed, and frontier floor 

policies for the proposed FY 2014 wage 

index are identified in Table 4D 

associated with this proposed rule and 

available on the CMS Web site. 

3. Proposed FY 2014 Wage Index Tables 

The proposed wage index values for 

FY 2014 (except those for hospitals 

receiving wage index adjustments under 

section 1886(d)(13) of the Act), included 

in Tables 4A, 4B, 4C, and 4F, available 

on the CMS Web site, include the 

proposed occupational mix adjustment, 

geographic reclassification or 

redesignation as discussed in section 

III.H. of the preamble of this proposed 

rule, and the application of the rural, 

imputed, and frontier State floors as 

discussed in section III.G.2. of the 

preamble of this proposed rule. 

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 2008, 2009, and 2010 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 2008 and FY 2009 cost reporting 

periods, as well as the FY 2010 period 

used to calculate the proposed FY 2014 

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 

include the proposed national rural 

floor budget neutrality adjustment 

(which includes the proposed imputed 

floor). The proposed wage index values 

in Table 2 also include the proposed 

out-migration adjustment for eligible 

hospitals. 

H. Revisions to the Wage Index Based 

on Hospital Redesignations and 

Reclassifications 

1. General Policies and Effects of 

Reclassification and Redesignation 

Under section 1886(d)(10) of the Act, 

the MGCRB considers applications by 

hospitals for geographic reclassification 

for purposes of payment under the IPPS. 

Hospitals must apply to the MGCRB to 

reclassify not later than 13 months prior 

to the start of the fiscal year for which 

reclassification is sought (generally by 

September 1). Generally, hospitals must 

be proximate to the labor market area to 

which they are seeking reclassification 

and must demonstrate characteristics 

similar to hospitals located in that area. 

The MGCRB issues its decisions by the 

end of February for reclassifications that 

become effective for the following fiscal 

year (beginning October 1). The 

regulations applicable to 

reclassifications by the MGCRB are 

located in 42 CFR 412.230 through 

412.280. (We refer readers to a 

discussion in the FY 2002 IPPS final 

rule (66 FR 39874 and 39875) regarding 

how the MGCRB defines mileage for 

purposes of the proximity 

requirements.) The general policies for 

reclassifications and redesignations that 

we are proposing for FY 2014, 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 2014 MGCRB Reclassifications 

a. FY 2014 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 

developed, the MGCRB had completed 

its review of FY 2014 reclassification 

requests. Based on such reviews, there 

were 332 hospitals approved for wage 

index reclassifications by the MGCRB 

for FY 2014. Because MGCRB wage 

index reclassifications are effective for 3 

years, for FY 2014, hospitals reclassified 

during FY 2012 or FY 2013 are eligible 

to continue to be reclassified to a 

particular labor market area based on 

such prior reclassifications. There were 

249 hospitals approved for wage index 

reclassifications in FY 2012, and 192 

hospitals approved for wage index 

reclassifications in FY 2013. Of all the 

hospitals approved for reclassification 

for FY 2012, FY 2013, and FY 2014, 

based upon the review at the time of 

this proposed rule, 773 hospitals are in 

a reclassification status for FY 2014. 

Under the regulations at 42 CFR 

412.273, hospitals that have been 

reclassified by the MGCRB are 

permitted to withdraw their 

applications within 45 days of the 

publication of a proposed rule. For 

information about withdrawing, 

terminating, or canceling a previous 

withdrawal or termination of a 3-year 

reclassification for wage index 

purposes, we refer readers to 42 CFR 

412.273, as well as the FY 2002 IPPS 

final rule (66 FR 39887 through 39888) 

and the FY 2003 IPPS final rule (67 FR 

50065 through 50066). Additional 

discussion on withdrawals and 

terminations, and clarifications 

regarding reinstating reclassifications 

and ‘‘fallback’’ reclassifications, were 

included in the FY 2008 IPPS final rule 

(72 FR 47333). 

Changes to the wage index that result 

from withdrawals of requests for 

reclassification, terminations, wage 

index corrections, appeals, and the 

Administrator’s review process for FY 

2014 will be incorporated into the wage 

index values published in the FY 2014 

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 2015 

Applications for FY 2015 

reclassifications are due to the MGCRB 

by September 3, 2013 (the first working 

day of September 2013). We note that 

this is also the deadline for canceling a 

previous wage index reclassification 

withdrawal or termination under 42 

CFR 412.273(d). As mentioned in 

section III.B. of the preamble of this 

proposed rule, although OMB has 

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24Hospitals generally have 45 days from 

publication of the proposed rule to request an outmigration adjustment in lieu of the section 

1886(d)(8) deemed urban status. 

issued revisions on February 28, 2013 to 

its area delineations, we are not 

proposing to adopt those revisions for 

the FY 2014 wage index, and we will 

not be adopting the revisions before the 

September 3, 2013 deadline for 

applications for the FY 2015 wage 

index. Therefore, hospitals must apply 

for reclassifications based on the 

delineations we are using for FY 2014. 

Applications and other information 

about MGCRB reclassifications may be 

obtained, beginning in mid-July 2013, 

via the Internet on the CMS Web site at: 

http://www.cms.gov/Regulations-andGuidance/Review-Boards/MGCRB/

index.html?redirect=/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. (We note 

that, as mentioned in section III.B. of the 

preamble of this proposed rule, 

although OMB has issued revisions on 

February 28, 2013, to its area 

delineations based on 2010 census data, 

we are not proposing to adopt these 

revisions for the FY 2014 wage index.) 

Hospitals located in these counties have 

been known as ‘‘Lugar’’ hospitals and 

the counties themselves are often 

referred to as ‘‘Lugar’’ counties. The FY 

2014 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. Hospitals Redesignated Under 

Section 1886(d)(8)(B) of the Act Seeking 

Reclassification by the MGCRB 

As in the past, hospitals redesignated 

under section 1886(d)(8)(B) of the Act 

are also eligible to be reclassified to a 

different area by the MGCRB. Using 

Table 4C associated with this proposed 

rule (which is available via the Internet 

on the CMS Web site), affected hospitals 

may compare the reclassified wage 

index for the labor market area into 

which they would be reclassified by the 

MGCRB to the reclassified wage index 

for the area to which they are 

redesignated under section 

1886(d)(8)(B) of the Act. Hospitals may 

withdraw from an MGCRB 

reclassification within 45 days of the 

publication of this FY 2014 proposed 

rule. (We refer readers to the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51598 

through 51599) for the procedural rules 

and requirements for a hospital that is 

redesignated under section 

1886(d)(8)(B) of the Act and seeking 

reclassification under the MGCRB, as 

well as our policy of measuring the 

urban area, exclusive of the Lugar 

County, for purposes of meeting 

proximity requirements.) We treat New 

England deemed counties in a manner 

consistent with how we treat Lugar 

counties. (We refer readers to the FY 

2008 IPPS final rule with comment 

period (72 FR 47337 through 47338) for 

a discussion of this policy.) 

5. 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 V.E. of the preamble of 

this proposed rule.) 

In addition, we adopted a minor 

procedural change that would allow a 

Lugar hospital that qualifies for and 

accepts the out-migration adjustment 

(through written notification to CMS 

within the requisite number of days 

from the publication of the proposed 

rule 24) 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 outmigration 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 outmigration 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. 

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 2014 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 

2014 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) of the 

Act to have waived the out-migration 

adjustment, in the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51601 through 

51602).) Table 4J, which is available via 

the Internet on the CMS Web site, lists 

the proposed out-migration adjustments 

for the proposed FY 2014 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 2014 wage index were 

made available on October 3, 2012, 

through the Internet on the CMS Web 

site at: http://www.cms.gov/Medicare/

Medicare-Fee-for-Service-Payment/

AcuteInpatientPPS/Wage-Index-FilesItems/FY_2014_Wage_Index_Home_

Page.html. 

In the interest of meeting the data 

needs of the public, beginning with the 

proposed FY 2009 wage index, we post 

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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.gov/

Outreach-and-Education/Outreach/

OpenDoorForums/index.html. 

In a memorandum dated October 19, 

2012, 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 3, 2012 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 10, 2012. (We note that this 

date was originally December 3, 2012. 

However, in a memorandum dated 

October 25, 2012, we instructed all 

fiscal intermediaries/MACs to inform 

the IPPS hospitals they service that we 

extended the deadline to December 10, 

2012.) Hospitals were notified of this 

deadline and of all other deadlines and 

requirements, including the requirement 

to review and verify their data as posted 

in the preliminary wage index data files 

on the Internet, through the October 19, 

2012 memorandum referenced above. 

In the October 19, 2012 

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 

documentation to its fiscal 

intermediary/MAC no later than 

December 10, 2012. 

The fiscal intermediaries/MACs 

notified the hospitals by mid-February 

2013 of any changes to the wage index 

data as a result of the desk reviews and 

the resolution of the hospitals’ earlyDecember revision requests. The fiscal 

intermediaries/MACs also submitted the 

revised data to CMS by mid-February 

2013. CMS published the proposed 

wage index public use files that 

included hospitals’ revised wage index 

data on February 21, 2013. Hospitals 

had until March 4, 2013, 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 10, 

2013. The deadline for a hospital to 

request CMS intervention in cases 

where the hospital disagreed with the 

fiscal intermediary’s (or, if applicable, 

the MAC’s) policy interpretations was 

April 17, 2013. 

Hospitals should examine Table 2, 

which is listed in section VI. of the 

Addendum to this proposed rule and 

available via the Internet on the CMS 

Web site at: http://www.cms.gov/

Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/WageIndex-Files-Items/FY_2014_

Wage_Index_Home_Page.html. 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 2010 data used 

to construct the proposed FY 2014 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 

4, 2013. 

We will release the final wage index 

data public use files in early May 2013 

on the Internet at: http://www.cms.gov/ 

Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/WageIndex-Files-Items/FY_2014_Wage_

Index_Home_Page.html. The May 2013 

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 10, 2013). If, after reviewing 

the May 2013 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 3, 

2013. 

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 2013 

wage index data files, changes to the 

wage and occupational mix data will 

only be made in those very limited 

situations involving an error by the 

fiscal intermediary/MAC or CMS that 

the hospital could not have known 

about before its review of the final wage 

index data files. Specifically, neither the 

fiscal intermediary/MAC nor CMS will 

approve the following types of requests: 

• Requests for wage index data 

corrections that were submitted too late 

to be included in the data transmitted to 

CMS by fiscal intermediaries or the 

MACs on or before April 10, 2013. 

• Requests for correction of errors 

that were not, but could have been, 

identified during the hospital’s review 

of the February 21, 2013 wage index 

public use files. 

• Requests to revisit factual 

determinations or policy interpretations 

made by the fiscal intermediary or the 

MAC or CMS during the wage index 

data correction process. 

Verified corrections to the wage index 

data received timely by CMS and the 

fiscal intermediaries or the MACs (that 

is, by June 3, 2013) will be incorporated 

into the final wage index in the FY 2014 

IPPS/LTCH PPS final rule, which will 

be effective October 1, 2013. 

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 2014 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 

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data revision. We refer readers also to 

the FY 2000 IPPS final rule (64 FR 

41513) for a discussion of the 

parameters for appeals to the PRRB for 

wage index data corrections. 

Again, we believe the wage index data 

correction process described above 

provides hospitals with sufficient 

opportunity to bring errors in their wage 

and occupational mix data to the fiscal 

intermediary’s (or, if applicable, the 

MAC’s) attention. Moreover, because 

hospitals have access to the final wage 

index data by early May 2013, 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 2014 wage index by August 

2013, and the implementation of the FY 

2014 wage index on October 1, 2013. 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 3, 

2013, 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 3 deadline for making 

corrections to the wage data for the 

following fiscal year’s wage index. This 

provision is not available to a hospital 

seeking to revise another hospital’s data 

that may be affecting the requesting 

hospital’s wage index for the labor 

market area. As indicated earlier, 

because CMS makes the wage index 

data available to hospitals on the CMS 

Web site prior to publishing both the 

proposed and final IPPS rules, and the 

fiscal intermediaries or the MACs notify 

hospitals directly of any wage index 

data changes after completing their desk 

reviews, we do not expect that midyear 

corrections will be necessary. However, 

under our current policy, if the 

correction of a data error changes the 

wage index value for an area, the 

revised wage index value will be 

effective prospectively from the date the 

correction is made. 

In the FY 2006 IPPS final rule (70 FR 

47385 through 47387 and 47485), we 

revised 42 CFR 412.64(k)(2) to specify 

that, effective on October 1, 2005, that 

is, beginning with the FY 2006 wage 

index, a change to the wage index can 

be made retroactive to the beginning of 

the Federal fiscal year only when CMS 

determines all of the following: (1) The 

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 3, 2013 deadline for the FY 

2014 wage index); and (3) CMS agreed 

before October 1 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 

3, 2013 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 situations where our 

policies would allow midyear 

corrections other than those specified in 

42 CFR 412.64(k)(2)(ii), we continue to 

believe that it is appropriate to make 

prospective-only corrections to the wage 

index. 

We note that, as with prospective 

changes to the wage index, the final 

retroactive correction will be made 

irrespective of whether the change 

increases or decreases a hospital’s 

payment rate. In addition, we note that 

the policy of retroactive adjustment will 

still apply in those instances where a 

judicial decision reverses a CMS denial 

of a hospital’s wage index data revision 

request. 

K. Labor-Related Share for the Proposed 

FY 2014 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 wagerelated 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 laborrelated share estimated from time to 

time by the Secretary, depending on 

which labor-related share results in a 

higher payment. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR 43850 through 

43857), we rebased and revised the IPPS 

market basket and the labor-related 

share, using FY 2006 as the base year. 

The labor-related share for FY 2010 

through FY 2013 is 68.8 percent. 

For FY 2014, as described in section 

IV. of the preamble of this proposed 

rule, we are proposing to rebase and 

revise the IPPS market basket using FY 

2010 as the base year. Using the 

proposed FY 2010-based IPPS market 

basket, we also are proposing to 

recalculate the labor-related share for 

discharges occurring on or after October 

1, 2013. As discussed in Appendix A of 

this proposed rule, we are proposing 

this revised and rebased labor-related 

share in a budget neutral manner. 

However, consistent with section 

1886(d)(3)(E) of the Act, we are not 

taking into account the additional 

payments that would be made as a 

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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. As 

described in section IV. of the preamble 

of this proposed rule, we are proposing 

to include in the labor-related share the 

national average proportion of operating 

costs that are attributable to wages and 

salaries, employee benefits, contract 

labor, the labor-related portion of 

professional fees, administrative and 

facilities support services, and all other 

labor-related services as measured in the 

proposed IPPS market basket, as based 

on FY 2010. Therefore, for FY 2014, we 

are proposing to use a labor-related 

share of 69.6 percent for discharges 

occurring on or after October 1, 2013. 

Tables 1A and 1B, which are published 

in section VI. of the Addendum to this 

proposed rule and are available via the 

Internet, reflect this proposed laborrelated 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 FY 

2014, 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, for FY 2014, we are 

proposing to apply the wage index to a 

labor-related share of 69.6 percent of the 

national standardized amount. We note 

that, for Puerto Rico hospitals, the 

national labor-related share is 62 

percent because the national wage index 

for all Puerto Rico hospitals is less than 

1.0. 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR 43850 through 

43856), we also rebased and revised the 

labor-related share for the Puerto Ricospecific standardized amounts using FY 

2006 as a base year. We finalized a 

labor-related share for the Puerto Ricospecific standardized amounts for FY 

2010 through FY 2013 of 62.1 percent. 

As described in section IV. of the 

preamble of this proposed rule, for FY 

2014, we also are proposing to rebase 

and revise the labor-related share for the 

Puerto Rico-specific standardized 

amounts using FY 2010 as a base year. 

For FY 2014, we are proposing a laborrelated share for the Puerto Rico-specific 

standardized amounts of 63.2 percent 

for discharges occurring on or after 

October 1, 2013. Consistent with our 

methodology for determining the 

national labor-related share, we added 

the Puerto Rico-specific relative weights 

for wages and salaries, employee 

benefits, contract labor, with the 

national proportion of costs for the 

labor-related portion of professional 

fees, administrative and facilities 

support services, and all other laborrelated services to determine the laborrelated 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. For FY 2014, we are proposing 

that the labor-related share of a 

hospital’s Puerto Rico-specific rate will 

be either the Puerto Rico-specific laborrelated share of 63.2 percent or 62 

percent, depending on which results in 

higher payments to the hospital. If the 

hospital has a Puerto Rico-specific wage 

index of greater than 1.0 for FY 2014, 

we will set the hospital’s rates using a 

labor-related share of 63.2 percent for 

the 25 percent portion of the hospital’s 

payment determined by the Puerto Rico 

standardized amounts because this 

amount will result in higher payments. 

Conversely, a hospital with a Puerto 

Rico-specific wage index of less than 1.0 

for FY 2014 will be paid using the 

Puerto Rico-specific labor-related share 

of 62 percent of the Puerto Rico-specific 

rates because the lower labor-related 

share will result in higher payments. 

The proposed Puerto Rico labor-related 

share of 63.2 percent for FY 2014 is 

reflected in Table 1C, which is 

published in section VI. of the 

Addendum to this proposed rule and 

available via the Internet. 

IV. Proposed Rebasing and Revision of 

the Hospital Market Baskets for Acute 

Care Hospitals 

A. Background 

Effective for cost reporting periods 

beginning on or after July 1, 1979, we 

developed and adopted a hospital input 

price index (that is, the hospital market 

basket for operating costs). Although 

‘‘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 document refers to the 

hospital input price index. 

The percentage change in the market 

basket reflects the average change in the 

price of goods and services hospitals 

purchase in order to provide inpatient 

care. We first used the market basket to 

adjust hospital cost limits by an amount 

that reflected the average increase in the 

prices of the goods and services used to 

provide hospital inpatient care. This 

approach linked the increase in the cost 

limits to the efficient utilization of 

resources. 

Since the inception of the IPPS, the 

projected change in the hospital market 

basket has been the integral component 

of the update factor by which the 

prospective payment rates are updated 

every year. An explanation of the 

hospital market basket used to develop 

the prospective payment rates was 

published in the Federal Register on 

September 1, 1983 (48 FR 39764). We 

also refer readers to the FY 2010 IPPS/ 

RY 2010 LTCH PPS final rule (74 FR 

43843) in which we discussed the most 

recent previous rebasing of the hospital 

input price index. 

The hospital market basket is a fixedweight, Laspeyres-type price index. A 

Laspeyres-type 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 of goods and services 

(that is, intensity) 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 2010 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 index 

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 

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because it represents the change in price 

over time of a constant mix (quantity 

and intensity) of goods and services 

needed to provide 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 

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. We last rebased the hospital 

market basket cost weights effective for 

FY 2010 (74 FR 43843), with FY 2006 

data used as the base period for the 

construction of the market basket cost 

weights. 

B. Rebasing and Revising the IPPS 

Market Basket 

The terms ‘‘rebasing’’ and ‘‘revising,’’ 

while often used interchangeably, 

actually denote different activities. 

‘‘Rebasing’’ means moving the base year 

for the structure of costs of an input 

price index (for example, in this 

proposed rule, we are proposing to shift 

the base year cost structure for the IPPS 

hospital index from FY 2006 to FY 

2010). ‘‘Revising’’ means changing data 

sources, or price proxies, used in the 

input price index. As published in the 

FY 2006 IPPS final rule (70 FR 47387), 

in accordance with section 404 of Public 

Law 108–173, CMS determined a new 

frequency for rebasing the hospital 

market basket. We established a 

rebasing frequency of every 4 years and, 

therefore, for the FY 2014 IPPS update, 

we are proposing to rebase and revise 

the IPPS market basket. We are inviting 

public comments on our proposed 

methodology discussed below. 

1. Development of Cost Categories and 

Weights 

a. Medicare Cost Reports 

The major source of expenditure data 

for developing the rebased and revised 

hospital market basket cost weights is 

the FY 2010 Medicare cost reports. 

These FY 2010 Medicare cost reports are 

for cost reporting periods beginning on 

and after October 1, 2009 and before 

October 1, 2010. We are proposing to 

use FY 2010 as the base year because we 

believe that the FY 2010 Medicare cost 

reports represent the most recent, 

complete set of Medicare cost report 

data available for IPPS hospitals. As was 

done in previous rebasings, these cost 

reports are from IPPS hospitals only 

(hospitals excluded from the IPPS and 

CAHs are not included) and are based 

on IPPS Medicare-allowable operating 

costs. IPPS Medicare-allowable 

operating costs are costs that are eligible 

to be paid for under the IPPS. For 

example, the IPPS market basket 

excludes home health agency (HHA) 

costs as these costs would be paid under 

the HHA PPS and, therefore, these costs 

are not IPPS Medicare-allowable costs. 

We are proposing to obtain seven 

major expenditures or cost categories for 

the FY 2010 IPPS market basket from 

the Medicare cost reports—the same as 

in the FY 2006-based hospital market 

basket: wages and salaries, employee 

benefits, contract labor, 

pharmaceuticals, professional liability 

insurance (malpractice), blood and 

blood products, and a residual ‘‘all 

other.’’ The proposed cost weights that 

were obtained directly from the 

Medicare cost reports are reported in 

Table IV01. We are proposing to then 

supplement these Medicare cost report 

cost weights with information obtained 

from other data sources to derive the 

proposed IPPS market basket cost 

weights. 

TABLE IV01—MAJOR COST CATEGORIES AND THEIR RESPECTIVE COST WEIGHTS AS CALCULATED DIRECTLY FROM THE

MEDICARE COST REPORTS

Major cost categories 

FY 2006- 

based market 

basket 

Proposed FY 

2010-based 

market basket 

Wages and salaries ................................................................................................................................................. 45.156 45.819 

Employee benefits ................................................................................................................................................... 11.873 12.713 

Contract labor .......................................................................................................................................................... 2.598 1.806 

Professional Liability Insurance (Malpractice) ......................................................................................................... 1.661 1.330 

Pharmaceuticals ...................................................................................................................................................... 5.380 5.402 

Blood and blood products ........................................................................................................................................ 1.078 1.069 

All other .................................................................................................................................................................... 32.254 31.861 

From FY 2006 to FY 2010, the wages 

and salaries and employee benefits cost 

weights as calculated directly from the 

Medicare cost reports increased by 

approximately 0.7 and 0.8 percentage 

point, respectively, while the contract 

labor cost weight decreased by 0.8 

percentage point. As we did for the FY 

2006-based IPPS market basket (74 FR 

43847), we are proposing to allocate 

contract labor costs to the wages and 

salaries and employee benefits cost 

weights based on their relative 

proportions for employed labor under 

the assumption that contract labor costs 

are comprised of both wages and 

salaries and employee benefits. The 

contract labor allocation proportion for 

wages and salaries is equal to the wages 

and salaries cost weight as a percent of 

the sum of the wages and salaries cost 

weight and the employee benefits cost 

weight. Using the FY 2010 Medicare 

cost report data, this percentage is 78.3 

percent; therefore, we are proposing to 

allocate approximately 78.3 percent of 

the contract labor cost weight to the 

wages and salaries cost weight. Table 

IV02 shows the wages and salaries and 

employee benefit cost weights after 

contract labor allocation for both the FY 

2006-based IPPS market basket and the 

proposed FY 2010-based IPPS market 

basket. 

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TABLE IV02—WAGES AND SALARIES AND EMPLOYEE BENEFITS COST WEIGHTS AFTER CONTRACT LABOR ALLOCATION

Major cost categories 

FY 2006- 

based market 

basket 

Proposed FY 

2010-based 

market basket 

Wages and salaries ................................................................................................................................................. 47.213 47.233 

Employee benefits ................................................................................................................................................... 12.414 13.105 

After the allocation of contract labor, 

the proposed FY 2010-based wages and 

salaries cost weight is relatively similar 

to the FY 2006-based wages and salaries 

cost weight while the proposed FY 

2010-based employee benefits cost 

weight increased 0.7 percentage point. 

This is primarily a result of an increase 

in benefits costs relative to wages and 

salaries costs from the Medicare cost 

report data for employed workers; in 

2006, the ratio of the employee benefits 

cost weight to the wages and salaries 

cost weight was 26.3 percent while in 

2010, this ratio increased to 27.8 

percent. 

b. Other Data Sources 

In addition to the data from the 

Medicare cost reports, the other data 

source we are proposing to use to 

develop the FY 2010-based IPPS 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 (31.861 percent) into more 

detailed hospital expenditure category 

shares. 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. In the 

FY 2010 IPPS/RY 2010 LTCH PPS final 

rule (74 FR 43845), we used the 2002 

Benchmark I–O data (aged to FY 2006) 

for the FY 2006-based IPPS market 

basket, to be effective for FY 2010. 

Because BEA has not yet released new 

Benchmark I–O data, and we believe the 

data to be comprehensive and complete 

as indicated above, we are currently 

proposing to use the 2002 Benchmark I– 

O data in the FY 2010-based IPPS 

market basket. 

Therefore, instead of using the less 

detailed, less accurate Annual I–O data, 

we are proposing to age the 2002 

Benchmark I–O data forward to FY 

2010. The methodology we are 

proposing to use 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. We also are proposing that, 

if more recent BEA benchmark I–O data 

for 2007 is released between the 

proposed and final rule with sufficient 

time to incorporate such data into the 

final rule, we would incorporate these 

data into the FY 2010-based IPPS 

market basket for the final rule. The 

2007 BEA I–O data is expected to be 

released in the summer of 2013. 

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 proposed IPPS market basket. 

Following publication of the FY 2010 

IPPS/RY 2010 LTCH PPS proposed rule, 

and in an effort to provide greater 

transparency, we posted on the CMS 

market basket Web page at: http:// 

www.cms.gov/Research-Statistics-Dataand-Systems/Statistics-Trends-andReports/MedicareProgramRatesStats/ 

MarketBasketResearch.html an 

illustrative spreadsheet that shows how 

the detailed cost weights in the 

proposed rule (that is, those not 

calculated using Medicare cost reports) 

were determined using the 2002 

Benchmark I–O data. As stated above, 

we are proposing to use the 2007 

Benchmark BEA I–O data if available 

before the final rule with sufficient time 

to incorporate such data into the final 

rule. We would use the same 

methodology as described above in 

determining the detailed weights in the 

‘‘all other’’ cost weight. 

2. Cost Category Computation 

As stated previously, for the proposed 

FY 2010-based market basket we are 

proposing to use data from the Medicare 

cost reports to derive seven major cost 

categories. We are proposing the same 

detailed cost categories as the FY 2006- 

based IPPS market basket. Also, we are 

not proposing to change our definition 

of the labor-related share. As discussed 

in more detail below and similar to the 

previous rebasing, we classify a cost 

category as labor-related and include it 

in the labor-related share if the cost 

category is defined as being laborintensive and its cost varies with the 

local labor market. 

3. Selection of Price Proxies 

After computing the FY 2010 cost 

weights for the proposed IPPS market 

basket, it was necessary to select 

appropriate wage and price proxies to 

reflect the rate of price change for each 

expenditure category. We are proposing 

to use the same price proxies that were 

used in the FY 2006-based IPPS market 

basket. A discussion of our rationale for 

selecting these price proxies can be 

found in the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 43845). 

With the exception of the proxy for 

professional liability insurance (PLI), all 

the proxies we are proposing 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 

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represent the price faced 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 IV03 below sets forth the 

proposed FY 2010-based IPPS market 

basket, including the cost categories and 

their respective weights and price 

proxies. For comparison purposes, the 

corresponding FY 2006-based IPPS 

market basket cost weights also are 

listed. A summary outlining the choice 

of the various proxies follows the table. 

TABLE IV03—PROPOSED FY 2010-BASED IPPS HOSPITAL MARKET BASKET COST CATEGORIES, COST WEIGHTS, AND

PRICE PROXIES COMPARED TO FY 2006-BASED IPPS MARKET BASKET COST WEIGHTS

Cost categories 

FY 

2006-based 

hospital 

market basket 

cost weights 

Proposed FY 

2010-based 

hospital 

market basket 

cost weights 

Proposed FY 2010-based hospital market basket price proxies 

1. Compensation .............................. 59.627 60.338 

A. Wages and Salaries 1 .......... 47.213 47.233 ECI for Wages and Salaries, Civilian Hospital Workers. 

B. Employee Benefits 1 ............. 12.414 13.105 ECI for Benefits, Civilian Hospital Workers. 

2. Utilities ......................................... 2.180 2.246 

A. Fuel, Oil, and Gasoline ........ 0.418 0.447 PPI for Petroleum Refineries. 

B. Electricity .............................. 1.645 1.666 PPI for Commercial Electric Power. 

C. Water and Sewage .............. 0.117 0.133 CPI–U for Water & Sewerage Maintenance. 

3. Professional Liability Insurance ... 1.661 1.330 CMS Professional Liability Insurance Premium Index. 

4. All Other ....................................... 36.533 36.086 

A. All Other Products ................ 19.473 19.458 

(1.) Pharmaceuticals ................. 5.380 5.402 PPI for Pharmaceuticals for Human Use, Prescription. 

(2.) Food: Direct Purchases ..... 3.982 4.206 PPI for Processed Foods & Feeds. 

(3.) Food: Contract Services .... 0.575 0.578 CPI–U for Food Away From Home. 

(4.) Chemicals 2 ........................ 1.538 1.529 Blend of Chemical PPIs. 

(5.) Blood and Blood Products 1.078 1.069 PPI for Blood and Organ Banks. 

(6.) Medical Instruments ........... 2.762 2.577 PPI for Medical, Surgical, and Personal Aid Devices. 

(7.) Rubber and Plastics ........... 1.659 1.637 PPI for Rubber & Plastic Products. 

(8.) Paper and Printing Products.1.492 1.507 PPI for Converted Paper & Paperboard Products. 

(9.) Apparel ............................... 0.325 0.299 PPI for Apparel. 

(10.) Machinery and Equipment 0.163 0.151 PPI for Machinery & Equipment. 

(11.) Miscellaneous Products ... 0.519 0.503 PPI for Finished Goods less Food and Energy. 

B. Labor-related Services ......... 9.175 9.249 

(1.) Professional Fees: Laborrelated.5.356 5.500 ECI for Compensation for Professional and Related Occupations. 

(2.) Administrative and Facilities Support Services 3.0.626 0.619 ECI for Compensation for Office and Administrative Services. 

(3.) All Other: Labor-Related 

Services.

3.193 3.130 ECI for Compensation for Private Service Occupations. 

C. Nonlabor-Related Services .. 7.885 7.379 

(1.) Professional Fees: 

Nonlabor-Related.

4.074 3.687 ECI for Compensation for Professional and Related Occupations. 

(2.) Financial Services .............. 1.281 1.239 ECI for Compensation for Financial Activities. 

(3.) Telephone Services ........... 0.627 0.597 CPI–U for Telephone Services. 

(4.) Postage .............................. 0.963 0.956 CPI–U for Postage. 

(5.) All Other: Nonlabor-Related 

Services.

0.940 0.900 CPI–U for All Items less Food and Energy. 

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. 2To 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, see the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43845). 3We note that this cost category in the FY 2006-based IPPS market basket was ‘‘Administrative and Business Support Services.’’ We changed 

the name slightly to be more clear what type of costs are included in this cost category, but we did not change the classification of which costs 

are included in the category. 

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As stated above, we are proposing to 

use the same price proxies used in the 

FY 2006-based IPPS market basket. A 

rationale for selecting these price 

proxies can be found in the FY 2010 

IPPS/RY 2010 LTCH PPS final rule (74 

FR 43845). The price proxies we are 

proposing were selected to most closely 

match the costs included in each of the 

cost categories of the proposed FY 2010- 

based IPPS market basket. As discussed 

above, we are proposing that, if the 2007 

Benchmark I–O data become available 

between the proposed and final rule 

with sufficient time to incorporate such 

data into the final rule, we would 

incorporate this data into the FY 2010- 

based IPPS market basket for the final 

rule. As a result, to the extent the 

incorporation of the 2007 Benchmark I– 

O data results in a different composition 

of costs included in a particular cost 

category, we are proposing that we may 

choose to revise that specific price 

proxy to ensure that the costs included 

in each detailed cost category are best 

aligned with the associated price proxy. 

Below is a list of the price proxies we 

are proposing for the FY 2010-based 

IPPS market basket. 

a. 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. 

b. 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. 

c. 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. 

d. 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. 

e. 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. 

f. 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 

Insurance Premium 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). 

g. 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. This is the 

same proxy that was used in the FY 

2006-based IPPS market basket, 

although BLS since changed the naming 

convention for this series. 

h. 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. 

i. 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. 

j. 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–). 

k. Blood and Blood Products 

We are proposing to use the PPI for 

Blood and Organ Banks (BLS series code 

PCU621991621991) to measure the price 

growth of this cost category. 

l. 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. 

m. Rubber and Plastics 

We are proposing to use the PPI for 

Rubber and Plastic Products (BLS series 

code WPU07) to measure price growth 

of this cost category. 

n. 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. 

o. Apparel 

We are proposing to use the PPI for 

Apparel (BLS series code WPU0381) to 

measure the price growth of this cost 

category. 

p. 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. 

q. 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. 

r. Professional Fees: Labor-Related and 

Professional Fees: Nonlabor-Related 

We are proposing to use the ECI for 

Compensation for Professional and 

Related Occupations (Private Industry) 

(BLS series code CIU2010000120000I) to 

measure the price growth of these cost 

categories. 

s. Administrative and Facilities 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. 

t. 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. 

u. 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. 

v. 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. 

w. Postage 

We are proposing to use the CPI for 

Postage (BLS series code 

CUUR0000SEEC01) to measure the price 

growth of this cost category. 

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x. All Other: Nonlabor-Related Services 

We are proposing to use the CPI for 

All Items Less Food and Energy (BLS 

series code CUUR0000SA0L1E) to 

measure the price growth of this cost 

category. 

Table IV04 compares both the 

historical and forecasted percent 

changes in the FY 2006-based IPPS 

market basket and the proposed FY 

2010-based IPPS market basket. 

TABLE IV04—FY 2006-BASED AND PROPOSED FY 2010-BASED PROSPECTIVE PAYMENT HOSPITAL OPERATING INDEX

PERCENT CHANGE, FY 2008 THROUGH FY 2016 

Fiscal year (FY) 

FY 2006- 

based IPPS 

market basket 

operating 

index percent 

change 

Proposed FY 

2010-based 

IPPS market 

basket 

operating 

index percent 

change 

Historical data: 

FY 2008 ............................................................................................................................................................ 4.0 4.0 

FY 2009 ............................................................................................................................................................ 2.6 2.6 

FY 2010 ............................................................................................................................................................ 2.1 2.1 

FY 2011 ............................................................................................................................................................ 2.7 2.7 

FY 2012 ............................................................................................................................................................ 2.2 2.2 

Average FYs 2008–2012 .................................................................................................................................. 2.7 2.7 

Forecast: 

FY 2013 ............................................................................................................................................................ 2.2 2.2 

FY 2014 ............................................................................................................................................................ 2.5 2.5 

FY 2015 ............................................................................................................................................................ 2.7 2.7 

FY 2016 ............................................................................................................................................................ 3.0 3.0 

Average FYs 2013–2016 .................................................................................................................................. 2.6 2.6 

Source: IHS Global Insight, Inc., 1st Quarter 2013. 

The differences between the FY 2006- 

based and the proposed FY 2010-based 

IPPS market basket increases are 

minimal. While the percent changes 

differ slightly, when rounded to the 

nearest tenth, the updates based on the 

FY 2006-based and the proposed FY 

2010-based IPPS market baskets are the 

same. 

4. Labor-Related Share 

Under section 1886(d)(3)(E) of the 

Act, the Secretary estimates from time to 

time the proportion of payments 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 proportion of hospitals’ 

costs that are attributable to wages and 

wage-related costs as the ‘‘labor-related 

share.’’ 

The labor-related share is used to 

determine the proportion of the national 

PPS base payment rate to which the area 

wage index is applied. We include a 

cost category in the labor-related share 

if the costs are labor intensive and vary 

with the local labor market. Because of 

this approach, we are proposing to 

include in the labor-related share the 

national average proportion of operating 

costs that are attributable to wages and 

salaries, employee benefits, contract 

labor, the labor-related portion of 

professional fees, administrative and 

facilities support services, and all other: 

labor-related services, as we did in the 

FY 2010 IPPS/RY 2010 LTCH PPS final 

rule (74 FR 43850). Consistent with 

previous rebasings, the ‘‘all other: laborrelated services’’ cost category is mostly 

comprised of building maintenance and 

security services (including, but not 

limited to, commercial and industrial 

machinery and equipment repair, 

nonresidential maintenance and repair, 

and investigation and security services). 

Because these services tend to be laborintensive and are mostly performed at 

the hospital facility (and, therefore, 

unlikely to be purchased in the national 

market), we believe that they meet our 

definition of labor-related services. 

Similar to the FY 2006-based IPPS 

market basket, we are proposing that the 

professional fees: labor-related cost 

category includes expenses associated 

with advertising and a proportion of 

legal services, accounting and auditing, 

engineering, management consulting, 

and management of companies and 

enterprises expenses. As was done in 

the FY 2006-based IPPS market basket 

rebasing, we are proposing to determine 

the proportion of legal, accounting and 

auditing, engineering, and management 

consulting services that meet our 

definition of labor-related services based 

on a survey of hospitals conducted by 

CMS in 2008. We notified the public of 

our intent to conduct this survey on 

December 9, 2005 (70 FR 73250) and 

received no comments (71 FR 8588). 

With approval from the OMB, we 

contacted the industry and received 

responses to our survey from 108 

hospitals. Using data on FTEs to allocate 

responding hospitals across strata 

(region of the country and urban/rural 

status), we calculated poststratification 

weights. A more thorough discussion of 

the composition of the survey and 

poststratification can be found in the FY 

2010 IPPS/RY 2010 LTCH PPS final rule 

(74 FR 43850 through 43856). Based on 

the weighted results of the survey, we 

determined that hospitals purchase, on 

average, the following portions of 

contracted professional services outside 

of their local labor market: 

• 34 percent of accounting and 

auditing services; 

• 30 percent of engineering services; 

• 33 percent of legal services; and 

• 42 percent of management 

consulting services. 

We are proposing to apply each of 

these percentages to its respective 

Benchmark I–O cost category 

underlying the professional fees cost 

category. This is the methodology that 

we used to separate the FY 2006-based 

IPPS market basket professional fees 

category into professional fees: laborrelated and professional fees: nonlaborrelated cost categories. We are 

proposing to use the same methodology 

and survey results to separate the FY 

2010-based IPPS market basket 

professional fees category into 

professional fees: labor-related and 

professional fees: nonlabor-related cost 

categories. We believe these survey 

results are appropriate to use for the FY 

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2010-based IPPS market basket rebasing 

as they empirically determine the 

proportion of contracted professional 

services purchased by the industry that 

is attributable to local firms and the 

proportion that is purchased from 

national firms. 

In the proposed FY 2010-based IPPS 

market basket, nonmedical professional 

fees that were subject to allocation 

based on the survey results represent 

2.059 percent of total costs (and are 

limited to those fees related to 

Accounting & Auditing, Legal, 

Engineering, and Management 

Consulting services). Based on our 

survey results, we are apportioning 

1.301 percentage points of the 2.059 

percentage point figure into the laborrelated share and designating the 

remaining 0.758 percentage point as 

nonlabor-related. 

In addition to the professional 

services listed above, we also classify a 

proportion of the expenses under 

NAICS 55, Management of Companies 

and Enterprises, into the professional 

fees: labor-related cost category as was 

done in the previous rebasing. The 

NAICS 55 data are mostly comprised of 

corporate, subsidiary, and regional 

managing offices, or otherwise referred 

to as home offices. As was done for the 

FY 2006-based IPPS market basket we 

are proposing to include only a portion 

of the home office costs in the labor 

related share as not all hospitals are 

located in the same geographic area as 

their home office. 

Our proposed methodology is based 

on data from the Medicare cost reports, 

as well as a CMS database of Home 

Office Medicare Records (HOMER) (a 

database that provides city and State 

information (addresses) for home 

offices). The Medicare cost report 

requires hospitals to report their home 

office provider numbers and locations. 

Using the data reported on the Medicare 

Cost Report as well as the HOMER 

database to determine the home office 

location for each home office provider 

number, we compared the location of 

the hospital with the location of the 

hospital’s home office. We determined 

the proportion of costs that should be 

allocated to the labor-related share 

based on the percent of total hospital 

home office compensation costs for 

those hospitals that had home offices 

located in their respective local labor 

markets—defined as being in the same 

Metropolitan Statistical Area (MSA). We 

primarily determined a hospital’s and 

home office’s MSAs using their zip code 

information from the Medicare cost 

report. For any home offices for which 

we could not identify a MSA from the 

Medicare cost report, we used the 

Medicare HOMER database to identify 

the home office’s city and State. 

We are proposing to determine the 

proportion of costs that should be 

allocated to the labor-related share 

based on the percent of hospital home 

office compensation as reported in 

Worksheet S–3, part II. Using this 

proposed methodology, we determined 

that 62 percent of hospitals’ home office 

compensation costs were for home 

offices located in their respective local 

labor markets, and therefore, we are 

proposing to allocate 62 percent of 

NAICS 55 expenses to the labor-related 

share. 

In the proposed FY 2010-based IPPS 

market basket, NAICS 55 expenses that 

were subject to allocation based on the 

home office allocation methodology 

represent 5.650 percent of the total 

operating costs. Based on the home 

office results, we are apportioning 3.503 

percentage points of the 5.650 

percentage points figure into the laborrelated share and designating the 

remaining 2.147 percentage points as 

nonlabor-related. In sum, based on the 

two proposed allocations mentioned 

above, we are proposing to apportion 

4.804 percentage points into the laborrelated share. This amount is added to 

the 0.696 percentage point of 

professional fees that we already 

identified as labor-related, resulting in a 

proposed professional fees: labor-related 

cost weight of 5.500 percent. 

Below is a table comparing the 

proposed FY 2010-based labor-related 

share and the FY 2006-based laborrelated share. As discussed in section 

IV.B.3. of the preamble of this proposed 

rule, the wages and salaries and 

employee benefits cost weight reflect 

contract labor costs. 

TABLE IV05—COMPARISON OF THE PROPOSED FY 2010-BASED LABOR-RELATED SHARE AND THE FY 2006-BASED

LABOR-RELATED SHARE

FY 2006- 

based market 

basket cost 

weights 

Proposed FY 

2010-based 

market basket 

cost weights 

Wages and Salaries ................................................................................................................................................ 47.213 47.233 

Employee Benefits ................................................................................................................................................... 12.414 13.105 

Professional Fees: Labor-Related ........................................................................................................................... 5.356 5.500 

Administrative and Facilities ....................................................................................................................................

Support Services ..................................................................................................................................................... 0.626 0.619 

All Other: Labor-Related Services ........................................................................................................................... 3.193 3.130 

Total Labor-Related Share ............................................................................................................................... 68.802 69.587 

Using the cost category weights from 

the proposed FY 2010-based IPPS 

market basket, we calculated a laborrelated share of 69.587 percent, 

approximately 0.8 percentage point 

higher than the current labor-related 

share of 68.802. 

We continue to believe, as we have 

stated in the past, that these operating 

cost categories are related to, influenced 

by, or vary with the local markets. 

Therefore, our definition of the laborrelated share continues to be consistent 

with section 1886(d)(3) of the Act. 

Using the proposed cost category 

weights that we determined in section 

IV.B.1. of the preamble of this proposed 

rule, we calculated a proposed laborrelated share of 69.587 percent, using 

the proposed FY 2010-based IPPS 

market basket. Accordingly, we are 

proposing to implement a labor-related 

share of 69.6 percent for discharges 

occurring on or after October 1, 2013. 

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 62 percent ‘‘would result in 

lower payments to a hospital than 

would otherwise be made.’’ 

We also are proposing to update the 

labor-related share for Puerto Rico. 

Consistent with our methodology for 

determining the national labor-related 

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share, we calculate the Puerto Ricospecific relative weights for wages and 

salaries, employee benefits, and contract 

labor using FY 2010 Medicare cost 

report data for IPPS hospitals located in 

Puerto-Rico. Because there are no Puerto 

Rico-specific relative weights for 

professional fees and labor intensive 

services, we use the national weights as 

shown in Table IV05. This is the same 

methodology we used to determine the 

FY 2006-based Puerto Rico-specific 

labor-related share derived during the 

FY 2006-based IPPS market basket 

rebasing (74 FR 43856). 

Below is a table comparing the 

proposed FY 2010-based Puerto Ricospecific labor-related share and the FY 

2006-based Puerto Rico-specific laborrelated share. 

TABLE IV06—COMPARISON OF THE PROPOSED FY 2010-BASED PUERTO RICO-SPECIFIC LABOR-RELATED SHARE AND FY 

2006-BASED PUERTO RICO-SPECIFIC LABOR-RELATED SHARE

FY 2006- 

based market 

basket cost 

weights 

Proposed FY 

2010-based 

market basket 

cost weights 

Wages and Salaries ................................................................................................................................................ 44.221 44.918 

Benefits .................................................................................................................................................................... 8.691 8.990 

Professional Fees: Labor-Related ........................................................................................................................... 5.356 5.500 

Administrative and Facilities Support Services ....................................................................................................... 0.626 0.619 

All Other: Labor-Related Services ........................................................................................................................... 3.193 3.130 

Total Labor-Related Share ............................................................................................................................... 62.087 63.157 

Using the proposed FY 2010-based 

Puerto Rico cost category weights, we 

calculated a labor-related share of 

63.157 percent, approximately 1.1 

percentage points higher than the 

current Puerto-Rico specific laborrelated share of 62.087. Accordingly, we 

are proposing to adopt an updated 

Puerto Rico labor-related share of 63.2 

percent. 

C. Market Basket for Certain Hospitals 

Presently Excluded From the IPPS 

In the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule (74 FR 43857), we 

adopted the use of the FY 2006-based 

IPPS operating market basket percentage 

increase to update the target amounts 

for children’s hospitals, PPS-excluded 

cancer hospitals and religious 

nonmedical health care institutions 

(RNHCIs). Children’s hospitals and PPSexcluded cancer hospitals and RNHCIs 

are still reimbursed solely under the 

reasonable cost-based system, subject to 

the rate-of-increase limits. Under these 

limits, an annual target amount 

(expressed in terms of the inpatient 

operating cost per discharge) is set for 

each hospital based on the hospital’s 

own historical cost experience trended 

forward by the applicable rate-ofincrease percentages. 

Under the broad authority in sections 

1886(b)(3)(A) and (B), 1886(b)(3)(E), and 

1871 of the Act and section 4454 of the 

BBA, consistent with our use of the 

IPPS operating market basket percentage 

increase to update target amounts, we 

are proposing to use the FY 2010-based 

IPPS operating market basket percentage 

increase to update the target amounts 

for children’s hospitals, 11 PPSexcluded cancer hospitals, and RNHCIs 

that are paid on the basis of reasonable 

cost subject to the rate-of-increase limits 

under § 413.40. 

Due to the small number of children’s 

and cancer hospitals and RNHCIs that 

receive, in total, less than 1 percent of 

all Medicare payments to hospitals and 

because these hospitals provide limited 

Medicare cost report data, we are unable 

to create a separate market basket 

specifically for these hospitals. Due to 

the limited cost report data available, 

we believe that the proposed FY 2010- 

based IPPS operating market basket 

most closely represents the cost 

structure of children’s hospitals, PPSexcluded cancer hospitals, and RNHCIs. 

We believe this is appropriate as the 

IPPS operating market basket would 

reflect the input price growth for 

providing inpatient hospital services 

(similar to the services provided by the 

above excluded hospitals) based on the 

specific mix of goods and services 

required. Therefore, we believe that the 

percentage change in the proposed FY 

2010-based IPPS operating market 

basket is the best available measure of 

the average increase in the prices of the 

goods and services purchased by the 11 

cancer hospitals, children’s hospitals, 

and RNHCIs in order to provide care. 

D. Rebasing and Revising the Capital 

Input Price Index (CIPI) 

The CIPI was originally described in 

the FY 1993 IPPS final rule (57 FR 

40016). There have been subsequent 

discussions of the CIPI presented in the 

IPPS proposed and final payment rules. 

The FY 2010 IPPS/RY 2010 LTCH PPS 

final rule (74 FR 43857) discussed the 

most recent rebasing and revision of the 

CIPI to a FY 2006 base year, which 

reflected the capital cost structure of the 

hospital industry in that year. 

For the FY 2014 IPPS update, we are 

proposing to rebase and revise the CIPI 

to a FY 2010 base year to reflect the 

more current structure of capital costs in 

hospitals. As with the FY 2006-based 

index, we developed two sets of weights 

in order to calculate the proposed FY 

2010-based CIPI. The first set of weights 

identifies the proportion of hospital 

capital expenditures attributable to each 

expenditure category, while the second 

set of weights is a set of relative vintage 

weights for depreciation and interest. 

The set of vintage weights is used to 

identify the proportion of capital 

expenditures within a cost category that 

is attributable to each year over the 

useful life of the capital assets in that 

category. A more thorough discussion of 

vintage weights is provided later in this 

section. 

Both sets of weights are developed 

using the best data sources available. In 

reviewing source data, we determined 

that the Medicare cost reports provided 

accurate data for all capital expenditure 

cost categories. We used the FY 2010 

Medicare cost reports for IPPS hospitals 

to determine weights for all three cost 

categories: depreciation, interest, and 

other capital expenses. 

Lease expenses are unique in that 

they are not broken out as a separate 

cost category in the CIPI, but rather are 

proportionally distributed among the 

cost categories of Depreciation, Interest, 

and Other, reflecting the assumption 

that the underlying cost structure and 

price movement of leases is similar to 

that of capital costs in general. As was 

done in previous rebasings of the CIPI, 

we first assumed 10 percent of lease 

expenses represents overhead and 

assigned those costs to the Other 

category accordingly. The remaining 

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lease expenses were distributed across 

the three cost categories based on the 

respective weights of Depreciation, 

Interest, and Other not including lease 

expenses. 

Depreciation contains two 

subcategories: (1) Building and Fixed 

equipment; and (2) Movable Equipment. 

The proposed apportionment between 

building and fixed equipment and 

movable equipment was determined 

using the Medicare cost reports. This 

methodology was also used to compute 

the apportionment used in the FY 2006- 

based index. 

The total Interest cost category is split 

between government/nonprofit interest 

and for-profit interest. The FY 2006- 

based CIPI allocated 85 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 15 percent of the interest cost 

weight was allocated to for-profit 

interest and was proxied by the average 

yield on Moody’s Aaa bonds (74 FR 

43857). 

For the FY 2010-based CIPI, we are 

proposing to derive the split using the 

relative FY 2010 Medicare cost report 

data on interest expenses for 

government/nonprofit and for-profit 

hospitals. Based on these data, we 

calculated an 89/11 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. 

Table IV07 presents a comparison of 

the proposed FY 2010-based CIPI cost 

weights and the FY 2006-based CIPI cost 

weights. 

TABLE IV07—PROPOSED FY 2010-BASED CIPI COST CATEGORIES, WEIGHTS, AND PRICE PROXIES WITH FY 2006- 

BASED CIPI INCLUDED FOR COMPARISON

Cost categories FY 2006 

weights 

Proposed 

FY 2010 

weights 

Price proxy 

Total ................................................. 100.00 100.00 

Total depreciation ............................ 75.154 74.011 

Building and fixed equipment depreciation.35.789 36.153 BEA chained price index for nonresidential construction for hospitals 

and special care facilities—vintage-weighted (26 years). 

Movable equipment depreciation ..... 39.365 37.858 PPI for machinery and equipment—vintage-weighted (12 years). 

Total interest .................................... 17.651 19.157 

Government/nonprofit interest ......... 15.076 17.051 Average yield on domestic municipal bonds (Bond Buyer 20 bonds)— 

vintage-weighted (26 years). 

For-profit interest ............................. 2.575 2.106 Average yield on Moody’s Aaa bonds—vintage-weighted (26 years). 

Other ................................................ 7.195 6.832 CPI–U for residential rent. 

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 

CIPI is intended to capture the longterm 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 

used the vintage weights to compute 

vintage-weighted price changes 

associated with depreciation and 

interest expense. Following publication 

of the FY 2010 IPPS/RY 2010 LTCH PPS 

proposed rule, and in order to provide 

greater transparency, we posted on the 

CMS market basket Web page at: http:// 

www.cms.gov/Research-Statistics-Dataand-Systems/Statistics-Trends-andReports/MedicareProgramRatesStats/ 

MarketBasketResearch.html an 

illustrative spreadsheet that contains an 

example of how the vintage-weighted 

price indexes are calculated. 

Vintage weights are an integral part of 

the CIPI. 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. The CIPI 

accurately reflects the annual price 

changes associated with capital costs, 

and is a useful simplification of the 

actual capital investment process. By 

accounting for the vintage nature of 

capital, we are able to provide an 

accurate, 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 CIPI reflects 

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 a 

uniquely best 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, AHA does provide 

a consistent database back to 1963. 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 

2010. 

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. We used FY 

2010 Medicare cost reports to determine 

the expected life of building and fixed 

equipment and of movable equipment. 

The expected life of any piece of 

equipment 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 depreciation 

were to continue at current year levels, 

assuming straight-line depreciation. 

From the FY 2010 Medicare cost 

reports, the proposed expected life of 

building and fixed equipment was 

determined to be 26 years, and the 

proposed expected life of movable 

equipment was determined to be 12 

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years. The FY 2006-based CIPI was 

based on an expected life of building 

and fixed equipment of 25 years and 12 

years as the expected life for movable 

equipment. 

We are proposing to use the building 

and fixed equipment and movable 

equipment weights derived from FY 

2010 Medicare cost reports 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 from the FY 2010 

Medicare cost reports. We then 

calculated a time series back to 1963 of 

annual capital purchases by subtracting 

the previous year asset costs from the 

current year 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 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. 

Because building and fixed equipment 

have an expected life of 26 years, the 

vintage weights for building and fixed 

equipment are deemed to represent the 

average purchase pattern of building 

and fixed equipment over 26-year 

periods. With real building and fixed 

equipment purchase estimates available 

back to 1963, we averaged twenty-two 

26-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 26-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 26-year period. This 

calculation is done for each year in the 

26-year period, and for each of the 

twenty-two 26-year periods. We used 

the average of each year across the 

twenty-two 26-year periods to 

determine the average building and 

fixed equipment vintage weights for the 

proposed FY 2010-based CIPI. 

For 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. Based on our determination 

that movable equipment has an 

expected life of 12 years, the vintage 

weights for movable equipment 

represent the average expenditure for 

movable equipment over a 12-year 

period. With real movable equipment 

purchase estimates available back to 

1963, thirty-six 12-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 12- 

year period are calculated by dividing 

the real movable capital purchase 

amount for any given year by the total 

amount of purchases in the 12-year 

period. This calculation was done for 

each year in the 12-year period and for 

each of the thirty-six 12-year periods. 

We used the average of each year across 

the thirty-six 12-year periods to 

determine the average movable 

equipment vintage weights for the 

proposed FY 2010-based CIPI. 

For 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. Because we have 

determined that hospital debt 

instruments have an expected life of 26 

years, the vintage weights for interest 

are deemed to represent the average 

purchase pattern of total equipment 

over 26-year periods. With nominal total 

equipment purchase estimates available 

back to 1963, twenty-two 26-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 26-year period are 

calculated by dividing the nominal total 

capital purchase amount for any given 

year by the total amount of purchases in 

the 26-year period. This calculation is 

done for each year in the 26-year period 

and for each of the twenty-two 26-year 

periods. We used the average of each 

year across the twenty-two 26-year 

periods to determine the average 

interest vintage weights for the 

proposed FY 2010-based CIPI. 

The vintage weights for the FY 2006- 

based CIPI and the proposed FY 2010- 

based CIPI are presented in Table IV08. 

TABLE IV08—FY 2006 VINTAGE WEIGHTS AND PROPOSED FY 2010 VINTAGE WEIGHTS FOR CAPITAL-RELATED PRICE

PROXIES

Year 1

Building and fixed equipment Movable equipment Interest 

FY 2006 

25 years 

FY 2010 

26 years 

FY 2006 

12 years 

FY 2010 

12 years 

FY 2006 

25 years 

FY 2010 

26 years 

1 ............................................................... 0.021 0.023 0.063 0.064 0.010 0.012 

2 ............................................................... 0.023 0.024 0.067 0.068 0.012 0.013 

3 ............................................................... 0.025 0.026 0.071 0.071 0.014 0.015 

4 ............................................................... 0.027 0.028 0.075 0.073 0.016 0.017 

5 ............................................................... 0.029 0.029 0.079 0.076 0.018 0.018 

6 ............................................................... 0.031 0.031 0.082 0.078 0.020 0.021 

7 ............................................................... 0.032 0.032 0.085 0.084 0.023 0.023 

8 ............................................................... 0.033 0.034 0.086 0.088 0.025 0.025 

9 ............................................................... 0.036 0.036 0.090 0.092 0.028 0.028 

10 ............................................................. 0.038 0.038 0.093 0.098 0.031 0.030 

11 ............................................................. 0.040 0.040 0.102 0.103 0.034 0.033 

12 ............................................................. 0.042 0.041 0.106 0.106 0.038 0.036 

13 ............................................................. 0.044 0.042 ........................ ........................ 0.041 0.038 

14 ............................................................. 0.045 0.042 ........................ ........................ 0.044 0.040 

15 ............................................................. 0.046 0.043 ........................ ........................ 0.047 0.043 

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TABLE IV08—FY 2006 VINTAGE WEIGHTS AND PROPOSED FY 2010 VINTAGE WEIGHTS FOR CAPITAL-RELATED PRICE

PROXIES—Continued 

Year 1

Building and fixed equipment Movable equipment Interest 

FY 2006 

25 years 

FY 2010 

26 years 

FY 2006 

12 years 

FY 2010 

12 years 

FY 2006 

25 years 

FY 2010 

26 years 

16 ............................................................. 0.047 0.044 ........................ ........................ 0.050 0.045 

17 ............................................................. 0.048 0.044 ........................ ........................ 0.053 0.047 

18 ............................................................. 0.050 0.044 ........................ ........................ 0.057 0.048 

19 ............................................................. 0.050 0.044 ........................ ........................ 0.059 0.051 

20 ............................................................. 0.050 0.044 ........................ ........................ 0.060 0.052 

21 ............................................................. 0.048 0.045 ........................ ........................ 0.060 0.056 

22 ............................................................. 0.048 0.045 ........................ ........................ 0.062 0.057 

23 ............................................................. 0.047 0.045 ........................ ........................ 0.063 0.060 

24 ............................................................. 0.049 0.046 ........................ ........................ 0.068 0.062 

25 ............................................................. 0.048 0.045 ........................ ........................ 0.069 0.064 

26 ............................................................. ........................ 0.045 ........................ ........................ ........................ 0.066 

Total .................................................. 1.000 1.000 1.000 1.000 1.000 1.000 

Note: Detail may not add to total due to rounding. 

1Year 1 represents the vintage weight applied to the farthest year while the vintage weight for year 26, for example, would apply to the most 

recent year. 

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 for the FY 

2010-based CIPI that were used in the 

FY 2006-based CIPI. The rationale for 

selecting the price proxies was 

explained more fully in the FY 1997 

IPPS final rule (61 FR 46196) and the FY 

2010 IPPS/RY 2010 LTCH PPS final rule 

(74 FR 43857). These proposed price 

proxies are presented in Table IV07. 

Table IV09 below compares both the 

historical and forecasted percent 

changes in the FY 2006-based CIPI and 

the proposed FY 2010-based CIPI. 

TABLE IV09—COMPARISON OF FY 2006-BASED AND PROPOSED FY 2010-BASED CAPITAL INPUT PRICE INDEX, PERCENT

CHANGE, FY 2008 THROUGH FY 2016 

Fiscal year CIPI, FY 2006- 

based 

Proposed 

CIPI, FY 2010- 

based 

FY 2008 ................................................................................................................................................................... 1.5 1.1 

FY 2009 ................................................................................................................................................................... 1.5 1.2 

FY 2010 ................................................................................................................................................................... 1.0 0.7 

FY 2011 ................................................................................................................................................................... 1.2 0.9 

FY 2012 ................................................................................................................................................................... 1.2 1.0 

Forecast: 

FY 2013 ............................................................................................................................................................ 1.2 1.0 

FY 2014 ............................................................................................................................................................ 1.4 1.2 

FY 2015 ............................................................................................................................................................ 1.5 1.3 

FY 2016 ............................................................................................................................................................ 1.7 1.5 

Average: 

FYs 2008–2012 ................................................................................................................................................ 1.3 1.0 

FYs 2013–2016 ................................................................................................................................................ 1.5 1.3 

Source: IHS Global Insight, Inc., 1st Quarter 2013 forecast. 

IHS Global Insight, Inc. forecasts a 1.2 

percent increase in the FY 2010-based 

CIPI for FY 2014, as shown in Table 

IV09. The underlying vintage-weighted 

price increases for depreciation 

(including building and fixed 

equipment and movable equipment) and 

interest (including government/ 

nonprofit and for-profit) are included in 

Table IV10. 

TABLE IV10—CMS CAPITAL INPUT PRICE INDEX PERCENT CHANGES, TOTAL AND DEPRECIATION AND INTEREST

COMPONENTS—FYS 2008 THROUGH 2016 

Fiscal year Total Depreciation Interest 

FY 2008 ....................................................................................................................................... 1.1 2.0 ¥3.1 

FY 2009 ....................................................................................................................................... 1.2 2.0 ¥2.0 

FY 2010 ....................................................................................................................................... 0.7 1.7 ¥2.8 

FY 2011 ....................................................................................................................................... 0.9 1.7 ¥2.3 

FY 2012 ....................................................................................................................................... 1.0 1.7 ¥2.7 

Forecast: 

FY 2013 ................................................................................................................................ 1.0 1.7 ¥2.8 

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TABLE IV10—CMS CAPITAL INPUT PRICE INDEX PERCENT CHANGES, TOTAL AND DEPRECIATION AND INTEREST

COMPONENTS—FYS 2008 THROUGH 2016—Continued 

Fiscal year Total Depreciation Interest 

FY 2014 ................................................................................................................................ 1.2 1.8 ¥2.3 

FY 2015 ................................................................................................................................ 1.3 1.9 ¥1.7 

FY 2016 ................................................................................................................................ 1.5 1.9 ¥0.7 

Source: IHS Global Insight, Inc., 1st Quarter 2013 forecast 

Rebasing the CIPI from FY 2006 to FY 

2010 decreased the percent change in 

the forecasted update for FY 2014 by 0.2 

percentage point, from 1.4 percent to 1.2 

percent, as shown in Table IV09. The 

difference in the forecasted market 

basket update for FY 2014 is primarily 

due to the rebasing of the index to FY 

2010 and revising the base year cost 

weights to incorporate the FY 2010 

Medicare cost report data. 

V. Other Decisions and Proposed 

Changes to the IPPS for Operating Costs 

and GME Costs 

A. Proposed Changes in the Inpatient 

Hospital Update for FY 2014 

(§§ 412.64(d) and 412.211(c)) 

1. Proposed FY 2014 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.’’ 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 2014 as equal to the rate-of-increase 

in the hospital market basket for IPPS 

hospitals in all areas, subject to a 

reduction of 2.0 percentage points if the 

hospital fails to submit quality 

information under rules established by 

the Secretary in accordance with section 

1886(b)(3)(B)(viii) of the Act, and then 

subject to an adjustment based on 

changes in economy-wide productivity 

(the multifactor productivity (MFP) 

adjustment), and an additional 

reduction of 0.3 percentage point. 

Sections 1886(b)(3)(B)(xi) and 

(b)(3)(B)(xii) of the Act, as added by 

section 3401(a) of the Affordable Care 

Act, state that application of the MFP 

adjustment and the additional FY 2014 

adjustment of 0.3 percentage point may 

result in the applicable percentage 

increase being less than zero. 

We note, in compliance with section 

404 of the MMA, in this proposed rule, 

we are proposing to replace the FY 

2006-based IPPS operating and capital 

market baskets with the revised and 

rebased FY 2010-based IPPS operating 

and capital market baskets for FY 2014. 

We also are proposing to rebase the 

labor-related share to reflect the more 

recent base year. The current laborrelated share, which is based on the FY 

2006-based IPPS market basket, is 68.8 

percent. We are proposing a laborrelated share of 69.6 percent, which is 

based on the proposed rebased and 

revised FY 2010-based IPPS market 

basket. For a complete discussion on the 

rebasing of the market basket and laborrelated share, we refer readers to section 

IV. of the preamble of this proposed 

rule. 

Based on the most recent data 

available for this proposed rule, in 

accordance with section 1886(b)(3)(B) of 

the Act, we are proposing to base the 

proposed FY 2014 market basket update 

used to determine the applicable 

percentage increase for the IPPS on the 

IHS Global Insight, Inc. (IGI’s) first 

quarter 2013 forecast of the FY 2010- 

based IPPS market basket rate-ofincrease, which is estimated to be 2.5 

percent. In the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51689 through 51692), 

we finalized our methodology for 

calculating and applying the MFP 

adjustment. For FY 2014, we are not 

proposing any change in our 

methodology for calculating and 

applying the MFP adjustment. However, 

for this proposed rule, we are using the 

most recent data available to compute 

the MFP adjustment. Using the 

methodology that we finalized in the FY 

2012 IPPS/LTCH PPS final rule (76 FR 

51690), the proposed FY 2014 market 

basket update, 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 2014) of 0.4 percent. 

Following application of the MFP 

adjustment, the applicable percentage 

increase is then reduced by 0.3 

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 2013 forecast 

of the FY 2014 market basket increase, 

we are proposing an applicable 

percentage increase to the FY 2014 

operating standardized amount of 1.8 

percent (that is, the FY 2014 estimate of 

the market basket rate-of-increase of 2.5 

percent less an adjustment of 0.4 

percentage point for economy-wide 

productivity (that is, the MFP 

adjustment) and less 0.3 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. For 

hospitals that do not submit these 

quality data, we are proposing an 

applicable percentage increase to the 

operating standardized amount of ¥0.2 

percent (that is, the FY 2014 estimate of 

the market basket rate-of-increase of 2.5 

percent, less 2.0 percentage points for 

failure to submit quality data, less an 

adjustment of 0.4 percentage point for 

the MFP adjustment, and less an 

additional adjustment of 0.3 percentage 

point). Lastly, we also are proposing 

that if more recent data become 

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 2014 market basket 

update and MFP adjustment in the final 

rule. 

We are proposing to revise the 

existing regulations at 42 CFR 412.64(d) 

to reflect the current law for the FY 

2014 update. Specifically, in accordance 

with section 1886(b)(3)(B) of the Act, we 

are proposing to add a new paragraph 

(v) to § 412.64(d)(1) to reflect the 

applicable percentage increase to the FY 

2014 operating standardized amount as 

the percentage increase in the market 

basket index less an MFP adjustment 

and less an additional reduction of 0.3 

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, 

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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 hospitalspecific rates applicable to SCHs of 1.8 

percent for hospitals that submit quality 

data or ¥0.2 percent for hospitals that 

fail to submit quality data. For FY 2014, 

the existing regulations in 

§§ 412.73(c)(16), 412.75(d), 412.77(e) 

and 412.78(e) 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 any further changes 

to these four regulatory provisions to 

reflect the FY 2014 update factor for the 

hospital-specific rates of SCHs. 

We note that, as discussed in section 

V.F. of this preamble, section 606 of the 

American Taxpayer Relief Act of 2012 

extended the MDH program from the 

end of FY 2012 (that is, for discharges 

occurring before October 1, 2012) to the 

end of FY 2013 (that is, for discharges 

occurring before October 1, 2013). 

Under prior law, the MDH program was 

to be in effect through the end of FY 

2012 only. Absent additional legislation 

further extending the MDH program, the 

MDH program will expire for discharges 

beginning in FY 2014. Accordingly, we 

are not including MDHs in our proposal 

to update the hospital-specific rates for 

FY 2014. 

2. Proposed FY 2014 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 Public Law 

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 1.8 

percent for FY 2014. The regulations at 

§ 412.211(c) currently 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 

to propose any changes to the existing 

regulatory text. 

B. Rural Referral Centers (RRCs): 

Proposed Annual Update to Case-Mix 

Index and Discharge Criteria (§ 412.96) 

Under the authority of section 

1886(d)(5)(C)(i) of the Act, the 

regulations at § 412.96 set forth the 

criteria that a hospital must meet in 

order to qualify under the IPPS as a 

rural referral center (RRC). RRCs receive 

some special treatment under both the 

DSH payment adjustment and the 

criteria for geographic reclassification. 

Section 402 of 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 (§ 412.96(b)(1)(ii)). A rural hospital 

that does not meet the bed size 

requirement can qualify as an RRC if the 

hospital meets two mandatory 

prerequisites (a minimum CMI and a 

minimum number of discharges), and at 

least one of three optional criteria 

(relating to specialty composition of 

medical staff, source of inpatients, or 

referral volume). (We refer readers to 

§ 412.96(c)(1) through (c)(5) and the 

September 30, 1988 Federal Register (53 

FR 38513).) With respect to the two 

mandatory prerequisites, a hospital may 

be classified as an RRC if— 

• The hospital’s CMI is at least equal 

to the lower of the median CMI for 

urban hospitals in its census region, 

excluding hospitals with approved 

teaching programs, or the median CMI 

for all urban hospitals nationally; and 

• The hospital’s number of discharges 

is at least 5,000 per year, or, if fewer, the 

median number of discharges for urban 

hospitals in the census region in which 

the hospital is located. (The number of 

discharges criterion for an osteopathic 

hospital is at least 3,000 discharges per 

year, as specified in section 

1886(d)(5)(C)(i) of the Act.) 

1. Case-Mix Index (CMI) 

Section 412.96(c)(1) provides that 

CMS establish updated national and 

regional CMI values in each year’s 

annual notice of prospective payment 

rates for purposes of determining RRC 

status. The methodology we used to 

determine the national and regional CMI 

values is set forth in the regulations at 

§ 412.96(c)(1)(ii). The proposed national 

median CMI value for FY 2014 includes 

data from all urban hospitals 

nationwide, and the proposed regional 

values for FY 2014 are the median CMI 

values of urban hospitals within each 

census region, excluding those hospitals 

with approved teaching programs (that 

is, those hospitals that train residents in 

an approved GME program as provided 

in § 413.75). These proposed values are 

based on discharges occurring during 

FY 2012 (October 1, 2011 through 

September 30, 2012), and include bills 

posted to CMS’ records through 

December 2012. 

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 

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27574 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

periods beginning on or after October 1, 

2013, they must have a CMI value for 

FY 2012 that is at least— 

• 1.5526; or 

• The median CMI value (not 

transfer-adjusted) for urban hospitals 

(excluding hospitals with approved 

teaching programs as identified in 

§ 413.75) calculated by CMS for the 

census region in which the hospital is 

located. 

The proposed CMI values by region 

are set forth in the following table: 

Region Case-mix 

index value 

1. New England (CT, ME, 

MA, NH, RI, VT) ................ 1.3319 

2. Middle Atlantic (PA, NJ, 

NY) .................................... 1.4025 

3. South Atlantic (DE, DC, 

FL, GA, MD, NC, SC, VA, 

WV) ................................... 1.4799 

4. East North Central (IL, IN, 

MI, OH, WI) ....................... 1.4542 

5. East South Central (AL, 

KY, MS, TN) ...................... 1.4266 

6. West North Central (IA, 

KS, MN, MO, NE, ND, SD) 1.5311 

7. West South Central (AR, 

LA, OK, TX) ...................... 1.5811 

8. Mountain (AZ, CO, ID, 

MT, NV, NM, UT, WY) ...... 1.6393 

9. Pacific (AK, CA, HI, OR, 

WA) ................................... 1.5568 

We intend to update the preceding 

numbers in the FY 2014 final rule to 

reflect the updated FY 2012 MedPAR 

file, which would contain data from 

additional bills received through March 

2013. 

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 2011 (that 

is, October 1, 2010 through September 

30, 2011), 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 2011 cost report data, 

we are proposing to use a combination 

of FY 2010 and FY 2011 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, some 

FY 2011 cost reports were not yet in 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 2011 cost report data if 

available, and for those providers whose 

FY 2011 cost report data was not yet in 

our system, we utilized their FY 2010 

cost report data. This is similar to the 

process we used to establish the median 

number of discharges for urban 

hospitals in the census region for FY 

2013, where we utilized FY 2009 and 

2010 cost report data (77 FR 53406). 

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, 2013, must have, as the 

number of discharges for its cost 

reporting period that began during FY 

2011 (based on a combination of FY 

2010 and FY 2011 cost report data as 

explained in the preceding paragraph), 

at least— 

• 5,000 (3,000 for an osteopathic 

hospital); or 

• The median number of discharges 

for urban hospitals in the census region 

in which the hospital is located, as 

indicated in the following table: 

Region Number of 

discharges 

1. New England (CT, ME, 

MA, NH, RI, VT) ................ 7,825 

2. Middle Atlantic (PA, NJ, 

NY) .................................... 10,891 

3. South Atlantic (DE, DC, 

FL, GA, MD, NC, SC, VA, 

WV) ................................... 11,566 

4. East North Central (IL, IN, 

MI, OH, WI) ....................... 8,360 

5. East South Central (AL, 

KY, MS, TN) ...................... 7,378 

6. West North Central (IA, 

KS, MN, MO, NE, ND, SD) 7,747 

7. West South Central (AR, 

LA, OK, TX) ...................... 5,147 

8. Mountain (AZ, CO, ID, 

MT, NV, NM, UT, WY) ...... 9,125 

9. Pacific (AK, CA, HI, OR, 

WA) ................................... 8,525 

We intend to update these numbers in 

the FY 2014 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 would be 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, 2013, the hospital 

would be required to have at least 3,000 

discharges for its cost reporting period 

that began during FY 2011 (based on a 

combination of FY 2010 and FY 2011 

cost report data as explained earlier in 

this section). 

C. Proposed Payment Adjustment for 

Low-Volume Hospitals (§ 412.101) 

1. Background 

Section 1886(d)(12) of the Act 

provides for an additional payment to 

each qualifying low-volume hospital 

under the IPPS beginning in FY 2005. 

Section 1886(d)(12) of the Act sets forth 

the qualifying criteria for a qualifying 

low-volume hospital and the 

methodology for determining the lowvolume hospital payment adjustment. 

Sections 3125 and 10314 of the 

Affordable Care Act provided for a 

temporary change in the low-volume 

hospital payment policy for FYs 2011 

and 2012 by expanding the definition of 

a low-volume hospital and modifying 

the methodology for determining the 

payment adjustment for hospitals 

meeting the definition. Therefore, prior 

to the enactment of the American 

Taxpayer Relief Act of 2012 (ATRA) 

(Pub. L. 112–240) on January 2, 2013, 

beginning with FY 2013, the lowvolume hospital qualifying criteria and 

payment adjustment requirements 

would have reverted to the statutory 

requirements under section 1886(d)(12) 

of the Act that were in effect prior to FY 

2011. Section 605 of the ATRA 

extended for an additional year, through 

FY 2013, the temporary changes in the 

low-volume hospital definition and 

methodology for determining the 

payment adjustment made by the 

Affordable Care Act for FYs 2011 and 

2012. Beginning with FY 2014, the lowvolume 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 and the ATRA. 

In section V.D.3. of this preamble, we 

discuss the proposed low-volume 

hospital payment adjustment policies 

for FY 2014. 

a. Original Implementation of the LowVolume Hospital Payment Adjustment 

Section 1886(d)(12) of the Act, as 

added by section 406(a) of Public Law 

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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 ‘‘[i]n 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 hospital 

payment adjustment is based on total 

per discharge payments made under 

section 1886 of the Act, including 

capital, DSH, IME, and outlier 

payments. For SCHs and MDHs, the 

low-volume hospital payment 

adjustment is based in part 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 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 lowvolume hospital payment adjustment to 

all qualifying hospitals with less than 

200 discharges was found to be most 

consistent with the statutory 

requirement to provide relief to lowvolume 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 hospital payment 

adjustment implemented in FY 2005. 

Therefore, the low-volume hospital 

payment adjustment of an additional 25 

percent continued to be provided for 

qualifying hospitals with less than 200 

discharges. 

b. Affordable Care Act Provisions for 

FYs 2011 and 2012 

For FYs 2011 and 2012, sections 3125 

and 10314 of 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. 

Specifically, those provisions of the 

Affordable Care Act amended the 

qualifying criteria for low-volume 

hospitals under section 1886(d)(12)(C)(i) 

of the Act to specify that, for FYs 2011 

and 2012, a subsection (d) 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 the Affordable Care Act, 

provides that the low-volume hospital 

payment adjustment (that is, the 

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 zero 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 the regulations at 42 

CFR 412.101 to reflect the changes to 

the qualifying criteria and the payment 

adjustment for low-volume hospitals 

made by sections 3125 and 10314 of the 

Affordable Care Act. In addition, we 

defined, at § 412.101(a), the term ‘‘road 

miles’’ to mean ‘‘miles’’ as defined at 

§ 412.92(c)(1), and clarified the existing 

regulations to indicate that a hospital 

must continue to qualify as a lowvolume 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 lowvolume hospital payment adjustment for 

FY 2011 (75 FR 50240). For the second 

year of the changes to the low-volume 

hospital payment adjustment provided 

for by section 3125 and 10314 of the 

Affordable Care Act (that is, FY 2012), 

consistent with the regulations at 

§ 412.101(b)(2)(ii), in the FY 2012 IPPS/ 

LTCH PPS final rule (76 FR 51677 

through 51680), we updated the 

discharge data source used to identify 

qualifying low-volume hospitals and 

calculate the payment adjustment 

(percentage increase). Under 

§ 412.101(b)(2)(ii), for FYs 2011 and 

2012, a hospital’s Medicare discharges 

from the most recently available 

MedPAR data, as determined by CMS, 

are used to determine if the hospital 

meets the discharge criteria to receive 

the low-volume hospital payment 

adjustment in the current year. In that 

same final rule, we established that, for 

FY 2012, qualifying low-volume 

hospitals and their payment adjustment 

are determined using Medicare 

discharge data from the March 2011 

update of the FY 2010 MedPAR file, as 

these data were the most recent data 

available at that time. In addition, we 

noted that eligibility for the low-volume 

hospital payment adjustment for FY 

2012 was also dependent upon meeting 

(if the hospital was qualifying for the 

low-volume hospital payment 

adjustment for the first time in FY 

2012), or continuing to meet (if the 

hospital qualified in FY 2011), the 

mileage criterion specified at 

§ 412.101(b)(2)(ii). Furthermore, we 

established a procedure for a hospital to 

request low-volume hospital status for 

FY 2012 (which was consistent with the 

process we employed for the lowvolume hospital payment adjustment for 

FY 2011). 

2. Provisions of the ATRA for FY 2013 

a. Background 

Section 605 of the ATRA amended 

sections 1886(d)(12)(B), (C)(i), and (D) of 

the Act to extend, for FY 2013, the 

temporary changes in the low-volume 

hospital payment adjustment policy 

provided for in FYs 2011 and 2012 by 

the Affordable Care Act. As we have 

noted previously, prior to the enactment 

of section 605 of the ATRA, beginning 

with FY 2013, the low-volume hospital 

definition and payment adjustment 

methodology would have reverted to the 

policy established under statutory 

requirements that were in effect prior to 

the amendments made by the Affordable 

Care Act. 

Prior to the enactment of the ATRA, 

in the FY 2013 IPPS/LTCH PPS final 

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rule (77 FR 53406 through 53409), we 

discussed the low-volume hospital 

payment adjustment for FY 2013 and 

subsequent fiscal years. Specifically, we 

discussed that in accordance with 

section 1886(d)(12) of the Act, 

beginning with FY 2013, the lowvolume hospital definition and payment 

adjustment methodology would revert 

back to the statutory requirements that 

were in effect prior to the amendments 

made by the Affordable Care Act. 

Therefore, we explained, as specified 

under the existing regulations at 

§ 412.101, effective for FY 2013 and 

subsequent years, that 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 total discharges, including both 

Medicare and non-Medicare discharges) 

during the fiscal year. We also 

established a procedure for hospitals to 

request low-volume hospital status for 

FY 2013 (which was consistent with our 

previously established procedures for 

FYs 2011 and 2012). 

In a Federal Register notice published 

on March 7, 2013 (78 FR 14689) 

(hereinafter referred to as the FY 2013 

IPPS notice), we announced the 

extension of the Affordable Care Act 

amendments to the low-volume hospital 

payment adjustment requirements 

under section 1886(d)(12) of the Act for 

FY 2013 pursuant to section 605 of the 

ATRA. The applicable low-volume 

hospital percentage increase provided 

for by the provisions of the Affordable 

Care Act and the ATRA is determined 

using a continuous linear sliding scale 

equation that results in a low-volume 

hospital payment adjustment ranging 

from an additional 25 percent for 

hospitals with 200 or fewer Medicare 

discharges to a zero percent additional 

payment adjustment for hospitals with 

1,600 or more Medicare discharges. 

In the FY 2013 IPPS notice (78 FR 

14689 through 14694), to implement the 

extension of the temporary change in 

the low-volume hospital payment 

adjustment policy for FY 2013 provided 

for by the ATRA, we updated the 

discharge data source used to identify 

qualifying low-volume hospitals and 

calculate the payment adjustment 

(percentage increase). Consistent with 

our implementation of the low-volume 

hospital payment adjustment policy for 

FYs 2011 and 2012 as set forth at 

existing § 412.101(b)(2)(ii), we 

established that, for FY 2013, qualifying 

low-volume hospitals and their payment 

adjustments are determined using 

Medicare discharge data from the March 

2012 update of the FY 2011 MedPAR 

file, as these data were the most recent 

data available at the time of the 

development of the FY 2013 payment 

rates and factors established in the FY 

2013 IPPS/LTCH PPS final rule. In 

addition, we noted that eligibility for 

the low-volume hospital payment 

adjustment for FY 2013 is also 

dependent upon meeting (in the case of 

a hospital that did not qualify for the 

low-volume hospital payment 

adjustment in FY 2012), or continuing 

to meet (in the case of a hospital that did 

qualify for the low-volume hospital 

payment adjustment in FY 2012), the 

mileage criterion specified at existing 

§ 412.101(b)(2)(ii). We also established a 

procedure for a hospital to request lowvolume hospital status for FY 2013 

(which is consistent with the process for 

the low-volume hospital payment 

adjustment for FYs 2011 and 2012). 

Furthermore, we noted our intent to 

make conforming changes to the 

regulations text at § 412.101 to reflect 

the changes to the qualifying criteria 

and the payment adjustment for lowvolume hospitals in accordance with the 

amendments made by section 605 of the 

ATRA in future rulemaking. (We refer 

readers to the FY 2013 IPPS notice (78 

FR 14689 through 14694) for additional 

information on the extension of the 

Affordable Care Act amendments to the 

low-volume hospital payment 

adjustment requirements under section 

1886(d)(12) of the Act through FY 2013 

in accordance with section 605 of the 

ATRA.) 

b. Proposed Conforming Regulatory 

Changes 

In the FY 2011 IPPS/LTCH PPS final 

rule (75 FR 50238 through 50275 and 

50414), we amended the regulations at 

§ 412.101 to specify that, beginning with 

FY 2013, the low-volume hospital 

definition and payment adjustment 

methodology reverted to the policy 

established under statutory 

requirements that were in effect prior to 

the amendments made by the Affordable 

Care Act. In this proposed rule, we are 

proposing to make conforming changes 

to the existing regulations text at 

§ 412.101 to reflect the extension of the 

changes to the qualifying criteria and 

the payment adjustment methodology 

for low-volume hospitals through FY 

2013 in accordance with section 605 of 

the ATRA, as announced in the FY 2013 

IPPS notice (as discussed above). 

Specifically, we are proposing to revise 

paragraphs (b)(2)(i), (b)(2)(ii), (c)(1), 

(c)(2), and (d). Under these proposed 

changes to § 412.101, beginning with FY 

2014, consistent with section 

1886(d)(12) of the Act, as amended, the 

low-volume hospital qualifying criteria 

and payment adjustment methodology 

would revert to that which was in effect 

prior to the amendments made by the 

Affordable Care Act and the ATRA (that 

is, the low-volume hospital payment 

adjustment policy in effect for FYs 2005 

through 2010). 

3. Proposed Low-Volume Hospital 

Definition and Payment Adjustment for 

FY 2014 and Subsequent Fiscal Years 

In accordance with section 

1886(d)(12) of the Act, as amended, 

beginning with FY 2014, the lowvolume hospital definition and payment 

adjustment methodology will revert 

back to the statutory requirements that 

were in effect prior to the amendments 

made by the Affordable Care Act and 

the ATRA. Therefore, consistent with 

section 1886(d)(12) of the Act, as 

amended, under the proposed 

conforming changes to § 412.101(b)(2), 

effective for FY 2014 and subsequent 

years, in order to qualify as a lowvolume hospital, a subsection (d) 

hospital must be more than 25 road 

miles from another subsection (d) 

hospital and have less than 200 

discharges (that is, less than 200 

discharges total, including both 

Medicare and non-Medicare discharges) 

during the fiscal year. Under our 

existing policy, effective for FY 2014 

and subsequent years, qualifying 

hospitals would receive the low-volume 

hospital payment adjustment of an 

additional 25 percent for discharges 

occurring during the fiscal year. 

As described above, for FYs 2005 

through 2010 and FY 2014 and 

subsequent fiscal years, the discharge 

determination would be made based on 

the hospital’s number of total 

discharges, that is, Medicare and nonMedicare 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 hospital payment 

adjustment in the current year 

(proposed § 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, 

2012, and 2013, we 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. In addition to a discharge 

criterion, the eligibility for the lowvolume hospital payment adjustment 

also would be dependent upon the 

hospital meeting the mileage criterion 

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specified at proposed § 412.101(b)(2)(i). 

Specifically, to meet the mileage 

criterion to qualify for the low-volume 

hospital payment adjustment for FY 

2014 and subsequent fiscal years, a 

hospital must be located more than 25 

road miles from the nearest subsection 

(d) hospital. 

For FY 2014, we would continue to 

use the established process for 

requesting and obtaining the lowvolume hospital payment adjustment. 

That is, in order to receive a low-volume 

hospital payment adjustment under 

§ 412.101, a hospital must notify and 

provide documentation to its fiscal 

intermediary or MAC 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. (For additional 

details on our established process for 

the low-volume hospital payment 

adjustment, we refer readers to the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53408).) 

Consistent with our previously 

established procedure, for FY 2014, a 

hospital must make its request for lowvolume hospital status in writing to its 

fiscal intermediary or MAC by 

September 1, 2013, in order for the 25- 

percent low-volume hospital payment 

adjustment to be applied to payments 

for its discharges beginning on or after 

October 1, 2013 (through September 30, 

2014). If a hospital’s request for lowvolume hospital status for FY 2014 is 

received after September 1, 2013, 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 

hospital payment adjustment to 

determine the payment for the hospital’s 

FY 2014 discharges, effective 

prospectively within 30 days of the date 

of the fiscal intermediary’s or MAC’s 

low-volume hospital status 

determination. 

As we discussed in section V.C.2.b. of 

the preamble of this proposed rule, we 

are proposing to make conforming 

changes to the regulatory text at 

§ 412.101 to reflect the extension of the 

changes to the qualifying criteria and 

the payment adjustment methodology 

for low-volume hospitals through FY 

2013 made by section 605 of the ATRA. 

We are proposing changes to § 412.101 

to conform the regulations to the 

statutory requirements that, beginning 

with FY 2014, the low-volume hospital 

qualifying criteria and payment 

adjustment methodology revert to that 

which was in effect prior to the 

amendments made by the Affordable 

Care Act and the ATRA (that is, the lowvolume hospital payment adjustment 

policy in effect for FYs 2005 through 

2010). Therefore, the low-volume 

hospital payment adjustment policy in 

effect prior for FYs 2005 through 2010 

would apply for FY 2014 and 

subsequent years. 

D. Indirect Medical Education (IME) 

Payment Adjustment (§ 412.105) 

1. IME Adjustment Factor for FY 2014 

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 

§ 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 

2014, the formula multiplier is 1.35. We 

estimate that application of this formula 

multiplier for the FY 2014 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. Other Proposed Policy Changes 

Affecting GME 

In sections IV.J. of the preamble of 

this proposed rule, we present other 

proposed policy changes relating to 

GME payment. We refer readers to that 

section of the preamble of this proposed 

rule where we present the proposed 

policies. 

E. Payment Adjustment for Medicare 

Disproportionate Share Hospitals 

(DSHs) (§ 412.106) 

1. Background 

Section 1886(d)(5)(F) of the Act 

provides for additional Medicare 

payments to subsection (d) hospitals 

that serve a significantly 

disproportionate number of low-income 

patients. The Act specifies two methods 

by which a hospital may qualify for the 

Medicare disproportionate share 

hospital (DSH) adjustment. Under the 

first method, hospitals that are located 

in an urban area and have 100 or more 

beds may receive a Medicare DSH 

payment adjustment if the hospital can 

demonstrate that, during its cost 

reporting period, more than 30 percent 

of its net inpatient care revenues are 

derived from State and local 

government payments for care furnished 

to needy patients with low incomes. 

This method is commonly referred to as 

the ‘‘Pickle method.’’ The second 

method for qualifying for the DSH 

payment adjustment, which is the most 

common, is based on a complex 

statutory formula under which the DSH 

payment adjustment is based on the 

hospital’s geographic designation, the 

number of beds in the hospital, and the 

level of the hospital’s disproportionate 

patient percentage (DPP). A hospital’s 

DPP is the sum of two fractions: The 

‘‘Medicare fraction’’ and the ‘‘Medicaid 

fraction.’’ The Medicare fraction (also 

known as the ‘‘SSI fraction’’ or ‘‘SSI 

ratio’’) is computed by dividing the 

number of the hospital’s inpatient days 

that are furnished to patients who were 

entitled to both Medicare Part A and 

Supplemental Security Income (SSI) 

benefits by the hospital’s total number 

of patient days furnished to patients 

entitled to benefits under Medicare Part 

A. The Medicaid fraction is computed 

by dividing the hospital’s number of 

inpatient days furnished to patients 

who, for such days, were eligible for 

Medicaid, but were not entitled to 

benefits under Medicare Part A, by the 

hospital’s total number of inpatient days 

in the same period. 

Because the DSH payment adjustment 

is part of the IPPS, the DSH statutory 

references (under section 1886(d)(5)(F) 

of the Act) to ‘‘days’’ apply only to 

hospital acute care inpatient days. 

Regulations located at § 412.106 govern 

the Medicare DSH payment adjustment 

and specify how the DPP is calculated 

as well as how beds and patient days are 

counted in determining the Medicare 

DSH payment adjustment. Under 

§ 412.106(a)(1)(i), the number of beds for 

the Medicare DSH payment adjustment 

is determined in accordance with bed 

counting rules for the IME adjustment 

under § 412.105(b). 

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2. Counting of Patient Days Associated 

With Patients Enrolled in Medicare 

Advantage Plans in the Medicare and 

Medicaid Fractions of the 

Disproportionate Patient Percentage 

(DPP) Calculation 

The regulation at 42 CFR 422.2 

defines Medicare Advantage (MA) plan 

to mean ‘‘health benefits coverage 

offered under a policy or contract by an 

MA organization that includes a specific 

set of health benefits offered at a 

uniform premium and uniform level of 

cost-sharing to all Medicare 

beneficiaries residing in the service area 

of the MA plan . . . .’’ Generally, each 

MA plan must at least provide coverage 

of all services that are covered by 

Medicare Part A and Part B, but also 

may provide for Medicare Part D 

benefits and/or additional supplemental 

benefits. However, certain items and 

services, such as hospice benefits, 

continue to be covered under Medicare 

fee-for-service (FFS). We note that, 

under § 422.50 of the regulations, an 

individual is eligible to elect an MA 

plan if he or she is entitled to Medicare 

Part A and enrolled in Medicare Part B. 

Dual eligible beneficiaries (individuals 

entitled to Medicare and eligible for 

Medicaid) also may choose to enroll in 

a MA plan, and, as an additional 

supplemental benefit, the MA plan may 

pay for Medicare cost-sharing not 

covered by Medicaid. 

In the FY 2004 IPPS proposed rule (68 

FR 27208) in response to questions 

about whether the patient days 

associated with patients enrolled in a 

Medicare + Choice (M+C) plan [now 

Medicare Advantage (MA) plan under 

Medicare Part C] should be counted in 

the Medicare fraction or the Medicaid 

fraction of the disproportionate patient 

percentage (DPP) calculation, we 

proposed that once a beneficiary enrolls 

in an M+C plan, those patient days 

attributable to the beneficiary would not 

be included in the Medicare fraction of 

the DPP. Instead, those patient days 

would be included in the numerator of 

the Medicaid fraction, if the patient also 

were eligible for Medicaid. In the FY 

2004 IPPS final rule (68 FR 45422), we 

did not respond to public comments on 

this proposal, due to the volume and 

nature of the public comments we 

received, and we indicated that we 

would address those comments later in 

a separate document. In the FY 2005 

IPPS proposed rule (69 FR 28286), we 

stated that we planned to address the 

FY 2004 comments regarding M+C days 

in the IPPS final rule for FY 2005. In the 

FY 2005 IPPS final rule (69 FR 49099), 

we determined that, under 

§ 412.106(b)(2)(i) of the regulations, MA 

patient days should be counted in the 

Medicare fraction of the DPP 

calculation. We explained that, even 

where Medicare beneficiaries elect 

Medicare Part C coverage, they are still 

entitled to benefits under Medicare Part 

A. Therefore, we noted that if a 

Medicare M+C beneficiary is also an SSI 

recipient, the patient days for that 

beneficiary will be included in the 

numerator of the Medicare fraction (as 

well as in the denominator) and not in 

the numerator of the Medicaid fraction. 

We note that, despite our explicit 

statement in the final rule that the 

regulations also would be revised, due 

to a clerical error, the corresponding 

regulation at § 412.106(b)(2)(i) was not 

amended to explicitly reflect this policy 

until 2007 (72 FR 47384). 

On November 15, 2012, in a ruling in 

the case of Allina Health Services, et al., 

v. Sebelius (Allina), the Federal District 

Court for the District of Columbia (the 

court) held that the final policy of 

putting MA patient days in the 

Medicare fraction adopted in the FY 

2005 IPPS final rule was not a logical 

outgrowth of the FY 2004 IPPS 

proposed rule. The court held that 

interested parties had not been put on 

notice that the Secretary might adopt a 

final policy of counting the days in the 

Medicare fraction and were not 

provided an adequate further 

opportunity for public comment. 

We continue to believe that 

individuals enrolled in MA plans are 

‘‘entitled to benefits under part A’’ as 

the phrase is used in the DSH 

provisions at section 1886(d)(5)(F)(vi)(I) 

of the Act. Section 226(a) of the Act 

provides that an individual is 

automatically ‘‘entitled’’ to Medicare 

Part A when the person reaches age 65 

or becomes disabled, provided that the 

individual is entitled to Social Security 

benefits under section 202 of the Act. 

Beneficiaries who are enrolled in MA 

plans provided under Medicare Part C 

continue to meet all of the statutory 

criteria for entitlement to Medicare Part 

A benefits under section 226 of the Act. 

First, in order to enroll in Medicare Part 

C, a beneficiary must be ‘‘entitled to 

benefits under Part A and enrolled 

under Part B’’ (section 1852(a)(1)(B)(i) of 

the Act). There is nothing in the Act that 

suggests that beneficiaries who enroll in 

a Medicare Part C plan forfeit their 

entitlement to Medicare Part A benefits. 

Second, once a beneficiary enrolls in 

Medicare Part C, the MA plan must 

provide the beneficiary with the benefits 

to which he or she is entitled under 

Medicare Part A, even though it may 

also provide for additional 

supplemental benefits (section 

1852(a)(1)(A) of the Act). Third, under 

certain circumstances, Medicare Part A 

pays for care furnished to patients 

enrolled in Medicare Part C plans. For 

example, if, during the course of the 

year, the scope of benefits provided 

under Medicare Part A expands beyond 

a certain cost threshold due to 

Congressional action or a national 

coverage determination, Medicare Part 

A will pay the provider for the cost of 

those services directly (section 

1852(a)(5) of the Act). Similarly, 

Medicare Part A also pays for federally 

qualified health center services and 

hospice care furnished to MA patients 

(section 1853(a)(4) and (h)(2) of the Act, 

respectively). Thus, we continue to 

believe that a patient enrolled in an MA 

plan remains entitled to benefits under 

Medicare Part A, and should be counted 

in the Medicare fraction of the DPP, and 

not the Medicaid fraction. 

We also believe that our policy of 

counting patients enrolled in MA plans 

in the Medicare fraction was a logical 

outgrowth of the FY 2004 IPPS 

proposed rule, and, accordingly, have 

filed an appeal in the Allina case. 

However, in an abundance of caution 

and for the reasons discussed above, in 

this proposed rule, we are proposing to 

readopt the policy of counting the days 

of patients enrolled in MA plans in the 

Medicare fraction of the DPP. We are 

seeking public comments from 

interested parties that may support or 

oppose the proposal to include the MA 

patient days in the Medicare fraction of 

the DPP calculation for FY 2014 and 

subsequent years. We will evaluate 

these public comments and consider 

whether a further change in policy is 

warranted, and will include our final 

determination in the FY 2014 IPPS final 

rule. We are not proposing any change 

to the regulation text at this time, 

because the current text reflects the 

policy being proposed. 

3. New Payment Adjustment 

Methodology for Medicare 

Disproportionate Share Hospitals 

(DSHs) Under Section 3133 of the 

Affordable Care Act (§ 412.106) 

a. General Discussion and Legislative 

Change 

Section 3133 of the Patient Protection 

and Affordable Care Act (PPACA), as 

amended by section 10316 of PPACA 

and section 1104 of the Health Care and 

Education Reconciliation Act (Pub. L. 

111–152), added a new section 1886(r) 

to the Act that modifies the 

methodology for computing the 

Medicare DSH payment adjustment 

beginning in FY 2014. For purposes of 

this proposed rule, we will refer to these 

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provisions collectively as Section 3133 

of the Affordable Care Act. 

Currently, Medicare DSH adjustment 

payments are calculated under a 

statutory formula that considers the 

hospital’s Medicare utilization 

attributable to beneficiaries who also 

receive Supplemental Security Income 

(SSI) benefits and the hospital’s 

Medicaid utilization. Beginning for 

discharges in FY 2014, hospitals that 

qualify for Medicare DSH payments 

under section 1886(d)(5)(F) will receive 

25 percent of the amount they 

previously would have received under 

the current statutory formula for 

Medicare DSH payments. This provision 

applies equally to hospitals that qualify 

for DSH payments under section 

1886(d)(5)(F)(i)(II) of the Act, the socalled Pickle hospitals. Pursuant to new 

section 1886(r), Pickle hospitals would 

receive 25 percent of the 35 percent 

add-on adjustment for which they 

would otherwise qualify under section 

1886(d)(5)(F)(i)(II). The remaining 

amount, equal to an estimate of 75 

percent of what otherwise would have 

been paid as Medicare DSH payments, 

reduced to reflect changes in the 

percentage of individuals under age 65 

who are uninsured, will become 

available to make additional payments 

to each hospital that qualifies for 

Medicare DSH payments and that has 

uncompensated care. The payments to 

each hospital for a fiscal year will be 

based on the hospital’s amount of 

uncompensated care for a given time 

period relative to the total amount of 

uncompensated care for that same time 

period reported by all hospitals that 

receive Medicare DSH payments for that 

fiscal year. 

Specifically, as provided by section 

3133 of the Affordable Care Act, section 

1886(r) of the Act requires that, for 

‘‘fiscal year 2014 and each subsequent 

fiscal year,’’ a ‘‘subsection (d) hospital’’ 

that would otherwise receive a 

‘‘disproportionate share hospital 

payment . . . made under subsection 

(d)(5)(F)’’ will receive two separately 

calculated payments. Specifically, 

section 1886(r)(1) of the Act provides 

that the Secretary shall pay to such a 

subsection (d) hospital (including a 

Pickle hospital) 25 percent of the 

amount the hospital would have 

received under section 1886(d)(5)(F) of 

the Act for disproportionate share 

payments, which represents ‘‘the 

empirically justified amount for such 

payment, as determined by the 

Medicare Payment Advisory 

Commission in its March 2007 Report to 

the Congress.’’ We refer to this payment 

as the ‘‘empirically justified Medicare 

DSH payment.’’ 

In addition to this payment, section 

1886(r)(2) of the Act provides that, for 

fiscal year 2014 and each subsequent 

fiscal year, the Secretary shall pay to 

‘‘such subsection (d) hospital an 

additional amount equal to the product 

of’’ three factors. The first factor is the 

difference between ‘‘the aggregate 

amount of payments that would be 

made to subsection (d) hospitals under 

subsection (d)(5)(F) if this subsection 

did not apply’’ and ‘‘the aggregate 

amount of payments that are made to 

subsection (d) hospitals under 

paragraph (1)’’ for each fiscal year. 

Therefore, this factor amounts to 75 

percent of the payments that would 

otherwise be made under section 

1886(d)(5)(F) of the Act. 

The second factor is, for FYs 2014 

through 2017, 1 minus the percent 

change in the percent of individuals 

under the age of 65 who are uninsured, 

determined by comparing the percent of 

such individuals who are uninsured in 

2013, the last year before coverage 

expansion under the Affordable Care 

Act (as calculated by the Secretary 

based on the most recent estimates 

available from the Director of the 

Congressional Budget Office before a 

vote in either House on the Health Care 

and Education Reconciliation Act of 

2010 that, if determined in the 

affirmative, would clear such Act for 

enrollment), minus 0.1 percentage point 

for FY 2014, and minus 0.2 percentage 

point for FYs 2015 through 2017. For 

FYs 2014 through 2017, the baseline for 

the estimate of the change in 

uninsurance is fixed by the most recent 

estimate of the Congressional Budget 

Office before the final vote on the 

Health Care and Education 

Reconciliation Act of 2010, which is 

contained in a March 20, 2010 letter 

from the then Director of the 

Congressional Budget Office to the 

Speaker of the House. A link to this 

letter is included in section V.E.3.d.2. of 

the preamble of this proposed rule. 

For FY 2018 and subsequent years, 

the second factor is 1 minus the percent 

change in the percent of individuals 

who are uninsured, as determined by 

comparing the percent of individuals 

‘‘who are uninsured in 2013 (as 

estimated by the Secretary, based on 

data from the Census Bureau or other 

sources the Secretary determines 

appropriate, and certified by the Chief 

Actuary’’ of CMS, and ‘‘who are 

uninsured in the most recent period for 

which data is available (as so estimated 

and certified) minus 0.2 percentage 

points for FYs 2018 and 2019.’’ Thus, 

for FY 2018 and subsequent years, the 

statute provides some greater flexibility 

in the choice of the data sources to be 

used in the estimate of the change in the 

percent of the uninsured. 

The third factor is a percent that, for 

each subsection (d) hospital, ‘‘represents 

the quotient of . . . the amount of 

uncompensated care for such hospital 

for a period selected by the Secretary (as 

estimated by the Secretary, based on 

appropriate data . . .),’’ including the 

use of alternative data ‘‘where the 

Secretary determines that alternative 

data is available which is a better proxy 

for the costs of subsection (d) hospitals 

for . . . treating the uninsured,’’ and 

‘‘the aggregate amount of 

uncompensated care for all subsection 

(d) hospitals that receive a payment 

under this subsection.’’ Therefore, this 

third factor represents a hospital’s 

uncompensated care amount for a given 

time period relative to the 

uncompensated care amount for that 

same time period for all hospitals that 

receive Medicare DSH payments in that 

fiscal year, expressed as a percent. For 

each hospital, the product of these three 

factors represents its additional 

payment for uncompensated care for the 

applicable fiscal year. We refer to the 

additional payment determined by these 

factors as the ‘‘uncompensated care 

payment.’’ 

Section 1886(r) of the Act states that 

this provision is effective for ‘‘fiscal year 

2014 and each subsequent fiscal year.’’ 

In this proposed rule, we set forth our 

proposals for implementing the required 

changes to the DSH payment 

methodology. We note that, because 

section 1886 (r) modifies the payment 

required under section 1886(d)(5)(F) of 

the Act, it affects only the DSH payment 

under the operating IPPS. It does not 

revise or replace the capital IPPS DSH 

payment provided under the regulations 

at 42 CFR Part 412, Subpart M, which 

were established through the exercise of 

the Secretary’s discretion in 

implementing the capital IPPS under 

section 1886(g)(1)(A) of the Act. 

Finally, section 1886(r)(3) of the Act 

provides that there shall be ‘‘no 

administrative or judicial review under 

section 1869, section 1878, or 

otherwise’’ of ‘‘any estimate of the 

Secretary for purposes of determining 

the factors described in paragraph (2),’’ 

or of ‘‘any period selected by the 

Secretary’’ for the purpose of 

determining those factors. Therefore, 

there can be no administrative or 

judicial review of the estimates 

developed for purposes of applying the 

three factors used to determine 

uncompensated care payments, or the 

periods selected in order to develop 

such estimates. 

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b. Eligibility 

As indicated above, the new payment 

methodology applies to ‘‘subsection (d) 

hospitals’’ that would otherwise receive 

a ‘‘disproportionate share payment . . . 

made under subsection (d)(5)(F).’’ 

Therefore, eligibility for empirically 

justified Medicare DSH payments is 

unchanged under this new provision. 

Consistent with the law, hospitals must 

receive empirically justified Medicare 

DSH payments in FY 2014 or a 

subsequent year to receive an additional 

Medicare uncompensated care payment 

for that year. Specifically, section 

1886(r)(2) of the Act states that, ‘‘[i]n 

addition to the payment made to a 

subsection (d) hospital under paragraph 

(1), . . . the Secretary shall pay to such 

subsection (d) hospital an additional 

amount . . .’’ (Emphasis supplied.) 

Because paragraph (1) refers to 

empirically justified Medicare DSH 

payments, the additional payment 

under section 1886(r)(2) is, therefore, 

limited to hospitals that receive 

empirically justified Medicare DSH 

payments pursuant to section 1886(r)(1) 

of the Act for FY 2014 and subsequent 

years. 

In this proposed rule, we are 

proposing that hospitals that are not 

eligible to receive empirically justified 

Medicare DSH payments in FY 2014 

and subsequent years would not receive 

uncompensated care payments for those 

respective years. We also are proposing 

to make a determination concerning 

eligibility for interim uncompensated 

care payments based on each hospital’s 

estimated DSH status for FY 2014 or the 

applicable year (using the most recent 

data that are available). Our final 

determination on the hospital’s 

eligibility for uncompensated care 

payments would be based on the 

hospital’s actual DSH status on the cost 

report for that payment year. (We 

discuss these proposals in more detail 

below.) 

In the course of developing these 

proposed policies for implementing the 

provision of section 1886(r) of the Act, 

we considered whether several specific 

classes of hospitals are included within 

the scope of the statutory provision. In 

particular, we considered whether the 

provision applies to (1) hospitals in the 

Commonwealth of Puerto Rico, (2) 

hospitals in the State of Maryland paid 

under a waiver as provided in section 

1814(b) of the Act, (3) sole community 

hospitals (SCHs), (4) hospitals 

participating in the Bundled Payments 

for Care Improvement Initiative 

developed by the Center for Medicare 

and Medicaid Innovation (Innovation 

Center), and (5) hospitals participating 

in the Rural Community Hospital 

demonstration. We discuss each of these 

specific classes of hospitals below. 

(1) Puerto Rico Hospitals 

Under section 1886(d)(9)(A) of the 

Act, Puerto Rico hospitals subject to the 

IPPS are not ‘‘subsection (d) hospitals,’’ 

but rather constitute a distinct class of 

‘‘subsection (d) Puerto Rico hospitals.’’ 

However, section 1886(d)(9)(D)(iii) of 

the Act specifies that subparagraph 

(d)(5)(F) (the provision governing the 

current DSH payment methodology) 

‘‘shall apply to subsection (d) Puerto 

Rico hospitals . . . in the same manner 

and to the extent as [it applies] to 

subsection (d) hospitals.’’ While the 

new section 1886(r) of the Act does not 

specifically address whether the 

methodology established there applies 

to ‘‘subsection (d) Puerto Rico 

hospitals,’’ section 3133 of the 

Affordable Care Act does make a 

revision to section 1886(d)(5)(F)(i) of the 

Act that is crucial for determining the 

eligibility of Puerto Rico hospitals for 

empirically justified Medicare DSH 

payments and uncompensated care 

payments under the new provision. 

Specifically, section 3133 of the 

Affordable Care Act amended section 

1886(d)(5)(F)(i) of the Act to provide 

that this section is ‘‘[s]ubject to 

subsection (r).’’ One effect of this 

amendment is to provide that all 

hospitals subject to section 

1886(d)(5)(F)(i) of the Act, including 

‘‘subsection (d) Puerto Rico hospitals,’’ 

also are subject to the new payment 

methodology established in section 

1886(r) of the Act. 

In this proposed rule, we are 

proposing that subsection (d) Puerto 

Rico hospitals that are eligible for DSH 

payments also would be eligible to 

receive empirically justified Medicare 

DSH payments and uncompensated care 

payments under the new payment 

methodology. 

We are inviting public comments on 

this proposal. 

(2) Hospitals Paid Under a Waiver 

Under Section 1814(b) of the Act 

Under section 1814(b) of the Act, 

hospitals in the State of Maryland are 

subject to a waiver from the Medicare 

payment methodologies under which 

they would otherwise be paid. We have 

taken the position in other contexts, for 

example, for purposes of EHR incentive 

payments (75 FR 44448), that Maryland 

acute care hospitals remain subsection 

(d) hospitals. This is because these 

hospitals are ‘‘located in one of the fifty 

States or the District of Columbia’’ (as 

provided in the definition of subsection 

(d) hospitals) and do not meet the 

definitions of the hospitals that are 

specifically excluded from that category, 

such as cancer hospitals and psychiatric 

hospitals. However, section 1886(r) of 

the Act applies to hospitals that are both 

subsection (d) hospitals and hospitals 

that would otherwise receive a 

disproportionate share payment made 

under the previous DSH payment 

methodology. Because Maryland waiver 

hospitals are paid under section 

1814(b)(3) of the Act and not under 

section 1886(d)(5)(F) of the Act, they are 

not eligible to receive empirically 

justified Medicare DSH payments and 

uncompensated care payments under 

the new payment methodology of 

section 1886(r) of the Act. 

(3) Sole Community Hospitals (SCHs) 

SCHs are paid based on their hospitalspecific rate from certain specified base 

years or the IPPS Federal rate, 

whichever yields the greatest aggregate 

payment for the hospital’s cost reporting 

period. Payments based on the Federal 

rate are based on the IPPS standardized 

amount and include all applicable IPPS 

add-on payments, such as outliers, DSH, 

and IME, while payments based on the 

hospital-specific rate have no add-on 

payments. For each cost reporting 

period, the fiscal intermediary/MAC 

determines which of the payment 

options will yield the highest aggregate 

payment. Interim payments are 

automatically made on a claim-by-claim 

basis at the highest rate using the best 

data available at the time the fiscal 

intermediary/MAC makes the payment 

determination for each discharge. 

However, it may not be possible for the 

fiscal intermediary/MAC to determine 

in advance precisely which of the rates 

will yield the highest aggregate payment 

by year’s end. In many instances, it is 

not possible to forecast outlier payments 

or the final amount of the DSH payment 

adjustment or the IME adjustment until 

cost report settlement. As noted above, 

these adjustment amounts are 

applicable only to payments based on 

the Federal rate and not to payments 

based on the hospital-specific rate. The 

fiscal intermediary/MAC makes a final 

adjustment at cost report settlement 

after it determines precisely which of 

the payment rates would yield the 

highest aggregate payment to the 

hospital for its cost reporting period. 

This payment methodology makes SCHs 

unique as they can change on a yearly 

basis from receiving hospital-specific 

rate payments to receiving Federal rate 

payments, or vice versa. 

In order to implement the provisions 

of section 1886(r) of the Act, we are 

proposing to continue to determine 

interim payments for SCHs based on 

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what we estimate and project their DSH 

status to be prior to the beginning of the 

Federal fiscal year (based on the best 

available data at that time), subject to 

settlement through the cost report. We 

also are proposing that SCHs that 

receive interim empirically justified 

DSH payments in a fiscal year would 

receive interim uncompensated care 

payments that fiscal year, subject as 

well to settlement through the cost 

report. Final eligibility determinations 

would be made at the end of the cost 

reporting period at settlement, and both 

interim empirically justified Medicare 

DSH payments and uncompensated care 

payments would be adjusted 

accordingly. We are thus proposing to 

follow the same processes of interim 

and final payments for SCHs that we are 

proposing to follow for eligible IPPS 

DSH hospitals generally. (We discuss 

these processes in more detail below.) 

As previously noted, under the SCH 

payment methodology, SCHs are paid 

the higher of the Federal rate or a 

hospital-specific payment rate. This 

payment methodology is defined under 

sections 1886(d)(5)(D)(i) and 

1886(d)(1)(A)(iii) of the Act. Section 

1886(d)(3) specifically provides that 

SCH payments are to be made on a perdischarge basis. Accordingly, as we also 

note below, we are proposing that the 

uncompensated care payments would 

not be accounted for in determining 

whether an SCH is paid the higher of 

the Federal rate or the hospital-specific 

rate. This is because the uncompensated 

care payments are not discharge-driven 

payments, but rather are payments made 

on the basis of a hospital’s overall share 

of uncompensated care during a 

payment year. The amount of a 

hospital’s uncompensated care 

payments for a year is not directly 

affected by the number of the hospital’s 

discharges for the year. Therefore, we do 

not believe that uncompensated care 

payments should be taken into account 

in a comparison based on discharge 

driven hospital-specific and Federal rate 

payments. Furthermore, as we propose 

later in this rule, we intend to make 

interim uncompensated care payments 

on a periodic basis rather than a per 

discharge basis in order to create more 

predictability for hospitals and to 

increase administrative efficiency. To 

the extent the payments are intended to 

reflect the relative amount of 

uncompensated care furnished by the 

hospital, it is both reasonable and 

appropriate to view this payment as an 

amount for the year, which in the 

interests of predictability and 

consistency is made periodically 

through interim payments. 

We are inviting public comments on 

all of these proposals affecting SCHs. 

(4) Hospitals Participating in the 

Bundled Payments for Care 

Improvement Initiative 

IPPS hospitals that have elected to 

participate in the Bundled Payments for 

Care Improvement initiative receive a 

payment that links multiple services 

furnished to a patient during an episode 

of care. We have stated in previous 

rulemaking that those hospitals 

continue to be paid under the IPPS (77 

FR 53342). Hospitals that elect to 

participate in the initiative can still 

receive DSH payments while 

participating in the initiative, if they 

otherwise meet the requirements for 

receiving such payments. 

In this proposed rule, we are 

proposing to apply the new DSH 

payment methodology to the hospitals 

in this initiative, so that eligible 

hospitals would receive empirically 

justified DSH payments and 

uncompensated care payments. 

We are inviting public comments on 

this proposal. 

(5) Hospitals Participating in the Rural 

Community Hospital Demonstration 

Section 410A of the Medicare 

Modernization Act established the Rural 

Community Hospital Demonstration 

Program. After the initial 5-year period, 

the demonstration was extended for an 

additional 5-year period by sections 

3123 and 10313 of the Affordable Care 

Act. There are 23 hospitals currently 

participating in the demonstration. 

Under the payment methodology 

provided in section 410A, participating 

hospitals receive payment for Medicare 

inpatient services on the basis of a cost 

methodology. Specifically, for 

discharges occurring in the hospitals’ 

first cost reporting period of the initial 

5-year demonstration or the first cost 

reporting period of the 5-year extension, 

they receive payments for the 

reasonable cost of providing such 

services. For discharges occurring in 

subsequent cost reporting periods 

during the applicable 5-year 

demonstration period, hospitals receive 

the lesser of the current year’s 

reasonable cost amount, or the previous 

year’s amount updated by the 

percentage increase in the IPPS market 

basket (the target amount). (We refer 

readers to section V.K. of the preamble 

of this proposed rule for further 

information on the demonstration.) The 

instructions (CR 5020 (April 14, 2006) 

and CR 7505 (July 22, 2011)) for the 

demonstration require that the fiscal 

intermediary/MAC not pay Medicare 

DSH payments in addition to the 

amount received under the cost-based 

payment methodology. Although the 

amounts that would otherwise be paid 

for Medicare DSH payments (absent the 

demonstration) are calculated and 

identified on the hospital cost report for 

statistical and research purposes, as in 

the case of Maryland waiver hospitals, 

hospitals in this demonstration do not 

receive a separate or identifiable DSH 

payment. 

Because hospitals participating in the 

Rural Community Hospital 

Demonstration do not receive DSH 

payments, these hospitals are also 

excluded from receiving empirically 

justified Medicare DSH payments and 

uncompensated care payments under 

the new payment methodology. 

c. Empirically Justified Medicare DSH 

Payments 

As we have discussed above, the 

statute requires CMS to pay 25 percent 

of the ‘‘amount of disproportionate 

share hospital payment that would 

otherwise be made under subsection 

(d)(5)(F) to a subsection (d) hospital.’’ 

Currently, we have a system for interim 

payment and final settlement of DSH 

payments made under section 

1886(d)(5)(F). Specifically, interim 

payments are made for each claim based 

on the best available data concerning 

each hospital’s eligibility for DSH 

payments and the appropriate level of 

such payments. Final eligibility for 

Medicare DSH payments and the final 

amount of such payments for eligible 

hospitals are determined at the time of 

cost report settlement. Because section 

1886(r)(1) of the Act merely requires the 

program to pay a designated percentage 

of these payments, without revising the 

criteria governing eligibility for DSH 

payments or the underlying payment 

methodology, we do not believe that it 

is necessary to develop and propose any 

new operational mechanisms for making 

such payments. 

Therefore, we are proposing to 

implement this provision simply by 

revising the claims payment 

methodologies to adjust the interim 

claim payments to the requisite 25 

percent of what would have otherwise 

been paid. We will also make 

corresponding changes to the hospital 

cost report so that these empirically 

justified Medicare DSH payments can be 

settled at the appropriate level at the 

time of cost report settlement. We will 

provide more detailed operational 

instructions and cost report instructions 

following issuance of the final rule. 

We are proposing to implement this 

provision by adding a new paragraph (f) 

under the regulations at 42 CFR 

412.106. This proposed new paragraph 

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provides for reducing Medicare DSH 

payments by 75 percent beginning in FY 

2014. 

We are inviting public comments on 

this proposal. 

d. Uncompensated Care Payments 

As we have discussed above, section 

1886(r)(2) of the Act provides that, for 

each eligible hospital in FY 2014 and 

subsequent years, the new 

uncompensated care payment is the 

product of three factors. These three 

factors represent our estimate of 75 

percent of the amount of Medicare DSH 

payments that would otherwise have 

been paid, an adjustment to this amount 

for the percent change in the national 

rate of uninsurance compared to a base 

of 2013, and each eligible hospital’s 

estimated uncompensated care amount 

relative to the estimated uncompensated 

care amount for all eligible hospitals. 

Below we discuss the proposed data 

sources and methodologies for 

computing each of these factors. 

Before we begin to discuss these data 

sources and methodologies, it is 

necessary to discuss the timing and 

manner for determining the eligibility of 

hospitals for uncompensated care 

payments. The statute provides that 

subsection (d) hospitals that receive a 

payment under section 1886(d)(5)(F) of 

the Act are eligible to receive a payment 

under section 1886(r)(2) of the Act. 

Specifically, section 1886(r)(2) of the 

Act states that, ‘‘[i]n addition to the 

payment made to a subsection (d) 

hospital under paragraph (1) . . . the 

Secretary shall pay to such subsection 

(d) hospitals an additional 

amount. . . .’’ Therefore, because 

paragraph (1) refers to empirically 

justified Medicare DSH payments, the 

additional payment for FY 2014 and 

subsequent years is limited to hospitals 

that receive empirically justified 

Medicare DSH payments for the 

respective year. However, as we have 

discussed above, we currently have a 

system for interim payment and final 

settlement of DSH payments. 

Specifically, interim payments are made 

for each claim based on the best 

available data concerning each 

hospital’s eligibility for DSH payments 

and the appropriate level of such 

payments. Final determination of 

eligibility for Medicare DSH payments 

and the final amount of such payments 

for eligible hospitals are determined at 

the time of cost report settlement. 

As we describe above, because section 

1886(r)(1) of the Act does not revise the 

criteria governing eligibility for DSH 

payments or the underlying payment 

methodology, we do not believe that it 

is necessary to develop and propose any 

new operational mechanisms for making 

such payments and would thus 

continue using the existing system of 

interim eligibility and payment 

determination with final cost report 

settlement for the empirically justified 

Medicare DSH payments. We are 

proposing to adopt a similar system of 

interim eligibility and payment 

determination with final cost report 

settlement for purposes of 

uncompensated care payments. We 

discuss the specific operational details 

of this system in section V.E.3.f. of this 

preamble. 

We are inviting public comments on 

these proposals. 

(1) Proposed Methodology To Calculate 

Factor 1 

Section 1886(r)(2)(A) of the Act 

establishes Factor 1 in the calculation of 

the uncompensated care payment. 

Section 1886(r)(2)(A) of the Act states 

that it is a factor ‘‘equal to the difference 

between (i) the aggregate amount of 

payments that would be made to 

subsection (d) hospitals under 

subsection (d)(5)(F) if this subsection 

did not apply for such fiscal year (as 

estimated by the Secretary); and (ii) the 

aggregate amount of payments that are 

made to subsection (d) hospitals under 

paragraph (1) for such a fiscal year (as 

so estimated).’’ Therefore, section 

1886(r)(2)(A)(i) of the Act represents the 

estimated Medicare DSH payment that 

would have been made if the reduction 

to the Medicare DSH payment by 75 

percent under section 1886(r)(1) of the 

Act did not apply for such fiscal year. 

In other words, section 1886(r)(2)(A)(i) 

of the Act represents an estimate of the 

full Medicare DSH payment amount 

under section 1886(d)(5)(F) prior to the 

75-percent reduction, for FY 2014 and 

subsequent years. This subparagraph 

specifies that, for each fiscal year to 

which the provision applies, such 

amount is to be ‘‘estimated by the 

Secretary.’’ Under a prospective 

payment system, we would not know 

the precise aggregate Medicare DSH 

payment amount that would be paid for 

a Federal fiscal year until cost report 

settlement for all IPPS hospitals is 

completed, which occurs several years 

after the end of the Federal fiscal year. 

Therefore, the statute gives CMS 

authority to estimate this amount, by 

specifying that, for each fiscal year to 

which the provision applies, such 

amount is to be ‘‘estimated by the 

Secretary.’’ Similarly, section 

1886(r)(2)(A)(ii) of the Act represents 

the estimated empirically justified 

Medicare DSH payments to be made in 

FY 2014 and subsequent years, taking 

into account the application of the 75 

percent reduction to the DSH payment 

amounts prescribed under section 

1886(r)(1) of the Act. Again, section 

1886(r)(2)(A)(ii) of the Act gives CMS 

authority to estimate this amount. 

Therefore, Factor 1 is the difference 

between our estimates of: (1) The 

amount that would have been paid in 

Medicare DSH payments for FY 2014 

and subsequent years, in the absence of 

the new payment provision; and (2) the 

amount of empirically justified 

Medicare DSH payments that are made 

for FY 2014 and subsequent years, 

which takes into account the 

requirement to reduce Medicare DSH 

payments by 75 percent. In other words, 

this factor represents our estimate of 75 

percent (100 percent minus 25 percent) 

of our estimate of Medicare DSH 

payments that would otherwise be 

made, in the absence of section 1886(r) 

of the Act, for FY 2014 and subsequent 

years. 

In order to determine Factor 1 in the 

uncompensated care payment formula, 

we are proposing to develop final 

estimates of both the aggregate amount 

of Medicare DSH payments that would 

be made in the absence of section 

1886(r)(1) and the aggregate amount of 

empirically justified Medicare DSH 

payments to hospitals under section 

1886(r)(1) prior to each fiscal year to 

which the new provision applies. We 

believe this will create some level of 

predictability and finality for hospitals 

eligible for these payments, in addition 

to being administratively efficient. 

Specifically, in order to determine the 

two elements of Factor 1 (Medicare DSH 

payments prior to the application of the 

75 percent reduction, and empirically 

justified Medicare DSH payments after 

application of the 75 percent reduction), 

we are proposing to use the most 

recently available projections of 

Medicare DSH payments for FY 2014 

and each subsequent year, as calculated 

by CMS’ Office of the Actuary. The 

Office of the Actuary projects Medicare 

DSH payments on a biannual basis, 

typically in February of each year (based 

on data from December of the previous 

year) as part of the President’s Budget, 

and in July (based on data from June) as 

part of the Midsession Review. The 

estimates are based on the most recently 

filed Medicare hospital cost report with 

Medicare DSH payment information and 

the most recent Medicare DSH patient 

percentages and Medicare DSH payment 

adjustments provided in the IPPS 

Impact File. 

Therefore, for the Office of the 

Actuary’s February 2013 estimate, the 

data are based on the December 2012 

update of the Medicare Hospital Cost 

Report Information System (HCRIS) and 

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the FY 2013 IPPS/LTCH PPS final rule 

IPPS Impact file, published in 

conjunction with the publication of the 

FY 2013 IPPS/LTCH PPS final rule. For 

the July 2013 estimate, we anticipate 

that the data will be based on the March 

2013 update of the Medicare Hospital 

Cost Report data and this proposed 

rule’s IPPS Impact file, published in 

conjunction with this proposed rule. For 

purposes of this proposed rule, we are 

using the February 2013 Medicare DSH 

estimates to calculate Factor 1 and to 

model the proposed impact of this 

provision. If our proposal to use the 

Office of the Actuary’s projections for 

Factor 1 is finalized, we would use the 

July 2013 Medicare DSH estimates to 

determine Factor 1 for the FY 2014 

IPPS/LTCH PPS final rule. 

In addition, because we are proposing 

to exclude sole community hospitals 

paid under their hospital specific 

payment rate from the application of 

section 1886(r) of the Act, we are also 

proposing to exclude these hospitals 

from our Medicare DSH estimate. 

Similarly, because Maryland hospitals 

and hospitals participating in the Rural 

Community Hospital Demonstration do 

not receive DSH payments, we also 

exclude these hospitals from our 

Medicare DSH estimate. 

Using the data sources discussed 

above, the Office of the Actuary uses the 

most recently submitted Medicare cost 

report data to identify current Medicare 

DSH payments and the most recent DSH 

payment adjustments provided in the 

IPPS Impact File, and applies inflation 

updates and assumptions for future 

changes in utilization and case mix to 

estimate Medicare DSH payments for 

the upcoming fiscal year. The February 

2013 Office of the Actuary estimate for 

Medicare DSH payments for FY 2014, 

without regard to the application of 

section 1886(r)(1) of the Act, is 12.338 

billion. This estimate excludes 

Maryland hospitals, sole community 

hospitals paid under their hospital 

specific payment rate and hospitals 

participating in the Rural Community 

Hospital Demonstration as discussed 

above. Therefore, based on this estimate, 

the estimate for empirically justified 

Medicare DSH payments for FY 2014, 

with the application of section 

1886(r)(1) of the Act, is $3.084 billion 

(25 percent of the total amount 

estimated). Under our proposal, Factor 1 

is the difference of these two estimates 

of the Office of the Actuary. Therefore, 

for the purpose of modeling Factor 1, we 

calculate Factor 1 to be $9.2535 billion. 

We also are proposing to develop and 

use the estimates necessary for Factor 1 

on a purely prospective basis. We are 

proposing to use the Actuary’s most 

recent February Medicare DSH 

estimates each year to calculate Factor 

1 and to model the impact of this 

provision for the IPPS/LTCH PPS 

proposed rule. Similarly, we are 

proposing to use the Actuary’s most 

recent July Medicare DSH estimates to 

determine Factor 1 for the IPPS/LTCH 

PPS final rule each year. In other words, 

we would not revise or update our 

estimates after we know the final 

Medicare DSH payments for FY 2014 

and subsequent years. As we discussed 

earlier, we do not know the aggregate 

Medicare DSH payment amount that 

would be paid for each federal fiscal 

year until the time of cost report 

settlements, which occur several years 

after the end of the fiscal year. Because 

the statute provides that CMS use 

estimates in order to determine Factor 1 

each year, we believe that applying our 

best estimates prospectively would be 

most conducive to administrative 

efficiency, finality, and predictability in 

payments. 

We are inviting public comments on 

all the elements of this proposed 

methodology to calculate Factor 1. 

We are proposing to add a new 

paragraph (g)(1)(i) under § 412.106 of 

our regulations to define the 

methodology for calculating Factor 1. 

(2) Proposed Methodology To Calculate 

Factor 2 

Section 1886(r)(2)(B) of the Act 

establishes Factor 2 in the calculation of 

the uncompensated care payment. 

Specifically, section 1886(r)(2)(B)(i) of 

the Act provides: ‘‘For each of fiscal 

years 2014, 2015, 2016, and 2017, a 

factor equal to 1 minus the percent 

change in the percent of individuals 

under the age of 65 who are uninsured, 

as determined by comparing the percent 

of such individuals (I) who are 

uninsured in 2013, the last year before 

coverage expansion under the Patient 

Protection and Affordable Care Act (as 

calculated by the Secretary based on the 

most recent estimates available from the 

Director of the Congressional Budget 

Office before a vote in either House on 

the Health Care and Education 

Reconciliation Act of 2010 that, if 

determined in the affirmative, would 

clear such Act for enrollment); and (II) 

who are uninsured in the most recent 

period for which data is available (as so 

calculated), minus 0.1 percentage points 

for fiscal year 2014 and minus 0.2 

percentage points for each of fiscal years 

2015, 2016, and 2017.’’ 

Section 1886(r)(2)(B) of the Act 

establishes, as Factor 2 in the 

uncompensated care payment formula, 

the percent change in uninsurance, 

based on a comparison of the percent of 

individuals under 65 without insurance 

in 2013 to the percent of such 

individuals without insurance in the 

most recent period for which we have 

data, minus 0.1 percentage points for FY 

2014 and 0.2 percentage points for each 

of FYs 2015, 2016, and 2017. 

Section 1886(r)(2)(B)(i)(I) of the Act 

further indicates that the percent of 

individuals under 65 without insurance 

in 2013 must be the percent of such 

individuals ‘‘who are uninsured in 

2013, the last year before coverage 

expansion under the Patient Protection 

and Affordable Care Act (as calculated 

by the Secretary based on the most 

recent estimates available from the 

Director of the Congressional Budget 

Office before a vote in either House on 

the Health Care and Education 

Reconciliation Act of 2010 that, if 

determined in the affirmative, would 

clear such Act for enrollment).’’ The 

Health Care and Education 

Reconciliation Act (Pub. L. 111–152) 

was enacted on March 30, 2010. It was 

passed in the House of Representatives 

on March 21, 2010 and by the Senate on 

March 25, 2010. Because the House of 

Representatives was the first House to 

vote on the Health Care and Education 

Reconciliation Act of 2010 on March 21, 

2010, we have determined that the most 

recent estimate available from the 

Director of the Congressional Budget 

Office ‘‘before a vote in either House on 

the Health Care and Education 

Reconciliation Act of 2010 . . .’’ 

appeared in a March 20, 2010 letter 

from the director of the CBO to the 

Speaker of the House. (Emphasis 

supplied.) Therefore, we believe that 

only the estimates in this March 20, 

2010 letter meet the statutory 

requirement under section 

1886(r)(2)(B)(i)(I). (To view the March 

20, 2010 letter, we refer readers to the 

Web site at: http://www.cbo.gov/sites/ 

default/files/cbofiles/ftpdocs/113xx/ 

doc11379/amendreconprop.pdf. 

In its March 20, 2010 CBO letter to the 

Speaker of the House, the CBO provides 

two estimates of the ‘‘post-policy 

uninsured population.’’ The first 

estimate is of the ‘‘Insured Share of the 

Nonelderly Population Including All 

Residents’’ (which is 82 percent) and 

the second estimate is of the ‘‘Insured 

Share of the Nonelderly Population 

Excluding Unauthorized Immigrants’’ 

(83 percent). We are proposing to use 

the first estimate that includes all 

residents, including unauthorized 

immigrants. We believe this estimate is 

most consistent with the statute which 

requires us to measure ‘‘the percent of 

individuals under the age of 65 who are 

uninsured,’’ and provides no exclusions 

except for individuals over the age 65. 

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In addition, we believe that this 

estimate would more fully reflect the 

levels of uninsurance in the United 

States that influence uncompensated 

care for hospitals. Therefore, using this 

estimate would seem more consistent 

with the statutory requirement of 

establishing a payment for 

uncompensated care. For these reasons, 

we are proposing to use the estimate of 

the ‘‘Insured Share of the Nonelderly 

Population Including All Residents’’ for 

2013 to calculate the baseline 

percentage of individuals under age 65 

without insurance. 

We are inviting public comments on 

this proposal. 

The March 20, 2010 CBO letter 

reports these figures as the estimated 

percentage of individuals with 

insurance. However, because section 

1886(r)(2)(B)(i) of the Act requires that 

we compare the percent of individuals 

‘‘who are uninsured in 2013,’’ we are 

proposing to use the CBO insurance rate 

figure and subtract that amount from 

100 percent (i.e., the total population, 

without regard to insurance status) to 

estimate the 2013 baseline percentage of 

individuals without insurance. In its 

March 20, 2010 letter, the CBO reported 

its estimate of the ‘‘Insured Share of the 

Nonelderly Population Including All 

Residents’’ as 82 percent. Therefore, we 

are proposing that, for FYs 2014–2017, 

our estimate of the uninsurance 

percentage for 2013 would be 18 

percent. As provided for in the CBO 

March 20, 2010 letter, the CBO estimate 

for insurance for the nonelderly (under 

age of 65) population only includes 

residents of the 50 States and the 

District of Columbia, and the count of 

uninsured people includes 

unauthorized immigrants, as well as 

people who are eligible for, but not 

enrolled in, Medicaid. We note that, 

although we are proposing that acute 

care hospitals located in Puerto Rico 

that receive DSH payments will be 

eligible to receive payments under 

section 1886(r) of the Act, this estimate 

for insurance does not account for 

residents in Puerto Rico. We believe that 

the impact of the exclusion of Puerto 

Rico from the insurance estimate is 

negligible. 

We are inviting public comments on 

this proposal. 

Section 1886(r)(2)(B)(i) of the Act 

requires that we compare the baseline 

uninsurance rate to the percent of such 

individuals ‘‘who are uninsured in the 

most recent period for which data is 

available (as so calculated).’’ We are 

proposing to use the same data source, 

CBO estimates, to calculate this percent 

of individuals without insurance. 

Section 1886(r)(2)(B)(i)(I) of the Act 

refers to the percent of uninsured in 

2013 ‘‘as calculated by the Secretary 

based on’’ the CBO data. Similarly, 

section 1886(r)(2)(B)(i)(II) of the Act 

immediately afterwards refers to the 

percent of uninsured for 2014 ‘‘as so 

calculated.’’ (Emphasis supplied.) The 

phrase ‘‘as so calculated’’ in the latter 

section can be reasonably interpreted to 

require the calculation to similarly be 

based on CBO estimates. In addition, we 

believe that it is preferable from a 

statistical point of view to calculate a 

percent change in insurance over time 

using a consistent data source. 

Furthermore, rather than using the 

estimates included in the March 20, 

2010 CBO letter, we believe it is 

appropriate to use more recent CBO 

estimates of the percent of individuals 

with insurance. The more recent CBO 

projections take into account changes in 

the environment that can impact 

insurance rates, such as more recent 

economic conditions and the Supreme 

Court’s decision in National Federation 

of Independent Business. v. Sebelius, 

___ U.S. ___, 132 S. Ct. 2566 (2012), 

regarding Medicaid expansions 

authorized by the Affordable Care Act. 

Because the statute requires that we use 

‘‘the most recent period for which data 

is available’’ to calculate the comparison 

percentage of individuals without 

insurance, we are proposing to use the 

most recent update (that is, the most 

recent update available at the time of 

rulemaking with respect to a particular 

fiscal year) to the percent of individuals 

with insurance provided by the CBO to 

calculate this comparison figure. 

In addition, for FY 2014, we are 

proposing to use CBO’s most recent 

estimate for the percent of individuals 

with insurance in 2014 for purposes of 

section 1886(r)(2)(B)(i)(II) because this is 

the year in which this provision is 

effective. This figure is used for Factor 

2 and later applied to Factor 1, which 

is also based on an estimate for FY 2014. 

On February 5, 2013, the CBO released 

its annual Budget and Economic 

Outlook. The report included updated 

economic and budget projections that 

incorporated the effects of the 

legislation enacted prior to the start of 

the year, a revised economic forecast 

consistent with the budget projections, 

and other changes to CBO’s estimates. 

(To view the report, we refer readers to 

the Web site at: http://www.cbo.gov/

sites/default/files/cbofiles/attachments/

43900_ACAInsuranceCoverageEffects.

pdf.) 

In this proposed rule, we are using the 

February 5, 2013, CBO health insurance 

estimates in order to calculate the 

percentage of individuals without 

insurance for 2014. As we did for the 

uninsurance percentage estimate for 

2013 (based on the March 20, 2010 CBO 

letter discussed above), we are 

proposing to use the ‘‘Insured Share of 

the Nonelderly Population Including All 

Residents’’ to calculate the comparison 

of percentage of people without 

insurance for 2014. Consistent with the 

CBO estimate used to calculate the 

baseline uninsurance estimate, this 

estimate for insurance only includes 

residents of the 50 States and the 

District of Columbia, and the count of 

uninsured people includes 

unauthorized immigrants, as well as 

people who are eligible for, but not 

enrolled in, Medicaid. The CBO report 

projects that the ‘‘Insured Share of the 

Nonelderly Population Including All 

Residents’’ for 2014 will be 84 percent. 

Therefore, in the same manner that we 

calculated the uninsurance percentage 

for the baseline, we are proposing that 

the uninsurance percentage for 2014 

would be 16 percent (i.e., 100 percent 

minus 84 percent) for the purpose of 

this proposed rule. If our proposal is 

finalized, and there is a more recent 

estimate of the percentage of individuals 

with insurance in 2014 by the CBO 

available for the FY 2014 IPPS/LTCH 

PPS final rule, we would use that 

estimate to calculate Factor 2. However, 

we would not adjust Factor 2 

retroactively to account for estimates 

that become available after publication 

of the final rule. 

Section 1886(r)(2)(B)(i) of the Act 

states that Factor 2 for FY 2014 is equal 

to 1 minus the percent change in the 

percent of individuals under the age of 

65 who are uninsured, as determined by 

comparing the percent of such 

individuals without insurance in the 

baseline and in the most recent period 

for which we have data (minus 0.1 

percentage points for FY 2014). 

Therefore, we are proposing that Factor 

2 is 1 minus the percent change of the 

baseline percentage of individuals 

without insurance in 2013 (which is, for 

this proposed rule, 18 percent) and the 

most recent percentage of individuals 

without insurance for 2014 (which is, 

for this proposed rule, 16 percent) 

minus 0.1 percentage points. 

Using the March 20, 2010 CBO 

projection for 2013 and the February 5, 

2013 CBO projection of uninsurance for 

all residents for 2014, we are proposing 

to use the following computation for 

Factor 2 for FY 2014: 

Percent of individuals without insurance for 

2013: 18 percent 

Percent of individuals without insurance for 

2014: 16 percent 

1 ¥ |[(0.16 ¥ 0.18)/0.18]| = 1 ¥ 0.111 = 

0.889 (88.9 percent) 

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0.889 (88.9 percent) ¥ 0.001 (0.1 percentage 

points) = 0.888 (88.8 percent) 

0.888 = Factor 2 

Accordingly, we are proposing Factor 

2 to be 88.8 percent for FY 2014. In 

conjunction with this proposal, we are 

therefore proposing that the amount 

available for uncompensated care 

payments for FY 2014 will be $8.217 

billion (0.888 times our proposed Factor 

1 estimate of $9.2535 billion). As we 

noted previously, our proposal for 

Factor 2 may be subject to change if 

more recent CBO estimates of the 

insurance rate for 2014 become 

available prior to the preparation of the 

final rule. 

We are inviting public comment on 

our proposed methodology to calculate 

Factor 2. 

In this proposed rule, we are 

proposing to add a new paragraph 

(g)(1)(ii) under § 412.106 of our 

regulations to define the methodology 

for calculating Factor 2. 

(3) Proposed Methodology To Calculate 

Factor 3 

Section 1886(r)(2)(C) of the Act 

defines Factor 3 in the calculation of the 

uncompensated care payment. As we 

have discussed above, section 

1886(r)(2)(C) of the Act states that Factor 

3 is ‘‘equal to the percent, for each 

subsection (d) hospital, that represents 

the quotient of (i) the amount of 

uncompensated care for such hospital 

for a period selected by the Secretary (as 

estimated by the Secretary, based on 

appropriate data (including, in the case 

where the Secretary determines 

alternative data is available which is a 

better proxy for the costs of subsection 

(d) hospitals for treating the uninsured, 

the use of such alternative data)); and 

(ii) the aggregate amount of 

uncompensated care for all subsection 

(d) hospitals that receive a payment 

under this subsection for such period 

(as so estimated, based on such data).’’ 

Therefore, Factor 3 is a hospitalspecific value that expresses the 

proportion of the estimated 

uncompensated care amount for each 

subsection (d) hospital and subsection 

(d) Puerto Rico hospital with the 

potential to receive DSH payments 

relative to the estimated uncompensated 

care amount for all hospitals estimated 

to receive DSH payments in the fiscal 

year for which the uncompensated care 

payment is to be made. Factor 3 is 

applied to the product of Factor 1 and 

Factor 2 to determine the amount of the 

uncompensated care payment that each 

eligible hospital will receive for FY 

2014 and subsequent years. In order to 

implement the statutory requirements 

for this factor of the uncompensated 

care payment formula, we must 

determine the following: (1) The 

definition of uncompensated care, or in 

other words, the specific items that are 

to be included in the numerator (that is, 

the estimated uncompensated care 

amount for an individual hospital) and 

denominator (that is, the estimated 

uncompensated care amount for all 

hospitals estimated to receive DSH 

payments in the applicable FY); (2) the 

data source(s) for the estimated 

uncompensated care amount; and (3) 

the timing and manner of computing the 

quotient for each hospital estimated to 

receive DSH payments. The statute 

instructs the Secretary to estimate the 

amounts of uncompensated care for a 

period ‘‘based on appropriate data.’’ In 

addition, we note that the statute 

permits the Secretary to use alternative 

data ‘‘in the case where the Secretary 

determines that alternative data is 

available, which is a better proxy for the 

costs of subsection (d) hospitals for 

treating the uninsured. 

In the course of considering how to 

determine Factor 3, we considered 

proposing to define the amount 

uncompensated care for a hospital as 

the uncompensated care costs of that 

hospital and considered potential data 

sources for those costs. In doing so, we 

first considered which costs should be 

included in the definition of 

‘‘uncompensated care costs.’’ We 

examined the broad literature on 

uncompensated care and the concepts of 

uncompensated care used in various 

public and private programs. We also 

considered input from stakeholders and 

public comments in various forums, 

including the national provider call that 

we held in January 2013. Our review of 

the information from these sources 

indicated that there is some variation in 

how different States, provider 

organizations, and Federal programs 

define ‘‘uncompensated care.’’ However, 

a common theme of almost all these 

definitions is that they include both 

‘‘charity care’’ and ‘‘bad debt’’ as 

constituents of ‘‘uncompensated care.’’ 

After considering the various factors 

that are included in different definitions 

of ‘‘uncompensated care,’’ we 

considered proposing to adopt a 

definition which incorporated those 

factors that are most commonly 

included within the term. Thus we 

considered proposing to define 

‘‘uncompensated care’’ as the cost of 

charity care plus bad debt which 

includes the cost of non-Medicare bad 

debt and non-reimbursed Medicare bad 

debt. In turn, we also considered 

proposing to define ‘‘charity care costs’’ 

as the cost of care for patients that meet 

hospitals’ individual criteria for charity 

care net of any partial payment received 

by the hospital from patients for that 

care, and to define ‘‘non-Medicare bad 

debt costs’’ as the cost of hospital care 

for non-Medicare patients that have the 

financial capacity to pay, but are 

unwilling to settle the claim. In 

addition, we considered proposing to 

define ‘‘non-reimbursed Medicare bad 

debt costs’’ as the amount of allowable 

coinsurance and deductible for 

Medicare patients from whom the 

hospital has sought to collect payment 

through reasonable collection efforts as 

described in § 413.89(e) of the Medicare 

regulations and not reimbursed by 

Medicare. 

Charity care is most commonly 

defined as hospital care provided to 

individuals that meet certain financial 

eligibility criteria, for which the 

hospital does not expect to receive 

payment because of the individual’s 

inability to pay. Definitions of charity 

care also regularly state that a patient 

must meet several guidelines for their 

care to qualify as charity care. These 

guidelines usually state that the patient 

must be uninsured, unqualified for a 

Federal program such as Medicaid, and/ 

or fall under a certain Federal poverty 

line (FPL) standard. Some charity care 

is directed at insured individuals when 

insurance does not cover all the costs of 

their hospital care or when there are 

annual or lifetime limits. This definition 

also varies by hospital. Some hospitals 

may also seek payment from individuals 

who qualify for charity care as part of 

their financial assistance policies or to 

help offset the cost of that patient’s 

hospital care. To the extent that 

hospitals receive payment from a 

patient that qualifies for charity care for 

hospital care provided, we believe that 

those payments should be subtracted 

from the costs of that care. In this way, 

the cost of charity care reflects the 

financial burden on the hospital, or, 

stated another way, the cost of charity 

care reflects only the uncompensated 

portion of the charity care. 

The literature suggests that bad debt 

has been consistently defined as 

unreimbursed care for persons for 

which the hospital did not receive 

payment. The regulations at 42 CFR 

413.89(b)(1) define Medicare bad debt as 

‘‘amounts considered to be uncollectible 

from accounts and notes receivable that 

were created or acquired in providing 

services.’’ The regulations also specify 

that: ‘‘‘accounts receivable’ and ‘notes 

receivable’ are designations for claims 

arising from the furnishing of services, 

and are collectible in money in the 

relatively near future.’’ Section 

413.89(e) further specifies that under 

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Medicare ‘‘bad debt must meet the 

following criteria to be allowable: (1) 

The debt must be related to covered 

services and derived from deductible 

and coinsurance amounts. (2) The 

provider must be able to establish that 

reasonable collection efforts were made. 

(3) The debt was actually uncollectible 

when claimed as worthless. (4) Sound 

business judgment established that there 

was no likelihood of recovery at any 

time in the future. We considered 

proposing to use the cost of nonMedicare and non-reimbursed Medicare 

bad debt (as reported on line 29 of the 

Worksheet S–10) as part of the proposed 

definition of ‘‘uncompensated care.’’ 

Some definitions of uncompensated 

care, including that used for calculating 

the Medicaid DSH hospital payment 

limit at 42 CFR 447.299(c)(16), also 

include the difference between the costs 

incurred by a hospital for services to 

Medicaid individuals and applicable 

revenues for these services. While we 

recognize in some cases, a hospital may 

receive revenues that do not fully cover 

those costs, we note that this is true for 

any patient population treated by a 

hospital regardless of insurance status. 

Hospitals negotiate contractual 

allowances with commercial payers, 

and it is possible that payment for some 

of these patients would be less than the 

costs of their care. 

We emphasize, however, that we plan 

to monitor the potential effects of 

different definitions of uncompensated 

care on various measures designed to 

expand health insurance coverage under 

the Affordable Care Act, including 

Medicaid expansion. 

Specifically, we wish to avoid 

creating a policy that would serve as a 

disincentive for States wishing to 

expand Medicaid. Using some of the 

data discussed in this proposed rule, we 

recognize it would be possible for 

hospitals in States that choose to 

expand Medicaid to receive lower 

uncompensated care payments because 

they are less likely to have uninsured 

patients than hospitals in a State that 

does not choose to expand Medicaid. In 

practice, because the available data 

sources (such as the Medicare cost 

report) for a given federal fiscal year are 

not available until some time after the 

end of that federal fiscal year, we 

believe that data to understand these 

effects will not be available until 2016 

or later. However, we also note that 

hospitals in expansion States would 

receive full Medicaid reimbursement for 

many previously uninsured patients. So 

on balance, we believe both hospitals 

and States stand to benefit greatly from 

Medicaid expansion, regardless of the 

data used to determine Factor 3. 

However, if warranted, we may in the 

future reconsider how to define 

uncompensated care, such as to include 

differences between applicable 

Medicaid costs and revenues, or 

consider other definitions that would 

account for differences in State 

Medicaid coverage. 

For purposes of selecting an 

appropriate data source for this possible 

definition of uncompensated care costs, 

we reviewed the literature and available 

data sources and determined that the 

Medicare cost report Worksheet S–10 

could potentially provide the most 

complete data for Medicare hospitals. 

(We refer readers to the report 

‘‘Improvements to Medicare 

Disproportionate Share (DSH) 

Payments’’ for a full discussion and 

evaluation of the available data sources. 

The report can be found on the CMS 

Web site at: http://www.cms.gov/ 

Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/dsh.html.) 

However, Worksheet S–10 is a relatively 

new data source that has been used for 

specific payment purposes only in 

relatively restricted ways (e.g., to 

provide a source of charity care charges 

in the computation of EHR incentive 

payments; 75 FR 44456.). Some 

stakeholders have expressed concern 

that hospitals have not had enough time 

to learn how to submit accurate and 

consistent data through this reporting 

mechanism. Other stakeholders have 

maintained that some instructions for 

Worksheet S–10 still require 

clarification in order to ensure 

standardized and consistent reporting 

by hospitals. We understand and 

appreciate the concerns of these 

stakeholders. At the same time, 

Worksheet S–10 is the only national 

data source that includes data for all 

Medicare hospitals and is designed to 

elicit data that are both accurate and 

consistent with the definition of 

uncompensated care costs that we 

considered proposing to use. 

Charity care information is reported 

on Worksheet S–10, lines 20 through 23. 

On line 20, Column 3, hospitals report 

‘‘Total initial obligation of patients 

approved for charity care (at full charges 

excluding non-reimbursable cost 

centers) for the entire facility’’ for both 

the insured and uninsured population. 

On Worksheet S–10, line 21, the charity 

care charges reported on line 20 are 

converted to charity care costs by 

multiplying the charity care charges by 

the cost-to-charge ratio (CCR) reported 

on line 1 of Worksheet S–10. Partial 

payment by patients for charity care is 

reported on line 22 of Worksheet S–10. 

Charity care costs are reported on line 

23 of Worksheet S–10 as the difference 

between line 21 and 22. We could use 

‘‘Cost of Charity Care,’’ line 23, Column 

3 of Worksheet S–10 to identify a 

hospital’s charity care costs, as part of 

a definition of ‘‘uncompensated care.’’ 

Bad debt information is reported on 

Worksheet S–10, lines 26 through 29. 

On Worksheet S–10, line 26 and line 27, 

a hospital reports its total bad debt 

expense and its Medicare reimbursed 

bad debt expense, respectively. On 

Worksheet S–10, line 28 represents the 

non-Medicare bad debt expense and 

non-reimbursed Medicare bad debt 

expense, the difference between lines 27 

and 26. The cost of non-Medicare bad 

debt and non-reimbursed Medicare is 

reported on line 29 of the Worksheet S– 

10 as the product of the CCR and the 

non-Medicare and non-reimbursed 

Medicare bad debt expense reported on 

line 28. We could use the cost of nonMedicare bad debt and non-reimbursed 

Medicare that is reported on line 29 of 

the Worksheet S–10 to identify a 

hospital’s bad debt costs, as part of a 

definition of ‘‘uncompensated care.’’ 

To summarize, we could use the sum 

of line 23, Column 3 of Worksheet S– 

10 and line 29 of Worksheet S–10 to 

estimate a hospital’s uncompensated 

care cost. A hospital’s individual 

uncompensated care cost based on this 

estimate would represent that hospital’s 

numerator for Factor 3. The sum of the 

estimated uncompensated care costs for 

all the hospitals that we estimate would 

receive DSH payments (and thus the 

uncompensated care payment) for the 

fiscal year would represent the 

denominator of Factor 3. 

In order to apply a definition of 

uncompensated care costs based upon 

information reported on the Worksheet 

S–10, it would be necessary to use the 

2010/2011 cost reports, which were 

submitted on or after May 1, 2010, when 

the new Worksheet S–10 went into 

effect. These are the most recently 

available full year of cost reports and 

the first cost reports with detailed 

uncompensated care data on the 

Worksheet S–10 that would be available 

for use in implementing the new 

methodology for uncompensated care 

payments for FY 2014. Concerns about 

the standardization and completeness of 

the Worksheet S–10 data could be more 

acute for data collected in the first year 

of the Worksheet’s use. Because of these 

concerns, we are not proposing to define 

of uncompensated care in a way that 

would require use of the Worksheet S– 

10 data. 

We believe, however, that Worksheet 

S–10 of the Medicare Cost Report would 

otherwise be an appropriate data source 

to determine uncompensated care costs. 

In particular, we note that Worksheet S– 

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10 was developed specifically to collect 

information on uncompensated care 

costs in response to interest by MedPAC 

and other stakeholders regarding the 

topic (for example, MedPAC’s March 

2007 Report to Congress) and that it is 

not unreasonable to expect information 

on the cost report to be used for 

payment purposes. Furthermore, 

hospitals attest to the accuracy and 

completeness of the information 

reported in the cost report at the time of 

submission. While we realize that 

hospitals may wish to have a more 

specific understanding of how this data 

will be used, we believe that the 

discussion in this proposed rule will 

help to increase their understanding and 

also inform our efforts to refine the cost 

report and cost report instructions so 

that hospitals may continue to gain 

experience in reporting accurate 

information. We also expect reporting 

on Worksheet S–10 to improve over 

time, particularly in the area of charity 

care which is already being used and 

audited for payment determinations 

related to the electronic health record 

incentive program, and will continue to 

monitor these data. Accordingly, we 

may proceed with a proposal to use data 

on the Worksheet S–10 to determine 

uncompensated care costs in the future, 

once hospitals are submitting accurate 

and consistent data through this 

reporting mechanism. 

As we describe above, we are 

concerned about stakeholder input that 

the variations in the data reported on 

Worksheet S–10 of the Medicare cost 

report regarding uncompensated care 

may be due to hospitals’ relative lack of 

experience reporting all of the data 

elements on that worksheet. A large 

number of stakeholders noted that there 

is considerable variation and numerous 

inconsistencies in how uncompensated 

care is calculated and reported in 

Worksheet S–10 and they point out that 

these inconsistencies can produce 

divergent results. Some went as far as 

noting that data from Worksheet S–10 is 

‘‘flawed’’ and many suggested more 

precision in reporting instructions to 

help hospitals report data in a more 

consistent manner. We note that most of 

the data elements reported on 

Worksheet S–10 have been previously 

unused for payment purposes, with only 

some data elements recently being used 

for determining a hospital’s electronic 

health record incentive payments, and 

these data elements have not been 

subject to audit prior to this time. We 

believe it is important that data used to 

determine Factor 3 are data that have 

been historically publicly available, 

subject to audit, and used for payment 

purposes (or that the public understands 

will be used for payment purposes). It 

is our belief that hospitals expend more 

resources to ensure data accuracy when 

data are publicly available and used for 

payments. For example, the National 

Quality Forum (NQF) first endorsed 

quality measures for readmissions for 

heart failure (HF) in May 2008 and acute 

myocardial infarction (AMI) and 

pneumonia (PN) in October 2008. HF 

was subsequently adopted in the 

Hospital Inpatient Quality Reporting 

Program in the FY 2009 IPPS rule and 

AMI and PN in the CY2009 OPPS rule. 

All three were adopted for the FY 2010 

HIQR program and publicly reported in 

Hospital Compare in 2009. More 

recently, starting in FY 2013, all three 

were used to determine a payment 

adjustment under 1886(q). As the 

measures became linked with payment, 

CMS has received an increasing number 

of questions regarding and requests to 

refine these measures, leading us to 

believe that hospitals are increasingly 

focused on ensuring that their data are 

correct. Furthermore, it is also our belief 

that auditing plays an important role in 

ensuring data accuracy by identifying 

and remediating problem areas and/or 

hospitals as well as by having a sentinel 

effect in others. For example, each year, 

CMS and its intermediaries work with 

hospitals to review salary and wage data 

reported on Worksheet S–3 of the 

Medicare cost report for use in 

determining the wage index. This 

extensive process identifies errors and 

ensures that anomalous data are 

reviewed, corrected as needed, and 

documented. Due to stakeholder 

concerns and our belief in the 

importance of using data that have been 

historically publicly available, subject to 

audit, and used for payment purposes 

(or that the public understands will be 

used for payment purposes), for FY 

2014, we have serious concerns about 

proposing using Worksheet S–10 to 

determine the amount of 

uncompensated care. 

While the statute instructs the 

Secretary to estimate the amounts of 

uncompensated care for a period ‘‘based 

on appropriate data,’’ section 

1886(r)(2)(C)(i) permits the Secretary to 

use alternative data ‘‘in the case where 

the Secretary determines that alternative 

data is available which is a better proxy 

for the costs of subsection (d) hospitals 

for treating the uninsured’’ for the 

numerator of Factor 3. For the 

denominator of that quotient, section 

1886(r)(2)(C)(ii) requires the Secretary to 

use ‘‘the aggregate amount of 

uncompensated care for all subsection 

(d) hospitals that receive a payment 

under this subsection for such period 

(as so estimated, based on such data). 

(Emphasis added.) The phrase ‘‘as so 

estimated, based on such data’’ in the 

latter section can be reasonably 

interpreted to require the calculation to 

similarly be based on the same data as 

is used to estimate the numerator of the 

quotient in Factor 3, including any 

alternative data which is determined to 

be a better proxy for the costs of treating 

the uninsured. As a result of our 

concerns regarding variations in the 

data reported on the Worksheet S–10, 

we believe that it is appropriate to 

consider the use of alternative data, at 

least in FY 2014, the first year that this 

provision is effective, and possibly 

additional years until hospitals have 

adequate experience reporting all of the 

data elements on Worksheet S–10. We 

note that this is consistent with input 

we received from some stakeholders in 

response to the CMS National Provider 

Call in January 2013, who stated their 

belief that existing FY 2010 and FY 

2011 data from the Worksheet S–10 

cannot be used for implementation of 

1886(r) and who requested the 

opportunity to re-submit the data once 

more specific instructions were issued 

by CMS. Accordingly, we examined 

alternative data sources that could be 

used to allow time for hospitals to gain 

experience with and to improve the 

accuracy of their S–10 reporting. For the 

reasons described above, we believe it 

would be appropriate to use data 

elements that have been historically 

publicly available, subject to audit, and 

used for payment purposes (or that the 

public understands will be used for 

payment purposes) as alternative data 

for the first year or years of 

implementation. 

In order to implement the statutory 

requirements for Factor 3 using 

alternative data, we must: (1) Determine 

whether alternative data would be a 

better proxy for the treatment costs of 

the uninsured than the information 

available on the Worksheet S–10; (2) 

identify a source for this alternative 

data; and (3) determine the timing and 

manner of computing the quotient for 

each hospital. 

We believe that data on utilization for 

insured low-income patients can be a 

reasonable proxy for the treatment costs 

of uninsured patients. Moreover, due to 

the concerns regarding the accuracy and 

consistency of the data reported on the 

Worksheet S–10, we believe that this 

alternative data, which is currently 

reported on the Medicare cost report, 

would be a better proxy for the amount 

of uncompensated care provided by 

hospitals. Accordingly, we propose to 

use the utilization of insured lowmstockstill on DSK4VPTVN1PROD with PROPOSALS2

27588 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

25Wynn, B. et al. Analysis of the Joint 

Distribution of Disproportionate Share Hospital 

Payments. PM–1387–ASPE. September 20, 2002 

http://www.urban.org/UploadedPDF/ 

410975_ASPEDSH_final.pdf. 

26Marion Ein Lewin and Stuart Altman, Editors; 

Committee on the Changing Market, Managed Care, 

and the Future Viability of Safety Net Providers, 

Institute of Medicine. America’s Health Care Safety 

Net: Intact but Endangered. 2000. http:// 

www.nap.edu/catalog/9612.html. 

27 John K. Iglehart. Medicaid. N Engl J Med 1993; 

328:896–900. March 25, 1993. 

28Benjamin D. Sommers, M.D., Ph.D., Katherine 

Baicker, Ph.D., and Arnold M. Epstein, M.D. 

Mortality and Access to Care among Adults after 

State Medicaid Expansions. N Engl J Med 2012; 

367:1025–1034. September 13, 2012. 

29The Medicaid Access Study Group. Access of 

Medicaid Recipients to Outpatient Care. N Engl J 

Med 1994; 330:1426–1430. May 19, 1994. 

income patients defined as inpatient 

days of Medicaid patients plus inpatient 

days of Medicare SSI patients as defined 

in 42 CFR 412.106(b)(4) and 

412.106(b)(2)(i), respectively to 

determine Factor 3. We describe our 

proposal and rationale more fully below 

and seek public comment. 

As a preliminary matter, we note that 

precise data on health care costs are 

difficult to obtain. We note that for 

Medicare payment purposes, we 

estimate those costs using reported 

charges and cost-to-charge ratios. This 

approach to estimating costs is what is 

used on Worksheet S–10 to determine 

costs for charity care and bad debt. Even 

though we do not believe it is 

appropriate to look beyond the 

Medicare cost report for alternative data 

because all hospitals are required to 

report data on that cost report, we think 

that it is important to point out that data 

on uninsured patients is difficult to find 

in a comprehensive manner on a 

hospital-specific basis. In a September 

2002 report, Analysis of the Joint 

Distribution of Disproportionate Share 

Hospital Payments, RAND and Urban 

Institute researchers describe this 

difficulty, citing as an example how 

detailed inpatient utilization data on 

self-pay patients were available only for 

the sample of hospitals (20 percent 

sample) from the 24 states included in 

AHRQ’s HCUP database.25

While Worksheet S–10 does contain 

some information regarding the 

treatment costs of the uninsured, most 

notably of those uninsured patients who 

qualify for charity care at an individual 

hospital, for the reasons described 

above, we are concerned about the use 

of information reported on the 

Worksheet S–10 as appropriate data for 

FY 2014 and possibly additional years. 

As a result of these concerns, in 

identifying alternative data that could 

serve as a proxy for the treatment costs 

of the uninsured, we must consider 

methods other than costs to 

approximate the resources expended by 

hospitals to treat uninsured patients. 

One such method is utilization. A 

hospital’s costs for treating uninsured 

patients are a function of its input costs 

and utilization of services. In 

accordance with the statute, in order to 

determine Factor 3, a hospital-level 

estimate of uncompensated care is 

required. Such an estimate can be 

constructed using detailed data 

regarding specific items or services. 

However, such data are not available to 

us. In contrast, hospital level data 

measuring utilization as inpatient days 

or discharges are available. While we 

note that inpatient days or discharges 

would be more precise if they took into 

account the relative resource utilization 

of individual patients, such as case mix, 

no such data are available to us. In the 

September 2002 report discussed above, 

RAND and Urban Institute researchers 

asserted that without specific case mix 

data for low income populations, 

inpatient days are preferable to 

discharges as a way to measure 

utilization. Therefore, we believe that 

utilization based upon inpatient days is 

an appropriate method to approximate 

costs for the treatment costs of the 

uninsured. 

We further believe that utilization by 

insured low-income patients, such as 

Medicaid patients or Medicare patients 

that receive SSI benefits (Medicare SSI), 

can be a reasonable proxy for utilization 

by uninsured patients. In its 2000 report 

on American’s Health Care Safety Net, 

the Institute of Medicine considers 

uninsured individuals, low-income 

underinsured individuals, Medicaid 

beneficiaries, and patients with special 

health care needs all as vulnerable 

populations.26 We note that when 

studying access to care, researchers may 

study Medicaid and/or low-income 

populations (e.g., health outcomes, 

utilization, etc.) in order to understand 

more broadly the impact of similar 

policy interventions for other vulnerable 

populations.27 For example, recently, 

researchers have studied the effects of 

Medicaid expansions to gauge the 

effects of these expansions on health 

status and other indicators to inform 

policymakers as these expansion efforts 

continue.28 Researchers have also 

studied the ability of Medicaid patients 

to gain access to outpatient care in an 

effort to highlight the ramifications of 

various policy interventions, such as 

mandatory co-payments and utilization 

restrictions.29 We believe that this type 

research is often used by state and other 

policy makers to evaluate how Medicaid 

and other public health insurance can 

expand access to care to uninsured 

populations. 

While the report by RAND and the 

Urban Institute cited above found 

shortcomings in how well both 

Medicaid and Medicare DSH target 

funds towards safety net hospitals, 

another key finding of the report was 

that the allocation methods used by 

these programs target funds to safety net 

hospitals at least as well as the 

alternative allocation methods they 

examined. The allocation method used 

by Medicare for Medicare DSH is the 

sum of two computations. The first 

computation, defined at 42 CFR 

412.106(b)(2), known as the SSI ratio or 

Medicare fraction, is the proportion of a 

hospital’s Medicare SSI days relative to 

Medicare days. The second 

computation, defined at 42 CFR 

412.106(b)(4), known as the Medicaid 

fraction, is the proportion of a hospital’s 

Medicaid days relative to total days. The 

by RAND and the Urban Institute study 

also found that the choice of patient 

populations used to evaluate how well 

Medicare and Medicaid DSH funds are 

allocated is important. The study notes 

that including Medicare SSI 

beneficiaries along with all other lowincome patients generally performed 

better, resulting in a better targeting of 

these payments towards safety net 

hospitals. Therefore, we believe the 

utilization of insured low income 

patients defined as insured low-income 

days, or inpatient days of Medicaid 

patients plus inpatient days of 

Medicare-SSI patients could be a proxy 

for the treatment costs of uninsured 

patients. Currently, for the Medicare 

DSH adjustment, hospitals report 

utilization for Medicaid and Medicare 

SSI patients in accordance with the 

regulations at 42 CFR 412.106(b)(4) and 

412.106(b)(2)(i), respectively. 

Specifically, we would define inpatient 

days for Medicaid patients as they are 

defined in 42 CFR 412.106(b)(4) and 

inpatient days for Medicare-SSI patients 

as they are defined at § 412.106(b)(2)(i). 

A hospital’s individual insured lowincome insured days based on this 

calculation would represent that 

hospital’s numerator for Factor 3. The 

sum of the low-income insured days 

under this calculation for all the 

hospitals that we estimate would 

receive DSH payments (and thus the 

uncompensated care payment) for FY 

2014 would represent the denominator 

of Factor 3. 

It is important to point out that when 

these insured low-income utilization 

data are used to determine Medicare 

DSH payments, they are subject to 

additional computations as described in 

42 CFR 412.106(b) and 412.106(d). 

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Therefore, using these data to determine 

Factor 3 will lead to a different set of 

results than using these data to 

determine hospitals’ Medicare DSH 

payments. 

We believe that the data in the 

Medicare cost report (and data that are 

used to update the SSI ratios in the cost 

report) are acceptable for use as a source 

for this alternative data because they 

include data for all Medicare hospitals. 

For the reasons described above, we 

considered data elements from the 

Medicare cost report that have been 

historically publicly available, subject to 

audit, and used for payment purposes, 

as alternative data for the costs of 

subsection (d) hospitals for treating the 

uninsured. Worksheet S–3, Part I of the 

CMS–2552–96 version of the Medicare 

cost report and Worksheet S–2, Part I of 

the CMS 2552–10 version of the 

Medicare cost report contain 

information on the utilization of 

Medicaid patients. Specifically, it 

contains information regarding 

Medicaid days (i.e., the numerator of the 

Medicaid fraction). The SSI ratios can 

be found in Worksheet E, Part A and 

hospitals’ SSI ratios are reported by 

CMS on the Medicare DSH Web site, by 

Federal fiscal year, and include a 

hospital’s Medicare SSI days. We point 

out that CMS calculates the SSI ratios 

using the MedPAR claims data and 

updates them annually in accordance 

with the process and timing set forth in 

the FY 2011 IPPS rule (75 FR 50282), 

generally issuing them in the Spring of 

each year for the federal fiscal year two 

years prior. For instance, we would 

expect that the SSI ratios for FY 2011 

would be made available in the Spring 

of 2013. SSI ratios can be downloaded 

from http://www.cms.gov/Medicare/ 

Medicare-Fee-for-Service-Payment/ 

AcuteInpatientPPS/dsh.html. The SSI 

ratios for a Federal fiscal year are the 

data that would ultimately be used in 

Worksheet E, Part A to determine a 

hospital’s Medicare DSH adjustment for 

that fiscal year. While a hospital may 

choose to have its DSH payments settled 

using an SSI ratio based on the 

hospital’s cost reporting period, this 

choice will vary by hospital and the 

timing of this choice will vary. As a 

result, a hospital’s decision whether to 

have its SSI ratio calculated on the basis 

of its cost reporting period may not be 

available at the time we determine 

Factor 3 for a specific federal fiscal year. 

Therefore, in an effort to balance 

consistency and administrative 

efficiency with precision, we believe it 

is appropriate to use the SSI ratios based 

on the federal fiscal year. 

Except for the data on Worksheet S– 

10, the Medicare cost report does not 

currently include information that 

would allow calculation of the 

treatment costs of uninsured patients. 

For the reasons described previously, 

for FY 2014 and possibly additional 

years, we have concerns with using 

these data. Accordingly, we propose to 

use Worksheet S–3 Part I of the CMS– 

2552–96 version of the Medicare cost 

report and Worksheet S–2, Part I of the 

CMS 2552–10 version of the Medicare 

cost report and data that are used to 

update the SSI ratios on that Worksheet 

E, Part A as the source of the alternative 

data to determine Factor 3 for FY 2014. 

We may propose to use data from 

Worksheet S–10 to determine 

uncompensated care costs in the future, 

once hospitals are submitting accurate 

and consistent data through this 

reporting mechanism. 

The statute also allows the Secretary 

the discretion to determine the time 

periods from which we will derive the 

data to estimate the numerator and the 

denominator of the Factor 3 quotient. 

Specifically, the statute defines the 

numerator of the quotient as ‘‘the 

amount of uncompensated care for such 

hospital for a period selected by the 

Secretary...’’ The statute defines the 

denominator as ‘‘the aggregate amount 

of uncompensated care for all 

subsection (d) hospitals that receive a 

payment under this subsection for such 

period.’’ (Emphasis added.) As we have 

discussed above, we are proposing a 

process of making interim payments 

with final cost report settlement for both 

the empirically justified Medicare DSH 

payments and the uncompensated care 

payments required by section 3133 of 

the Affordable Care Act. Consistent with 

that proposed process, we also are 

proposing to determine the time period 

from which to estimate the numerator 

and denominator of the Factor 3 

quotient in a way that will be consistent 

with making interim and final 

payments. Specifically, we must have 

Factor 3 values available for hospitals 

that we estimate will qualify for 

Medicare DSH payments using most 

recently available historical data and for 

those hospitals that we do not estimate 

will qualify for Medicare DSH payments 

but that may ultimately qualify for 

Medicare DSH payments at the time of 

cost report settlement. 

We are proposing to estimate the 

numerator and the denominator of 

Factor 3 for hospitals based on the most 

recently available full year of Medicare 

cost report data (including the most 

recently available data that may be used 

to update the SSI ratios) with respect to 

a Federal fiscal year. In other words, we 

are proposing to use data from the most 

recently available cost report for the 

Medicaid days and the most recently 

available SSI ratios (that is, latest 

available SSI ratios before the beginning 

of the Federal fiscal year) for the 

Medicare-SSI days. We note that these 

data are publicly available, subject to 

audit, and used for payment purposes. 

While we recognize that older data also 

meet these criteria, we often use the 

most recently available data for payment 

determinations. Therefore, for FY 2014, 

we are proposing to use data from the 

2010/2011 cost reports for the Medicaid 

days and the FY 2011 SSI ratios for the 

Medicare-SSI days (or, if the FY 2011 

SSIs are unavailable, the FY 2010 SSI 

ratios) to estimate Factor 3 for FY 2014. 

To summarize, for FY 2014, in 

response to stakeholder concerns 

regarding data variability and lack of 

reporting experience with Worksheet S– 

10, we propose to determine Factor 3 

using insured low-income patient days 

from the 2010/2011 cost reports 

(including the FY2011 or FY 2010 SSI 

ratios, whichever represents the most 

recently available inputs prior to 

October 1, 2013) as alternative data 

which are a better proxy for the 

treatment costs of uninsured patients. 

We further propose to define insured 

low-income patient days as inpatient 

days of Medicaid patients plus inpatient 

days of Medicare SSI patients as defined 

in 42 CFR 412.106(b)(4) and 

412.106(b)(2)(i), respectively. 

We are proposing to add a new 

paragraph (g)(1)(iii) under § 412.106 of 

our regulations to define the 

methodology for calculating Factor 3. 

We are inviting public comments on 

this proposal. Notwithstanding our 

concerns regarding Worksheet S–10, we 

are interested to hear commenters’ 

views on the quality of the data reported 

on the Worksheet S–10, and whether it 

would be sufficient for use in 

determining uncompensated care 

amounts for fiscal year 2014, either by 

itself or in combination with other data. 

We also seek comment on how fast we 

could transition to the use of Worksheet 

S–10 data based upon increased 

reliability over time, including whether 

the data could be used to determine 

uncompensated care in FY 2014 either 

alone or in combination with other data. 

In addition, we are proposing to 

estimate which hospitals would receive 

an empirically justified DSH payment in 

a given Federal fiscal year using the 

most recent data available. As we 

described previously, only hospitals 

that receive Medicare DSH payments in 

a fiscal year may receive an 

uncompensated care payment. However, 

because whether or not a hospital will 

actually receive Medicare DSH payment 

is not known until cost report 

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settlement and cost report settlement 

occurs several years after end of the 

federal fiscal year, we believe it is 

necessary to estimate which hospitals 

will receive Medicare DSH for a given 

fiscal year. Because the uncompensated 

care amounts for these hospitals are 

used to determine the denominator of 

Factor 3, this allows for the calculation 

of Factor 3 in advance of or during the 

federal fiscal year so that interim 

payments can begin during the fiscal 

year. We believe that this will create 

some level of predictability and finality 

for hospitals eligible for these payments, 

in addition to being administratively 

efficient. 

Thus for FY 2014, the denominator 

for Factor 3 would reflect the estimated 

Medicaid and Medicare SSI patient days 

based on data from the 2010/2011 

Medicare cost report (including the 

most recently available data that may be 

used to update the SSI ratios) for all 

hospitals that we estimate would 

receive an empirically justified DSH 

payment in FY 2014. The numerator of 

Factor 3 would be the estimated 

Medicaid and Medicare SSI patient days 

for the individual hospital based on its 

most recent 2010/2011 Medicare cost 

report data (including the most recently 

available data that may be used to 

update the SSI ratios). We propose to 

calculate a numerator for all subsection 

(d) hospitals and subsection (d) Puerto 

Rico hospitals that have the potential of 

receiving a DSH payment regardless of 

whether we estimate that the hospital 

would receive DSH payments in the 

respective Federal fiscal year. In that 

way, if a hospital becomes eligible to 

receive the empirically justified DSH 

payment and also an uncompensated 

care payment, we will be able to finalize 

its uncompensated care payment 

efficiently and without affecting the 

uncompensated care payments of other 

hospitals. 

We believe that this proposed 

approach strikes an appropriate balance 

between administrative efficiency, 

finality, and predictability in payments. 

Therefore, we also are proposing to 

publish a table or tables listing Factor 3 

for all hospitals that we estimate would 

receive empirically justified DSH 

payments in a fiscal year (that is, 

hospitals that would receive interim 

uncompensated care payments during 

the fiscal year), and for the remaining 

subsection (d) and subsection (d) Puerto 

Rico hospitals that have the potential of 

receiving a DSH payment in the event 

that they receive an empirically justified 

DSH payment for the fiscal year as 

determined at cost report settlement. We 

are also proposing that hospitals have 

60 days from the date of display of the 

IPPS/LTCH PPS proposed rule to review 

these tables and notify CMS in writing 

of a change in a hospital’s subsection (d) 

hospital status, such as if a hospital has 

closed or converted to a CAH. We will 

notify hospitals concerning the specifics 

of this process in program instructions 

after the final rule. For FY 2014, we will 

allow hospitals 60 days from the date of 

display of the IPPS/LTCH PPS proposed 

rule to review these tables and notify 

CMS in writing of a change in a 

hospital’s subsection (d) hospital status, 

and we may allow an additional 

(perhaps shorter) such period after the 

publication of the final rule. For 

hospitals that were not estimated to 

receive an empirically justified DSH 

payment for a fiscal year, but ultimately 

qualify for such a payment at cost report 

settlement, we would make the full 

uncompensated care payment at that 

time. In the case of hospitals that we 

estimated would receive an empirically 

justified Medicare DSH payment for a 

fiscal year and that received interim 

empirically justified Medicare DSH 

payments and uncompensated care 

payments, but are found to be ineligible 

for DSH payments at cost report 

settlement, we would recover the 

overpayment. However, we are 

proposing only to calculate the 

denominator once, at the time of the 

IPPS/LTCH PPS final rule each year. We 

are not proposing to recalculate the 

denominator at the time when cost 

reports are settled and final eligibility 

determinations for uncompensated care 

(and empirically justified Medicare 

DSH) payments are made. We discuss 

our proposals for interim payments and 

reconciliation processes later in this 

preamble. 

For the purpose of this proposed rule, 

we are posting proposed tables listing 

Factor 3 for the hospitals that we have 

estimated would receive Medicare DSH 

payments for FY 2014 on the CMS Web 

site at: http://www.cms.gov/Medicare/ 

Medicare-Fee-for-Service-Payment/ 

AcuteInpatientPPS/dsh.html. We 

request that hospitals review these 

tables. In order to ensure that we have 

sufficient time to incorporate any 

updated information in the tables for the 

final rule, hospitals should notify CMS 

in writing within 60 days from the date 

of display of this proposed rule of any 

change in a hospital’s subsection (d) 

hospital status. As we state above, for 

FY 2014, we may allow an additional 

(perhaps shorter) such period after the 

publication of the final rule. 

Our estimates of eligibility to receive 

FY 2014 Medicare DSH payments are 

based on the December 2012 update of 

the Provider Specific File that lists the 

most recently available DSH patient 

percentage (DPP) and DSH payment 

adjustments for hospitals that qualify to 

receive DSH payments. We estimate that 

2,349 hospitals, or 68 percent of all 

applicable hospitals, would be eligible 

for DSH payments in FY 2014. The 

proposed Factor 3 is based on the 

December 2012 update of the Medicare 

Hospital Cost Report and FY 2010 SSI 

ratios. The data from these 2,349 

hospitals is used to determine the 

denominator for Factor 3. However, we 

will estimate a Factor 3 numerator for 

each subsection (d) and subsection (d) 

Puerto Rico hospital that has the 

potential of receiving DSH payments for 

FY 2014 and therefore of qualifying for 

the uncompensated care payment in FY 

2014. We intend to update in the final 

rule the list of hospitals that we estimate 

will be eligible for DSH payments for FY 

2014 and our estimate of Factor 3 using 

more recent data and verified hospital 

notifications regarding hospital status 

(for example, closures). 

e. Limitations on Review 

Section 1886(r)(3) of the Act provides 

that there will be no administrative or 

judicial review under section 1869 of 

the Act, 1878 of the Act, or otherwise 

for any of the following: 

• Any estimate of the Secretary for 

purposes of determining the factors 

described in paragraph (2) of section 

1886(r) of the Act. 

• Any period selected by the 

Secretary for such purposes. 

We are proposing to codify this policy 

in new § 412.106(g)(2) of our 

regulations. 

We invite public comment on this 

proposal. 

f. Proposed Operational Considerations 

As discussed earlier in section 

V.F.3.d. of the preamble of this 

proposed rule, and in accordance with 

section 1886(r)(2) of the Act, only 

subsection (d) hospitals that receive 

empirically justified Medicare DSH 

payments in a given Federal fiscal year 

will also receive the uncompensated 

care payment (that is, Factor 1 times 

Factor 2 times Factor 3) for that given 

Federal fiscal year. In addition, as 

discussed above in this section, we are 

proposing that subsection (d) Puerto 

Rico hospitals that receive empirically 

justified Medicare DSH payments in a 

given Federal fiscal year would also 

receive the uncompensated care 

payment (that is, Factor 1 times Factor 

2 times Factor 3) for that given Federal 

fiscal year. As we discussed above, we 

intend to estimate Factor 3 for each 

subsection (d) and subsection (d) Puerto 

Rico hospital with the potential to 

receive a DSH payment prior to the 

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beginning of the Federal fiscal year and 

intend to make that information 

available via our Web site. http:// 

www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/ 

AcuteInpatientPPS/dsh.html. 

Specifically, we are proposing to 

make interim uncompensated care 

payments on the basis of our best 

available estimates concerning the 

eligibility of each hospital for 

empirically justified Medicare DSH 

payments and our best available 

calculations concerning the amount of 

the uncompensated care payments that 

the hospital is eligible to receive. We 

intend to make these interim 

uncompensated care payments on a 

periodic basis and not on a per 

discharge basis. As discussed above, we 

believe that this approach is more 

consistent with the plain language of the 

statute describing the additional 

payment, which includes no 

information from which it would be 

possible to infer that the payment 

should be made on a per discharge 

basis. We believe that this is the most 

administratively efficient means to 

distribute a set dollar amount to 

individual hospitals and also creates an 

appropriate level of predictability for 

hospitals. If we were to make these 

interim uncompensated care payments 

on a per discharge basis, unless a 

hospital’s Medicare utilization is 

identical to the period used to 

determine the per discharge payment 

level, it is certain that Medicare would 

overpay or underpay. By making interim 

payments periodically, we can virtually 

eliminate the possibility that Medicare 

pays a higher or lower amount than 

intended and limit the need for 

reconciliation to whether a hospital is 

eligible for Medicare DSH and thus the 

entire uncompensated care payment at 

cost report settlement. 

We also are proposing to make a final 

determination concerning eligibility for 

uncompensated care payments at the 

time of cost report settlement. As a 

result of this proposal, our operational 

system must be able to handle the 

various situations that may arise 

between interim and final eligibility 

determinations. For example, a hospital 

may receive empirically justified DSH 

payments and uncompensated care 

payments based on an initial 

determination that the hospital is 

eligible for such payments, but the 

hospital may then be determined to be 

ineligible for such payments at cost 

report settlement. In such situations, we 

must be prepared and able to recoup the 

interim empirically justified DSH 

payments and uncompensated care 

payments that the hospital received. 

For each Federal fiscal year, as we 

proposed earlier in this section, we 

intend to estimate which hospitals will 

receive an empirically justified DSH 

payment (that is, eligible hospitals). We 

are proposing to provide periodic 

payments to these hospitals during the 

relevant Federal fiscal year so that they 

can receive their uncompensated care 

payments on an interim basis. For a 

fiscal year, each eligible hospital’s 

interim uncompensated care payments 

will be determined by multiplying the 

final values for Factor 1, Factor 2, and 

Factor 3 for that year and dividing the 

amount by the number of periods over 

which the interim payments will be 

made. 

Because we are using historical data 

to estimate each hospital’s eligibility for 

empirically justified DSH payments in 

FY 2014 and subsequent years, a 

reconciliation process will be necessary 

to account for cases in which a 

hospital’s eligibility for such payments 

changes after we have published our 

estimates during the rulemaking 

process. For example, a hospital that 

had not been estimated to be eligible for 

these payments may become eligible 

during the course of a given payment 

period. In such cases, our estimates 

would have indicated that the hospital 

was ineligible for empirically justified 

DSH payments and therefore ineligible 

for uncompensated care payments. That 

hospital would not receive interim 

payments. However, if the data available 

at cost report settlement were to 

indicate that the hospital is eligible for 

an empirically justified DSH payment, 

the hospital would become eligible for 

an uncompensated care payment based 

on that hospital’s Factor 3 value. 

Therefore, we are proposing that at 

cost report settlement, the fiscal 

intermediary/MAC will make a final 

determination concerning whether each 

hospital is eligible for empirically 

justified Medicare DSH payments and, 

therefore, uncompensated care 

payments in FY 2014 and each 

subsequent year. In the case where a 

hospital received interim payments for 

its empirically justified Medicare DSH 

payments and uncompensated care 

payments for FY 2014 or a subsequent 

year on the basis of estimates prior to 

the payment year, but is determined to 

be ineligible for the empirically justified 

Medicare DSH payment at cost report 

settlement, the hospital would no longer 

be eligible for either payment and CMS 

would recoup those monies. For a 

hospital that did not receive interim 

payments for its empirically justified 

DSH payments and uncompensated care 

payments for FY 2014 or a subsequent 

year, but at cost report settlement is 

determined to be eligible for DSH 

payments, the fiscal intermediary/MAC 

would calculate the uncompensated 

care payment for such a hospital based 

on the Factor 3 value determined 

prospectively for that fiscal year. 

We are proposing to codify this policy 

regarding the manner and timing of 

payments in new § 412.106(h) of our 

regulations. 

We invite public comment on this 

proposal. 

The reconciliations at cost report 

settlement would be based on the values 

for Factor 1, Factor 2, and Factor 3 that 

we have finalized prospectively for a 

Federal fiscal year. For example, a 

hospital that was estimated by CMS to 

receive empirically justified DSH 

payments for FY 2014 and received 

interim uncompensated care payments 

would not receive a different 

uncompensated care payment amount if 

the fiscal intermediary/MAC 

determined that the hospital remained 

eligible for empirically justified DSH 

payments at cost report settlement. In 

other words, we are not proposing to 

include a reestimation of Factor 1, 

Factor 2, or Factor 3 in the 

reconciliation process we are 

describing. Rather, Factor 1, Factor 2, 

and Factor 3 are estimates determined 

prospectively using methodologies we 

establish through rulemaking. We 

recognize that, under this proposal, we 

may pay a total amount that could either 

be more or less than the product of 

Factor 1 and Factor 2. However, we 

believe this is inherent in the use of 

estimates to determine the Factors, 

similar to the manner in which we 

estimate the amount of total outlier 

payments under section 

1886(d)(5)(A)(iv) although, as in this 

case, the amount of actual total outlier 

payments might vary from that estimate. 

We do not know of any reason to believe 

that there will be a bias toward 

systematic overpayment or 

underpayment from year to year. 

We are proposing to codify this policy 

at § 412.106(g)(1)(iv) of our regulations. 

We are inviting public comments on 

this proposal, especially in regard to 

whether we should include Factor 3 

within the reconciliation process. 

Depending on the comments, we may 

revise our proposed policy in the final 

rule so that at the time of cost report 

settlement and reconciliation a 

hospital’s final uncompensated care 

payments could be based on Factor 3 

numerators and denominators estimated 

using more recent cost report data (and 

associated inputs). In addition, we may 

revise our proposed reconciliation 

process, as appropriate, to account for 

any policy changes that we make in the 

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final rule to the proposals in this 

proposed rule. 

We also note that the uncompensated 

care payment will be reported on the 

Medicare Hospital Cost Report. We 

recognize that hospitals have their own 

cost reporting periods that may differ 

from the Federal fiscal year and that 

may span more than one Federal fiscal 

year. We are proposing that hospitals 

receive their uncompensated care 

payments with respect to the fiscal year 

in which their cost report begins. For 

example, if a hospital is estimated to be 

eligible for the empirically justified DSH 

payment and also an uncompensated 

care payment in FY 2014 and has a cost 

report period of January 1, 2014 through 

December 31, 2014, this hospital would 

begin to receive interim payments for its 

uncompensated care on October 1, 2013. 

If, at cost report settlement, this hospital 

remained eligible for an empirically 

justified DSH payment, then the 

hospital would receive its FY 2014 

uncompensated care payment on its cost 

report for the cost reporting period 

beginning on January 1, 2014 (that is, 

the hospital would neither owe nor be 

owed monies for its uncompensated 

care payment). As another example, if 

that same hospital is no longer eligible 

for an empirically justified Medicare 

DSH payment at the time of settlement 

of its cost report for the cost reporting 

period beginning January 1, 2014, the 

hospital would be required to pay back 

the interim payments it received for its 

uncompensated care payments. We note 

that this methodology would not delay 

the full payment of FY 2014 payments 

to hospitals with cost reporting periods 

that begin after October 1, 2013. While 

it is possible to align interim and final 

payments for the uncompensated care 

payment with individual hospital’s cost 

reporting periods, we believe it 

administratively efficient and practical 

to pay the uncompensated care payment 

on the basis of the Federal fiscal year 

because that is how it is determined, 

and to reconcile that amount in the cost 

reporting period that begins in the 

respective Federal fiscal year. If this 

proposal is finalized, we will revise the 

cost report accordingly. We are inviting 

public comments on our proposal. 

g. National Provider Call 

On January 8, 2013, CMS hosted a 

National Provider Call regarding the 

implementation of section 3133 of the 

Affordable Care Act. During this call, 

CMS asked Dobson DaVanzo and 

Associates, LLC. with its subcontractor, 

KNG Health Consulting, LLC, to present 

information regarding alternative 

definitions, measures, and data sources 

for the various estimates required by 

section 1886(r) of the Act, including the 

rate of uninsured individuals under the 

age of 65 years and hospital-specific 

uncompensated care. Approximately 

1,304 participants participated in this 

call. The presentation materials from the 

call are available on the CMS Web site 

at: http://www.cms.gov/Outreach-andEducation/Outreach/NPC/NationalProvider-Calls-and-Events-Items/2013- 

01-08-ACA to submit public comments 

to CMS for consideration through 

January 15, 2013, when we undertook 

rulemaking and other activities related 

to implementation of section 1886(r) of 

the Act. Approximately 64 organizations 

submitted comments either on the 

National Provider Call or subsequent to 

the National Provider Call. We 

appreciate this input and have 

considered the issues raised by the 

commenters in developing the proposals 

discussed above. The report 

‘‘Improvements to Medicare 

Disproportionate Share (DSH) 

Payments’’ discusses the issues raised in 

this National Provider Call. A summary 

of the comments on the National 

Provider Call has also been prepared. 

The report and summary can be found 

on the CMS Web site at: http:// 

www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/ 

AcuteInpatientPPS/dsh.html. 

F. Medicare-Dependent, Small Rural 

Hospital (MDH) Program (§ 412.108) 

1. Backgound 

Section 1885(d)(5)(G) of the Act 

provides special payment protections, 

under the IPPS, to a Medicaredependent, small rural hospital (MDH). 

(For additional information on the MDH 

program and the payment methodology, 

we refer readers to the FY 2012 IPPS/ 

LTCH PPS final rule (76 FR 51683 

through 51684.) As we discussed in the 

FY 2011 IPPS/LTCH PPS final rule (75 

FR 50287) and in the FY 2012 IPPS/ 

LTCH PPS final rule (76 FR 51683 

through 51684), section 3124 of the 

Affordable Care Act extended the 

expiration of the MDH program from the 

end of FY 2011 (that is, for discharges 

occurring before October 1, 2011) to the 

end of FY 2012 (that is, for discharges 

occurring before October 1, 2012). 

Under prior law, as specified in section 

5003(a) of 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 by striking out ‘‘October 1, 

2011’’ and inserting ‘‘October 1, 2012’’. 

Section 3124(b) of the Affordable Care 

Act made conforming amendments to 

sections 1886(b)(3)(D) and 

1886(b)(3)(D)(iv) of the Act. 

In the FY 2011 IPPS/LTCH PPS final 

rule (75 FR 50287 and 50414), we 

amended the regulations at 

§ 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 the MDH 

regulatory text for FY 2012. As 

discussed below, the ATRA (Pub. L. 

112–240) amended the Act to extend the 

MDH program through the end of FY 

2013. 

2. Provisions of the ATRA for FY 2013 

a. Background 

Prior to the enactment of the ATRA, 

under section 3124 of the Affordable 

Care Act, the MDH program authorized 

by section 1886(d)(5)(G) of the Act was 

set to expire at the end of FY 2012. 

Section 606 of the ATRA amended 

sections 1886(d)(5)(G)(i) and 

1886(d)(5)(G)(ii)(II) of the Act to provide 

for an additional 1-year extension of the 

MDH program, effective from October 1, 

2012 to September 30, 2013 (FY 2013). 

Section 606 of the ATRA also made 

conforming amendments to sections 

1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of 

the Act. Prior to the enactment of the 

ATRA, in the FY 2013 IPPS/LTCH PPS 

final rule, we discussed the expiration 

of the MDH program at the end of FY 

2012 (77 FR 53413 through 53414) and 

revised the SCH regulation at 

§ 412.92(b) to change the effective date 

of SCH status for MDHs that apply for 

SCH status with the expiration of the 

MDH program (77 FR 53404 through 

53405). 

In a FY 2013 IPPS notice issued in the 

Federal Register on March 7, 2013 (78 

FR 14689), we announced the extension 

of the MDH program for FY 2013 in 

accordance with the provisions of 

section 606 of the ATRA. In that notice, 

we explained that, as a result of section 

606 of the ATRA, the MDH program is 

now extended for 1 additional year, 

through the end of FY 2013 (that is, 

effective October 1, 2012 through 

September 30, 2013). The FY 2013 IPPS 

notice explained how providers may be 

affected by the ATRA extension of the 

MDH program and described the steps 

to reapply for MDH status for FY 2013, 

as applicable. Generally, a provider that 

was classified as an MDH at the end of 

FY 2012 (that is, as of September 30, 

2012) will be reinstated as an MDH 

effective October 1, 2012, with no need 

to reapply for MDH classification. 

However, if the MDH had classified as 

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a sole community hospital (SCH) or 

cancelled its rural classification under 

§ 412.103(g) effective on or after October 

1, 2012, the effective date of MDH status 

may not be retroactive to October 1, 

2012. In the FY 2013 IPPS notice, we 

also stated that we intended to make 

conforming changes to the regulations at 

§§ 412.108(a)(1) and (c)(2)(iii) in future 

rulemaking to reflect the statutory 

changes made by section 606 of the 

ATRA. We refer readers to the FY 2013 

IPPS notice (78 FR 14689 through 

14694) for additional information on the 

extension of the MDH program through 

FY 2013 pursuant to section 606 of the 

ATRA and for additional information on 

how and when MDH status will be 

determined for hospitals classified as 

MDHs prior to the September 30, 2012 

expiration of the program. 

b. Proposed Conforming Regulatory 

Changes 

In this proposed rule, we are 

proposing to make conforming changes 

to the regulations at §§ 412.108(a)(1) and 

(c)(2)(iii) to reflect the statutory 

extension of the MDH program through 

FY 2013 made by section 606 of the 

ATRA. 

c. Expiration of the MDH Program 

Because section 606 of the ATRA 

extends the MDH program through FY 

2013 only, effective FY 2014, the MDH 

program will no longer be in effect. 

Because the MDH program is not 

authorized by statute beyond FY 2013, 

beginning in FY 2014, all hospitals that 

previously qualified for MDH status will 

no longer have MDH status and will be 

paid based on the Federal rate. 

As noted earlier, in the FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53404 

through 53405), we revised our SCH 

policies to allow MDHs to apply for 

SCH status and be paid as such under 

certain conditions, following expiration 

of the MDH program at the end of FY 

2012. We codified these changes in the 

regulations at § 412.92(b)(2)(i) and 

§ 412.92(b)(2)(v). For additional 

information, we refer readers to the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53404 through 53405 and 53674). We 

note that those same conditions apply to 

MDHs that intend to apply for SCH 

status with the expiration of the MDH 

program at the end of FY 2013. 

Specifically, the existing regulations at 

§ 412.92(b)(2)(i) and (b)(2)(v) allow for 

an effective date of approval of SCH 

status that is the day following the 

expiration date of the MDH program. In 

accordance with these regulations, in 

order for an MDH to receive SCH status 

effective October 1, 2013, it must apply 

for SCH status at least 30 days before the 

end of the MDH program; that is, the 

MDH must apply for SCH status by 

August 31, 2013. The MDH also must 

request that, if approved as an SCH, the 

SCH status be effective with the 

expiration of the MDH program 

provision; that is, the MDH must request 

that the SCH status, if approved, be 

effective October 1, 2013, immediately 

after its MDH status expires with the 

expiration of the MDH program at the 

end of FY 2013, on September 30, 2013. 

We note that an MDH that applies for 

SCH status in anticipation of the 

expiration of the MDH program would 

not qualify for the October 1, 2013 

effective date upon approval if it does 

not apply by the August 31, 2013 

deadline. The provider would instead 

be subject to the usual effective date for 

SCH classification, that is, 30 days after 

the date of CMS’ written notification of 

approval as specified at § 412.92(b)(2)(i). 

G. Hospital Readmissions Reduction 

Program: Proposed Changes (§§ 412.150 

Through 412.154) 

1. Statutory Basis for the Hospital 

Readmissions Reduction Program 

Section 3025 of the Affordable Care 

Act, as amended by section 10309 of the 

Affordable Care Act, added a new 

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 applicable hospitals 

may be reduced to account for certain 

excess readmissions. 

Section 1886(q)(1) of the Act sets forth 

the methodology by which payments to 

‘‘applicable hospitals’’ will be adjusted 

to account for excess readmissions. 

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 a 

hospital-specific adjustment factor that 

accounts for the hospital’s excess 

readmissions. Section 1886(q)(2) of the 

Act defines the base operating DRG 

payment amount as ‘‘the payment 

amount that would otherwise be made 

under subsection (d) (determined 

without regard to subsection (o) [the 

Hospital VBP Program]) for a discharge 

if this subsection did not apply; reduced 

by . . . any portion of such payment 

amount that is attributable to payments 

under paragraphs (5)(A), (5)(B), (5)(F), 

and (12) of subsection (d).’’ Paragraphs 

(5)(A), (5)(B), (5)(F), and (12) of 

subsection(d) refer to outlier payments, 

IME payments, DSH adjustment 

payments, and add-on payments for low 

volume hospitals, respectively. 

Furthermore, section 1886(q)(2)(B) of 

the Act specifies special rules for 

defining ‘‘the payment amount that 

would otherwise be made under 

subsection (d)’’ for certain hospitals. 

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).’’ In the FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53374), we 

finalized policies to implement the 

statutory provisions related to the 

definition of ‘‘base operating DRG 

payment amount’’. 

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 the terms ‘‘aggregate 

payments for excess readmissions’’ and 

‘‘aggregate payments for all discharges’’ 

for an applicable hospital for the 

applicable period. The term ‘‘aggregate 

payments for excess readmissions’’ is 

defined in section 1886(q)(4)(A) of the 

Act as ‘‘the sum, for applicable 

conditions . . . of the 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 

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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 

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 

We have been implementing the 

requirements of the Hospital 

Readmissions Reduction Program in 

rulemakings, and will continue to do so. 

The payment adjustment factor set forth 

in section 1886(q) of the Act did not 

apply to discharges until FY 2013. In 

the FY 2012 IPPS/LTCH PPS final rule, 

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 the 

portions of section 1886(q) of the Act 

related to the following provisions: 

• Selection of applicable conditions; 

• Definition of ‘‘readmission’’; 

• Measures for the applicable 

conditions chosen for readmission; 

• Methodology for calculating the 

excess readmission ratio; and 

• 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: 

• Index hospitalizations; 

• Risk adjustment; 

• Risk standardized readmission rate; 

• Data sources; and 

• Exclusion of certain readmissions. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53374 through 53401), we 

finalized our policies that relate to the 

calculation of the hospital readmission 

payment adjustment factor and the 

process by which hospitals can review 

and correct their data. Specifically, in 

the final rule, we addressed the portions 

of section 1886(q) of the Act related to 

the following provisions: 

• Base operating DRG payment 

amount, including policies for SCHs 

and MDHs and hospitals paid under 

section 1814(b) of the Act; 

• Adjustment factor (both the ratio 

and floor adjustment factor); 

• Aggregate payments for excess 

readmissions and aggregate payments 

for all discharges; 

• Applicable hospital; 

• Limitations on review; 

• Reporting of hospital-specific 

information, including the process for 

hospitals to review readmission 

information and submit corrections. 

In the FY 2013 IPPS/LTCH PPS final 

rule, we established a new Subpart I 

under 42 CFR Part 412 (§§ 412.150 

through 412.154) to codify rules for 

implementing the Hospital 

Readmissions Reduction Program. 

3. FY 2014 Proposals for the Hospital 

Readmissions Reduction Program 

a. Overview 

In this proposed rule, for FY 2014 and 

beyond, we are proposing to— 

• Refine the readmissions measures 

and related methodology for the current 

applicable conditions (section V.G.3.b. 

of this preamble); 

• Expand the ‘‘applicable conditions’’ 

for FY 2015 (section V.G.3.c. of this 

preamble); 

• Specify additional policies for 

hospitals paid under section 1814(b)(3) 

of the Act (§ 412.154(d)), including the 

process to be exempted from the 

Hospital Readmissions Reduction 

Program and the definition of ‘‘base 

operating DRG payment amount’’ 

(section V.G.3.d. of this preamble); 

• Specify the proposed adjustment 

factor floor for FY 2014 (section V.G.3.e. 

of this preamble); 

• Specify the proposed applicable 

period for FY 2014 (section V.G.3.f. of 

this preamble); 

• Refine the methodology to calculate 

the aggregate payments for excess 

readmissions (section V.G.3.g. of this 

preamble); and 

• Clarify the process for reporting 

hospital-specific information, including 

the opportunity to review and submit 

corrections (section V.G.3.h. of this 

preamble). 

b. Proposed Refinement of the 

Readmission Measures and Related 

Methodology for FY 2014 and 

Subsequent Years Payment 

Determinations 

(1) Overview of the Inclusion of 

Planned Readmissions for the 

Calculation of the FY 2014 

Readmissions Adjustment Factors 

In the FY 2012 IPPS/LTCH PPS final 

rule, we adopted acute myocardial 

infarction (AMI), heart failure (HF), and 

pneumonia (PN) readmission measures 

for the Hospital Readmissions 

Reduction Program payment 

determinations beginning with FY 2013. 

During development of the three 

readmission measures for AMI, HF, and 

PN, we consulted with medical experts 

to identify readmissions that are 

typically scheduled as followup care for 

each specific condition within 30 days 

of discharge. We categorized these 

readmissions as planned followup care 

and excluded them from being counted 

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as a readmission. The AMI measure 

finalized for the Hospital Readmissions 

Reduction Program included two 

revascularization procedures (coronary 

artery bypass graft surgery (CABG) and 

percutaneous coronary intervention 

(PCI) (76 FR 51667)). We considered 

these procedures planned readmissions 

and excluded them from the 

readmission calculation as long as the 

readmissions were not for one of five 

acute conditions (HF, AMI, other acute/ 

subacute forms of ischemic heart 

disease, arrhythmia, and cardiac arrest). 

During development of the HF and PN 

readmission measures, we did not 

identify any readmissions that were 

typically planned as followup care at 

the time of the patient’s discharge. 

Therefore, the readmission measures 

finalized for the Hospital Readmissions 

Reduction Program for these two 

conditions did not exclude any planned 

readmissions from the readmission 

calculation. 

(2) Proposed Refinement of the 

Readmission Measures and Related 

Methodology for the FY 2014 and 

Subsequent Years Payment 

Determinations 

Since the development and 

implementation of the initial three 

readmission measures adopted under 

the Hospital Readmissions Reduction 

Program, we have received comments 

from the medical community, other 

stakeholders, and the general public 

encouraging us to identify and not count 

as readmissions a broader range of 

planned readmissions. Stakeholders 

also made recommendations for 

expanding the number and types of 

planned readmissions during the public 

comment period for FY 2013 IPPS/ 

LTCH PPS proposed rule (as discussed 

in the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53382 through 53398)). 

Stakeholders commented that 

readmission measures are intended to 

capture unplanned readmissions that 

arise from acute clinical events 

requiring urgent rehospitalization 

within 30 days of discharge. In addition, 

stakeholders commented that planned 

readmissions do not generally signal 

poor quality of care. In response to 

stakeholders’ concerns, we have worked 

with experts in the medical community, 

other stakeholders, and the public to 

broadly identify planned readmissions 

for procedures and treatments for 

exclusion from the readmission 

measures. Specifically, we developed an 

expanded ‘‘planned readmission 

algorithm’’ in the CMS Planned 

Readmission Algorithm Version 2.1 

Report to identify planned readmissions 

across our readmission measures, and 

are proposing to apply the algorithm to 

the AMI, HF, and PN measures for FY 

2014. The CMS Planned Readmission 

Algorithm Version 2.1 Report is 

available on the CMS Web site at: http:// 

www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/Hospital_QualityInits/ 

Measure-Methodology.html. 

We developed the algorithm based on 

a hospital-wide (not condition-specific) 

cohort of patients. We began the 

development by using the Agency for 

Healthcare Research and Quality’s 

(AHRQ’s) Clinical Classification 

Software (CCS) codes to group 

thousands of individual procedures and 

diagnoses codes into clinically coherent, 

mutually exclusive procedure and 

diagnosis categories (PROC–CCS 

categories and Diagnosis-CCS categories, 

respectively). A panel of independent, 

non-CMS clinicians then reviewed the 

procedure categories and identified 

those that are commonly planned and 

require admission. Clinicians also 

reviewed the diagnosis categories and 

identified those that were acute 

diagnoses likely requiring 

hospitalization. Using these procedure 

and diagnosis categories and some 

individual ICD–9–CM procedure and 

diagnoses codes in the categories, we 

developed an initial algorithm for 

identifying planned readmissions for a 

hospital-wide cohort of patients. 

The algorithm underwent several 

reviews by stakeholders. We initially 

posted the detailed algorithm for 

informal public comment during the 

measurement development process in 

August 2011. The National Quality 

Forum (NQF) reviewed and made the 

algorithm available for public comment 

during its endorsement review of the 

Hospital-Wide All-Cause Unplanned 

Readmission Measure (NQF #1789). We 

also recruited 27 surgical subspecialists 

nominated by their specialty societies to 

review the algorithm and suggest 

refinements, which resulted in Version 

2.1 of the Planned Readmission 

Algorithm. We are proposing to use this 

algorithm in the readmission measures 

under the Hospital Readmissions 

Reduction Program beginning with FY 

2014. A detailed description of this 

algorithm is included later in this 

section. 

As required by section 

1886(q)(5)(A)(ii) of the Act, the first 

three applicable conditions of AMI, HF 

and PN, must use readmission measures 

that have been endorsed by the entity 

with a contract under section 1890(a) of 

the Act; and such endorsed measures 

must have exclusions for readmissions 

that are unrelated to the prior discharge 

(such as planned readmission or transfer 

to another applicable hospital). Because 

the statute requires that the readmission 

measures for the three current 

applicable conditions (AMI, HF and PN) 

be NQF-endorsed, we sought NQF’s 

endorsement of the measures that were 

revised to include the CMS Planned 

Readmission Algorithm Version 2.1. 

NQF reviewed these revised measures 

through its ad hoc review process, 

which reviews previously endorsed 

measures that undergo material changes. 

Following ad hoc review, NQF endorsed 

the revised AMI (NQF #0505) and HF 

(NQF #0330) measures in January 2013 

and the PN measure (NQF #0506) in 

(March 2013)). 

(a) Description of CMS Planned 

Readmission Algorithm Version 2.1 

This algorithm is a set of criteria for 

classifying readmissions as ‘‘planned’’ 

using Medicare claims. The algorithm 

identifies typical planned admissions 

that may occur within 30 days of 

discharge from the hospital. 

We based the CMS Planned 

Readmission Algorithm on three 

principles: 

• A few specific, limited types of care 

are always considered planned 

(obstetrical delivery, transplant surgery, 

maintenance chemotherapy, 

rehabilitation); 

• Otherwise, a planned readmission 

is defined as a nonacute readmission for 

a scheduled procedure; and 

• Admissions for acute illness or for 

complications of care are never planned. 

The Planned Readmission Algorithm 

uses a flow chart and four tables of 

procedures and conditions to 

implement these principles and to 

classify readmissions as planned or 

unplanned. The flow chart and tables 

are available in a report, CMS Planned 

Readmission Algorithm Version 2.1, 

which is available on the CMS Web site 

at: http://www.cms.gov/Medicare/ 

Quality-Initiatives-Patient-AssessmentInstruments/Hospital_QualityInits/ 

Measure-Methodology.html. 

We incorporated the algorithm into 

each condition-specific and procedurespecific readmission measure. For most 

readmission measures, including the 

AMI, HF, and PN measures, we used 

one standard version of the algorithm— 

the CMS Planned Readmission 

Algorithm Version 2.1. However, for a 

subset of readmission measures, we 

revised the list of potentially planned 

procedures or acute primary diagnosis 

after applying the standard algorithm 

version because it was clinically 

indicated. For example, for the Total 

Hip Arthroplasty (THA) and Total Knee 

Arthroplasty (TKA) readmission 

measure that we are proposing for FY 

2015, we removed diagnostic cardiac 

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catheterization from the potentially 

planned procedure list because patients 

in the hip/knee measure are typically 

well enough to undergo elective surgery 

and would not be expected to need a 

catheterization within 30 days of 

discharge. The details of these 

adaptations are available in the CMS 

Planned Readmission Algorithm 

Version 2.1 report (http://www.cms.gov/ 

Medicare/Quality-Initiatives-PatientAssessment-Instruments/ 

Hospital_QualityInits/MeasureMethodology.html). 

(b) Proposed Counting of Readmissions 

that Occur After a Planned Readmission 

In this proposed rule, we are 

proposing a related change to the AMI, 

HF, and PN measures to address 

unplanned readmissions that occur after 

a planned readmission but within 30 

days of the patient’s initial index 

discharge. The AMI measure finalized 

in the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51666) counted unplanned 

readmissions for the index admission if 

they occurred within 30 days of 

discharge from the index admission, 

even if they occurred following planned 

readmissions (because the two other 

measures did not have any planned 

readmissions, this method of counting 

only applied to the AMI measure). 

For the proposed revised AMI, HF, 

and PN measures, all of which now 

account for planned readmissions by 

incorporating the CMS Planned 

Readmission Algorithm Version 2.1, we 

are proposing the following additional 

change: If the first readmission is 

planned, it will not count as a 

readmission, nor will any subsequent 

unplanned readmission within 30 days 

of the index readmission. In other 

words, unplanned readmissions that 

occur after a planned readmission and 

fall within the 30-day post discharge 

timeframe would no longer be counted 

as outcomes for the index admission. 

The rationale for this proposed change 

is that, in this case, either the index or 

the planned readmission could have 

contributed to the patient’s unplanned 

readmission. Therefore, it is unclear 

whether the unplanned readmission 

should be attributed back to the index 

admission. This proposed change in 

counting practice would affect a very 

small percentage of readmissions 

(approximately 0.3 percent of index 

admissions nationally for AMI, 0.2 

percent for HF, and less than 0.1 percent 

for PN).). However, we intend to 

monitor trends in the proportion of 

planned readmissions for evidence of 

misuse or misapplication, and other 

unintended consequences. 

(c) Anticipated Effect of the Proposed 

Changes of CMS Planned Readmission 

Algorithm Version 2.1 and Counting of 

Readmissions on the Readmission 

Measures 

The proposed changes to the 

measures in this proposed rule would 

have had the following effects on the 

measures based on our analyses of 

discharges between July 2008 and June 

2011, if these changes had been applied 

for FY 2013. We note that these 

statistics are for illustrative purposes 

only, and we are not proposing to revise 

the measure calculations for the FY 

2013 payment determination. Rather, 

we are proposing to apply these changes 

to the readmissions measures for the FY 

2014 payment determination and 

subsequent years. 

Among hospitals that were subject to 

the Hospital Readmissions Reduction 

Program in FY 2013 (Table V.G.1), the 

number of eligible discharges based on 

the July 2008 through June 2011 data 

were 501,765 discharges for AMI; 

1,195,967 discharges for HF; and 

957,854 discharges for PN): 

• The proposed 30-day readmission 

rate (excluding the planned 

readmissions) would decrease by 1 

percentage point for AMI; 1.5 

percentage points for HF; and 0.7 

percentage point for PN. 

• The new national measure 

(unplanned) rate for each condition 

would have been 18.2 percent for AMI; 

23.1 percent for HF; and 17.8 percent for 

PN. 

• The number of readmissions 

considered planned (and, therefore, not 

counted as a readmission) would 

increase by 4,942 for AMI; 17,512 for 

HF; and 7,084 for PN. 

TABLE V.G.1—COMPARISON OF ORIGINAL AMI/HF/PN MEASURES FINALIZED IN FY 2013 RELATIVE TO PROPOSED

REVISED AMI/HF/PN MEASURES FOR FY 2014 

[Based on July 2008 through June 2011 discharges from 3,025 hospitals] 

AMI PN HF 

Proposed 

revised 

measure 

Original 

measure 

Proposed 

revised 

measure 

Original 

measure 

Proposed 

revised 

measure 

Original 

measure 

Number of Admissions ..................................................... 501,765 501,765 957,854 957,854 1,195,967 1,195,967 

Number of Unplanned Readmissions .............................. 91,360 96,302 170,396 177,480 276,748 294,260 

Readmission Rate ............................................................ 18.2% 19.2% 17.8% 18.5% 23.1% 24.6% 

Number of Planned Readmissions .................................. 12,811 7,869 7,084 0 17,512 0 

Planned Readmission Rate ............................................. 2.6% 1.6% 0.7% 0.0% 1.5% 0.0% 

Percent of Readmissions that are Planned ..................... 12.3% 7.6% 4.0% 0.0% 6.0% 0.0% 

In summary, we are proposing to use 

the proposed revised versions of the 

AMI, HF, and PN measures to calculate 

the payment adjustments for the 

Hospital Readmissions Reduction 

Program in FY 2014. We believe that the 

proposed revised measures will address 

stakeholder suggestions to broaden the 

number of planned readmissions and 

will result in a more accurate 

readmission calculation for purposes of 

the payment adjustment. We are 

proposing to update the measures to: (1) 

Incorporate the CMS Planned 

Readmission Algorithm Version 2.1 to 

identify planned readmissions; and (2) 

not count unplanned readmissions that 

follow planned readmissions. We are 

inviting public comments on this 

proposal. 

c. Proposed Expansion of the Applicable 

Conditions for FY 2015 

(1) Background 

Under section 1886(q)(5)(B) of the 

Act, beginning with FY 2015, the 

Secretary shall, to the extent practicable, 

expand the applicable conditions 

beyond the three conditions for which 

measures have been endorsed as 

described in subparagraph (A)(ii)(I) . . . 

to the additional 4 conditions that have 

been identified by the Medicare 

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30 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. 

31Ong KL, Mowat FS, Chan N, Lau E, Halpern 

MT, Kurtz SM. Economic burden of revision hip 

and knee arthroplasty in Medicare enrollees. Clin 

Orthop Relat Res. May 2006;446:22–28. 

32 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. 

33 Ibid. 

34Ong KL, Mowat FS, Chan N, Lau E, Halpern 

MT, Kurtz SM. Economic burden of revision hip 

and knee arthroplasty in Medicare enrollees. Clin 

Orthop Relat Res. May 2006;446:22–28. 

35Bozic KJ, Rubash HE, Sculco TP, Berry DJ. An 

analysis of medicare payment policy for total joint 

arthroplasty. Journal of Arthroplasty. 2008;23(6 

Suppl 1):133–138. 

36 Jencks SF, Williams MV, Coleman EA. 

Rehospitalizations among patients in the Medicare 

fee-for-service program. N Engl J Med. April 2 

2009;360(14):1478–1428. 

37Committee MPA. Report to the Congress: 

Promoting Greater Efficiency in Medicare. 2007. 

38 Grosso L.M., Lindenauer P., Wang C., et al.: 

Hospital-level 30-day Readmission Following 

Admission for an Acute Exacerbation of Chronic 

Obstructive Pulmonary Disease: Report prepared for 

the Centers for Medicare & Medicaid Services. 2011; 

Available at: http://www.qualitynet.org/. 

39 Global Strategy for Diagnosis M, and 

Prevention of COPD. 2009; Available at: http:// 

www.goldcopd.org/. 

40National Institute for Health and Clinical 

Excellence. Chronic Obstructive Pulmonary 

Disease: Management of Chronic Obstructive 

Pulmonary Disease in Adults in Primary and 

Secondary Care (Partial Update):. National 

Collaborating Centre for Acute and Chronic 

Conditions. Available at: http://www.nice.org.uk/ 

nicemedia/live/13029/49397/49397.pdf. 

41Walters JA, PG Gibson, R Wood-Baker, M 

Hannay, EH Walters. Systemic corticosteroids for 

acute exacerbations of chronic obstructive 

pulmonary disease. Cochrane Database Syst Rev. 

2009;CD001288(1). 

42Lightowler JV, Wedzicha JA, Elliott MW, Ram 

FS. Non-invasive positive pressure ventilation to 

treat respiratory Failure resulting from 

exacerbations of chronic obstructive pulmonary 

disease: Cochrane systematic review and metaanalysis. Bmj. 2003;326(7382). 

Payment Commission in its report to 

Congress in June 2007, and to other 

conditions and procedures as 

determined appropriate by the 

Secretary.’’ The four conditions and 

procedures recommended by MedPAC 

are: (1) Coronary artery bypass graft 

(CABG) surgery; (2) chronic obstructive 

pulmonary disease (COPD); (3) 

percutaneous coronary intervention 

(PCI); and (4) other vascular conditions. 

Section 1886(q)(5)(A)(i) of the Act 

directs the Secretary, in selecting an 

‘‘applicable condition,’’ to choose from 

among conditions and procedures ‘‘that 

represent conditions or procedures that 

are high volume or high expenditures 

under this title (or other criteria 

specified by the Secretary).’’ 

In accordance with section 

1886(q)(5)(A) of the Act, effective for the 

calculation of the readmissions payment 

adjustment factors in FY 2015, we are 

proposing to expand the applicable 

conditions and procedures to include: 

(1) Patients admitted for an acute 

exacerbation of COPD; and (2) patients 

admitted for elective total hip 

arthroplasty (THA) and total knee 

arthroplasty (TKA). At this point, it is 

not feasible for CMS to add readmission 

measures for three of the conditions 

identified by MedPAC in its 2007 

Report to Congress (CABG, PCI, and 

other vascular conditions). We note that 

inpatient admissions for PCI and other 

vascular conditions seem to be 

decreasing, and these procedures are 

being performed more in hospital 

outpatient departments. This shift in 

setting for these procedures may make 

their future inclusion in the Hospital 

Readmssion Reduction Program more 

difficult and impracticable. 

We are also exploring how we may 

address CABG in this program at a 

future time. 

We are proposing inclusion of 

patients admitted for an acute 

exacerbation of COPD based on 

MedPAC’s recommendations and may 

consider other recommendations in 

future rulemaking. While MedPAC did 

not recommend inclusion of patients 

admitted for elective THA and TKA, we 

consider this category appropriate for 

the Hospital Readmissions Reduction 

Program because it is a high-volume and 

high-expenditure procedure. 

For example, in 2003, 202,500 

primary hip arthroplasties and 402,100 

primary total knee arthroplasties were 

performed.30 The number of procedures 

performed has increased steadily over 

the past decade.31 Although these 

procedures can dramatically improve 

patient health-related quality-of-life, 

they are costly. In 2005, annual hospital 

charges totaled $3.95 billion and $7.42 

billion for primary THA and TKA, 

respectively.32 The aggregate costs for 

THA are projected to increase by 340 

percent over a 10-year period, to $17.4 

billion per fiscal year by FY 2015, and 

for TKA, by 450 percent to $40.8 billion 

per fiscal year by 2015.33 Medicare is 

the single largest payer for these 

procedures, covering approximately 

two-thirds of all THAs and TKAs 

performed in the United States.34 THA 

and TKA procedures combined account 

for the largest procedural cost in the 

Medicare budget.35 Therefore, as 

explained in detail below, we believe 

that it is appropriate to include THA/ 

TKA as an applicable condition. 

We developed a hospital-level, 30- 

day, all-cause, risk-standardized 

readmission measure for THA/TKA. 

NQF endorsed the measure (NQF #1551) 

in January of 2012. The measure 

incorporated the Planned Readmission 

Version 2.1 algorithm and excludes 

transfers. Accordingly, we believe that 

the THA/TKA measure met the criteria 

of applicable condition and are 

proposing it for the Hospital 

Readmissions Reduction Program. 

The rationale for expanding the 

applicable conditions and the measures 

used to estimate the Excess Readmission 

Ratios are described in detail below. 

(2) Proposed COPD Readmission 

Measure 

COPD is a leading cause of 

readmissions to hospitals.36 In 2007, the 

MedPAC published a report to Congress 

in which it identified the seven 

conditions associated with the most 

costly potentially preventable 

readmissions. Among these seven 

conditions, COPD ranked fourth.37

Evidence also shows variation in 

readmissions for patients with COPD, 

supporting the finding that 

opportunities exist for improving care. 

The median, 30-day, risk-standardized 

readmission rate among Medicare feefor-service patients aged 65 or older 

hospitalized for COPD in 2008 was 22.0 

percent, and ranged from 18.33 percent 

to 25.03 percent across 4,546 

hospitals.38 Clinical trials and 

observational studies suggest that 

several aspects of care provided to 

patients hospitalized for exacerbations 

of COPD can have significant effects on 

readmission.39 40 41 42 In addition, 

inclusion of this measure in the 

Hospital Readmissions Reduction 

Program aligns with CMS’ priority 

objectives to promote successful 

transitions of care for patients from the 

acute care setting to the outpatient 

setting, and reduces short-term 

readmission rates. Therefore, we believe 

the COPD measure warrants inclusion 

in the Hospital Readmissions Reduction 

Program for FY 2015. We are inviting 

public comments on this proposal. 

(3) Overview of COPD Measure: 

Hospital-Level, 30-Day, All-Cause, RiskStandardized Readmission Rate (RSRR) 

Following Chronic Obstructive 

Pulmonary Disease (COPD) 

Hospitalization (NQF #1891) 

The COPD readmission measure 

assesses hospitals’ 30-day, all-cause 

risk-standardized rate of readmission for 

an acute exacerbation of COPD 

(AECOPD). In general, the measure uses 

the same approach to risk-adjustment 

and hierarchical logistic modeling 

(HLM) methodology that is specified for 

CMS’ AMI, HF, and PN readmission 

measures previously adopted for this 

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43 Gulshan Sharma, Kou Yong-Fang, Freeman 

Jean L, Zhang Dong D, Goodwin James S.: 

Outpatient Follow-up Visit and 30-Day Emergency 

Department Visit and Readmission in Patients 

Hospitalized for Chronic Obstructive Pulmonary 

Disease. Arch Intern Med. Oct. 2010;170:1664– 

1670. 

44Nelson EA, Maruish ME, Axler JL.: Effects of 

Discharge Planning and Compliance with 

Outpatient Appointments on Readmission Rates. 

Psychiatr Serv. July 1 2000;51(7):885–889. 

program. Information on how the 

measure employs HLM can be found in 

the 2011 COPD Readmission Measure 

Methodology Report (available at: 

http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/ 

Measure-Methodology.html. This 

approach appropriately accounts for the 

types of patients a hospital treats (that 

is, hospital case-mix), the number of 

patients it treats, and the quality of care 

it provides. The HLM methodology is an 

appropriate statistical approach to 

measuring quality based on patient 

outcomes when the patients are 

clustered within hospitals (and, 

therefore, the patients’ outcomes are not 

statistically independent) and sample 

sizes vary across hospitals. The measure 

methodology defines hospital case-mix 

based on the clinical diagnoses 

provided in the hospitals’ claims for the 

hospitals’ patient inpatient and 

outpatient visits for the 12 months prior 

to the hospitalization for COPD, as well 

as those present in the claims for care 

at admission. However, the 

methodology specifically does not 

account for diagnoses present in the 

index admission that may indicate 

complications rather than patient 

comorbidities. 

We are providing a summary of the 

measure methodology below. For 

further details on the risk-adjustment 

statistical model, we refer readers to the 

2011 COPD Readmission Measure 

Methodology Report that we have 

posted on the CMS Web site at: http:// 

www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/ 

Measure-Methodology.html. NQF 

endorsed the measure (NQF #1891) in 

March 2013 (http:// 

www.qualityforum.org/QPS/1891). 

• Data Sources. The proposed COPD 

measure is claims-based. It uses 

Medicare administrative data from 

hospitalizations for fee-for-service 

Medicare beneficiaries hospitalized 

with an acute exacerbation of COPD 

(AECOPD). 

• Outcome. The outcome for the 

COPD measure is 30-day, all-cause 

readmission, defined as an unplanned 

subsequent inpatient admission to any 

applicable acute care facility from any 

cause within 30 days of the date of 

discharge from the index 

hospitalization. A number of studies 

demonstrate that improvements in care 

at the time of discharge can reduce 

30-day readmission rates.43 44 It is a 

timeframe that a readmission may 

reasonably be attributed to the hospital 

care and transitional period to a 

nonacute care setting. 

The COPD readmissions measure 

assesses all-cause unplanned 

readmissions (excluding planned 

readmissions) rather than readmissions 

for acute exacerbations of COPD only. 

We are proposing this measure for 

several reasons. First, from the patient 

perspective, a readmission for any 

reason is likely to be an undesirable 

outcome of care, even though not all 

readmissions are preventable. Second, 

limiting the measure to COPD-related 

readmissions may limit the effort focus 

too narrowly rather than encouraging 

broader initiatives aimed at improving 

the overall care within the hospital and 

transitions from the hospital setting. 

Moreover, it is often hard to exclude 

quality issues and accountability based 

on the documented cause of 

readmission. For example, a patient 

with COPD who develops a hospitalacquired infection may ultimately be 

readmitted for sepsis. It would be 

inappropriate to consider such a 

readmission to be unrelated to the care 

the patient received for COPD. Finally, 

while the measure does not presume 

that each readmission is preventable, 

interventions generally have shown 

reductions in all types of readmissions. 

The measure does not count planned 

readmissions as readmissions. Planned 

readmissions are identified in claims 

data using the CMS Planned 

Readmission Algorithm Version 2.1 that 

detects planned readmissions that may 

occur within 30 days of discharge from 

the hospital. This algorithm is described 

briefly in section V.G.3.b.(2)(a) of the 

preamble of this proposed rule and 

more detailed information can be found 

on the CMS Web site at: http:// 

www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/ 

Measure-Methodology.html. For the 

COPD measures, unplanned 

readmissions that fall within the 30-day 

post discharge timeframe from the index 

admission would not be counted as 

readmissions for the index admission if 

they were preceded by a planned 

readmission (we refer readers to section 

V.G.3.b.(2)(b) of the preamble of this 

proposed rule on the proposed counting 

of readmissions that occur after a 

planned readmission). 

• Cohort of Patients. COPD is a group 

of lung diseases characterized by airway 

obstruction. Patients hospitalized for an 

acute exacerbation of COPD (AECOPD) 

present with varying degrees of severity 

ranging from a worsening of baseline 

symptoms (dyspnea, cough, and/or 

sputum) to respiratory failure. To 

capture the full spectrum of severity of 

patients hospitalized for an AECOPD, 

the measure includes patients with a 

principal diagnosis of COPD, as well as 

those with a principal diagnosis of 

respiratory failure with a secondary 

diagnosis of an AECOPD. Requiring 

AECOPD as a secondary diagnosis helps 

to identify respiratory failure due to 

COPD exacerbation versus another 

condition (for example, heart failure). 

For detailed information on the cohort 

definition, we refer readers to the 2013 

COPD Readmission Measure Updates 

and Specifications Report on the CMS 

Web site at: http://www.cms.gov/ 

Medicare/Quality-Initiatives-PatientAssessment-Instruments/ 

HospitalQualityInits/MeasureMethodology.html. 

• Inclusion and Exclusion Criteria. 

The COPD measure includes 

hospitalizations for patients who are 65 

years of age or older at the time of index 

admission and for whom there was a 

complete 12 months of Medicare fee-forservice (FFS) enrollment to allow for 

adequate risk-adjustment. The measure 

excludes the following admissions from 

the measure cohort: (1) Admissions for 

patients who die during the initial 

hospitalization (these patients are not 

eligible for readmission); (2) admissions 

for patients having a principal diagnosis 

of COPD during the index 

hospitalization and subsequently 

transferred to another acute care facility 

(these are excluded because the measure 

focuses on discharges to a nonacute care 

setting such as the home or a SNF); (3) 

admissions for patients that are 

discharged against medical advice 

(AMA) (excluded because providers do 

not have the opportunity to deliver full 

care and prepare the patient for 

discharge); (4) admissions for patients 

without at least a 30-day post-discharge 

enrollment in Medicare FFS (excluded 

because the 30-day readmission 

outcome cannot be assessed in this 

group); and (5) additional COPD 

admissions for patients within 30 days 

of discharge from an index COPD 

admission will be considered 

readmissions and not additional index 

admissions. 

• Risk-Adjustment. The COPD 

measure adjusts for differences across 

hospitals in how at risk their patients 

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Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 27599 

45 Gross, L.M., Curtis, J.P., Lin, Z., et al.: Hospitallevel 30-Day All-Cause Risk-Standardized 

Readmission Rate Following Elective Primary total 

Hip Arthroplasty (THA) and/or Total Knee 

Arthroplasty (TKA): Report prepared for the Centers 

for Medicare & Medicaid Services, 2012. Available 

on the Web site at: http://www.qualitynet.org/. 

46Bozic 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. 

47 Grosso L.M., Curtis J.P., Lin Z., et al.: Hospitallevel 30-Day All-Cause Risk-Standardized 

Readmission Rate Following Elective Primary Total 

Hip Arthroplasty (THA) And/Or Total Knee 

Arthroplasty (TKA): Report prepared for the Centers 

for Medicare & Medicaid Services, 2012. Available 

on the Web site at: http://www.qualitynet.org/. 

are for readmission relative to patients 

cared for by other hospitals. The 

measure uses claims data to identify 

patient clinical conditions and 

comorbidites to adjust patient risk for 

readmission across hospitals, but does 

not adjust for potential complications of 

care. Consistent with NQF guidelines, 

the model does not adjust for 

socioeconomic status or race because 

risk-adjusting for these characteristics 

would hold hospitals with a large 

proportion of patients of minority race 

or low socioeconomic status to a 

different standard of care than other 

hospitals. Rather, this measure seeks to 

illuminate quality differences, and riskadjustment for socioeconomic status or 

race would obscure such quality 

differences. 

• Calculating the Excess Readmission 

Ratio. The COPD readmission measure 

uses the same methodology and 

statistical modeling approach as the 

AMI, HF, and PN measures. We 

published a detailed description of how 

the readmission measures estimate the 

Excess Readmission Ratio used in the 

Hospital Readmissions Reduction 

Program in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53380 through 53381). 

(4) Proposed Adoption of the COPD 

Measure for the Hospital Readmissions 

Reduction Program 

We are proposing to adopt the COPD 

measure in the Hospital Readmissions 

Reduction Program beginning in FY 

2015. We also are proposing the COPD 

measure for use in the Hospital IQR 

Program for FY 2014 (discussed in 

section IX.A. of this preamble). We note 

that the set of hospitals for which this 

measure is calculated for the Hospital 

Readmissions Reduction Program differs 

from those used in calculations for the 

Hospital IQR Program. The Hospital 

Readmissions Reduction Program 

includes only subsection (d) hospitals as 

defined in 1886(d)(1)(B) of the Act and 

hospitals paid under section 1814(b)(3) 

of the Act (that is, Maryland hospitals), 

while the Hospital IQR Program 

calculations include non-IPPS hospitals 

such as CAHs, cancer hospitals, and 

hospitals located in the Territories of 

the United States. However, we believe 

that the COPD measure is appropriate 

for use in both programs. We are 

inviting public comments on this 

proposal. 

(5) Total Hip Arthroplasty (THA) and 

Total Knee Arthroplasty (TKA) Measure 

THA and TKA are commonly 

performed procedures that improve 

quality of life. Between 2008 and 2010, 

over 1.4 million THA and TKA 

procedures were performed on Medicare 

FFS patients aged 65 years and older.45

However, the costs of these procedures, 

especially to Medicare, are very high. 

Combined, THA and TKA procedures 

account for the largest procedural cost 

in the Medicare budget.46 Evidence also 

shows variation in readmissions of 

patients with THA/TKA procedures, 

supporting the finding that 

opportunities exist for improving care. 

The median 30-day risk-standardized 

readmission rate among Medicare FFS 

patients aged 65 or older undergoing 

THA/TKA procedures between 2008 

and 2010 was 5.7 percent, and ranged 

from 3.2 percent to 9.9 percent across 

3,497 hospitals.47 In addition, inclusion 

of a THA/TKA measure in the Hospital 

Readmissions Reduction Program aligns 

with CMS’ priority objectives to 

promote successful transitions of care 

for patients from the acute care 

inpatient setting to the outpatient 

setting, and reduces short-term 

readmission rates. Therefore, we believe 

the THA/TKA measure warrants 

inclusion in the Hospital Readmissions 

Reduction Program for FY 2015. 

(6) Overview of the THA/TKA Measure: 

Hospital-Level 30-Day All-Cause RiskStandardized Readmission Rate (RSRR) 

Following Elective Total Hip 

Arthroplasty (THA) and Total Knee 

Arthroplasty (TKA) (NQF #1551) 

To better assess hospital care and care 

transitions for patients with elective 

THA/TKA procedures, we developed a 

hospital-level readmission measure for 

patients undergoing elective primary 

THA and/or TKA procedures. We 

finalized this measure for use in the 

Hospital IQR Program in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53519 

through 53521). We are proposing to 

include this measure, updated with the 

CMS Planned Readmission Algorithm 

Version 2.1 adapted for THA/TKA 

(discussed in section V.G.3.b.(2) of this 

preamble) to: (1) expand the applicable 

conditions for the Hospital 

Readmissions Reduction Program; (2) 

derive the Excess Readmission Ratio for 

patients with THA/TKA procedures; 

and (3) calculate the readmission 

payment adjustments in FY 2015. We 

refer readers to the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53519 through 

53521) for details of the measure 

specifications as well as the 2013 Hip/ 

Knee Readmission Measures Updates 

and Specifications Report which is 

available on the CMS Web site at: 

http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/ 

Measure-Methodology.html. NQF 

endorsed the measure in January 2012 

(http://www/qualityforum.org/QPS/ 

1551). 

(7) Calculating the Excess Readmission 

Ratio 

The THA/TKA readmission measure 

uses the same methodology and 

statistical modeling approach as the 

AMI, HF, and PN measures. We 

published a detailed description of how 

the readmission measures estimate the 

Excess Readmission Rate used in the 

Hospital Readmissions Reduction 

Program in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53380 through 53381). 

(8) THA/TKA Measure for the Hospital 

Readmissions Reduction Program 

We are proposing to adopt the THA/ 

TKA measure in the Hospital 

Readmissions Reduction Program 

beginning in FY 2015. We also finalized 

this measure for use in the Hospital IQR 

Program in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53519 through 53521). 

We note that the set of hospitals for 

which this measure is calculated for the 

Hospital Readmissions Reduction 

Program differs from the set of hospitals 

used in calculations for the Hospital 

IQR Program. The Hospital 

Readmissions Reduction Program 

includes only subsection (d) hospitals as 

defined in 1886(d)(1)(B) of the Act and 

hospitals paid under section 1814(b)(3) 

of the Act (that is, Maryland hospitals), 

while the Hospital IQR Program 

calculations include non-IPPS hospitals 

such as CAHs, cancer hospitals, and 

hospitals in the Territories. However, 

we believe that the THA/TKA measure 

is appropriate for use in both programs. 

We are inviting public comments on 

this proposal. 

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d. Proposals for Hospitals Paid Under 

Section 1814(b)(3) of the Act, Including 

the Process To Be Exempt From the 

Hospital Readmissions Reduction 

Program and Definition of ‘‘Base 

Operating DRG Payment Amount’’ for 

Such Hospitals (§ 412.152 and 

§ 412.154(d)) 

As finalized in the FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53397), the 

definition of ‘‘applicable hospital’’ 

under section 1886(q)(5)(C) of the Act 

also includes hospitals paid under 

section 1814(b)(3) of the Act (that is, 

acute care Maryland hospitals that 

would have otherwise been paid under 

the IPPS, but for the waiver under 

section 1814(b)(3) of the Act). 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 this provision. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53384), we established 

criteria for evaluation of an annual 

report to CMS to determine whether 

Maryland should be exempted from the 

program each year. We codified this 

requirement at § 412.154(d) of the 

regulations. In addition, we specified 

that we will evaluate a report submitted 

by the State of Maryland documenting 

how its program meets those criteria. 

However, because the Hospital 

Readmissions Reduction Program was 

in its first year and Maryland’s program 

was completing its first year, we 

specified that the evaluation of 

Maryland’s program for measurable 

health outcomes and cost savings would 

not begin until FY 2014. In that same 

final rule, we explained that it would be 

premature to evaluate Maryland’s 

readmission program on health 

outcomes and cost savings at that time, 

as we did not have sufficient 

information on which to evaluate 

Maryland’s program because FY 2013 

was first year of the Hospital 

Readmissions Reduction Program. 

We noted that our finalized 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. 

In this proposed rule, we are 

proposing to establish a deadline by 

which the State must submit its annual 

report to the Secretary under proposed 

revised § 412.154(d)(2) of the 

regulations. We also are proposing the 

criteria that we would use to evaluate 

the State in order to determine whether 

or not the State would be exempted 

from the Hospital Readmissions 

Reduction Program beginning with FY 

2014. In addition, we are proposing to 

define the ‘‘base operating DRG 

payment amount’’ for Maryland 

hospitals under § 412.152 of the 

regulations in the event that the State is 

not exempted from the Hospital 

Readmissions Reduction Program. 

We are proposing that the State of 

Maryland must submit this preliminary 

report to CMS no later than January 15 

of each year for CMS to consider, 

through the IPPS/LTCH PPS proposed 

rule for a Federal fiscal year, its 

exemption from the Hospital 

Readmissions Reduction Program for 

the upcoming Federal fiscal year. For 

example, the State of Maryland would 

have to submit the report by January 15, 

2014 for consideration for the FY 2015 

(beginning October 1, 2014) program 

year. This deadline would provide CMS 

sufficient time to evaluate the report, 

have any discussions with the State 

regarding its program, and prepare a 

presentation of that report for the IPPS/ 

LTCH PPS proposed rule. Under this 

proposal, we also would require that the 

State submit a final report, with updated 

information on the State’s readmissions 

program and updated cost savings and 

health outcomes information, to CMS no 

later than June 1 of each year in order 

for CMS to determine, through the IPPS/ 

LTCH PPS final rule for a Federal fiscal 

year, whether the State meets the 

requirements for exemption from the 

Hospital Readmissions Reduction 

Program in that upcoming Federal fiscal 

year. As such, for FY 2015, under 

proposed § 412.154(d)(2)(ii), the State of 

Maryland would submit its preliminary 

report to the Secretary no later than 

January 15, 2014, and its final report to 

the Secretary no later than June 1, 2014, 

for consideration of exemption from the 

Hospital Readmissions Reduction 

Program. 

For FY 2014, we have received a 

preliminary report from Maryland 

describing its readmissions program. 

Similar to its report submitted for FY 

2013, Maryland described its current 

readmissions program, the AdmissionsReadmission Revenue (ARR) Program. 

Under the voluntary 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). In the report, Maryland 

indicated that the reduction in intrahospital readmission rates (that is, 

readmissions to the same hospital as the 

initial admission) resulted in 

approximately $25 million, or 0.27 

percent, in savings to the participating 

hospitals for 2011 and 2012. In addition, 

Maryland reported that its readmission 

rate per 1,000 Medicare beneficiaries 

declined from 17.14 percent (CY 2011, 

Quarter 2) to 15.21 percent (CY 2012, 

Quarter 2). The State also acknowledged 

in that report that it has begun to track 

inter-hospital readmissions, where a 

patient is admitted to one hospital and 

readmitted to another hospital, which is 

comparable to how readmissions are 

measured under the Hospital 

Readmissions Reduction Program. In the 

FY 2013 IPPS/LTCH PPS final rule, we 

estimated that, under the Hospital 

Readmissions Reduction Program, for 

FY 2013, Medicare IPPS operating 

payments would decrease by 

approximately $300 million (or 0.3 

percent) of total Medicare IPPS 

operating payments. Maryland indicated 

that, for FY 2013, it would 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. 

Furthermore, in its FY 2014 

preliminary report to the Secretary, the 

State of Maryland indicated that, for FY 

2014, subject to approval by the 

Commission, it is proposing a shared 

savings approach, which would be 

applied to all hospitals in the State. 

Under that shared savings approach, 

hospitals in the State would be ranked 

based on their performance on 

readmissions, under which hospitals 

with high readmissions above an 

established standard would experience 

a reduction in their revenue and the 

hospitals below the established standard 

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would not experience a reduction in 

their revenue. For Maryland hospitals 

that are in the voluntary ARR program 

paid under the case-mix adjusted 

bundled payment per episode of care 

that are performing worse than the 

established standard for readmissions, 

their payment per episode of care would 

be reduced. In addition, the State 

proposes that hospitals that improve in 

readmissions above a certain standard 

would experience no reduction in their 

payments and those hospitals below the 

standard would experience a reduction. 

Based on this preliminary information, 

we believe that the State can achieve 

savings on readmissions that are tied to 

hospitals’ performance on readmissions, 

which is comparable to the Hospital 

Readmissions Reduction Program 

applied throughout the rest of the 

country. 

For FY 2014, we are proposing to 

evaluate Maryland based on whether, 

under the shared savings approach, it 

can achieve comparable health 

outcomes and cost savings to the 

Hospital Readmissions Reduction 

Program. We note that, for FY 2014, we 

project that the Hospital Readmissions 

Reduction Program will result in a 0.2 

percent decrease, or approximately $175 

million, in payments to hospitals. We 

are inviting public comments on this 

proposal. 

In this proposed rule, we also are 

proposing to define ‘‘base operating 

DRG payment amount’’ for hospitals 

paid under section 1814(b)(3) of the Act 

in the event that we do not exempt 

Maryland hospitals from the Hospital 

Readmissions Reduction Program in a 

given year. Consistent with section 

1886(q)(2) of the Act, in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 

53382), under the regulations at 

§ 412.152, we defined 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 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)(A), (d)(5)(B), 

(d)(5)(F), 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 in the definition 

of ‘‘base operating DRG payment 

amount’’; therefore, any payments made 

under section 1886(d)(5)(K) of the Act 

are included in the definition of ‘‘base 

operating DRG payment amount.’’ In 

addition, under the regulations at 

§ 412.152, we 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). 

Acute care hospitals located in the 

State of Maryland currently are not paid 

under the IPPS but are, instead, paid 

under a special waiver as provided by 

section 1814(b)(3) of the Act. For these 

applicable hospitals, we are proposing 

that the term ‘‘base operating DRG 

payment amount’’ means the base 

operating DRG payment amount defined 

at § 412.152. In other words, we are 

proposing to revise existing § 412.152, 

to specify that, for Maryland hospitals, 

the ‘‘base operating DRG payment 

amount’’ is an amount equal to the IPPS 

wage adjusted DRG payment amount or 

the 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 

plus new technology payments that 

would be paid to Maryland hospitals 

absent section 1814(b)(3) of the Act. 

Although Maryland hospitals are 

currently paid under this waiver and 

not under the IPPS, if Maryland is not 

exempt from the Hospital Readmissions 

Reduction Program in a given year, we 

are proposing that, to determine the 

amount by which the hospitals’ 

payments under section 1814(b)(3) of 

the Act would be reduced under the 

Hospital Readmissions Reduction 

Program, the readmission payment 

adjustment under § 412.154(b) would be 

determined using the estimated base 

operating DRG payment amount that 

would have applied had the hospital 

been paid under the IPPS. To 

implement this policy, we are proposing 

that claims submitted by Maryland 

hospitals would be ‘‘priced’’ under the 

IPPS payment methodology, and if a 

Maryland hospital has a readmissions 

payment adjustment factor, that factor 

would be applied to that base operating 

DRG payment amount to determine the 

payment adjustment under § 412.154(b) 

(that is, the amount of the payment 

reduction). We are proposing that the 

amount of the payment reduction, if 

any, would be applied to (that is, 

subtracted from) the payments made to 

Maryland hospitals under the waiver. 

This proposed methodology would 

result in Maryland hospitals having the 

readmissions adjustment factor applied 

in a manner similar to that which is 

applied to hospitals that are paid under 

the IPPS. 

Furthermore, we are proposing that if 

Maryland is not exempt from the 

Hospital Readmissions Reduction 

Program in a given year, the proposed 

definition of ‘‘base operating DRG 

payment amount’’ for Maryland 

hospitals discussed above (that is, the 

base operating DRG payment amount 

calculated as if the hospital were paid 

under the IPPS), and not any payment 

amount made under the waiver under 

by section 1814(b)(3) of the Act, would 

be used to calculate both the ‘‘aggregate 

payments for excess readmissions’’ and 

‘‘aggregate payments for all discharges’’ 

(defined at § 412.152) for purposes of 

determining the hospital’s readmission 

adjustment factor that accounts for 

excess readmissions under § 412.154(c). 

We are inviting public comments on 

this proposal. 

e. Proposed Floor Adjustment Factor for 

FY 2014 (§ 412.154(c)(2)) 

Section 1886(q)(3)(A) of the Act 

defines the ‘‘adjustment factor’’ for an 

applicable hospital for a fiscal year as 

equal to the greater of ‘‘(i) the ratio 

described in subparagraph (B) for the 

hospital for the applicable period (as 

defined in paragraph (5)(D)) for such 

fiscal year; or (ii) the floor adjustment 

factor specified in subparagraph (C).’’ 

Section 1886(q)(3)(B) of the Act, in turn, 

describes the ratio used to calculate the 

adjustment factor. Specifically, it states 

that the ratio is ‘‘equal to 1 minus the 

ratio of—(i) the aggregate payments for 

excess readmissions . . . and (ii) the 

aggregate payments for all 

discharges. . . .’’ In the FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53386), we 

codified the calculation of this ratio at 

§ 412.154(c)(1) of the regulations. 

Section 1886(q)(3)(C) of the Act 

specifies the floor adjustment factor, 

which is set at 0.99 for FY 2013, 0.98 

for FY 2014, and 0.97 for FY 2015 and 

subsequent fiscal years. We codified the 

floor adjustment factor at § 412.154(c)(2) 

of the regulations. 

For FY 2013, under § 412.154(c), we 

specified that an applicable hospital 

will receive an adjustment factor that is 

either the greater of the ratio or a floor 

adjustment factor of 0.99. For FY 2014, 

we are proposing that the floor 

adjustment factor be 0.98, consistent 

with section 1886(q)(3) of the Act, as 

codified at § 412.154(c)(2). As finalized 

in the FY 2013 IPPS/LTCH PPS final 

rule, the ratio is rounded to the fourth 

decimal place. In other words, for FY 

2014, a hospital subject to the Hospital 

Readmissions Reduction Program would 

have an adjustment factor that is 

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between 1.0 and 0.9800. We are inviting 

public comments on this proposal. 

f. Proposed Applicable Period for FY 

2014 

Under section 1886(q)(5)(D) of the 

Act, the Secretary has the authority to 

specify the applicable period with 

respect to a fiscal year under the 

Hospital Readmissions Reduction 

Program. We finalized our policy to use 

3 years of claims data to calculate the 

readmission measures in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 

51671). In the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53390), we codified the 

definition of ‘‘applicable period’’ in the 

regulations at 42 CFR 412.152 as the 3- 

year period from which data are 

collected in order to calculate excess 

readmission ratios and adjustments for 

the fiscal year, which includes aggregate 

payments for excess readmissions and 

aggregate payments for all discharges 

used in the calculation of the payment 

adjustment. 

For the Hospital Readmissions 

Reduction Program for FY 2013, we 

established an applicable period under 

§ 412.152 as July 1, 2008, to June 30, 

2011. Specifically, to calculate the 

excess readmission ratios and to 

calculate the payment adjustments for 

FY 2013 (including aggregate payments 

for excess readmissions and aggregate 

payments for all discharges used in the 

calculation of the payment adjustment), 

we used Medicare claims data from the 

3-year time period of July 1, 2008 to 

June 30, 2011 (76 FR 51671 and 77 FR 

53388). 

In this proposed rule, consistent with 

the definition at § 412.152 of the 

existing regulations, we are proposing 

that the applicable period for FY 2014 

under the Hospital Readmissions 

Reduction Program would be the 3-year 

period from July 1, 2009, to June 30, 

2012. That is, we would determine the 

excess readmission ratios and calculate 

the payment adjustment (including 

aggregate payments for excess 

readmissions and aggregate payments 

for all discharges) for FY 2014 using 

data from the 3-year time period of July 

1, 2009 to June 30, 2012, as this is the 

most recent available 3-year period of 

data upon which to base these 

calculations. As discussed later in this 

section, although we are proposing an 

applicable period of July 1, 2009 

through June 30, 2012 for FY 2014, for 

purposes of determining the proposed 

readmissions payment adjustment 

factors for this FY 2014 proposed rule, 

we are using excess readmission ratios 

based on older data, that is, from the FY 

2013 applicable period of July 1, 2008 

to June 30, 2011 (that includes the 

application of the proposed planned 

readmission algorithm discussed earlier 

in this section). However, for the FY 

2014 final rule, we intend to use excess 

readmission ratios based on data from 

the applicable period of July 1, 2009 to 

June 30, 2012, if that period is finalized. 

g. Proposed Refinements of the 

Methodology To Calculate the Aggregate 

Payments for Excess Readmissions 

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 the FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53387), we 

defined ‘‘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.’’ In the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53387), we 

included this definition of ‘‘aggregate 

payments for excess readmissions’’ 

under the regulations at § 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. In the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53387), we 

included this definition of ‘‘aggregate 

payments for all discharges’’ under the 

regulations at § 412.152. 

We note that we are taking this 

opportunity to propose to make a 

technical change to the definition of 

‘‘basing operating DRG payment 

amount’’ in the existing regulations at 

§ 412.152 to reflect our policy that the 

difference between the applicable 

hospital-specific payment rate and the 

Federal payment rate for SCHs and 

MDHs is excluded from the base 

operating DRG amount for these 

hospitals. We note that section 

1886(q)(2)(B)(i) of the Act provides 

‘‘special rules’’ for MDHs with respect 

to discharges occurring during FYs 2012 

and 2013, and not for subsequent years. 

Under current law, as discussed in 

section V.F. of the preamble of this 

proposed rule, the MDH program 

expires at the end of FY 2013 (that is, 

the MDH program is in effect through 

September 30, 2013); therefore, the 

technical change would reflect that our 

policy applies to MDHs for FY 2013 

only. 

As discussed above, when calculating 

the numerator (aggregate payments for 

excess readmissions), we determined 

the base operating DRG payments 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.’’ 

When determining the base operating 

DRG payment amount for an individual 

hospital for such applicable period for 

such condition, we use Medicare 

inpatient claims from the MedPAR file 

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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 use 

MedPAR claims data as our data source 

for determining aggregate payments for 

excess readmissions and aggregate 

payments for all discharges, as this data 

source is consistent with the claims data 

source used in IPPS rulemaking to 

determine IPPS rates. 

For FY 2014, we are proposing to use 

MedPAR claims with discharge dates 

that are on or after July 1, 2009, and no 

later than June 30, 2012. As specified in 

the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53387), we use the update of the 

MedPAR file for each Federal fiscal 

year, which is updated 6 months after 

the end of each Federal fiscal year 

within the applicable period, as our data 

source (that is, the March updates of the 

respective Federal fiscal year MedPAR 

files) for the final rules. The FY 2009 

through FY 2012 MedPAR data files can 

be purchased from CMS. Use of these 

files allows 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: 

• If using the U.S. Postal Service: 

Centers for Medicare and Medicaid 

Services, RDDC Account, Accounting 

Division, P.O. Box 7520, Baltimore, MD 

21207–0520. 

• If using express mail: Centers for 

Medicare and Medicaid Services, OFM/ 

Division of Accounting—RDDC, 

Mailstop C#–07–11, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

For this FY 2014 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, 2009, and no later than June 30, 2012. 

However, we note that, for the purposes 

of modeling the proposed readmissions 

payment adjustment factors in this 

proposed rule, we used excess 

readmission ratios based on an older 

performance period of July 1, 2008 to 

June 30, 2011 with the application of 

the proposed planned readmission 

algorithm. 

Consistent with the approach taken in 

the FY 2013 IPPS/LTCH PPS proposed 

rule (77 FR 27964), for the purpose of 

modeling the proposed FY 2014 

readmissions payment adjustment 

factors, we are using excess readmission 

ratios for applicable hospitals from the 

FY 2013 Hospital Readmission 

Reduction Program applicable period. 

For FY 2014, applicable hospitals will 

have had the opportunity to review and 

correct data from the proposed FY 2014 

applicable period of July 1, 2009 to June 

30, 2012 before they are made public 

under our policy regarding the reporting 

of hospital-specific information, which 

is discussed later in this section. 

In this proposed rule, we are 

proposing for FY 2014 to use MedPAR 

data from July 1, 2009 through June 30, 

2012, and we are using the March 2010 

update of the FY 2009 MedPAR file to 

identify claims within FY 2009 with 

discharges dates that are on or after July 

1, 2009, the March 2011 update of the 

FY 2010 MedPAR file to identify claims 

within FY 2010, the March 2012 update 

of the FY 2011 MedPAR file to identify 

claims within FY 2010, and the 

December 2012 update of the FY 2012 

MedPAR file to identify claims within 

FY 2012 with discharge dates no later 

than June 30, 2012. For the FY 2014 

IPPS/LTCH PPS final rule, we intend to 

use the same MedPAR files as listed 

above, with the exception of using the 

March 2013 update of the FY 2012 

MedPAR file. 

In order to identify the admissions for 

each condition for an individual 

hospital for calculating the aggregate 

payments for excess readmissions, as we 

did for FY 2013, we are proposing, for 

FY 2014, 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 posted 

on the Web site at: http:// 

www.QualityNet.org > HospitalInpatient > Claims-Based Measures > 

Readmission Measures > Measure 

Methodology. 

In order to identify the applicable 

conditions to calculate the aggregate 

payments for excess readmissions, as we 

did for FY 2013, we are proposing, for 

FY 2014, 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. Based on 

public comments that we received on 

the FY 2013 IPPS/LTCH PPS proposed 

rule, which stated that the index 

admissions that are not considered 

readmissions for the purpose of the 

readmissions measures, and are thus 

excluded from the calculation of the 

excess readmission ratio, should also 

not be considered admissions for the 

purposes of determining a hospital’s 

aggregate payments for excess 

readmissions, we are proposing to 

further modify our methodology to 

identify the admissions included in the 

calculation of ‘‘aggregate payments for 

excess readmissions.’’ As we did for FY 

2013 in response to public comments 

(77 FR 53390), using our MedPAR data 

source, we identified admissions for the 

purposes of calculating aggregate 

payments for excess readmissions 

making the following exclusions: (1) 

Hospitalizations for patients discharged 

with an in hospital death; (2) 

hospitalization for patients discharged 

against medical advice; (3) transfers; (4) 

hospitalizations for patients under 65; 

(5) hospitalizations for patients enrolled 

in Medicare Part C; and (6) same day 

discharges for AMI cases. These 

admissions were excluded based on 

how they were identified in the 

MedPAR file. 

For FY 2014, we are proposing to 

make the same exclusions as we did in 

FY 2013, but, for some of the 

exclusions, to identify them using a 

different methodology which is more 

consistent with the manner in which 

exclusions are made to the admissions 

used to calculate the excess readmission 

ratio. For FY 2014, in order to have the 

same types of admissions to calculate 

aggregate payments for excess 

readmissions, as is used to calculate the 

excess readmission ratio, we are 

proposing to identify admissions for the 

purposes of calculating aggregate 

payments for excess readmissions as 

follows; we note where our proposed 

methodology for exclusions for FY 2014 

differs from our methodology in FY 

2013: 

• We would exclude admissions that 

are identified as an applicable condition 

based on the ICD–9–CM code listed as 

the primary diagnosis if the patient died 

in the hospital, as identified by the 

discharge status code on the MedPAR 

claim. This is consistent with how we 

identified patients who died in the 

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hospital in the FY 2013 IPPS/LTCH PPS 

final rule. 

• We would exclude admissions 

identified as an applicable condition 

based on the ICD–9–CM code listed as 

the primary diagnosis for which the 

patient was transferred to another acute 

care hospital (that is, a CAH or an IPPS 

hospital), as identified through 

examination of contiguous stays in 

MedPAR at other hospitals. (We note 

that this proposed step differs from the 

methodology we used in the FY 2013 

IPPS/LTCH PPS final rule to identify 

transfers based on discharge destination 

codes in the MedPAR file.) 

• We would exclude admissions 

identified as an applicable condition 

based on the ICD–9–CM code listed as 

the primary diagnosis for patients who 

are under the age of 65, as identified by 

linking the claim information to the 

information provided in the Medicare 

Enrollment Database. (We note that this 

proposed step differs from the 

methodology we used in the FY 2013 

IPPS/LTCH PPS Rule in that we 

previously used claims in the MedPAR 

file to identify a patient’s age.) 

• For conditions identified as AMI, 

we would exclude claims that are same 

day discharges, as identified by the 

admission date and discharge date on 

the MedPAR claim. (This is consistent 

with how we identified patients with 

same day discharges for AMI in the FY 

2013 IPPS/LTCH PPS final rule. In 

addition, it is consistent with the 

calculation of the excess readmission 

ratio for AMI where same day 

discharges for AMI are not included as 

an index admission.) 

Furthermore, we are proposing to 

only identify Medicare FFS claims that 

meet the criteria (that is, claims paid for 

under Medicare Part C (Medicare 

Advantage) would not be included in 

this calculation), consistent with the 

methodology to calculate excess 

readmission ratios based solely on 

admissions and readmissions for 

Medicare FFS patients. For FY 2013, we 

had excluded admissions for Medicare 

Advantage patients based on whether 

the claim was identified as a Medicare 

Advantage claim in the MedPAR file or 

whether the FFS payment amount on 

the claim was for an IME payment only, 

also indicative of an admission for a 

Medicare Advantage patient. For FY 

2014, we would exclude admissions for 

patients enrolled in Medicare 

Advantage as identified in the 

Enrollment Database, which is 

consistent with how admissions for 

Medicare Advantage patients are 

identified in the calculation of the 

excess readmission ratios. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53390), we noted that there 

were additional exclusions to the 

admissions used to calculate the excess 

readmission ratio that we could not 

apply to the calculation of aggregate 

payments for excess readmissions at the 

time of rulemaking. However, we stated 

our intention to modify our systems to 

identify the additional exclusions in 

order to calculate the aggregate 

payments for excess readmissions in a 

manner that would be more consistent 

with the calculation of the excess 

readmission ratio. Thus, in addition to 

the exclusions to the admissions we 

finalized in the FY 2013, we are 

proposing additional exclusions so that 

the criteria used to identify admissions 

for the purposes of calculating aggregate 

payments for excess readmissions 

would be the same as the criteria used 

to identify admissions for the purposes 

of calculating the excess readmission 

ratios. We are proposing to link our 

MedPAR claims data with the Medicare 

Enrollment Database to make additional 

exclusions to the admissions used to 

calculate aggregate payments for excess 

readmissions, which is consistent with 

our established methodology for 

calculating of the excess readmission 

ratios. The Medicare Enrollment 

Database contains information on all 

individuals entitled to Medicare, 

including demographic information, 

enrollment dates, third party buy-in 

information, and Medicare managed 

care enrollment. For FY 2014, we are 

proposing to include the following 

additional steps to identify admissions 

for the purposes of calculating aggregate 

payments for excess readmissions: 

• We are proposing to exclude 

admissions for patients who did not 

have Medicare Parts A and B FFS 

enrollment in the 12 months prior to the 

index admission, based on the 

information provided in the Medicare 

Enrollment Database. 

• We are proposing to exclude 

admissions for patients without at least 

30 days post-discharge enrollment in 

Medicare Parts A and B FFS, based on 

the information provided in the 

Medicare Enrollment Database. 

• We are proposing to exclude all 

multiple admissions within 30 days of 

a prior index admission, as identified in 

the MedPAR file, consistent with how 

multiple admissions within 30 days of 

an index admission are excluded from 

the calculation of the excess 

readmission ratio. 

We are inviting public comments on 

these proposals. 

The tables below list the ICD–9–CM 

codes we are proposing to use to 

identify each applicable condition to 

calculate the aggregate payments for 

excess readmissions under this proposal 

for FY 2014. These ICD–9–CM codes 

also will 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. The list of 

ICD–9–CM codes for each condition has 

not changed from the list provided in 

the FY 2013 IPPS/LTCH PPS final rule. 

ICD–9–CM CODES TO IDENTIFY PNEUMONIA (PN) CASES

ICD–9–CM Code Description of code 

480.0 .................. Pneumonia due to adenovirus. 

480.1 .................. Pneumonia due to respiratory syncytial virus. 

480.2 .................. Pneumonia due to parainfluenza virus. 

480.3 .................. Pneumonia due to SARS-associated coronavirus. 

480.8 .................. Viral pneumonia: pneumonia due to other virus not elsewhere classified. 

480.9 .................. Viral pneumonia unspecified. 

481 ..................... Pneumococcal pneumonia [streptococcus pneumoniae pneumonia]. 

482.0 .................. Pneumonia due to klebsiella pneumoniae. 

482.1 .................. Pneumonia due to pseudomonas. 

482.2 .................. Pneumonia due to hemophilus influenzae [h. influenzae]. 

482.30 ................ Pneumonia due to streptococcus unspecified. 

482.31 ................ Pneumonia due to streptococcus group a. 

482.32 ................ Pneumonia due to streptococcus group b. 

482.39 ................ Pneumonia due to other streptococcus. 

482.40 ................ Pneumonia due to staphylococcus unspecified. 

482.41 ................ Pneumonia due to staphylococcus aureus. 

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ICD–9–CM CODES TO IDENTIFY PNEUMONIA (PN) CASES—Continued 

ICD–9–CM Code Description of code 

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 (HF) CASES

ICD–9–CM Code Code description 

402.01 ................ Hypertensive heart disease, malignant, with heart failure. 

402.11 ................ Hypertensive heart disease, benign, with heart failure. 

402.91 ................ Hypertensive heart disease, unspecified, with heart failure. 

404.01 ................ Hypertensive heart and chronic kidney disease, malignant, with heart failure and with chronic kidney disease stage I through 

stage IV, or unspecified. 

404.03 ................ Hypertensive heart and chronic kidney disease, malignant, with heart failure and with chronic kidney disease stage V or end 

stage renal disease. 

404.11 ................ Hypertensive heart and chronic kidney disease, benign, with heart failure and with chronic kidney disease stage I through 

stage IV, or unspecified. 

404.13 ................ Hypertensive heart and chronic kidney disease, benign, with heart failure and with chronic kidney disease stage I through 

stage IV, or unspecified failure and chronic kidney disease stage V or end stage renal disease. 

404.91 ................ Hypertensive heart and chronic kidney disease, unspecified, with heart failure and chronic kidney disease stage V or end 

stage renal disease heart failure and with chronic kidney disease stage I through stage IV, or unspecified. 

404.93 ................ Hypertensive heart and chronic kidney disease, unspecified, with heart failure and chronic kidney disease stage V or end 

stage renal disease. 

428.xx ................ Heart Failure. 

ICD–9–CM CODES TO IDENTIFY ACUTE MYOCARDIAL INFARCTION (AMI) CASES

ICD–9–CM Code Description of code 

410.00 ................ AMI (anterolateral wall)—episode of care unspecified. 

410.01 ................ AMI (anterolateral wall)—initial episode of care. 

410.10 ................ AMI (other anterior wall)—episode of care unspecified. 

410.11 ................ AMI (other anterior wall)—initial episode of care. 

410.20 ................ AMI (inferolateral wall)—episode of care unspecified. 

410.21 ................ AMI (inferolateral wall)—initial episode of care. 

410.30 ................ AMI (inferoposterior wall)—episode of care unspecified. 

410.31 ................ AMI (inferoposterior wall)—initial episode of care. 

410.40 ................ AMI (other inferior wall)—episode of care unspecified. 

410.41 ................ AMI (other inferior wall)—initial episode of care. 

410.50 ................ AMI (other lateral wall)—episode of care unspecified. 

410.51 ................ AMI (other lateral wall)—initial episode of care. 

410.60 ................ AMI (true posterior wall)—episode of care unspecified. 

410.61 ................ AMI (true posterior wall)—initial episode of care. 

410.70 ................ AMI (subendocardial)—episode of care unspecified. 

410.71 ................ AMI (subendocardial)—initial episode of care. 

410.80 ................ AMI (other specified site)—episode of care unspecified. 

410.81 ................ AMI (other specified site)—initial episode of care. 

410.90 ................ AMI (unspecified site)—episode of care unspecified. 

410.91 ................ AMI (unspecified site)—initial episode of care. 

For FY 2014, we are proposing to 

calculate aggregate payments for excess 

readmissions, using MedPAR claims 

from July 1, 2009 to June 30, 2012, to 

identify applicable conditions based on 

the same ICD–9–CM codes used to 

identify the conditions for the 

readmissions measures and to apply the 

exclusions for the types of admissions 

discussed above. 

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FORMULAS TO CALCULATE THE READMISSION ADJUSTMENT FACTOR

AGGREGATE PAYMENTS FOR EXCESS READMISSIONS = [sum of base operating DRG payments for AMI × (Excess Readmission Ratio for AMI– 

1)] + [sum of base operating DRG payments for HF × (Excess Readmission Ratio for HF–1)] + [sum of base operating DRG payments for 

PN × (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 2014 is the higher of the ratio or 0.9800. 

* Based on claims data from July 1, 2009 to June 30, 2012 for FY 2014. 

h. Clarification of Reporting HospitalSpecific Information, Including 

Opportunity To Review and Submit 

Corrections 

In the FY 2013 IPPS/LTCH PPS final 

rule, we finalized our policy for the 

public reporting of the information for 

this program as well as providing 

hospitals with an opportunity to review 

and submit corrections to the 

information prior to public reporting. 

We are not proposing changes to the 

reporting, review, and submittal of 

corrections policy and the regulatory 

text that we finalized in the FY 2013 

IPPS/LTCH final rule (77 FR 53399 

through 53401). However, we wish to 

clarify that requests to incorporate 

claims previously billed under a 

different CMS Certification Number 

(CCN) by recently acquired entities into 

calculations for a particular CCN will 

not be considered. This is because the 

particular CCN was not responsible for 

the patients under the other CCN prior 

to the hospital merger at the time of 

service. 

In addition to public comments on the 

proposed refinements to the 

readmissions measures, the proposed 

expansion of the applicable conditions 

for FY 2015, and the proposed changes 

to the readmission payment adjustment 

factors, we welcome public comment on 

the impact of the Hospital Readmissions 

Reduction Program on hospitals, 

including ‘‘safety net’’ hospitals. 

H. 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 valuebased incentive payments under the 

Hospital VBP Program to hospitals that 

meet or exceed performance standards 

for a performance period for a fiscal 

year. As further required by section 

1886(o)(6)(C)(ii)(I) of the Act, we base 

each hospital’s value-based payment 

percentage on the hospital’s Total 

Performance Score (TPS) for a specified 

performance period. In accordance with 

section 1886(o)(7) of the Act, the total 

amount available for value-based 

incentive payments for a fiscal year will 

be equal to the total amount of the 

payment reductions for all participating 

hospitals for such fiscal year, as 

estimated by the Secretary. For FY 2013, 

the available funding pool was 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) measure 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 assessed 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 then calculated 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 were clinical 

process of care = 70 percent, patient 

experience of care = 30 percent), and 

adding together the weighted domain 

scores. We converted each hospital’s 

TPS into a value-based incentive 

payment percentage using a linear 

exchange function and then converted 

the value-based incentive payment 

percentage into a per discharge valuebased incentive payment amount. We 

incorporated the reduction to each 

hospital’s base operating DRG payment 

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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 

applied to FY 2013 discharges. 

We finalized the Hospital VBP 

Program’s payment adjustment 

calculation methodology, including 

codifying certain definitions related to 

the Program, in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53569 through 

53571). We also finalized our 

methodology for estimating the total 

amount available for value-based 

incentive payments in a fiscal year 

under the Hospital VBP Program (77 FR 

53571 through 53573), our methodology 

to calculate the value-based incentive 

payment adjustment factor (77 FR 53573 

through 53576), the delayed application 

of the base-operating DRG payment 

amount reduction for FY 2013 

discharges until incorporation of the 

value-based incentive payment 

adjustments into our claims processing 

system (77 FR 53577), and our process 

for reducing the base-operating DRG 

payment amount and applying the 

value-based incentive payment 

adjustment for FY 2013 (77 FR 53577 

through 53578). 

We refer readers to the Hospital 

Inpatient VBP Program final rule (76 FR 

26490 through 26547), the CY 2012 

OPPS/ASC final rule with comment 

period (76 FR 74527 through 74547) and 

the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53567 through 53614) for further 

explanation of the details of the FY 2013 

Hospital VBP Program and our other 

finalized policies related to future fiscal 

years. 

3. FY 2014 Payment Details 

Section 1886(o)(7)(B) of the Act 

instructs the Secretary to reduce the 

base operating DRG payment amount for 

a hospital for each discharge in a fiscal 

year by an applicable percent. Under 

section 1886(o)(7)(A) of the Act, the sum 

total of these reductions in a fiscal year 

must equal the total amount available 

for value-based incentive payments for 

all eligible hospitals for the fiscal year, 

as estimated by the Secretary. We 

finalized details on how we would 

implement these provisions in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53571 through 53573), and refer readers 

to that final rule for more details. 

Under section 1886(o)(7)(c)(ii) of the 

Act, the applicable percent for the FY 

2014 Hospital VBP Program is 1.25 

percent. Based on the December 2012 

update of the FY 2012 MedPAR file, we 

estimate that the total amount available 

for value-based incentive payments for 

FY 2014 is $1.1 billion. We intend to 

update this estimate for the final rule, 

using the March 2013 update of the FY 

2012 MedPAR file. 

As finalized in the FY 2013 IPPS/ 

LTCH PPS final rule, as referenced 

above, we will utilize a linear exchange 

function to translate this estimated 

amount available into a value-based 

incentive payment percentage for each 

hospital, based on its Total Performance 

Score (TPS). We will then calculate a 

value-based incentive payment 

adjustment factor which will be applied 

to the base operating DRG payment 

amount for each discharge occurring in 

FY 2014, on a per-claim basis. Proxy 

value-based incentive payment 

adjustment factors may be found in 

Table 16 for this proposed rule (which 

is available on the CMS Web site). The 

proxy factors are based on the TPSs 

from the FY 2013 Hospital VBP 

Program. These FY 2013 performance 

scores are the most recently available 

performance scores that hospitals have 

been given the opportunity to review 

and correct. The slope of the linear 

exchange function used to calculate the 

proxy value-based incentive payment 

adjustment factors is 1.8362446088. 

This slope, along with the estimated 

amount available for value-based 

incentive payments, may also be found 

in Table 16. We intend to include an 

update to this table, as Table 16A, in the 

final rule (which will be available on 

the CMS Web site), to reflect changes 

based on the December update to the FY 

2012 MedPAR file. The updated proxy 

value-based incentive payment 

adjustment factors for FY 2014 will 

continue to be based on historic FY 

2013 Program TPSs because hospitals 

will not have been given the 

opportunity to review and correct their 

actual FY 2014 value-based incentive 

payment adjustment factors for the FY 

2014 VBP program until after the final 

rule is published. After hospitals have 

been given an opportunity to review and 

correct their actual value-based 

incentive payment adjustment factors 

for FY 2014, we will add a new table, 

Table 16B (which will be available on 

the CMS Web site) to display the actual 

value-based incentive payment 

adjustment factors, exchange function 

slope, and estimated amount available 

for the FY 2014 Hospital VBP Program. 

We expect that Table 16B will be posted 

on the CMS Web site in October 2013. 

4. FY 2014 Hospital VBP Program 

Measures 

For FY 2014, we 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 Hospital VBP 

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). 

Although we also previously adopted 

8 HAC measures, 2 AHRQ composite 

measures, and a Medicare Spending per 

Beneficiary Measure for the FY 2014 

Hospital VBP Program, we have 

suspended the effective dates 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). However, as 

discussed further below, we finalized 

adoption of a Medicare Spending per 

Beneficiary Measure and an AHRQ 

composite measure for the FY 2015 

Hospital VBP Program in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53582 

through 53592). 

Set out below is a complete list of the 

measures we adopted for the FY 2014 

Hospital VBP Program: 

FINALIZED QUALITY MEASURES FOR THE FY 2014 HOSPITAL VBP PROGRAM

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. 

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FINALIZED QUALITY MEASURES FOR THE FY 2014 HOSPITAL VBP PROGRAM—Continued 

Measure ID Measure description 

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. 

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 Hospital VBP Program. 

5. FY 2015 Hospital VBP Program 

Measures 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53582 through 53592), we 

adopted 12 Clinical Process of Care 

measures, one Patient Experience of 

Care measure in the form of the 

HCAHPS survey, 5 Outcome measures, 

including three 30-day mortality 

measures, the AHRQ PSI composite 

measure, and the CLABSI measure, and 

one Efficiency measure for the FY 2015 

Hospital VBP Program. 

We did not adopt two clinical process 

measures (SCIP–Inf–10 and AMI–10) 

that we determined were ‘‘topped-out’’ 

according to our criteria finalized in the 

Hospital Inpatient VBP Program final 

rule (76 FR 26496 through 26497). We 

also did not adopt SCIP–VTE–1 for the 

FY 2015 Hospital VBP Program because 

we believed that the measure is very 

similar to another measure we have 

adopted for the Program (SCIP–VTE–2) 

and, in our view, is not as closely linked 

to better surgical outcomes because it 

assesses the ordering of VTE 

prophylaxis, rather than the patient’s 

actual receipt of such prophylaxis 

within 24 hours of surgery. We also 

noted that, during a recent maintenance 

review of SCIP–VTE–1, the National 

Quality Forum (NQF) concluded that it 

would no longer endorse this measure. 

Set out below is a complete list of the 

measures we adopted for the FY 2015 

Hospital VBP Program: 

FINALIZED QUALITY MEASURES FOR FY 2015 HOSPITAL VBP PROGRAM

Measure ID Measure 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. 

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. 

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FINALIZED QUALITY MEASURES FOR FY 2015 HOSPITAL VBP PROGRAM—Continued 

Measure ID Measure description 

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. 

* 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. 

6. FY 2016 Hospital VBP Program 

Measures 

a. Measures Previously Adopted and 

Proposal To Remove AMI–8a, PN–3b, 

and HF–1 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53592 through 53593), we 

adopted for the FY 2016 Hospital VBP 

Program the three 30-day mortality 

measures that we had finalized for the 

Hospital VBP Program for FYs 2014 and 

2015. We also adopted the AHRQ 

patient safety composite (PSI–90) for the 

Hospital VBP Program for FY 2016. We 

adopted those measures at that time in 

order to adopt a longer performance 

period and collect more data for 

performance scoring than would be 

possible if we waited to make those 

proposals until this proposed rule. We 

also adopted those measures at that time 

because we recognized 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 

performance period for the fiscal year 

involved. We also automatically 

readopted the remaining FY 2015 

measures (with the exception of the 

CLABSI measure), in accordance with 

our policy of automatic readoption of 

measures (77 FR 53592). 

In this proposed rule, we are 

proposing to remove three measures 

from the measure set previously 

adopted that we have discussed above. 

First, we analyzed the clinical process 

of care measures for ‘‘topped out’’ status 

and concluded that AMI–8a: Primary 

PCI Received within 90 Minutes of 

Hospital Arrival is ‘‘topped-out.’’ Our 

methodology for evaluating whether a 

measure is topped-out focuses on two 

criteria: (1) National 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 

believe that topped-out measures should 

not be included in the Hospital VBP 

Program because measuring hospital 

performance on those measures has no 

meaningful effect on a hospital’s TPS. 

Therefore, we are proposing to remove 

AMI–8a from the FY 2016 Hospital VBP 

Program measure set. 

We welcome public comments on our 

proposal to remove AMI–8a from the FY 

2016 Hospital VBP Program measure set 

and on whether any other existing 

Hospital VBP Program measures are 

topped-out and, therefore, should be 

removed from the previously adopted 

FY 2016 measure set. We intend to 

update our topped-out analysis using 

the most recently available data and will 

announce in the FY 2014 IPPS/LTCH 

PPS final rule whether any of the other 

FY 2016 measures will be removed due 

to topped-out status. 

Second, we are proposing to remove 

PN–3b, Blood Cultures Performed in the 

Emergency Department Prior to Initial 

Antibiotic Received in Hospital, and 

HF–1, Discharge Instructions, from the 

FY 2016 Hospital VBP Program. Both 

PN–3b and HF–1 are no longer endorsed 

by the NQF, and we note that in its 2013 

Pre-Rulemaking Report, the Measure 

Applications Partnership (MAP) did not 

recommend those measures for use in 

the Hospital VBP Program. 

As of February 28, 2012, the NQF 

Pneumonia Thoracic CT Work Group of 

the Pulmonary and Critical Care 

Endorsement Maintenance Project 

believed there was insufficient evidence 

that performing blood cultures prior to 

initiation of antibiotics led to better 

outcomes. The workgroup also cited 

significant issues with documentation of 

the timing of the blood cultures with 

respect to the initiation of the 

antibiotics. Documentation is often done 

retrospectively providing opportunities 

for data entry errors. The issue is 

compounded with EHRs as data entry is 

electronically time-stamped and may 

not accurately indicate when blood 

cultures were drawn or antibiotics 

given. Although the measure is 

currently ‘‘chart-abstracted,’’ the data 

might be abstracted from an EHR, 

instead of from a paper record. 

We note further that NQF reviewed 

HF–1 during the summer of 2012. The 

NQF Steering Committee determined 

that there was insufficient evidence to 

link the HF–1 measure of discharge 

instructions with better outcomes. The 

committee noted that discharge 

instructions, as measured by HF–1, did 

not cover several important issues, 

including patient understanding of the 

instructions and their appropriateness 

for patients’ education and literacy 

levels. 

Therefore, we do not believe that 

these measures appropriately capture 

relevant inpatient quality information 

for purposes of the Hospital VBP 

Program, and, as indicated above, we 

are proposing to remove them from the 

FY 2016 program. 

b. Proposed New Measures for the FY 

2016 Hospital VBP Program 

We considered if we should adopt 

additional measures for the FY 2016 

Hospital VBP Program. We considered 

what measures are eligible for adoption 

based on the statutory requirements, 

including specification under the 

Hospital IQR Program and posting dates 

on the Hospital Compare Web site, as 

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well as our priorities for quality 

improvement as outlined in the 

National Quality Strategy, which is 

available for download at http:// 

www.healthcare.gov/news/reports/ 

nationalqualitystrategy032011.pdf. 

We believe the following measures 

meet the statutory requirements for 

inclusion in the Hospital VBP Program. 

We also believe that these measures 

represent important components of 

quality improvement in the acute 

inpatient hospital setting. 

Influenza Immunization (IMM–2, 

NQF #1659) is a chart-abstracted 

prevention measure that addresses acute 

care hospitalized inpatients age 6 

months or older that were screened for 

seasonal influenza immunization status 

and were vaccinated prior to discharge, 

if indicated. We believe this measure is 

important to quality improvement 

efforts because about 36,000 adults die 

and over 200,000 are hospitalized 

annually for flu-related causes. Older 

adults are more vulnerable to influenza, 

and adults over age 65 comprise about 

90 percent of deaths related to flu. 

Vaccinations can significantly reduce 

the number of flu-related illnesses and 

deaths. 

This measure was incorporated into 

the Hospital IQR Program for FY 2014 

in the FY 2011 IPPS/LTCH PPS final 

rule (75 FR 50211), and data collection 

began with January 1, 2012 discharges. 

Measure data were posted on Hospital 

Compare on December 13, 2012, and 

MAP supported its inclusion in the 

Hospital VBP Program in its February 

2013 report (available at http:// 

www.qualityforum.org/Publications/ 

2013/02/MAP_Pre-Rulemaking_Report_- 

_February_2013.aspx), noting that it 

addresses a high-impact condition not 

adequately addressed in the program’s 

current measure set. Therefore, we are 

proposing to adopt IMM–2 into the 

Clinical Process of Care domain for the 

FY 2016 Hospital VBP Program. 

Catheter-Associated Urinary Tract 

Infection (CAUTI, NQF #0138) is an HAI 

measure reported via CDC’s National 

Healthcare Safety Network (NHSN). 

This measure is important to quality 

improvement efforts because the urinary 

tract is the most common site of HAIs, 

accounting for more than 30 percent of 

infections reported by acute care 

hospitals. Complications associated 

with CAUTI cause discomfort to 

patients, prolonged hospitals stays, and 

increased costs and mortality. More 

than 13,000 deaths each year are 

associated with UTIs. 

This measure was finalized for the 

Hospital IQR Program in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51617 

through 51618), and data collection 

began with January 1, 2012 discharges. 

Measure data were posted on Hospital 

Compare on December 13, 2012, and 

MAP supported its inclusion in the 

Hospital VBP Program in its February 

2013 report, noting that it addresses the 

National Quality Strategy (NQS) 

priorities not adequately addressed in 

the program’s current measure set. 

Therefore, we are proposing to adopt the 

NHSN CAUTI measure into the 

Outcome domain for the FY 2016 

Hospital VBP Program. 

Surgical Site Infection (SSI, NQF 

#0753) is an HAI measure reported via 

CDC’s NHSN. As currently specified 

under the Hospital IQR Program, the 

measure is restricted to colon 

procedures, including incision, 

resection, or anastomosis of the large 

intestine, and large-to-small and smallto-large bowel anastomosis, and 

abdominal hysterectomy procedures, 

including those done by laparoscope. 

The measure is reported separately on 

Hospital Compare for those two surgery 

sites, and does not include rectal 

operations. 

This measure was incorporated into 

the Hospital IQR Program in the FY 

2011 IPPS/LTCH PPS final rule (75 FR 

50211), and data collection began with 

January 1, 2012 discharges. Measure 

data were posted on Hospital Compare 

on December 13, 2012, and MAP 

supported its inclusion in the Hospital 

VBP Program in its February 2013 

report, noting that it addresses NQS 

priorities not adequately addressed in 

the program’s current measure set. The 

SSI measure was stratified by surgery 

site when it was adopted for the 

Hospital IQR Program, and is both 

collected and publicly reported as a 

stratified measure. However, because we 

adopted SSI as one measure under the 

Hospital IQR Program, we are proposing 

to score the measure for purposes of the 

Hospital VBP Program as a weighted 

average of the measure’s strata by 

applicable cases per stratum. Under this 

proposed scoring methodology, if a 

hospital meets the Hospital IQR 

Program’s threshold for public display 

of its SSI measure strata scores during 

a Hospital VBP performance period— 

that is, at least one predicted infection 

during the applicable time period—we 

will calculate a weighted average of the 

measure’s strata to score under the 

Hospital VBP Program. 

We believe this proposal enables us to 

score participating hospitals on the 

underlying components of the SSI 

measure fairly. We note further that, for 

purposes of calculating performance 

standards displayed subsequently, we 

will equally weight the SSI measure’s 

strata. We seek public comments on our 

proposed adoption of this measure and 

its proposed scoring methodology under 

the Hospital VBP Program. 

We adopted the NHSN-based CLABSI 

measure in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53583), and refer 

readers to that regulation for further 

discussion of the measure. We continue 

to believe that the CLABSI measure is 

consistent with the Hospital VBP 

Program’s statutory requirement that we 

consider measures of HAIs for the FY 

2013 Hospital VBP Program’s measure 

set. We also note that the measure was 

included in the HHS Action Plan to 

Prevent HAIs, which is referenced in 

section 1886(o)(2)(B)(i)(I)(ee) of the Act. 

In the FY 2013 IPPS/LTCH PPS final 

rule, we stated that we would not 

automatically readopt CLABSI for the 

FY 2016 Program (77 FR 53592), 

although we stated our intent to adopt 

the measure in the future. We did not 

automatically readopt CLABSI because 

we understood that CDC was planning 

to submit a revised version of this 

measure to NQF for endorsement, and 

that there may have been substantive 

changes to the measure associated with 

reliability adjustment to the 

standardized infection ratio. 

The reliability-adjusted standardized 

infection ratio (SIR) is an outcome 

measure that summarizes the 

healthcare-associated infection 

experience by type of infection (for 

example, central-line associated 

bloodstream infection, surgical site 

infection) for individual hospitals. The 

reliability-adjusted measure enables 

more meaningful statistical 

differentiation between hospitals by 

accounting for differences in patient 

case-mix, exposures to medical devices 

or procedures (for example, central linedays, surgical procedure volume), and 

unmeasured factors that are not 

reflected in the unadjusted SIR and that 

cause variation in outcomes between 

hospitals. Accounting for these sources 

of variability enables better measure 

discrimination between hospitals and 

leads to more reliable quality 

measurements. 

We are aware that the CDC has 

submitted the reliability-adjusted 

version of the CLABSI measure to the 

NQF for endorsement. We note further 

that, in its February 2013 report, MAP 

recommended adoption of the 

reliability-adjusted CLABSI measure 

‘‘contingent on NQF endorsement,’’ and 

noted that the ‘‘most recent NQFendorsed version should be applied.’’ 

We believe that our proposal to adopt 

the current CLABSI measure is 

consistent with this recommendation, 

and we intend to consider adopting the 

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reliability-adjusted CLABSI measure in 

future rulemaking. 

We intend to monitor CDC’s activity 

on this measure, particularly as it moves 

toward reliability adjustment, and 

intend to adopt the revised measure in 

future program years. However, in the 

absence of NQF endorsement of the 

reliability-adjusted measure, unless and 

until the Hospital IQR Program adopts 

the reliability adjustments, we are 

proposing to adopt the CLABSI measure 

as it currently exists into the Outcome 

domain for the FY 2016 Hospital VBP 

Program. 

Below is a table that describes the 

measures for the FY 2016 Hospital VBP 

Program that we previously adopted, as 

well as the new measures that we are 

proposing to adopt. 

PROPOSED AND READOPTED MEASURES FOR THE FY 2016 HOSPITAL VBP PROGRAM

Clinical Process of Care Measures 

AMI–7a ................................................................ Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival. 

IMM–2 ** .............................................................. Influenza Immunization. 

PN–6 ................................................................... Initial Antibiotic Selection for CAP in Immunocompetent Patient. 

SCIP-Inf-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 6 a.m. 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 

CAUTI** ............................................................... Catheter-Associated Urinary Tract Infection. 

CLABSI *** ........................................................... Central Line-Associated Blood Stream Infection. 

MORT–30–AMI * ................................................. Acute Myocardial Infarction (AMI) 30-day mortality rate. 

MORT–30–HF * ................................................... Heart Failure (HF) 30-day mortality rate. 

MORT–30–PN * ................................................... Pneumonia (PN) 30-day mortality rate. 

PSI–90 * ............................................................... Complication/patient safety for selected indicators (composite). 

SSI ** ................................................................... Surgical Site Infection. 

• Colon. 

• Abdominal Hysterectomy. 

Efficiency Measures 

MSPB–1 .............................................................. Medicare Spending per Beneficiary. 

* Measures previously finalized for the FY 2016 Hospital VBP Program. 

** Proposed new measures. 

*** Measures finalized for FY 2015 but not subject to immediate readoption. 

We are inviting public comments on 

this measure set. 

We also seek public comment on our 

intent to adopt the Methicillin-resistant 

Staphylococcus aureus (MRSA) 

Bacteremia and the Clostridium difficile 

(C. difficile) standardized infection ratio 

measures for the FY 2017 Hospital VBP 

Program. Both of these measures are 

high-priority HAI measures listed in the 

HHS Action Plan to Prevent HAIs. We 

anticipate posting performance data for 

these measures on Hospital Compare 

later this year, and anticipate proposing 

to adopt these measures for the Hospital 

VBP Program in the FY 2015 IPPS/ 

LTCH PPS proposed rule. 

c. Future Measures for the Efficiency 

Domain 

We are considering including 

additional measures in the Efficiency 

Domain for future years of both the 

Hospital IQR Program and the Hospital 

VBP Program. If we were to expand the 

Efficiency Domain in the future, we 

would do so through future rulemaking 

and in accordance with the 

requirements of section 1886(o) of the 

Act. 

We are considering adding a measure 

of hospitals’ performance on treating 

Medicare beneficiaries appropriately as 

a hospital inpatient or a hospital 

outpatient. Specifically, we are 

considering constructing a measure to 

assess the rate and/or dollar amount of 

billing hospital inpatient services to 

Medicare Part B, subsequent to the 

denial of a Part A hospital inpatient 

claim. We are considering such a 

measure in light of our recent proposal 

that when a Medicare Part A claim for 

inpatient hospital services is denied 

because the inpatient admission was 

determined not to be reasonable and 

necessary, or when a hospital 

determines under § 482.30(d) or 

§ 485.641 after a beneficiary is 

discharged that his or her inpatient 

admission was not reasonable and 

necessary, the hospital may be paid for 

all of the Part B services that would 

have been reasonable and necessary had 

the beneficiary been treated as a 

hospital outpatient rather than admitted 

as an inpatient, if the beneficiary is 

enrolled in Medicare Part B (78 FR 

16632 through 16646). We are inviting 

public comments on this or other 

approaches to include a measure of 

appropriateness of hospital inpatient 

services in future years of the Hospital 

IQR Program and the Efficiency Domain 

for the Hospital VBP Program. 

We also are considering the addition 

of Medicare spending measures specific 

to physician services such as Radiology, 

Anesthesiology, and Pathology that 

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occur during a hospital stay. We are 

inviting public comment on how to best 

to construct measures of Medicare 

spending for these or other physician 

services provided during a hospital stay, 

for future inclusion in the Hospital IQR 

Program and the Efficiency Domain in 

the Hospital VBP Program. 

7. Proposed Performance Periods and 

Baseline Periods 

a. Background 

Section 1886(o)(4) of the Act requires 

the Secretary to establish a performance 

period for the Hospital VBP Program for 

a fiscal year that begins and ends prior 

to the beginning of such fiscal year. 

b. Proposed Clinical Process of Care 

Domain Performance Period and 

Baseline Period for the FY 2016 

Hospital VBP Program 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53594 through 53595), we 

finalized a 12-month performance 

period for FY 2015 Clinical Process of 

Care measures of CY 2013, or January 1, 

2013 through December 31, 2013, with 

a corresponding baseline period of CY 

2011, or January 1, 2011 through 

December 31, 2011, for purposes of 

calculating improvement points and 

performance standards. As we stated in 

that rule, a 12-month performance 

period provides us more data on which 

to score hospital performance, which is 

an important goal both for CMS and for 

stakeholders. We also noted that a 12- 

month performance period is consistent 

with the reporting periods used for 

these measures under the Hospital IQR 

Program. 

We are proposing to adopt a 12-month 

performance period for FY 2016 Clinical 

Process of Care measures of CY 2014, or 

January 1, 2014 through December 31, 

2014, for the FY 2016 Hospital VBP 

Program. We also are proposing to adopt 

a corresponding 12-month baseline 

period of CY 2012, or January 1, 2012 

through December 31, 2012, for 

purposes of calculating improvement 

points and calculating performance 

standards. 

We are inviting public comment on 

these proposals. 

c. Proposed Experience of Care Domain 

Performance Period and Baseline Period 

for the FY 2016 Hospital VBP Program 

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, in the FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53595), we 

finalized a 12-month performance 

period for FY 2015 Patient Experience 

of Care measures of CY 2013, or January 

1, 2013 through December 31, 2013, 

with a corresponding baseline period of 

CY 2011, or January 1, 2011 through 

December 31, 2011, for purposes of 

calculating improvement points and 

performance standards. As we stated in 

that rule, a 12-month performance 

period provides us more data on which 

to score hospital performance, which is 

an important goal both for CMS and for 

stakeholders. 

We are proposing to adopt a 12-month 

performance period for FY 2016 Patient 

Experience of Care measures of CY 

2014, or January 1, 2014 through 

December 31, 2014, for the FY 2016 

Hospital VBP Program. We also are 

proposing to adopt a corresponding 12- 

month baseline period of CY 2012, or 

January 1, 2012 through December 31, 

2012, for purposes of calculating 

improvement points and calculating 

performance standards. 

We are inviting public comment on 

these proposals. 

d. Proposed Efficiency Domain Measure 

Performance Period and Baseline Period 

for the FY 2016 Hospital VBP Program 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53595 through 53596), we 

finalized a performance period for the 

Medicare Spending per Beneficiary 

measure for the FY 2015 Hospital VBP 

Program of May 1, 2013 through 

December 31, 2013, with a 

corresponding baseline period of May 1, 

2011 through December 31, 2011. We 

finalized that performance period based 

on the measure’s posting date on 

Hospital Compare, our desire to ensure 

consistency across domains where 

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. 

In order to expand the dataset 

available for performance scoring on 

this measure, we are proposing to adopt 

a 12-month performance period for the 

Medicare Spending per Beneficiary 

measure for the FY 2016 Hospital VBP 

Program of CY 2014, or January 1, 2014 

through December 31, 2014, with a 

corresponding baseline period of CY 

2012, or January 1, 2012 through 

December 31, 2012. These proposed 

performance and baseline periods align 

with the performance and baseline 

periods for Clinical Process of Care 

Domain measures. These proposed 

performance and baseline periods also 

enable us to collect sufficient measure 

data, while allowing time to calculate 

and incorporate Medicare spending per 

Beneficiary measure data into the 

Hospital VBP Program scores in a timely 

manner. 

We are inviting public comments on 

the proposed performance and baseline 

periods for the Medicare Spending per 

Beneficiary measure. 

Proposed baseline and performance 

periods for FY 2016 (with the exception 

of the Outcome domain, discussed 

further below) are summarized in the 

following table. 

PROPOSED PERFORMANCE AND BASELINE PERIODS FOR THE FY 2016 HOSPITAL VBP PROGRAM—CLINICAL PROCESS OF

CARE, PATIENT EXPERIENCE OF CARE, AND EFFICIENCY DOMAINS

Domain Baseline period Performance period 

Clinical Process of Care ...... January 1, 2012–December 31, 2012 ............................ January 1, 2014–December 31, 2014. 

Patient Experience of Care .. January 1, 2012–December 31, 2012 ............................ January 1, 2014–December 31, 2014. 

Efficiency .............................. January 1, 2012–December 31, 2012 ............................ January 1, 2014–December 31, 2014. 

e. Proposed Outcome Domain 

Performance Periods and Baseline 

Periods for the FY 2017 through FY 

2019 Hospital VBP Programs 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53598 through 53599) we 

finalized performance periods and 

baseline periods for the FY 2016 

mortality and AHRQ PSI composite 

measures. These periods are 

summarized in the table below. 

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FINALIZED FY 2016 PERFORMANCE PERIODS AND BASELINE PERIODS FOR 30-DAY MORTALITY AND AHRQ PSI 

MEASURES

Measure Baseline period Performance period 

Mortality ................................ October 1, 2010–June 30, 2011 ..................................... October 1, 2012–June 30, 2014. 

AHRQ PSI composite .......... October 15, 2010–June 30, 2011 ................................... October 15, 2012–June 30, 2014. 

In light of the time needed to process 

measure data for the three 30-day 

mortality and AHRQ PSI composite 

measures and our policy goal to collect 

enough data to generate the most 

reliable scores possible, we are 

proposing in this proposed rule to adopt 

performance periods for the three 30- 

day mortality and AHRQ PSI composite 

measures for the FY 2017 through FY 

2019 program years. We also seek to 

increase transparency about 

performance of the Hospital VBP 

Program measures through use of 

Hospital Compare as a monitoring tool 

for hospitals to assess their performance 

on the Hospital VBP Program measures. 

We believe that aligning the Hospital 

VBP Program performance periods with 

the Hospital IQR Program reporting 

period duration would allow hospitals 

to review Hospital Compare measure 

rates when they are updated and 

incorporate this information into their 

quality improvement efforts, rather than 

having to wait until the Hospital VBP 

Program provides its scoring reports to 

hospitals. Further, we believe that 

aligning the Hospital IQR Program and 

the Hospital VBP Program in this 

manner will minimize the burden on 

participating hospitals by aligning the 

time periods during which they must 

monitor their performance on these 

measures. 

Therefore, we are proposing to adopt 

the following performance and baseline 

periods for the three 30-day mortality 

and AHRQ PSI composite measures for 

the FY 2017 through FY 2019 Hospital 

VBP Programs. We note that the 

performance periods proposed below for 

the AHRQ PSI composite measure reach 

24 months at their maximum, compared 

to the 36 months proposed for the 30- 

day mortality measures. We are 

proposing those durations for the AHRQ 

PSI measure in order to adopt 

performance periods that align with 

AHRQ’s recommended data period for 

public reporting. 

PROPOSED PERFORMANCE AND BASELINE PERIODS FOR 30-DAY MORTALITY AND AHRQ PSI COMPOSITE MEASURES

Domain Baseline period Performance period 

FY 2017 Hospital VBP Program 

Outcome 

• Mortality ..................... • October 1, 2010–June 30, 2012 ................................. • October 1, 2013–June 30, 2015. 

• AHRQ PSI ................. • October 1, 2010–June 30, 2012 ................................. • October 1, 2013–June 30, 2015. 

FY 2018 Hospital VBP Program 

Outcome 

• Mortality ..................... • October 1, 2009–June 30, 2012 ................................. • October 1, 2013–June 30, 2016. 

• AHRQ PSI ................. • July 1, 2010–June 30, 2012 ........................................ • July 1, 2014–June 30, 2016. 

FY 2019 Hospital VBP Program 

Outcome 

• Mortality ..................... • July 1, 2009–June 30, 2012 ........................................ • July 1, 2014–June 30, 2017. 

• AHRQ PSI ................. • July 1, 2010–June 30, 2012 ........................................ • July 1, 2015–June 30, 2017. 

We are inviting public comments on 

our proposal to adopt performance 

periods and corresponding baseline 

periods for these measures for the FY 

2017 through FY 2019 Hospital VBP 

Programs. 

8. Proposed Performance Standards for 

the Hospital VBP Program 

a. Background 

Section 1886(o)(3)(A) of the Act 

requires the Secretary to establish 

performance standards for the measures 

selected under the Hospital VBP 

Program for a performance 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. In the FY 2013 IPPS/ 

LTCH PPS final rule, (77 FR 53599 

through 53604), we codified our 

interpretation of the Hospital VBP 

statute with respect to performance 

standards in our regulations at 

§ 412.165. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53599 through 53604), we 

adopted performance standards for FY 

2015 and FY 2016 Hospital VBP 

Program measures. We also finalized 

our policy to update performance 

periods and performance standards for 

future Hospital VBP Program years via 

notice on our Web site or another 

publicly available Web site. 

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b. Performance Standards for the FY 

2016 Hospital VBP Program Measures 

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 calculating performance 

standards with respect to 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 have defined the 

‘‘achievement threshold’’ as the median, 

or 50th percentile, of all hospitals’ 

performance on a measure during a 

baseline period (or during the 

performance period in the case of the 

Medicare Spending per Beneficiary 

measure) with respect to a fiscal year 

(42 CFR 412.160). We are proposing to 

revise this definition, in order to clarify 

that while this is true for the majority 

of Hospital VBP Program measures, it 

does not apply to the Medicare 

Spending per Beneficiary measure. The 

performance standards for the Medicare 

Spending per Beneficiary measure are 

based on performance period data, as 

finalized in the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51655). 

Accordingly, we are proposing to revise 

the definition of ‘‘achievement 

threshold’’ at § 412.160 to read: 

‘‘Achievement threshold (or 

achievement performance standard) 

means the median (50th percentile) of 

hospital performance on a measure 

during a baseline period with respect to 

a fiscal year, for Hospital VBP Program 

measures other than the Medicare 

Spending per Beneficiary measure, and 

the median (50th percentile) of hospital 

performance on a measure during the 

performance period with respect to a 

fiscal year, for the Medicare Spending 

per Beneficiary measure.’’ We welcome 

public comments on this proposed 

regulation text change. 

We have defined the ‘‘benchmark’’ as 

the arithmetic mean of the top decile of 

all hospitals’ performance on a measure 

during the baseline period (§ 412.160). 

Similar to the codified definition of 

‘‘achievement threshold’’ above, this 

definition of ‘‘benchmark’’ does not 

apply to the Medicare Spending per 

Beneficiary measure. We are proposing 

to revise the definition of ‘‘benchmark’’ 

at § 412.160 to read: ‘‘Benchmark means 

the arithmetic mean of the top decile of 

hospital performance on a measure 

during the baseline period with respect 

to a fiscal year, for Hospital VBP 

Program measures other than the 

Medicare Spending per Beneficiary 

measure, and the arithmetic mean of the 

top decile of hospital performance on a 

measure during the performance period 

with respect to a fiscal year, for the 

Medicare Spending per Beneficiary 

measure.’’ The ‘‘improvement 

threshold’’ is an individual hospital’s 

performance level on a measure during 

the baseline period with respect to a 

fiscal year,’’ and that definition applies 

to all measures. 

We continue to believe that the 

finalized methodology for calculating 

performance standards is appropriate 

for the Hospital VBP Program, and we 

recognize that we have an obligation to 

calculate the numerical values for each 

of these standards accurately. However, 

we also are concerned that if we display 

the numerical values of the performance 

standards in a particular rulemaking 

document, but then discover that we 

made a data or calculation error, the 

result might be that hospitals are held 

to inaccurate performance standards. 

Examples of the types of errors that 

could occur are inaccurate variables on 

Medicare claims, programming errors 

excluding hospitals that should have 

been included from performance 

standards calculations, or other errors 

that result in inaccuracies. For example, 

if our quality measurement software 

incorrectly excluded a number of 

hospitals from a given measure’s 

performance standards calcluation, the 

resulting achievement thresholds and 

benchmarks could force participating 

hospitals to meet inaccurate 

performance standards, which could 

have unpredictable effects on hospitals’ 

scores. 

We also are aware that hospitals rely 

on the performance standards that we 

publicly display in order to target 

quality improvement efforts, and do not 

believe that it would be fair to 

participating hospitals to update 

repeatedly our finalized performance 

standards if we were to identify 

multiple errors. 

We believe that the best method to 

balance our obligation to publicly 

display accurate performance standards 

with the need to correct such 

performance standards if we 

subsequently discover data errors is to 

make a single correction to a given 

measure’s performance standards for a 

fiscal year. Under this proposed policy, 

if we identified data problems, 

calculation issues, or other errors with 

a significant impact on performance 

standards, we would have the ability to 

update the measure’s performance 

standards once for a fiscal year. 

Therefore, we are proposing to 

interpret the finalized definitions of 

‘‘achievement threshold’’ and 

‘‘benchmark’’ found under § 412.160 to 

not include the numerical values that 

result when the performance standards 

are calculated. Further, we are 

proposing to update a measure’s 

performance standards for a fiscal year 

once if we identify data issues, 

calculation errors, or other problems 

that would significantly change the 

displayed performance standards. 

However, as has been our practice, and 

to remain fully transparent with 

participating hospitals, we intend to 

continue to display the performance 

standards’ numerical values in 

rulemaking. 

We finalized FY 2016 performance 

standards for the three 30-day mortality 

measures and the AHRQ PSI composite 

measure in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53603) and are 

displaying them again in the first table 

below. The numerical values for the 

proposed FY 2016 performance 

standards for the clinical process, 

outcome, and efficiency measures 

appear in the second table below, while 

numerical values for the proposed FY 

2016 performance standards for the 

patient experience of care (HCAHPS 

survey) measure appear in the third 

table below. We note that the numerical 

values for the performance standards 

displayed below represent estimates 

based on the most recently-available 

data. We intend to update the numerical 

values in the FY 2014 IPPS/LTCH PPS 

final rule. Because the Medicare 

Spending per Beneficiary measure’s 

performance standards are based on 

performance period data, we are unable 

to provide numeric equivalents for the 

standards at this time. For information 

purposes, during the period of May 1, 

2011 through December 31, 2011, the 

achievement threshold would have been 

a Medicare Spending per Beneficiary 

ratio of 0.99, which corresponds to a 

standardized, risk-adjusted Medicare 

Spending per Beneficiary amount of 

$18,079, and the benchmark would have 

been 0.82, which corresponds to a 

Medicare Spending per Beneficiary 

amount of $14,985. We also note that 

the performance standards for the 

NHSN-based CLABSI, CAUTI, and SSI 

measures, the AHRQ PSI composite 

measure, and the Medicare Spending 

per Beneficiary measure are calculated 

with lower values representing better 

performance, in contrast to other 

measures, on which higher values 

indicate better performance. As 

discussed above, the performance 

standards displayed below for SSI are 

an equally weighted average of the 

measure’s strata. 

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FINALIZED PERFORMANCE STANDARDS FOR CERTAIN FY 2016 HOSPITAL VBP PROGRAM OUTCOME DOMAIN MEASURES

Measure ID Description Achievement 

threshold Benchmark 

Outcome Measures 

MORT–30–AMI ................................ Acute Myocardial Infarction (AMI) 30-day mortality rate .......................... 0.847472 0.862371 

MORT–30–HF .................................. Heart Failure (HF) 30-day mortality rate ................................................... 0.881510 0.900315 

MORT–30–PN ................................. Pneumonia (PN) 30-day mortality rate ..................................................... 0.882651 0.904181 

PSI–90 ............................................. Complication/patient safety for selected indicators (composite) ............... 0.622879 0.451792 

PROPOSED PERFORMANCE STANDARDS FOR THE FY 2016 HOSPITAL VBP PROGRAM CLINICAL PROCESS OF CARE, 

OUTCOME, AND EFFICIENCY DOMAIN MEASURES

Measure ID Description Achievement 

threshold Benchmark 

Clinical Process of Care Measures 

AMI–7a ................................ Fibrinolytic Therapy Received Within 30 Minutes of 

Hospital Arrival.

0.88625 .............................. 1.00000 

IMM–2 .................................. Influenza Immunization ................................................. 0.89947 .............................. 0.99036 

PN–6 .................................... Initial Antibiotic Selection for CAP in 

Immunocompetent Patient.

0.96429 .............................. 1.00000 

SCIP–Inf–1 .......................... Prophylactic Antibiotic Received Within One Hour 

Prior to Surgical Incision.

0.98942 .............................. 1.00000 

SCIP–Inf–2 .......................... Prophylactic Antibiotic Selection for Surgical Patients 0.98951 .............................. 1.00000 

SCIP–Inf–3 .......................... Prophylactic Antibiotics Discontinued Within 24 Hours 

After Surgery End Time.

0.97971 .............................. 1.00000 

SCIP–Inf–4 .......................... Cardiac Surgery Patients with Controlled 6AM Postoperative Serum Glucose.0.96797 .............................. 0.99977 

SCIP–Inf–9 .......................... Urinary Catheter Removed on Postoperative Day 1 or 

Postoperative Day 2.

0.96743 .............................. 1.00000 

SCIP–Card–2 ....................... Surgery Patients on Beta-Blocker Therapy Prior to Arrival Who Received a Beta-Blocker During the 

Perioperative Period.

0.97561 .............................. 1.00000 

SCIP–VTE–2 ....................... Surgery Patients Who Received Appropriate Venous 

Thromboembolism Prophylaxes Within 24 Hours 

Prior to Surgery to 24 Hours After Surgery.

0.98086 .............................. 1.00000 

Outcome Measures 

CAUTI .................................. Catheter-Associated Urinary Tract Infection ................. 0.826 .................................. 0.000 

CLABSI ................................ Central Line-Associated Blood Stream Infection .......... 0.473 .................................. 0.000 

SSI ....................................... Surgical Site Infection ................................................... 0.737 .................................. 0.000 

Efficiency Measures 

MSPB–1 ............................... Medicare Spending per Beneficiary .............................. Median Medicare Spending 

per Beneficiary ratio 

across all hospitals during the performance period.

Mean of the lowest decile 

Medicare Spending per 

Beneficiary ratios across 

all hospitals during the 

performance period. 

PROPOSED PERFORMANCE STANDARDS FOR THE FY 2016 HOSPITAL VBP PROGRAM PATIENT EXPERIENCE OF CARE

DOMAIN

HCAHPS survey dimension Floor 

(percent) 

Achievement 

threshold 

(percent) 

Benchmark 

(percent) 

Communication with Nurses ........................................................................................................ 53.33 77.59 85.98 

Communication with Doctors ....................................................................................................... 61.22 80.33 88.59 

Responsiveness of Hospital Staff ................................................................................................ 36.44 64.65 79.72 

Pain Management ........................................................................................................................ 47.93 70.16 78.24 

Communication about Medicines ................................................................................................ 42.23 62.28 72.67 

Hospital Cleanliness & Quietness ............................................................................................... 42.16 64.93 79.12 

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PROPOSED PERFORMANCE STANDARDS FOR THE FY 2016 HOSPITAL VBP PROGRAM PATIENT EXPERIENCE OF CARE

DOMAIN—Continued 

HCAHPS survey dimension Floor 

(percent) 

Achievement 

threshold 

(percent) 

Benchmark 

(percent) 

Discharge Information .................................................................................................................. 62.85 84.45 90.26 

Overall Rating of Hospital ............................................................................................................ 36.45 69.05 83.89 

We are inviting public comments on 

these proposed performance standards. 

c. Certain Performance Standards for the 

FY 2017, FY 2018, and FY 2019 

Hospital VBP Programs 

We are proposing to adopt the 

following performance standards for the 

three 30-day mortality and AHRQ PSI 

composite measures for the FY 2017, FY 

2018, and FY 2019 Hospital VBP 

Program years: 

PROPOSED PERFORMANCE STANDARDS FOR THE THREE 30-DAY MORTALITY AND AHRQ COMPOSITE MEASURES FOR THE

FY 2017 HOSPITAL VBP PROGRAM

Measure ID Description Achievement 

threshold Benchmark 

Outcome Measures 

MORT–30–AMI ................................ Acute Myocardial Infarction (AMI) 30-day mortality rate .......................... 0.851458 0.871669 

MORT–30–HF .................................. Heart Failure (HF) 30-day mortality rate ................................................... 0.881794 0.903985 

MORT–30–PN ................................. Pneumonia (PN) 30-day mortality rate ..................................................... 0.882986 0.908124 

PSI–90 ............................................. Complication/patient safety for selected indicators (composite) ............... 0.580808 0.399880 

PROPOSED PERFORMANCE STANDARDS FOR THE THREE 30-DAY MORTALITY AND AHRQ COMPOSITE MEASURES FOR THE

FY 2018 HOSPITAL VBP PROGRAM

Measure ID Description Achievement 

threshold Benchmark 

Outcome Measures 

MORT–30–AMI ................................ Acute Myocardial Infarction (AMI) 30-day mortality rate .......................... 0.850916 0.873053 

MORT–30–HF .................................. Heart Failure (HF) 30-day mortality rate ................................................... 0.883421 0.907656 

MORT–30–PN ................................. Pneumonia (PN) 30-day mortality rate ..................................................... 0.882860 0.907900 

PSI–90 ............................................. Complication/patient safety for selected indicators (composite) ............... 0.585397 0.400502 

PROPOSED PERFORMANCE STANDARDS FOR THE THREE 30-DAY MORTALITY AND AHRQ COMPOSITE MEASURES FOR THE

FY 2019 HOSPITAL VBP PROGRAM

Measure ID Description Achievement 

threshold Benchmark 

Outcome Measures 

MORT–30–AMI ................................ Acute Myocardial Infarction (AMI) 30-day mortality rate .......................... 0.850671 0.873263 

MORT–30–HF .................................. Heart Failure (HF) 30-day mortality rate ................................................... 0.883472 0.908094 

MORT–30–PN ................................. Pneumonia (PN) 30-day mortality rate ..................................................... 0.882334 0.907906 

PSI–90 ............................................. Complication/patient safety for selected indicators (composite) ............... 0.585397 0.400502 

We are inviting public comments on 

these proposed performance standards. 

9. Proposed FY 2016 Hospital VBP 

Program Scoring Methodology 

a. Proposed 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 

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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). 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 28087), for the FY 2015 

Hospital VBP Program, we finalized our 

proposal to use these same scoring 

methodologies to score hospital 

performance for the FY 2015 Hospital 

VBP Program. In that rule, we stated 

that we believe these scoring 

methodologies continue to 

appropriately capture hospital quality as 

reflected by the finalized quality 

measure sets. We also noted that 

readopting the finalized scoring 

methodology from prior program years 

represents the simplest and most 

consistent policy for providers and the 

public. 

We continue to believe that the 

finalized scoring methodology for the 

Hospital VBP Program 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. As we stated in the 

FY 2013 IPPS/LTCH PPS final rule (77 

FR 53604), 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. 

Therefore, we are proposing to 

readopt the finalized scoring 

methodology adopted for the FY 2015 

Hospital VBP Program for the FY 2016 

Hospital VBP Program. We welcome 

public comments on this proposal. 

b. Proposed Domain Weighting for the 

FY 2016 Hospital VBP Program for 

Hospitals That Receive a Score on All 

Domains 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53582 through 53592), we 

added the Efficiency domain to the 

Hospital VBP Program beginning with 

the FY 2015 Hospital VBP Program. We 

also finalized our proposal for the 

following domain weights for the FY 

2015 Hospital VBP Program for 

hospitals that receive a score on all four 

proposed domains (77 FR 53605 

through 53606): 

FINAL DOMAIN WEIGHTS FOR THE FY 

2015 HOSPITAL VBP PROGRAM FOR

HOSPITALS RECEIVING A SCORE ON

ALL PROPOSED DOMAINS

Domain Weight 

(percent) 

Clinical Process of Care ........... 20 

Patient Experience of Care ...... 30 

Outcome ................................... 30 

Efficiency .................................. 20 

We stated that we believed this 

domain weighting appropriately reflects 

our priorities for quality improvement 

in the inpatient hospital setting and 

begins aligning with the National 

Quality Strategy’s priorities. We believe 

that the 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 

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 

setting. We further note that the domain 

weighting, for the first time, 

incorporates a measure of efficiency and 

continues to provide substantial weight 

to clinical processes. 

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. 

We believe that the proposed domain 

weighting specified below 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 

highest relative weight on measures of 

outcomes and continues to place 

significant weight on the patient 

experience and on efficiency, while 

maintaining clinical processes as an 

important component of the program’s 

quality measurement. 

Therefore, we are proposing the 

following domain weighting for the FY 

2016 Hospital VBP Program: 

PROPOSED DOMAIN WEIGHTS FOR THE

FY 2016 HOSPITAL VBP PROGRAM

FOR HOSPITALS RECEIVING A SCORE

ON ALL PROPOSED DOMAINS

Domain Weight 

(percent) 

Clinical Process of Care ........... 10 

Patient Experience of Care ...... 25 

Outcome ................................... 40 

Efficiency .................................. 25 

We welcome public comments on this 

proposed domain weighting. 

c. Proposed Domain Weighting for the 

FY 2016 Hospital VBP Program for 

Hospitals Receiving Scores on Fewer 

Than Four Domains 

In prior program years, we finalized a 

policy that hospitals must have received 

domain scores on all finalized domains 

in order to receive a TPS. However, 

since the Hospital VBP Program has 

evolved from its initial two domains to 

an expanded measure set with 

additional domains, we considered 

whether it was appropriate to continue 

this policy. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53608 through 53609), we 

finalized our proposal for a higher 

minimum number of cases for the three 

30-day mortality measures for the FY 

2015 Hospital VBP Program than was 

finalized for the FY 2014 Hospital VBP 

Program. We made this change in our 

policy in order to improve these 

measures’ reliability given the relatively 

short performance period for these 

measures. However, we were 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 and encourage quality 

improvement. 

Therefore, in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53606 through 

53607), we finalized our proposal that, 

for the FY 2015 Hospital VBP Program 

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and subsequent 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 finalized our proposal 

that, for hospitals with at least two 

domain scores, TPSs would be 

reweighted proportionately to the 

scored domains to ensure that the TPS 

is still scored out of a possible 100 

points and that the relative weights for 

the scored domains remain equivalent 

to the weighting which occurs when 

there are scores in all four domains. We 

believe that this approach allows us to 

include relatively more hospitals in the 

Hospital VBP Program while continuing 

to focus on reliably scoring hospitals on 

their quality measure performance. We 

are proposing to continue this approach 

for the FY 2016 Hospital VBP Program 

and subsequent fiscal years for purposes 

of eligibility for the program. However, 

as detailed further below, we are 

proposing to reclassify the Hospital VBP 

Program’s quality measurement 

domains beginning with the FY 2017 

program to align more closely with 

CMS’ National Quality Strategy, and we 

are seeking public comments on how we 

should determine minimum numbers of 

cases and measures under that proposed 

policy. 

d. Proposed Domain Reclassification 

and Domain Weighting for the FY 2017 

Hospital VBP Program 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53593 through 53594), we 

outlined one possible set of measure 

classifications based on the National 

Quality Strategy. However, we did not 

finalize our proposal to adopt quality 

measurement domains based on the 

National Quality Strategy for the FY 

2016 Hospital VBP Program, because we 

understood stakeholders to be 

concerned about our proposal to 

reshape the Program’s scoring 

methodology before hospitals had actual 

experience with the program and its 

value-based incentive payments. 

However, we now believe that 

hospitals have accumulated practical 

experience with all components of the 

Hospital VBP Program, including 

performance periods and payment 

periods. As a result of our extensive 

outreach efforts to hospitals and 

stakeholders, as well as the practical 

experience with the first year of the 

program, we also believe that hospitals 

and other stakeholders generally 

understand the program’s operations 

and scoring methodology. Therefore, we 

believe that we have addressed 

commenters’ concerns, summarized in 

the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53594), that we should wait until 

hospitals have experienced the program 

fully before fundamentally reshaping its 

structure. 

We are attempting to align all of our 

quality improvement efforts with the 

NQS, particularly because it is a patientcentered approach that aligns public 

and private efforts. We are aware that 

NQF uses NQS-based domains, and we 

also use those domains in development 

of other agency-specific efforts. We note 

further that stakeholders frequently 

request that HHS align its quality 

improvement efforts so that providers 

are not subjected to different 

measurement approaches, and we 

believe that adapting the Hospital VBP 

Program domain structure is one 

approach to achieving that goal. We 

believe that the longer we wait to adapt 

the Hospital VBP Program to the NQS 

domains, the more difficult it will be, 

and we believe we need a common 

framework as we begin alignment efforts 

between the Hospital IQR Program, the 

Hospital VBP Program, and the EHR 

Incentive Program. CMS’s quality 

measurement strategic plan also centers 

on the NQS, and we believe that using 

these domains rewards hospitals for 

providing more efficient and more 

patient-centered care. The most recent 

Annual Progress Report to Congress 

addressing the NQS can be found on the 

Web site at: http://www.ahrq.gov/ 

workingforquality/nqs/ 

nqs2012annlrpt.pdf. 

Therefore, we are proposing to align 

the Hospital VBP Program’s quality 

measurement domains with the NQS’ 

quality priorities, with certain 

modifications discussed further below. 

We are proposing to adopt this 

realignment beginning with the FY 2017 

Hospital VBP Program. 

We are proposing to combine the 

priorities of Care Coordination and 

Patient and Caregiver Centered 

Experience of Care into one domain for 

purposes of aligning the Hospital VBP 

Program domains with the NQS 

priorities. Care Coordination aligns with 

the NQS priority stated as promoting 

effective communication and 

coordination of care. Patient and 

Caregiver Centered Experience of Care 

aligns with the NQS priority stated as 

ensuring that each person and family 

are engaged as partners in their care. We 

believe that, in order to be engaged as 

partners, effective communication and 

coordination of care must coexist. This 

notion is further exemplified by one of 

the 10 principles of the NQS, found at 

http://www.ahrq.gov/workingforquality/ 

nqs/principles.html, which notes that 

‘‘Person-centeredness and family 

engagement, including understanding 

and valuing patient preferences, will 

guide all strategies, goals, and health 

care improvement efforts. The most 

successful health care experiences are 

often those in which clinicians, 

patients, and their families work 

together to make decisions.’’ We believe 

that care coordination includes this 

shared decision-making among 

clinicians, patients, and their families, 

and further believe that a component of 

these important concepts can be 

captured with the HCAHPS measure. 

Therefore, we believe that placing the 

HCAHPS measure into the proposed 

combined domain below will continue 

to encourage hospitals to focus on 

improving the patient’s experience 

during acute care hospitalizations and 

will enable us to continue providing 

incentives that focus on patient and 

caregiver experience and coordination 

of care. However, with the exception of 

the HCAHPS measure described above, 

we do not believe that any of the other 

proposed measures for the FY 2016 

Hospital VBP Program, which would 

form the basis for the FY 2017 program’s 

measure set, should be placed into the 

proposed combined Patient and 

Caregiver Experience of Care/Care 

Coordination domain. We intend to 

consider proposing to adopt measures of 

care coordination in the future as they 

become available. 

We may propose further refinements 

to the Hospital VBP Program domain 

structure in future years to 

accommodate the NQS’ population 

health priority or other quality 

improvement priorities as appropriate, 

but will not propose to adopt a 

Population Health domain at this time. 

We note that the proposed NQS-based 

domain structure combines measures of 

clinical processes and outcomes under 

the ‘‘Clinical Care’’ priority. In order to 

ensure that outcomes remain a principal 

focus of hospitals’ quality improvement 

efforts, as well as to continue our effort 

to shift the program over time to include 

more measures of outcomes and 

efficiency, we are proposing to stratify 

the NQS-based Clinical Care domain 

into ‘‘Clinical Care—Outcomes’’ and 

‘‘Clinical Care—Process,’’ which enables 

us to provide significant weight to 

measures of outcomes and avoid 

diluting hospitals’ focus on measures of 

outcomes. 

We note further that the proposed 

NQS-based domains include ‘‘Efficiency 

and Cost Reduction,’’ a domain priority 

that we believe is analogous to the 

current ‘‘Efficiency’’ domain finalized 

for the Hospital VBP Program, and a 

‘‘Safety’’ domain. We have placed 

measures of outcomes into both the 

Clinical Care—Outcome and Safety 

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domains below and have generally 

distinguished between the two by 

focusing on the measures’ direct impact 

on patients. The measures we are 

proposing to place into the Safety 

domain include measures of healthcareassociated infections and the AHRQ 

patient safety composite. We believe 

that hospitals must continue to focus 

quality improvement efforts on these 

outcome safety measures, which track 

infection and safety events that pose 

direct harm to patients. 

Finally, 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. 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 and 

care giver experience. 

We note further that the proposed 

domain weighting below places 

significant weight on measures of 

clinical outcomes, efficiency, and the 

patient experience, while also 

prioritizing safety and clinical 

processes. We believe that the proposed 

domain weighting appropriately 

balances the clinical quality priorities 

described by the NQS. 

Therefore, we are proposing to adopt 

the following domains and domain 

weights for the FY 2017 Hospital VBP 

Program: 

PROPOSED DOMAINS AND DOMAIN

WEIGHTS FOR THE FY 2017 HOSPITAL VBP PROGRAM FOR HOSPITALS RECEIVING A SCORE ON ALL

PROPOSED DOMAINS

Domain Weight 

Safety ............................... 15 percent. 

Clinical Care ..................... 35 percent. 

• Clinical Care—Outcomes.• 25 percent. 

• Clinical Care—Process.• 10 percent. 

Efficiency and Cost Reduction.25 percent. 

Patient and Caregiver 

Centered Experience of 

Care/Care Coordination.

25 percent. 

While we believe there are advantages 

to aligning the Hospital VBP Program 

domains with the NQS domains, we 

also recognize that there may be 

advantages associated with maintaining 

consistency with previous years’ 

domains. Accordingly, as an alternative 

to realigning the Hospital VBP 

Program’s domain structure more 

closely with the NQS beginning with FY 

2017, we also are inviting public 

comments on whether we should adopt 

the following domains and domain 

weighting, which would be consistent 

with the proposals outlined for FY 2016 

above: 

ALTERNATIVE DOMAIN WEIGHTS FOR

THE FY 2017 HOSPITAL VBP PROGRAM FOR HOSPITALS RECEIVING A

SCORE ON ALL PROPOSED DOMAINS

Domain Weight 

Clinical Process of Care ....... 10 percent. 

Patient Experience of Care .. 25 percent. 

Outcome ............................... 40 percent. 

Efficiency .............................. 25 percent. 

We also seek public comments on 

how we should assign proposed 

measures to the new NQS-aligned 

domains, if finalized for FY 2017, and 

are seeking public comments on the 

following domain assignments for 

proposed FY 2016 measures, which 

would form the initial basis for the FY 

2017 program’s measure set: 

Measure ID Current domain NQS-based domain 

AMI–7a .................................................... Clinical Process of Care ........................ Clinical Care—Process. 

IMM–2 ..................................................... Clinical Process of Care ........................ Clinical Care—Process. 

PN–6 ....................................................... Clinical Process of Care ........................ Clinical Care—Process. 

SCIP–Inf–1 .............................................. Clinical Process of Care ........................ Clinical Care—Process. 

SCIP–Inf–2 .............................................. Clinical Process of Care ........................ Clinical Care—Process. 

SCIP–Inf–3 .............................................. Clinical Process of Care ........................ Clinical Care—Process. 

SCIP–Inf–4 .............................................. Clinical Process of Care ........................ Clinical Care—Process. 

SCIP–Inf–9 .............................................. Clinical Process of Care ........................ Clinical Care—Process. 

SCIP–Card–2 .......................................... Clinical Process of Care ........................ Clinical Care—Process. 

SCIP–VTE–2 ........................................... Clinical Process of Care ........................ Clinical Care—Process. 

HCAHPS ................................................. Patient Experience of Care ................... Patient and Caregiver Centered Experience of Care/Care 

Coordination. 

CAUTI ..................................................... Outcome ................................................ Safety. 

CLABSI ................................................... Outcome ................................................ Safety. 

MORT–30–AMI ....................................... Outcome ................................................ Clinical Care—Outcomes. 

MORT–30–HF ......................................... Outcome ................................................ Clinical Care—Outcomes. 

MORT–30–PN ......................................... Outcome ................................................ Clinical Care—Outcomes. 

PSI–90 .................................................... Outcome ................................................ Safety. 

SSI .......................................................... Outcome ................................................ Safety. 

MSPB–1 .................................................. Efficiency ............................................... Efficiency and Cost Reduction. 

We also seek comment on how we 

should address minimum numbers of 

cases and measures under sections 

1886(o)(1)(C)(ii)(III) and (IV) of the Act 

if we finalize this domain structure for 

the FY 2017 program. If we adopted the 

NQS-based domains solely for purposes 

of constructing the TPS, we could retain 

the general case and measure minimums 

structure adopted for prior program 

years. However, given the requirement 

in section 1886(o)(1)(C)(iii) of the Act 

that the Secretary conduct an 

independent analysis of what numbers 

are appropriate, we are also considering 

if we should commission such an 

analysis for the NQS domains, as 

modified. We are seeking public 

comments on this issue. 

e. Proposed Disaster/Extraordinary 

Circumstance Waivers Under the 

Hospital VBP Program 

We are concerned that hospital 

performance under the Hospital VBP 

Program might be adversely impacted as 

a direct result of a significant natural 

disaster or other extraordinary 

circumstance. We are aware, for 

example, that Hurricane Sandy forced 

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some hospitals in the New York-New 

Jersey-Connecticut area to close during 

the autumn of 2012, which impacted 

their ability to report quality measure 

data that will be used for both the FY 

2014 and FY 2015 Hospital VBP 

Programs. We also recognize that 

hospitals that are closed during a 

portion of a performance period may 

still be eligible to receive a TPS and 

value-based incentive payments based 

on their measured quality performance 

during the remaining portion of the 

performance period for a fiscal year. 

However, we also are aware that many 

hospitals that were affected by 

Hurricane Sandy nevertheless remained 

open both during and after the storm, 

and we are concerned more generally 

that these hospitals, as well as other 

hospitals that are able to remain open 

despite being impacted by a local 

disaster or other extraordinary 

circumstance, might experience a 

decline in performance as a direct result 

of remaining open. For example, a 

hospital might be able to demonstrate 

that its performance on the HCAHPS 

survey was adversely impacted as a 

direct result of remaining open during 

or after a natural disaster if the hospital 

became overcrowded due to a 

neighboring hospital’s closure, or 

understaffed due to the inability of staff 

to get to work. We believe that these 

types of unforeseen extraordinary 

circumstances could substantially affect 

the ability of the hospital to perform at 

the same level at which it might 

otherwise have performed if the natural 

disaster or extraordinary circumstance 

had not occurred, and we are concerned 

that using cases and claims from this 

period to generate the TPS might 

negatively, and unfairly, impact the 

value-based incentive payment amount 

that the hospital would otherwise 

receive. 

Currently, hospitals participating in 

the Hospital IQR Program may request 

that we grant an extension or waiver of 

one or more data submission deadlines 

in the event of extraordinary 

circumstances beyond the control of the 

hospital. However, we do not believe 

this process is entirely sufficient for the 

Hospital VBP Program. The Hospital 

IQR Program’s extraordinary 

circumstances extensions/waiver 

process allows hospitals that have been 

granted an extension/waiver to receive 

the full annual percentage increase 

under the IPPS for the applicable fiscal 

year even though they did not submit 

data on measures in the same time, 

form, and manner required of other 

hospitals. To the extent that a hospital, 

as a result of receiving an extension or 

waiver under the Hospital IQR Program, 

does not report the minimum number of 

cases or measures under the Hospital 

VBP Program (as determined 

appropriate by the Secretary under 

sections 1886(o)(1)(C)(ii)(III) and (IV) of 

the Act), that hospital will be excluded 

from the Hospital VBP Program for the 

applicable fiscal year. 

However, the Hospital IQR Program 

extraordinary circumstance extension/ 

waiver process does not address the 

situation we are concerned with here; 

namely, where a hospital is able to 

continue to report data on measures that 

are included in both the Hospital IQR 

Program and the Hospital VBP Program, 

but can demonstrate that its Hospital 

VBP measure rates are negatively 

impacted as a result of a natural disaster 

or other extraordinary circumstance 

and, as a result, the hospital receives a 

lower value-based incentive payment. 

Therefore, we are proposing to adopt a 

Hospital VBP Program extraordinary 

circumstance waiver process. 

In developing our proposed approach, 

we considered the feasibility of 

adopting a waiver that would allow a 

hospital to not have the measure data 

submitted during the affected time 

period included in its measure scores. 

This type of waiver policy would enable 

affected hospitals to continue to 

participate in the Hospital VBP Program 

for a given fiscal year if they continued 

to meet applicable measure and case 

minimums despite the fact that their 

TPS would not include data that is the 

subject of the waiver. Therefore, this 

policy could prevent the possibility that 

a hospital’s TPS is significantly, and 

negatively, affected by a natural disaster 

or other extraordinary circumstance, 

which we believe would alleviate our 

concerns. 

However, implementing this type of 

data waiver presents certain operational 

difficulties. While chart-abstracted 

measures generally are reported using a 

date of service that would enable us to 

correctly identify which data should be 

excluded, the same is not necessarily 

true of patient experience of care 

measure data because HCAHPS survey 

dates do not align with service dates; 

instead, they are dependent on the 

timing of the survey’s completion after 

discharge. 

A further complication arises with 

certain claims-based measures. For 

example, the risk adjustment 

methodology currently in use for the 30- 

day mortality measures requires a fixed 

dataset for computation of all hospitals’ 

risk-adjusted measure rates. Adding or 

removing data from the national claims 

set used to calculate a mortality 

measure’s rates for a given time period 

therefore requires recalculation of all 

hospitals’ measure rates, as the risk 

profile used to adjust hospitals’ 

measured performance for the time 

period would have changed. In 

addition, in light of our policy to 

generate a TPS for hospitals that receive 

scores on fewer than all domains, we are 

concerned that proposing to adopt an 

extraordinary circumstances ‘‘waiver’’ 

process that would apply only to the 

clinical process of care domain data that 

we may relatively easily remove from 

scoring would be ineffective. We do not 

believe that waiving only clinical 

process of care domain data would 

mitigate the effects of a disaster or other 

extraordinary circumstances on 

hospitals’ TPSs under the program, 

particularly if hospitals’ performance on 

all measures is affected significantly by 

those circumstances. An increase in 

measured mortality rates, for example, 

would not be mitigated by a clinical 

process of care-centered waiver, and 

could penalize the hospital. 

Given the operational constraints 

discussed above, we believe that the 

best way to implement an extraordinary 

circumstances waiver under the 

Hospital VBP Program is to interpret the 

minimum numbers of cases and 

measures requirement in section 

1886(o)(1)(C)(ii)(III) and (IV) of the Act 

to enable us to ‘‘waive’’ all applicable 

quality measure data from a 

performance period and, thus, exclude 

the hospital from the Hospital VBP 

Program for a fiscal year during which 

the hospital has experienced a disaster 

or other extraordinary circumstance. 

Under this policy, a hospital struck by 

a natural disaster or other extraordinary 

circumstance would be able to request 

a Hospital VBP Program disaster/ 

extraordinary circumstance waiver at 

the same time that it requests an 

extraordinary circumstance waiver 

under the Hospital IQR Program. The 

hospital would submit the Hospital IQR 

Program extension/waiver request form, 

including any available evidence of the 

impact of the extraordinary 

circumstances on the hospital’s quality 

measure performance, and would note 

that it also seeks a waiver from the 

Hospital VBP Program for the program 

year in which the same data could be 

used as performance period data to 

generate a TPS based on the measures 

included in the Hospital VBP Program. 

In the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51652), we finalized a 

requirement that affected hospitals 

submit their requests within 30 days of 

the date that the extraordinary 

circumstance occurred. We believe that 

this timeframe is appropriate for our 

proposed waiver process for the 

Hospital VBP Program as it aligns with 

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the current requirements under the 

Hospital IQR Program and forestalls the 

possibility of hospitals attempting to 

‘‘game’’ their Hospital VBP Program 

scores by requesting a waiver after they 

receive their Percentage Payment 

Summary Reports for a given fiscal year. 

We will review waiver requests and, 

at our discretion based on our 

evaluation of the impact of the disaster/ 

extraordinary circumstances on the 

hospital’s quality measure performance, 

provide a response to the hospital. We 

intend to notify hospitals about our 

Hospital VBP Program waiver decisions 

concurrent with decisions made under 

the Hospital IQR Program’s waiver 

process. 

For these reasons, we are proposing 

that the phrases ‘‘minimum number of 

measures that apply to the hospital’’ in 

section 1886(o)(1)(C)(iii) of the Act and 

‘‘minimum number of cases for the 

measures that apply to the hospital’’ in 

section 1886(o)(1)(C)(iv) of the Act do 

not include any measures or cases that 

a hospital has submitted during a 

performance period for which it is 

granted a Hospital VBP Program 

disaster/extraordinary circumstance 

waiver. 

We intend to implement this policy in 

a limited fashion, and based on prior 

experience with the Hospital IQR 

Program, anticipate providing such 

waivers only to a small number of 

hospitals. We do not intend to allow 

hospitals to use this proposed process to 

seek exclusion from the Hospital VBP 

Program solely because of 

comparatively poor performance under 

the Program’s scoring methodology; 

rather, we intend only to provide relief 

to hospitals whose performance suffered 

as a result of a disaster or other 

extraordinary circumstances. 

We are inviting public comments on 

this proposal. We are specifically 

interested in public comments on the 

structure of the proposed process, and if 

we should consider implementing the 

process differently. 

10. 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 Minimum Numbers of 

Cases and Measures for the FY 2016 

Hospital VBP Program Outcome Domain 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53608 through 53609), we 

finalized minimum numbers of cases 

and measures for the FY 2015 Hospital 

VBP Program’s Outcome domain. For 

the finalized 30-day mortality measures, 

we finalized a 25-case minimum for FY 

2015. For the AHRQ PSI composite 

measure, we adopted AHRQ’s 

methodology, which provides a score on 

the measure to any hospital with at least 

three cases on any underlying indicator. 

For the CLABSI measure, we adopted 

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 also 

finalized our policy to provide a TPS to 

hospitals with sufficient cases in at least 

two of the four finalized quality 

measure domains (77 FR 53607). 

In the CY 2012 OPPS/ASC final rule 

with comment period (76 FR 74532 

through 74534) 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. We therefore are proposing to 

retain the finalized minimum number of 

measures for the Outcome domain for 

the FY 2016 Hospital VBP Program. 

We are inviting public comment on 

these proposals. 

c. Hospitals Paid Under Section 

1814(b)(3) of the Act 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53607 through 53608), 

beginning with the FY 2014 Hospital 

VBP Program, we adopted a new 

procedure for submission of the report 

in order for a Maryland hospital to be 

exempt from the Hospital VBP Program 

for a fiscal year. Under this finalized 

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 Hospital 

VBP Program would have to be received 

by the Secretary no later than November 

15, 2012). We stated that 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 received an FY 2014 exemption 

request from the Maryland Health 

Services Cost Review Commission and 

the State of Maryland Department of 

Health and Mental Hygiene in 

November 2012, and the Secretary 

approved the exemption request on 

December 19, 2012. 

We determined that Maryland meets 

or exceeds the patient health outcomes 

and cost savings requirements for 

exemption from the FY 2014 Hospital 

VBP Program. In terms of patient health 

outcomes, the Maryland Quality Based 

Reimbursement (MQBR) program 

focuses rewarding high quality care on 

hospital performance in similar clinical 

areas as the Hospital VBP Program 

(heart attack, heart failure, pneumonia, 

surgical processes of care and infection 

control). In general, the relevant health 

outcomes for the State’s hospitals cited 

in its request achieve or surpass the 

current national results for comparable 

quality process and closely related 

clinical outcomes. In terms of cost 

savings, both the Hospital VBP Program 

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27622 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

48 Kohn L T, Corrigan J M., Donaldson MS 

(Institute of Medicine) To Err is Human: Building 

a Safer Health System. Washington, DC: National 

Academy Press, 2000. 

49Binder, Leah F. The Leapfrog Group Testimony 

before the House of Representatives Committee of 

Oversight and Government Reform, April 16, 2008. 

Available at: http://www.leapfroggroup.org/ 

policy_leadership/leapfrog_news/4732651. 

50 Id. 

51Centers for Disease Control, The Direct Medical 

Costs of Healthcare Associated Infections in US 

Hospitals and the Benefits of Prevention March, 

2009. Available at: http://www.cdc.gov/hai/pdfs/ 

hai/scott_costpaper.pdf. 

52National Quality Forum (NQF), Serious 

Reportable Events in Healthcare—2011 Update: A 

Consensus Report, Washington DC: NQF (2011). 

53Center for Medicare and Medicaid Services 

(CMS), National Coverage Determination (NCD) for, 

Surgical or Other Invasive Procedure Performed on 

the Wrong Body Part (140.7), Pub–100–3 (2009); 

Surgical or Other Invasive Procedure Performed on 

the Wrong Patient (140.8), Pub 100–3 (2009); Wrong 

Surgery Performed on a Patient (140.9), Pub 100– 

3 (2009). 

and the MQBR reward high performers 

in a revenue-neutral manner. In this 

way, Maryland has achieved cost 

savings under its quality programs that 

meet any documented savings under the 

Hospital VBP Program, thereby meeting 

the standard specified in section 

1886(o)(1)(C)(iv) of the Act for hospitals 

paid under section 1814(b)(3) of the Act. 

I. Proposed Implementation of HospitalAcquired Condition (HAC) Reduction 

Program for FY 2015 

1. Background 

a. Overview 

CMS is committed to promoting 

higher quality of care and improving 

outcomes for Medicare beneficiaries. 

Accordingly, as part of that effort, we 

have, in recent years, undertaken a 

number of initiatives to reduce the 

number of hospital-acquired conditions 

(HACs) among Medicare beneficiaries. 

HACs are conditions that patients 

acquire while receiving treatment for 

another condition in an acute care 

health setting. HACs include hospitalacquired infections (HAIs), such as 

surgical site infections, as well as 

conditions such as foreign objects 

retained after surgery. HACs constitute 

an adverse event for the patient and a 

financial burden on the health care 

system. Most HACs, especially those 

stemming from medical errors, represent 

a leading cause of mortality in the 

United States.48 Deaths from HAIs alone 

are twice as high as those from HIV/ 

AIDS and breast cancer combined.49

Many common HACs can be prevented 

through the proper application of 

evidence-based guidelines. Yet, surveys 

reveal that 87 percent of hospitals do 

not follow such guidelines.50 Further, 

HACs constitute a significant economic 

burden on the health care system. For 

example, in 2009, the CDC estimated 

that preventable HAIs alone added 

nearly $6 billion to U.S. health care 

costs each year.51 Accordingly, we 

believe that our continued efforts to 

reduce HACs are vital to improving 

patients’ quality of care, and reducing 

complications and mortality, while 

simultaneously decreasing costs. 

In section II.F. of the preamble of this 

proposed rule, we discuss prior and 

ongoing rulemakings to implement the 

provisions of section 5001(c) of the 

Deficit Reduction Act (DRA) of 2005. 

Section 5001(c) of the DRA requires the 

Secretary to identify conditions by 

October 1, 2007 that: (a) Are high cost 

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

assignment of a case to a DRG that has 

a higher payment when present as a 

secondary diagnosis; and (c) could 

reasonably have been prevented through 

the application of evidence based 

guidelines. An adjustment to the MS– 

DRG payment under the IPPS is made 

for identified HACs. This regulatory 

action has supported our efforts to 

encourage hospitals to reduce HACs. 

Our initiatives to reduce HACs 

continued in 2009, when we developed 

National Coverage Determinations 

(NCDs) for the Medicare Program to 

eliminate ‘‘never events.’’ These ‘‘never 

events’’ stemmed from a 2002 report 

conducted by the NQF that listed 27 

adverse events, defined as serious 

reportable events, that were both serious 

and largely preventable.52 Under these 

NCDs, we have specified that Medicare 

does not cover a particular surgical or 

other invasive procedure to treat a 

particular medical condition when a 

practitioner erroneously performs: (1) A 

different procedure altogether; (2) the 

correct procedure but on the wrong 

body part; or (3) the correct procedure 

but on the wrong patient.53

In the FY 2011 IPPS/LTCH PPS final 

rule (75 FR 50196), we adopted 8 HAC 

measures into the Hospital IQR Program 

for the FY 2012 payment determination. 

These quality measures comprise 

additional efforts to promote quality of 

care by reducing the number of HACs in 

an acute care setting. We have been 

publicly reporting on these eight HAC 

measures successfully on the Hospital 

Compare Web site since September 

2010. 

As described above, the reduction of 

HACs is an important marker of quality 

of care and has a positive impact on 

both patient outcomes and costs of care. 

In accordance with section 1886(p) of 

the Act, the HAC Reduction Program 

aligns with our national strategy to 

improve health care quality by 

promoting the prevention of HACs, such 

as ‘‘serious reportable events’’ and HAIs. 

Our goal for the HAC Reduction 

Program is to heighten the awareness of 

HACs and reduce the number of 

incidences that occur through 

implementing the adjustments required 

by section 1886(p) of the Act. We 

believe our efforts in using payment 

adjustments and our measurement 

authority will encourage hospitals to 

eliminate the incidence of HACs that 

could be reasonably prevented by 

applying evidence-based guidelines. 

2. Statutory Basis for the HAC 

Reduction Program 

Section 3008 of the Affordable Care 

Act added section 1886(p) to the Act to 

provide an incentive for applicable 

hospitals to reduce HACs. Section 

1886(p) of the Act requires the Secretary 

to make an adjustment to payments to 

‘‘applicable hospitals’’ effective 

beginning on October 1, 2014 and for 

subsequent programs years. Section 

1886(p)(1) of the Act sets forth the 

requirements by which payments to 

‘‘applicable hospitals’’ will be adjusted 

to account for HACs with respect to 

discharges occurring during FY 2015 or 

later. The amount of payment shall be 

equal to 99 percent of the amount of 

payment that would otherwise apply to 

such discharges under section 1886(d) 

or 1814(b)(3) of the Act, as applicable. 

Section 1886(p)(2)(A) of the Act defines 

‘‘applicable hospitals’’ as subsection (d) 

hospitals that meet certain criteria. 

Section 1886(p)(2)(B)(i) of the Act 

defines these criteria and specifies that 

the payment adjustment would apply to 

an applicable hospital that ranks in the 

top quartile (25 percent) of all 

subsection (d) hospitals, relative to the 

national average, of conditions acquired 

during the applicable period, as 

determined by the Secretary. Section 

1886(p)(2)(B)(ii) of the Act requires the 

Secretary to establish and apply a riskadjustment methodology. 

Sections 1886(p)(3) and (p)(4) of the 

Act define ‘‘hospital-acquired 

conditions’’ and ‘‘applicable period’’, 

respectively. The term ‘‘hospitalacquired condition’’ means ‘‘a condition 

identified in subsection 

1886(d)(4)(D)(iv) of the Act and any 

other condition determined appropriate 

by the Secretary that an individual 

acquires during a stay in an applicable 

hospital, as determined by the 

Secretary.’’ The term ‘‘applicable 

period’’ means, with respect to a fiscal 

year, a period specified by the Secretary. 

Section 1886(p)(5) of the Act requires 

that, prior to FY 2015 and each 

subsequent fiscal year, the Secretary 

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provides the delivery of confidential 

reports to applicable hospitals with 

respect to HACs of the applicable 

hospital during the applicable period. 

Section 1886(p)(6)(A) of the Act sets 

forth the reporting requirements by 

which the Secretary would make 

information available to the public 

regarding HACs for each applicable 

hospital. Section 1886(p)(6)(B) of the 

Act requires the Secretary to ensure that 

an applicable hospital has the 

opportunity to review, and submit 

corrections for, the information to be 

made public with respect to the HACs 

of the applicable hospital prior to such 

information being made public. Section 

1886(p)(6)(C) of the Act requires that, 

once corrected, the HAC information be 

posted on the Hospital Compare Web 

site on the Internet in an easily 

understandable format. 

Section 1886(p)(7) of the Act limits 

administrative and judicial review of 

certain determinations made pursuant 

to section 1886(p) of the Act. These 

determinations include what qualifies 

as an applicable hospital, the 

specifications of a HAC, the Secretary’s 

determination of an applicable period, 

the provision of confidential reports 

submitted to the applicable hospital, 

and the information publically reported 

on the Hospital Compare Web site. 

3. Proposals To Implement the HAC 

Reduction Program 

In this proposed rule, we are 

proposing the general framework for 

implementation of the HAC Reduction 

Program for the FY 2015 

implementation. We are including the 

following proposals for the program: (a) 

The relevant definitions applicable to 

the program; (b) the payment 

adjustment under the program; (c) the 

measure selection and conditions for the 

program, including a risk-adjustment 

and scoring methodology; (d) 

performance scoring; (e) the process for 

making hospital-specific performance 

information available to the public, 

including the opportunity for a hospital 

to review the information and submit 

corrections; and (f) limitation of 

administrative and judicial review. 

In this proposed rule, we are 

proposing to establish the rules 

governing the payment adjustment 

under the HAC Reduction Program at 

Subpart I of 42 CFR part 412 (proposed 

§§ 412.170 and 412.172). We also are 

proposing to amend existing § 412.150 

(the section that describes the basis and 

scope of Subpart I of Part 412, which 

contains the regulations governing 

adjustments to the base operating DRG 

payment amounts under the IPPS for 

inpatient operating costs) to incorporate 

the basis and scope of proposed 

§§ 412.170 and 412.172 for the HAC 

Reduction Program. We discuss each of 

the proposed regulatory provisions 

under the appropriate subject area 

below. 

a. Proposed Definitions 

In accordance with the provisions of 

section 1886(p) of the Act, we are 

proposing to include, under proposed 

§ 412.170, definitions for the terms 

‘‘hospital-acquired condition,’’ 

‘‘applicable hospital,’’ and ‘‘applicable 

time period.’’ 

• Hospital-acquired condition. In 

accordance with the definition of 

‘‘hospital-acquired condition’’ in section 

1886(p)(3) of the act, we would include 

a definition of the term in the 

regulations to read: ‘‘Hospital-acquired 

condition is a condition as described in 

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

any other condition determined 

appropriate by the Secretary that an 

individual acquires during a stay in an 

applicable hospital, as determined by 

the Secretary.’’ 

We also refer readers to section II.F. 

of the preamble of this proposed rule 

where we discuss the HACs that have 

been identified and selected by the 

Secretary through FY 2013 in 

accordance with the provisions of 

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

established by section 5001(c) of the 

DRA of 2005. 

• Applicable Hospital. Section 

1886(p)(2)(A) of the Act specifies that, 

for the purpose of the HAC Reduction 

program, an ‘‘applicable hospital’’ is a 

subsection (d) hospital that meets 

certain criteria. 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’’, 

subject to certain exceptions. We also 

note that, for purposes of determining 

applicable hospitals under the HAC 

Reduction Program, subsection (d) 

hospitals include hospitals paid under a 

waiver under section 1814(b)(3) of the 

Act (that is, Maryland hospitals). 

Section 1886(p)(2)(B) of the Act 

specifies that ‘‘with respect to a 

subsection (d) hospital, [a hospital is 

considered to be an applicable hospital 

if] . . . the subsection (d) hospital is in 

the top quartile of all subsection (d) 

hospitals, relative to the national 

average, of hospital acquired conditions 

during the applicable period, as 

determined by the Secretary.’’ 

Therefore, we are proposing to define an 

‘‘applicable hospital’’ as ‘‘a hospital 

described in section 1886(d)(1)(B) of the 

Act (including a hospital in Maryland 

that is paid under section 1814(b)(3) of 

the Act and that, absent the waiver 

specified by section 1814(b)(3) of the 

Act, would have been paid under the 

hospital inpatient prospective payment 

system) so long as the hospital meets the 

criteria specified under § 412.172(e).’’ 

We note that while all subsection (d) 

hospitals, including hospitals paid 

under section 1814(b)(3) of the Act, 

would be used to determine which 

hospitals are ‘‘applicable hospitals,’’ as 

required by section 1886(p)(2)(B) of the 

Act, we have identified several types of 

hospitals where subsection (d) status 

may not be clear for purposes of 

determining which hospitals are or are 

not subject to the provisions of the HAC 

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, IPFs. Therefore, hospitals and 

hospital units that are excluded from 

the IPPS would not be considered when 

determining ‘‘applicable hospitals’’ nor 

would they be determined to be 

‘‘applicable hospitals’’ subject to the 

payment adjustment under the HAC 

Reduction Program. Similarly, CAHs 

would not be considered when 

determining ‘‘applicable hospitals,’’ nor 

would they be determined to be 

‘‘applicable hospitals’’ subject to the 

payment adjustment under the HAC 

Reduction Program, because they do not 

meet the definition of a ‘‘subsection (d) 

hospital.’’ CAHs 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. An Indian Health Services 

hospital enrolled as a Medicare provider 

meets the definition of a subsection (d) 

hospital and, therefore, would be 

considered in determining ‘‘applicable 

hospitals’’ and would be considered to 

be an ‘‘applicable hospital’’ under the 

HAC Reduction Program. In addition, 

hospitals that are SCHs, although they 

may be paid under a hospital-specific 

rate instead of the Federal rate under the 

IPPS, are subsection (d) hospitals and, 

therefore, would be included in 

determining ‘‘applicable hospitals’’ and 

would be considered to be an applicable 

hospital under the HAC Reduction 

Program. Hospitals located in the 

Territories, including Puerto Rico, are 

not subsection (d) hospitals. 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.’’ 

However, because they are not located 

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27624 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

in ‘‘one of the fifty States,’’ Puerto Rico 

hospitals are not subsection (d) 

hospitals and, therefore, would not be 

included in determining ‘‘applicable 

hospitals,’’ nor would they be 

considered to be an ‘‘applicable 

hospital’’ under the HAC Reduction 

Program. Finally, hospitals paid under 

the authority of section 1814(b)(3) of the 

Act are located in Maryland, which is 

‘‘one of the fifty States’’ as described 

under section 1886(d)(1)(B) of the Act. 

Therefore, these Maryland hospitals are 

subsection (d) hospitals and would be 

included in determining ‘‘applicable 

hospitals’’ and, unless the Secretary 

exempts them from the application of 

the payment adjustment under the HAC 

Reduction Program under the authority 

of section 1886(p)(2)(C) of the Act, 

would be considered to be ‘‘applicable 

hospitals’’ under the HAC Reduction 

Program. 

We are inviting public comments on 

whether clarification is required for 

additional types of hospitals. 

• Applicable Time Period. In 

accordance with the proposal and 

discussion in section V.I.3.d. of this 

preamble regarding the proposed 

performance scoring methodology for 

proposed measures for selected 

conditions and a risk-adjustment 

methodology under the HAC Reduction 

Program, we are proposing to define the 

‘‘applicable period’’ as, with respect to 

a fiscal year, the 2-year period (specified 

by the Secretary) from which data are 

collected in order to calculate the Total 

HAC Score for the Hospital-Acquired 

Reduction Program 

We are inviting public comments on 

these proposed definitions. 

b. Proposed Payment Adjustment Under 

the HAC Reduction Program, Including 

Exemptions 

(1) Basic Payment Adjustment 

Section 1886(p)(1) of the Act sets 

forth the requirements by which 

payments to ‘‘applicable hospitals’’ will 

be adjusted to account for HACs with 

discharges beginning on October 1, 

2014. Section 1886(p)(1) of the Act 

specifies that the amount of payment 

shall be equal to 99 percent of the 

amount of payment that would 

otherwise apply to such discharges 

under section 1886(d) or 1814(b)(3) of 

the Act, as applicable. As specified in 

the statute, this payment adjustment is 

calculated and made after payment 

adjustments under sections 1886(o) and 

1886(q) of the Act, the Hospital VBP 

Program and the Hospital Readmissions 

Reduction Program respectively, are 

calculated and made. (We note that the 

Hospital VBP Program is discussed in 

section V.H. of the preamble of this 

proposed rule and the Hospital 

Readmissions Reduction Program is 

discussed in section V.G. of the 

preamble of this proposed rule.) Section 

1886(p)(2)(A) of the Act defines 

‘‘applicable hospitals’’ as subsection(d) 

hospitals that meet certain criteria. 

Section 1886(p)(2)(B)(i) of the Act 

defines these criteria and specifies that 

the payment adjustment would apply to 

an applicable hospital that ranks in the 

top quartile (25 percent) of all 

subsection (d) hospitals, relative to the 

national average, of conditions acquired 

during the applicable period, as 

determined by the Secretary. Therefore, 

we are proposing to specify in proposed 

§ 412.172(b) that, ‘‘For applicable 

hospitals, beginning with discharges 

occurring during FY 2015, the amount 

of payment under this section [proposed 

§ 412.172], or section 1814(b)(3) of the 

Act, as applicable, for such discharges 

shall be equal to 99 percent of the 

amount of payment that would 

otherwise apply to such discharges 

under this section [proposed § 412.172], 

or section 1814(b)(3) of the Act. This 

amount of payment will be determined 

after the application of the payment 

adjustment under the Hospital 

Readmissions Reduction Program under 

§ 412.154, and the adjustment made 

under the Hospital Value-Based 

Purchasing Program under § 412.162, 

and section 1814(l)(4) but without 

regard to this section 1886(p) of the 

Act).’’ 

We are inviting public comments on 

this proposal. 

(2) Applicability to Maryland Hospitals 

Section 1886(p)(2)(c) of the Act 

specifies that the Secretary may exempt 

hospitals paid under 1814(b)(3) ‘‘from 

the application of this subsection if the 

State which is paid under such section 

submits an annual report to the 

Secretary describing how a similar 

program in the state for a participating 

hospital or hospitals achieves or 

surpasses the measured results in terms 

of patient health outcomes and cost 

savings established under this 

subsection.’’ Accordingly, a program 

established by the State of Maryland 

that could serve to exempt hospitals in 

the State from the HAC Reduction 

Program would focus on hospitals 

operating under the waiver provided by 

section 1814(b)(3) of the Act, that is, 

those hospitals that would otherwise 

have been paid by Medicare under the 

IPPS, absent this provision. As we 

describe in section V.I.3. of the 

preamble of this proposed rule, because 

hospitals paid under section 1814(b)(3) 

of the Act are subsection (d) hospitals, 

they would be included in determining 

‘‘applicable hospitals’’ (subject to the 

payment adjustment under the HAC 

Reduction Program), and unless the 

Secretary exempts these hospitals from 

the application of payment adjustments 

under the HAC Reduction Program 

under the authority of section 

1886(p)(2)(C) of the Act, they are 

considered to be ‘‘applicable hospitals’’ 

(subject to the payment adjustments in 

the HAC Reduction Program) under the 

HAC Reduction Program. 

In this proposed rule, we are 

proposing to establish criteria for 

evaluation to determine whether 

Maryland should be exempted from the 

application of the payment adjustments 

under the HAC Reduction Program for 

a given fiscal year. Under proposed 

§ 412.172(c), we would specify that 

‘‘CMS will determine whether to 

exempt Maryland hospitals that are paid 

under section 1814(b)(3) of the Act and 

not under the hospital inpatient 

prospective payment system. . . .’’ and 

that, absent the provisions of section 

1814(b)(3) of the Act, would be paid 

under section 1886(d) of the Act from 

the application of payment adjustments 

under the Hospital-Acquired Condition 

Reduction Program, provided that the 

State submits an annual report to the 

Secretary describing how a similar 

program to reduce hospital acquired 

conditions in that State achieves or 

surpasses the measured results in terms 

of health outcomes and cost savings for 

the Hospital-Acquired Condition 

Reduction Program as applied to 

hospitals described in section 

1886(d)(1)(B) of the Act. We would 

specify in the proposed regulations that 

‘‘CMS will establish criteria for 

evaluation of Maryland’s annual report 

to the Secretary to determine whether 

Maryland will be exempted from the 

application of payment adjustments 

under this program for a given fiscal 

year.’’ We would also specify that 

‘‘Maryland’s annual report to the 

Secretary and request for exemption 

from the Hospital-Acquired Condition 

Reduction Program must be resubmitted 

and reconsidered annually.’’ We are 

proposing that, for FY 2015, Maryland 

would submit a preliminary report to us 

by January 15, 2014 and a final report 

to us by June 1, 2014. 

We note that our proposed criteria to 

evaluate Maryland’s program is for FY 

2015, the first year of the payment 

adjustment under the HAC Reduction 

Program, and that our evaluation criteria 

may change through notice and 

comment rulemaking as this program 

evolves. 

We are inviting public comments on 

our proposals. 

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54With the exception of PSI 5 (Volume of foreign 

object left in body), which is not risk-adjusted or 

reliability-adjusted. 

55The exception is PSI 5 (Volume of foreign 

object left in body), which is not risk-adjust or 

reliability-adjusted. 

c. Proposed Measure Selection and 

Conditions, Including a Proposed RiskAdjustment and Scoring Methodology 

(1) General Selection of Proposed 

Measures 

We are proposing measures and a 

scoring methodology for the HAC 

Reduction Program in this FY 2014 

proposed rule. Although we are not 

required under section 1886(p) of the 

Act to address specific measure scoring 

methodologies regarding the HAC 

Reduction Program in notice-andcomment rulemaking, as required under 

the Hospital VBP Program, we believe 

that it is important to set forth such 

scoring methodologies for each 

individual HAC measure, in order for 

the public to understand how the 

measures discussed and finalized in this 

year’s rulemaking relate to the 

performance methodology used to 

determine the applicable hospitals 

subject to the payment adjustment 

under the HAC Reduction Program. 

(2) Measure Selection and Scoring 

Methodology 

As described more fully below, we are 

proposing initially to adopt eight 

measures for the FY 2015 determination 

under the HAC Reduction Program. 

Several of these measures are already 

part of the Hospital IQR Program and 

are reported on the Hospital Compare 

Web site. We note that all eight 

measures proposed for the HAC 

Reduction Program follow the criteria 

established by the DRA of 2005 in that 

they consist of high-volume or high-cost 

conditions that could be prevented by 

the use of evidence-based guidelines 

(we refer readers to section II.F. of the 

preamble of this proposed rule for 

further information). 

In this proposed rule, we are 

proposing the measure selection and 

methodology used to determine the 

Total HAC Score. For measure selection 

under the HAC Reduction Program, we 

are proposing to group the measures 

into separate domains (Domain 1 and 

Domain 2) to calculate a Total HAC 

Score in order to determine the payment 

adjustment. For Domain 1, we are 

discussing two alternatives, and seeking 

to finalize a policy based upon public 

comment received regarding these 

alternatives. The first approach 

represents our proposal, as it is our 

preferred choice. However, we are 

including an alternative approach for 

public comment. Both approaches 

would utilize AHRQ Patient Safety 

Indicators (PSIs) and CDC Healthcare 

Associated Infection (HAI) measures 

collected via the National Healthcare 

Safety Network (NHSN), and both 

approaches would be grouped into two 

separate domains. Domain 1 would 

include the AHRQ PSI measures. 

Domain 2 would include CDC HAI 

measures. As explained below, these 

two domains would be used as part of 

calculating the Total HAC Score, which 

is the score used to determine the top 

quartile of subsection (d) hospitals 

subject to the payment adjustment 

under the HAC Reduction Program. The 

difference between our proposal and the 

alternative approach, as illustrated by 

Table A below, lies in the AHRQ 

measures proposed to be used in 

Domain 1. Domain 2 would be the same 

under either approach. 

We are proposing to group the AHRQ 

and CDC HAI measures into separate 

domains to calculate a Total HAC Score 

because of the several major differences 

between the AHRQ and the CDC HAI 

measures. First, the AHRQ and CDC 

HAI measures use different data sources 

for their respective calculations. The 

AHRQ measures use Medicare FFS 

claims data and the CDC HAI measures 

use chart-abstracted data. Second, the 

AHRQ measures capture occurrences of 

adverse events among Medicare FFS 

discharges, while the CDC HAI 

measures capture adverse events to 

Medicare and non-Medicare patients 

alike. Third, the AHRQ measure 

results 54 are risk-adjusted and 

reliability-adjusted based on a 24-month 

data period, whereas the CDC HAI 

measures are a Standardized Infection 

Ratio (SIR) based on quarterly reporting. 

In addition, the AHRQ measures 

identify adverse events occurring across 

units within a facility, while the CDC 

HAI measures identify adverse events at 

the unit level. The SIR adjusts for 

differences in levels of infection risk in 

patients. The CDC SIR measures are 

calculated by dividing the total facility 

number of observed HAI events by the 

total facility number of predicted HAI 

events. The facility must have ≥1 

predicted HAI event during the 

reporting time period, for example, 

calendar quarter, for the measure to be 

calculated. The number of predicted 

HAI events is first calculated for each 

patient care location by multiplying the 

location’s denominator (that is, the 

number of device days, procedure days, 

or patient days, depending on the HAI) 

by the NHSN-specific HAI rates from a 

standard population during a baseline 

time period, and dividing by 1.000. 

Then the predicted number of specific 

HAIs are summed across locations and 

used as the total facility number of 

predicted HAI events to reduce the 

overall SIR for a facility. Currently, 

CAUTI and CLABSI are inclusive of 

patients in the intensive care unit only. 

However, in this proposed rule, we are 

seeking public comment on the 

expansion of the population to include 

medical wards, surgical wards, and 

medical/surgical wards. (We refer 

readers to section IX.A. of the preamble 

of this proposed rule for a discussion of 

the Hospital IQR Program.) 

Furthermore, the AHRQ measures are 

risk-adjusted at the patient level,55

while the CDC HAI measures are riskadjusted at the hospital-level and 

patient-care unit level. Specifically, the 

calculation of the AHRQ measures takes 

into consideration the risk factors of the 

patient’s age, gender, and comorbidities, 

while CDC HAI measures account for 

risk factors, including patient location 

within the facility, medical school 

affiliation, and bed size of patient care 

unit. Because of the important 

differences mentioned above in the 

calculation of the two sets of measures, 

combining measure results into a single 

composite measure would decrease the 

reliability of the Total HAC Score 

model. As a result, we are proposing to 

group the AHRQ and the CDC HAI 

measures into two separate domains. 

Both our proposal and the alternative 

approach under Domain 1 support the 

agency’s efforts to identify and monitor 

adverse events and inform hospitals 

about their patient safety performance. 

Both approaches also will allow us to 

compare hospital performance and to 

distinguish better performing hospitals 

from poor performing hospitals. Thus, 

the measures under either Domain 1 

approach would result in a consistent 

scoring. 

However, our proposed approach for 

Domain 1 would provide simpler results 

to interpret, allow a hospital to use the 

results to target patient safety 

improvement efforts, and avoid overlap 

between the two measure domains. 

Therefore, we believe that our proposed 

approach for Domain 1 provides 

hospitals with the most comprehensive 

picture of patient safety performance 

and is the method we are proposing to 

use. 

Under our proposed approach, we are 

proposing to use the following six 

AHRQ measures for Domain 1 (Table A): 

• Pressure ulcer rate (PSI 3); 

• Volume of foreign object left in the 

body (PSI 5); 

• Iatrogenic Pneumothorax rate (PSI 

6); 

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• Postoperative physiologic and 

metabolic derangement rate (PSI 10); 

• Postoperative pulmonary embolism 

(PE) or deep vein thrombosis rate (DVT) 

(PSI 12); and 

• Accidental puncture and laceration 

rate (PSI 15). 

Under the alternative approach, the 

measures under Domain 1 would 

consist of a Complications/Patient 

Safety for Selected Conditions 

composite (PSI 90). This composite is 

made up of the following eight 

individual component PSIs: 

• Pressure ulcer rate (PSI 3); 

• Iatrogenic Pneumothorax rate (PSI 

6); 

• Central venous catheter-related 

blood stream infection rate (PSI 7); 

• Postoperative hip fracture rate (PSI 

8); 

• Postoperative pulmonary embolism 

(PE) or deep vein thrombosis rate (DVT) 

(PSI 12); 

• Postoperative sepsis rate (PSI 13); 

• Wound dehiscence rate (PSI 14); 

and 

• Accidental puncture and laceration 

rate (PSI 15). 

For Domain 2, regardless of the 

approach used for Domain 1, we are 

proposing to use CDC HAI measures. 

For FY 2015, we are proposing to use 

the CLABSI and CAUTI measures. Both 

of these measures are currently part of 

the Hospital IQR Program, are NQF 

endorsed, are publicly reported on the 

Hospital Compare Web site and were 

recommended by the MAP for use in the 

HAC Reduction Program. For FY 2016, 

we are proposing to add Surgical Site 

Infection (SSI), which is stratified by 

two conditions: Colon surgery and 

abdominal hysterectomy. For 2017, we 

are proposing to add Methicillinresistant Staphylococcus aurus (MRSA) 

Bacteremia and Clostridium difficile 

infection. These measures are also part 

of the Hospital IQR Program and are 

being proposed for the Hospital VBP 

Program. 

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56Mathematica Policy Research (November 2011). 

Reporting period and reliability of AHRQ, CMS 30- 

day and HAC Quality Measures—Revised. 

Available at: http://www.cms.gov/Medicare/ 

Quality-Initiatives-Patient-Assessment-Instruments/

hospital-value-based-purchasing/Downloads/

HVBP_Measure_Reliability-.pdf. 

57http://www.medicare.gov/hospitalcompare/

About/HOSInfo/RCD.aspx#ssi. 

We are inviting public comment on 

whether the proposed approach or the 

alternative approach would better serve 

the HAC Reduction Program. 

(3) Applicable Time Period 

We are proposing a 2-year applicable 

period to collect data that would be 

used to calculate the Total HAC Score. 

For Domain 1 (AHRQ measures), we are 

proposing a 2-year data period to 

calculate the measures based on 

recommendations from AHRQ, the 

measure developer. In addition, an 

analysis by Mathematica Policy 

Research, a CMS contractor,56 shows 

that, with a 24-month data period, 50 to 

90 percent of hospitals attain a moderate 

or high level of reliability for the 

proposed AHRQ measures. We believe 

that the proposed 24-month data period 

described below would provide 

hospitals and the general public the 

most current data available. The 

proposed 24-month data period also 

would allow time to complete the 

complex calculation process for these 

measures, to perform comprehensive 

quality assurance to enhance the 

accuracy of measure results, and to 

disseminate confidential reports on 

hospital-level results to individual 

hospitals. 

For FY 2015, we are proposing to use 

the 24-month period from July 1, 2011 

through June 30, 2013 as the applicable 

time period for the AHRQ measures. 

The claims for all Medicare FFS 

beneficiaries discharged during this 

period would be included in the 

calculation of measure results for FY 

2015. This includes claims data from 

the 2011, 2012, and 2013 Inpatient 

Standard Analytic Files (SAFs). The 

national and hospital-specific rates for 

PSI 6, PSI 12, and PSI 15 are available 

on the Hospital Compare Web site. The 

hospital level PSI–90 composite bucket 

also is available on the Hospital 

Compare Web site.57

The CDC measures are currently 

collected and calculated on a quarterly 

basis. However, for purposes of the HAC 

Reduction Program, we are proposing to 

use 2 years of data to calculate the 

Domain 2 score so Domain 1 and 

Domain 2 are calculated using 24 

months of data. For FY 2015, we are 

proposing to use calendar years 2012 

and 2013 for the HAC Reduction 

Program. 

(4) Measure Calculations 

The AHRQ PSI measures are 

calculated using ICD–9–CM diagnosis 

and/or procedure codes and, for the 

secondary diagnoses, the present on 

admission (POA) value associated with 

each secondary diagnosis in the claim. 

POA data indicate whether an adverse 

event occurred during the hospital stay, 

or was already present at the time of 

admission. AHRQ measures also reflect 

the quality of inpatient care based on 

patient safety events that occurred 

during hospital stays. The FY 2008 IPPS 

final rule requires that all hospitals paid 

under the IPPS report on whether a 

diagnosis is present on admission (72 

FR 47201). We note that in section II.F. 

of the preamble of this proposed rule, 

we also are proposing to extend this 

requirement to subsection (d) Maryland 

hospitals paid under the waiver at 

section 1814(b)(3) of the Act. The 

specifications of PSIs 3, 5, 6, 10, 12, 15, 

and the individual components for the 

composite PSI 90 can be found on the 

Web site at: http://www.quality

indicators.ahrq.gov/Modules/PSI_

TechSpec.aspx. For the composite PSI 

90, the calculation, the individual 

component weighting scheme and the 

risk-adjustment methodology can be 

found on the Web site at: http://www.

qualityindicators.ahrq.gov/Downloads/

Modules/PSI/V44/Composite_User_

Technical_Specification_PSI%20V4.4.

pdf. A detailed discussion of the 

measure specifications and 

methodology of the AHRQ Patient 

Safety Indicators (PSIs) can be found on 

the Web site at: http://www.quality

indicators.ahrq.gov/modules/psi_

resources.aspx. 

For the HAC Reduction Program, we 

are proposing that the same rules used 

for the Hospital IQR Program be applied 

to determine whether the AHRQ 

individual rate-based measures in our 

proposed approach to Domain 1, 

including PSI 3, PSI 5, PSI 6, PSI 10, PSI 

12, and PSI 15, are calculated for a 

hospital. In particular, under this 

proposal, for each of these measures, if 

a hospital had fewer than three eligible 

discharges in the denominator in 

general, except as described below, we 

would not calculate the result for that 

measure for the hospital. In the most 

recent public reporting of the AHRQ 

measures, less than 6 percent of the 

IPPS hospitals did not have enough 

eligible discharges to calculate the 

results for these measures. However, for 

PSI 5 (foreign object left in body), which 

identifies ‘‘never events,’’ even if a 

hospital has fewer than three 

occurrences, these events would be 

included in the calculation of the 

hospital’s results. For the PSI 90 

composite in the alternative approach 

for Domain 1, we also would propose 

that the same rules used for the Hospital 

IQR Program be used to determine 

whether this composite measure is 

calculated for a hospital. Specifically, if 

the number of eligible discharges in the 

denominator for a given component 

indicator is fewer than three, the 

national rate would be substituted for 

the hospital rate. If the number of 

eligible discharges for a hospital is 

fewer than three for every component 

indicator that makes up the composite, 

the composite value would not be 

calculated. 

For the HAC Reduction Program, we 

are proposing to use the same inclusion 

criteria as used under the Hospital IQR 

Program for the Domain 2 measures. In 

order to calculate a Standard Infection 

Ratio (SIR), a hospital’s number of 

expected HAIs must be ≥1. For hospitals 

that have an expected number of HAIs 

< 1, we would insert zero (0) in order 

to calculate the Domain score. Hospitals 

that have no ICU and have an active IQR 

zero ICU beds waiver for Hospital IQR 

program HAI quality reporting also 

would receive zero (0) points. If a 

hospital is eligible to report HAIs, does 

not have an active Hospital IQR program 

zero ICU beds waiver, and fails to report 

to NHSN, it would receive the 

maximum penalty of 10 points for that 

measure to calculate the Domain 2 

score. (We refer readers to the 

discussion of scoring under section 

V.I.3.d. of the preamble of this proposed 

rule.) 

The CDC uses a SIR, which is a 

summary metric used to track HAIs. The 

SIR compares the actual number of HAIs 

at a facility to a national baseline. The 

number of observed infections is 

divided by the number of expected 

infections. The number of expected 

infections is calculated using event rates 

from a standard population during a 

baseline period. (http://www.cdc.gov/ 

HAI/surveillance/ 

QA_stateSummary.html#a6). The SIR 

for CLABSI and CAUTI includes ICU 

locations, including pediatric and 

neonatal units. We are proposing to 

expand both of the populations for these 

measures to care provided in areas 

outside of the ICU in the future. (We 

refer readers to section IX.A. of the 

preamble of this proposed rule for a 

discussion of this proposal under the 

Hospital IQR Program.) 

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(5) Measure Risk-Adjustment 

Methodology 

Section 1886(p)(2)(B)(ii) of the Act 

requires the Secretary to establish and 

apply an appropriate risk-adjustment 

methodology with respect to 

determining the top quartile of 

subsection (d) hospitals with respect to 

HACs subject to the 1 percent payment 

adjustment. We are proposing to use the 

existing measure-level risk-adjustment 

that is already part of the methodology 

for the individual measures being 

proposed for Domains 1 and 2 in order 

to fulfill this requirement. We are 

proposing to codify the use of this 

methodology under proposed 

§ 412.172(d). First, with the exception of 

PSI 5, all of the proposed PSI measures 

are risk-adjusted and reliabilityadjusted. Specifically, risk factors such 

as the patient’s age, gender, 

comorbidities, and complications would 

be considered in the calculation of the 

measure rates so that hospitals serving 

a large proportion of sicker patients 

would not be unfairly penalized. We 

believe that such risk-adjustment is 

appropriate, pursuant to section 3008 of 

the Affordable Care Act. We note that 

the PSI 5 measure (foreign object left in 

body) is not risk-adjusted. However, a 

foreign object left in the body 

constitutes an adverse event that should 

never occur. Thus, such adverse events 

cannot be risk-adjusted because these 

events should not occur, regardless of 

patient-related or hospital-related 

characteristics. 

We are inviting public comments on 

the proposed risk-adjustment 

methodology. 

d. Criteria for Applicable Hospitals and 

Performance Scoring 

In general, we are proposing to use a 

scoring methodology similar to the 

achievement scoring methodology that 

is currently used under the Hospital 

VBP Program. We are proposing to 

implement a methodology for assessing 

the top quartile of applicable hospitals 

for HACs based on performance 

standards, under which we would score 

each hospital based on whether they are 

in the top quartile for each applicable 

measure and where in the top quartile 

they fall. In addition, we are proposing 

to calculate a Total HAC Score for each 

hospital by summing the hospital’s 

performance score on each measure 

within a domain to determine a score 

for each domain, then multiplying each 

domain score by a proposed weight 

(Domain 1–AHRQ Patient Safety 

Indicators 50 percent, Domain 2–CDC 

NHSN Measures 50 percent), and 

adding together the weighted domain 

scores to determine the Total HAC 

Score. We are proposing to use each 

hospital’s Total HAC Score to determine 

the top quartile of subsection (d) 

hospitals (applicable hospitals) that 

would be subject to the payment 

adjustment beginning with discharges 

on or after October 1, 2014. 

With respect to a subsection (d) 

hospital, we are proposing that CMS 

will identify the top quartile of all 

hospitals that are subsection (d) 

hospitals with respect to their rate of 

HACs during the applicable period 

(proposed § 412.172(e)(1)). We are 

proposing that CMS will use Total HAC 

scores to identify applicable hospitals 

and will identify the 25 percent of 

hospitals with the highest Total HAC 

scores as applicable hospitals (proposed 

§ 412.172(e)(2)). In addition, we are 

proposing that CMS will calculate the 

Total HAC score by weighing Domain 1 

score plus Domain 2 equally at 50 

percent (proposed § 412.172(e)(3)). 

We are proposing that hospital 

performance under section 1886(p) of 

the Act would be based on a Total HAC 

Score, which combines a hospital’s 

results for Domains 1 and 2. As 

discussed earlier, we are proposing that 

the Domain 1 score be a combination of 

each hospital’s result for all of the six 

individual AHRQ measures (Domain 1/ 

Proposed Approach). We presented an 

alternative, the hospital’s result for PSI 

90 (Domain 1/Alternative Approach), 

which also could be used. For Domain 

1/Proposed Approach, because hospitals 

may not have complete data for every 

AHRQ measure in the domain, we are 

proposing to use the same methodology 

as used for the Hospital VBP Program to 

determine the minimum number of 

measures with complete data to be 

included in the calculation of the 

Outcome Domain. We are proposing to 

use the following rules to determine the 

number of AHRQ measures to be 

included in the calculation for a 

hospital’s Domain 1 score (Table B). In 

this discussion, ‘‘complete data’’ refers 

to whether a hospital has enough 

eligible discharges to calculate a rate for 

a measure. Specifically— 

If a hospital did not have complete 

data for all six of the AHRQ measures, 

or if a hospital had complete data for 

fewer than three AHRQ measures, we 

would not calculate a Domain 1 score 

for that hospital. 

If a hospital had complete data for at 

least three but fewer than six AHRQ 

measures, we would calculate a Domain 

1 score for that hospital based on the 

rates of the available measures. The rate 

of each of these three to five available 

measures would be equally weighted to 

contribute to the Domain 1 score. We 

would exclude the AHRQ measure(s) for 

which the hospital did not have 

complete data. Thus, if a hospital had 

complete data for three AHRQ 

measures, each measure would 

contribute to one-third of the hospital’s 

Domain 1 score; if a hospital had 

complete data for four AHRQ measures, 

each measure would contribute to onefourth of the hospital’s Domain 1 score; 

if a hospital had complete data for five 

AHRQ measures, each measure would 

contribute to one-fifth of the hospital’s 

Domain 1 score. 

If a hospital had complete data for at 

least three but fewer than six AHRQ 

measures, we would calculate a Domain 

1 score for that hospital based on the 

rates of the available measures. The rate 

of each of these three to five available 

measures would be equally weighted to 

contribute to the Domain 1 score. We 

would exclude the AHRQ measure(s) for 

which the hospital did not have 

complete data. Thus, if a hospital had 

complete data for three AHRQ 

measures, each measure would 

contribute to one-third of the hospital’s 

Domain 1 score; if a hospital had 

complete data for four AHRQ measures, 

each measure would contribute to onefourth of the hospital’s Domain 1 score; 

if a hospital had complete data for five 

AHRQ measures, each measure would 

contribute to one-fifth of the hospital’s 

Domain 1 score. 

If a hospital had complete data for all 

six AHRQ measures, we would calculate 

a Domain 1 score for that hospital based 

on the rates of all six measures. The rate 

of each of these six measures would be 

equally weighted to contribute to the 

Domain 1 score. Thus, each measure 

would contribute to one-sixth of the 

hospital’s Domain 1 score. 

TABLE B—OVERALL DESCRIPTION OF

HOW MEASURES IN DOMAIN 1/PROPOSED APPROACH WOULD BE HANDLED IN TOTAL HAC SCORE

Domain 1—Proposed Approach: Six individual AHRQ Patient Safety Indicators (PSIs) 

Number 

of PSIs 

with 

complete 

data* 

Rules for calculating Domain 1— 

Option 1 score 

< 3 ........ • Do not calculate Domain 1 score 

or Total HAC Score for hospital. 

3 to 5 .... • Include PSIs with complete data 

in calculation of Domain 1 score. 

• Exclude PSIs without complete 

data. 

• Weight each PSI equally. 

6 ........... • Include all 6 PSIs in calculation 

of Domain 1 score and Total 

HAC score. 

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27630 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

TABLE B—OVERALL DESCRIPTION OF

HOW MEASURES IN DOMAIN 1/PROPOSED APPROACH WOULD BE HANDLED IN TOTAL HAC SCORE—Continued 

Domain 1—Proposed Approach: Six individual AHRQ Patient Safety Indicators (PSIs) 

Number 

of PSIs 

with 

complete 

data* 

Rules for calculating Domain 1— 

Option 1 score 

• Weight each PSI equally. 

*Complete data = A hospital having enough 

cases to calculate the risk-adjusted and reliability-adjusted rate for an AHRQ PSI. 

The calculation of the SIR for the CDC 

measures requires the facility have >1 

predicted HAI event. The predicted 

number of events is calculated using the 

national HAI rate and the observed 

number of the specific HAIs. In the 

event an SIR cannot be calculated 

because the facility has <1 predicted 

infection, Domain 1 scores exclusively 

will be used to calculated a HAC score. 

In other words, we would exclude from 

the overall HAC score calculation any 

measure for which an SIR cannot be 

calculated for the reason set out above. 

Because of the differences among the 

measures proposed for the HAC 

Reduction Program and the distribution 

of measure results, simply adding up 

the measure results to calculate the 

domain or Total HAC Scores would 

make the scores less meaningful to 

hospitals and the general public. As a 

result, we are proposing that points be 

assigned to hospitals’ performance for 

each measure. This approach aligns 

with the Hospital VBP Program for 

measuring hospital achievement. In 

particular, the Hospital VBP Program 

assigns up to 10 points for each measure 

based on a hospital’s result of that 

measure for a given time period. We 

note that, for the HAC Reduction 

Program, unlike the Hospital VBP 

Program where a higher score means 

better performance, the more points a 

hospital receives on a measure 

correspond with a poorer score. For the 

HAC Reduction Program, we are 

proposing a slightly different 

methodology for scoring points, 

depending on the specific measure 

(Table C). Specifically— 

• For PSI 5 (Volume of foreign object 

left in body) in Domain 1—Proposed 

Approach, the measure results are 

frequency counts. 

Æ Because this measure captures the 

number of never events, which should 

never happen, regardless of patient or 

hospital characteristics, we are 

proposing to assign 10 points, the 

maximum number of points, if the 

hospital had at least one occurrence. 

Æ If a hospital had no occurrence for 

this measure, we would assign zero 

points. 

• For PSI 3, 6, 10, 12, and 15 in 

Domain 1—Proposed Approach, point 

assignment for each measure would be 

based on the rate of occurrence for that 

measure. 

Æ If a hospital’s rate is within the 

worse performing quartile for a measure, 

we would assign 1 to 10 points to the 

hospital for that measure. The proposed 

rules for determining the number of 

points to be assigned are discussed later. 

Æ If a hospital’s rate is not within the 

worse performing quartile for a measure, 

we would assign zero points to the 

hospital for that measure. 

• For the AHRQ Patient Safety for 

Selected Condition (PSI 90) composite 

in Domain 1—Alternative Approach, 

point assignment would be based on a 

hospital’s score for the composite 

measure. 

Æ If a hospital’s result is within the 

worse performing quartile for a measure, 

we would assign 1 to 10 points to the 

hospital for this composite measure. 

The proposed rules for determining the 

number of points to be assigned are 

discussed later. 

Æ If a hospital’s result is not within 

the worse performing quartile, we 

would assign zero points to the hospital 

for this composite measure. 

• For the CDC NHSN measures in 

Domain 2, point assignment for each 

measure would be based on the SIR for 

that measure. 

Æ If a hospital’s SIR is within the 

worse performing quartile for a measure, 

we would assign 1 to 10 points to the 

hospital for that measure. The proposed 

rules for determining the number of 

points to be assigned are discussed later. 

Æ If a hospital’s SIR is not within the 

worse performing quartile for a measure, 

we would assign zero points to the 

hospital for that measure. 

TABLE C—CALCULATION OF DOMAIN 1 AND 2 MEASURES

Measure name Measure result Scenario Individual measure score 

(points) 

PSI–5 * ...................................... Frequency count ........................................... Occurrence = 0 ....................... 0 

Occurrence ≥ 1 ........................ 10 

PSIs 3, 6, 10, 12, 15 ** ............ Rates *** ........................................................ Rate ≥ 75% ............................. 1–10 

Rate < 75% ............................. 0 

PSI 90 ...................................... Weighted average of rates of component indicators.Composite value ≥ 75% .......... 1–10 

Composite value < 75% .......... 0 

CDC NHSN measure ............... Standard Infection Ratio (SIR) ..................... SIR ≥ 75% ............................... 1–10 (see Figure A) 

SIR < 75% ............................... 0 

* PSI–5 is the Volume of foreign object left in the body measure, developed by AHRQ. 

** PSI–3 is Pressure ulcer rate; PSI–6 is Iatrogenic Pneomothorax; PSI–10 is Postoperative physiological and metabolic derangement rate; 

PSI–12 is Postoperative pulmonary embolism or deep vein thrombosis rate; PSI–15 is Accidental puncture and laceration rate. 

*** These measure rates are risk-adjusted and reliability-adjusted. 

For all the proposed measures for the 

HAC Reduction Program, with the 

exception of PSI 5, we are proposing the 

following rules to determine the number 

of points assigned to a measure that is 

within the top (or worse performing) 

quartile: Based on the distribution of 

measure results within the top (or worse 

performing) quartile of a measure, we 

would divide the measure results into 

percentiles. Figure A shows an example 

for point assignment for PSI 3 (Pressure 

ulcer rate). In this example, if a 

hospital’s rate for PSI 3 is between 

0.3000 and 0.3400, it is within the top 

(or worse performing) quartile. For 

Hospital A, the rate for PSI 3 is 0.3378. 

As a result, Hospital A is subject to 1 to 

10 points for PSI 3. Based on the 

distribution for PSI 3 rates for all the 

hospitals in the top quartile, we would 

divide the results into percentiles in 

increments of 10 with the lowest 

percentile ranges meaning better 

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performance within the top quartile. 

Hospitals with PSI 3 rates within the 

lowest tenth percentile of the top 

quartile would be given one point; those 

with PSI 3 rates within the second 

lowest percentile range (between the 

10th and 20th percentile) of the top 

quartile would be given 2 points, etc. 

Because Hospital A’s rate for PSI 3 is 

within the eighth percentile range 

(between the 70th and 80th percentile), 

we would assign 8 points to this PSI 3 

measure for Hospital A. 

POINT ASSIGNMENT FOR HOSPITAL A’S

PSI–3 SCORE: 

If Hospital A’s PSI–3 rate falls 

into this percentile above 75% 

Then assign 

this number 

of points 

1st–10th .................................... 1 

11th–20th .................................. 2 

21st–30th .................................. 3 

31st–40th .................................. 4 

41st–50th .................................. 5 

51st–60th .................................. 6 

61st–70th .................................. 7 

71st–80th .................................. 8 

81–90th ..................................... 9 

91st–100th ................................ 10 

For Domain 2, we would obtain 

measure results that hospitals submitted 

to the CDC NHSN for the Hospital IQR 

Program. The CDC HAI measures 

capture adverse events that occurred 

within intensive care units (ICUs), 

including pediatric and neonatal units. 

For the Hospital IQR Program, hospitals 

that elected to participate in the 

reporting program (that is, had an active 

IQR pledge), but did not have ICUs, can 

apply for an ICU waiver so that they 

would not be subject to the 2-percent 

payment reduction for nonsubmission 

of quality reporting data. 

In the second quarter of 2012, among 

the 3,321 IPPS hospitals with an active 

IQR pledge for data submission, 377 (or 

10.1 percent) applied and received an 

ICU waiver. At the same time, 2,939 

hospitals (88.5 percent) of the IPPS 

hospitals did not have an ICU waiver 

and submitted data for the CDC HAI 

CLABSI measure, while 4 hospitals (0.1 

percent) that had no ICU waiver failed 

to submit data to the NHSN. For the 

same quarter, of the 3,321 IPPS 

hospitals with an active IQR pledge, 

2,935 (88.4 percent) that did not have an 

ICU waiver submitted data for the CDC 

HAI CAUTI measure, whereas 8 

hospitals (0.2 percent) did not submit 

data. Because data availability for the 

two proposed CDC HAI measures 

impact the score for Domain 2 and 

eventually the Total HAC Score, CMS 

aims to encourage hospitals with an ICU 

that did not submit data to begin data 

submission, and to reward hospitals that 

have already submitted data to continue 

data submission for all the CDC HAI 

measures. To this end, we are proposing 

the following rules (Figure B): 

• If a hospital had an ICU waiver for 

the CDC HAI measures, we would use 

only the Domain 1 score to calculate its 

Total HAC Score. 

• If a hospital did not have an ICU 

waiver for a CDC HAI measure: 

Æ If the hospital did not submit data 

for the CDC HAI measures, we would 

assign 10 points to that measure for that 

hospital. 

Æ If the hospital did submit data for 

at least one CDC NHSN measure: 

D If there are complete data (that is, 

enough adverse events to calculate the 

SIR) for at least one measure, we would 

use those data to calculate a Domain 2 

score and use the hospital’s Domain 1 

and Domain 2 scores to calculate the 

Total HAC Score. 

D If there are not enough adverse 

events to calculate the SIR for any of the 

measures, we would use only the 


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27632 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

hospital’s Domain 1 score to calculate 

its Total HAC Score. 

BILLING CODE 4120–01–P 

BILLING CODE 4120–01–C 


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Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 27633 

As discussed earlier, if a hospital has 

complete data for the measures in both 

Domain 1 and Domain 2, the scores of 

the two domains would contribute 

equally to the Total HAC Score. In the 

case of Domain 1—Proposed Approach, 

if a hospital has complete data for at 

least three measures in Domain 1 and at 

least one measure in Domain 2, its 

Domain 1 score and Domain 2 score 

would contribute equally to its Total 

HAC Score. However, if a hospital has 

complete data for fewer than three 

measures in Domain 1 and at least one 

measure in Domain 2, its Total HAC 

Score would depend entirely on its 

Domain 2 score. Similarly, if a hospital 

has complete data for at least three of 

the measures in Domain 1 but none of 

the measures in Domain 2, its Total 

HAC Score would be based entirely on 

its Domain 1 score. If a hospital does not 

have complete data for at least three 

measures in Domain 1 and at least one 

measure in Domain 2, we would not 

calculate a Total HAC Score for this 

hospital. 

In the case of Domain 1—Alternative 

Approach, if a hospital has enough data 

to calculate PSI 90 for Domain 1 and 

complete data for at least one measure 

in Domain 2, the scores of the two 

domains would contribute equally to 

the Total HAC Score. However, if a 

hospital does not have enough data to 

calculate PSI 90 for Domain 1 but it has 

complete data for at least one measure 

in Domain 2, its Total HAC Score would 

depend entirely on its Domain 2 score. 

Similarly, if a hospital has complete 

data to calculate PSI 90 in Domain 1 but 

none of the measures in Domain 2, its 

Total HAC Score would be based 

entirely on its Domain 1 score. If the 

hospital does not have complete data to 

calculate PSI 90 for Domain 1 or any of 

the measures in Domain 2, we would 

not calculate a Total HAC Score for this 

hospital. 

We are inviting public comments on 

this proposed scoring methodology. In 

addition, we are inviting public 

comments on alternate methodologies 

for scoring hospitals and determining 

most accurately those hospitals that are 

in the top quartile for the selected 

HACs. For example, instead of awarding 

points for each measure only to those 

hospitals that fall in the top quartile for 

that specific measure, an alternative 

option would be to award points to each 

hospital for each measure in deciles 

from the best performing hospital to the 

worst performing hospital. Another 

example would be to award points in 

deciles for each measure between the 

median rate for a particular measure and 

the rate of the worst performing 

hospital. We are seeking to identify 

hospitals that are in the top quartile for 

all of the HACs combined and are 

soliciting public comments on 

approaches to best identify this group of 

hospitals. 

e. Reporting Hospital-Specific 

Information, Including the Review and 

Correction of Information 

(1) Confidential Reports to Applicable 

Hospitals 

Section 1886(p)(5) of the Act requires 

the Secretary to provide confidential 

reports to the applicable hospitals with 

respect to HACs. To meet the 

requirements under section 1886(p)(5) 

of the Act, we are proposing that 

confidential reports for the HAC 

Reduction Program contain information 

related to claims-based measure data for 

the PSI measures, the domain score for 

each domain, and the Total HAC Score. 

We note that, although we are proposing 

to use chart-abstracted measures in the 

HAC Reduction Program, such 

information will be contained in the 

reports hospitals currently receive as 

part of the Hospital IQR Program and 

can be reviewed and corrected through 

the process specified for that program. 

We believe that this method would 

reduce the burden on hospitals, by 

alleviating the need to correct data 

present in two different programs. 

However, we welcome any public 

comments and suggestions on this 

proposal. 

(2) Availability of Information to the 

Public 

Section 1886(p)(6)(A) of the Act 

requires the Secretary to ‘‘make 

information available to the public 

regarding HAC rates of each subsection 

(d) hospital’’ under the HAC Reduction 

Program. Section 1886(p)(6)(C) of the 

Act requires the Secretary to post the 

HAC information for each applicable 

hospital on the Hospital Compare Web 

site in an easily understood format. 

Section 1886(p)(6)(B) of the Act also 

requires the Secretary to ‘‘ensure that an 

applicable hospital has the opportunity 

to review, and submit corrections for, 

the HAC information to be made public 

for each hospital.’’ 

To meet the requirements under 

section 1886(p)(6)(C) of the Act, we are 

proposing that the following 

information would be made public on 

the Hospital Compare Web site relating 

to the HAC Reduction Program: (1) 

Hospital scores with respect to each 

measure; (2) each hospital’s domain 

specific score; and (3) the hospital’s 

Total HAC Score. However, because this 

is a new program, we are inviting public 

comments and suggestions on other 

information to be posted on the Hospital 

Compare Web site. 

(3) Review and Correction of 

Information 

Section 1886(p)(6)(B) of the Act 

requires the Secretary to ensure that 

each hospital has the opportunity to 

review and submit corrections for the 

information to be made available to the 

public with respect to each hospital 

under section 1886(p)(6)(A) of the Act 

prior to such information being made 

available to the public. We are 

proposing that hospitals be allowed to 

review and correct the following 

information as part of the HAC 

Reduction Program prior to it being 

made available to the public: the claimsbased measures in Domain 1; the point 

allocations for the measures in each 

domain; the domain scores; and the 

Total HAC Score. 

For the FY 2015 HAC Reduction 

Program, we are proposing to use 

individual HAC measures consisting of 

CDC HAI measures as well as claimsbased measures. Further, we are 

proposing for the HAC Reduction 

Program that hospitals have an 

opportunity to review and correct chart 

abstracted data and claims based data 

for each measure through the processes 

discussed below. These individual 

measures will be used to calculate the 

domain and Total HAC Score, which 

would determine those applicable 

hospitals within the top quartile, or 

those hospitals with the highest number 

of HACs. We also are proposing that 

hospitals have the opportunity to review 

and submit corrections on its Domain 

and Total HAC Score for the HAC 

Reduction Program, which is also 

described below. 

(a) Chart-Abstracted Measures (Domain 

2—CDC HAI Measures) 

We are proposing to use the same 

process that hospitals currently have to 

review and correct data submitted on 

the Hospital IQR Program chartabstracted measures to review and 

correct chart-abstracted measures in 

Domain 2 under the HAC Reduction 

Program. Under this proposed process, 

hospitals would continue to have the 

opportunity to review and correct data 

they submit on all Hospital IQR Program 

chart abstracted measures, whether or 

not the measure was adopted as a 

measure for the HAC Reduction 

Program. We are proposing to use the 

Hospital IQR Program’s data 

submission, review, and correction 

processes, which would allow for 

review and correction of data on a 

continuous basis as data are being 

submitted for the Hospital IQR Program, 

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27634 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

which in turn would allow hospitals to 

correct data used to calculate the Total 

HAC Score for those hospitals that 

participate in both the Hospital IQR 

Program and the HAC Reduction 

Program. We believe this process would 

satisfy the requirement in section 

1886(p)(6) of the Act to allow hospitals 

to review and submit corrections for 

information that will be made public 

with respect to each hospital. Under the 

Hospital IQR Program, hospitals 

currently have an opportunity to 

submit, review, and correct any of the 

chart-abstracted information for the full 

4 1⁄2 months following the last discharge 

date in a calendar quarter. Hospitals can 

begin submitting data on the first 

discharge day of any reporting quarter. 

Hospitals are encouraged to submit data 

early in the submission schedule to 

identify errors and resubmit data before 

the quarterly submission deadline. 

Users may view and make corrections to 

the data that they submit starting 

immediately following submission. The 

data are populated into reports that are 

updated immediately with all data that 

have been submitted successfully. 

Hospitals are able to view a report each 

quarter which shows the numerator, 

denominator, and percentage of total for 

each Clinical Measure Set and Stratum. 

That report contains the hospital’s 

performance on each measure set/ 

stratum submitted quarterly by CDC on 

behalf of hospitals to CMS’QIO Clinical 

Warehouse. We believe that 4 1⁄2 months 

is sufficient time for hospitals to be able 

to submit, review data, make corrections 

to the data, and view their percentage of 

total, or measure rate, on each Clinical 

Measure Set/Strata for use in both the 

Hospital IQR Program and the HAC 

Reduction Program. In addition, because 

this process is familiar to most 

hospitals, use of this existing framework 

reduces the burden that could have been 

placed on hospitals that participate in 

the Hospital IQR Program if they had to 

learn a new process for submitting 

chart-abstracted data for the HAC 

Reduction Program. Subsequent to the 

period during which hospitals could 

review and correct data and measure 

rates for chart-abstracted measures as 

specified, they would have no further 

opportunity to correct such data or 

measure rates. We are proposing that 

once the hospital had an opportunity to 

review and correct quarterly data related 

to chart abstracted measures submitted 

in the Hospital IQR Program, we would 

consider that the hospital had been 

given the opportunity to review and 

correct the data for the HAC Reduction 

Program. We are proposing to use these 

data to calculate the measure scores for 

purposes of the HAC Reduction 

Program, and these measure scores 

would be used to calculate domain and 

Total HAC Scores for the HAC 

Reduction Program without further 

review and correction. We invite public 

comment on this proposal. 

(b) Claims Based Measures (Domain 1 

AHRQ PSI Measures) 

For purposes of the HAC Reduction 

Program for FY 2015, we are proposing 

to calculate Domain 1 measure rates 

using the 2-year applicable period for 

the FY 2015 payment determination that 

spans from July 1, 2011 through June 30, 

2013, data sources, and apply the 

minimum number of discharges criteria 

shown in Table B for each hospital as 

proposed. We intend to make this 

information available to the public, 

consistent with the requirements of 

section 1886(p)(6)(B) of the Act, as part 

of the FY 2015 rulemaking process, in 

addition to posting this information on 

the Hospital Compare Web site in a 

subsequent release. 

We are proposing to provide hospitals 

an opportunity to review and submit 

corrections for claim-based measures 

using a process similar to the process 

currently used for posting results on the 

Hospital Compare Web site, which is 

also the process currently used in the 

Hospital Readmissions Reduction 

Program. Below, we are proposing the 

details regarding the process for 

hospitals to review and submit 

corrections to their data score prior to 

making this information available to the 

public in rulemaking and on the 

Hospital Compare Web site. 

For FY 2015, for the HAC Reduction 

Program, we are proposing to deliver 

confidential reports and accompanying 

confidential discharge level information 

to hospitals as defined in section 

V.I.3.d. of the preamble of this proposed 

rule. These reports would 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. The 

discharge-level information 

accompanying the Domain 1 PSI 

measure rates would include the risk 

factors for the discharges that factor into 

the calculation of the Total HAC Score 

used to determine the top quartile of 

applicable hospitals, dates of admission 

and discharge, discharge characteristics, 

and other information relevant to the 

measure calculations, that is, 

exclusions. Our intent in providing this 

information is twofold: (1) To facilitate 

hospitals’ verification of the Domain 1 

PSI measure calculations we provide 

during the review and correction period 

based upon the information we had 

available at the time our data extract 

was created; and (2) to facilitate 

hospitals’ quality improvement efforts 

with respect to the PSI measures. 

The review and correction process we 

are proposing for claims based measures 

in Domain 1 would not include 

submitting additional corrections 

related to the underlying claims data we 

used to calculate the measures for 

Domain 1, or adding new claims to the 

data extract we used to calculate the 

measures used in Domain 1. 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 

measures in Domain 1 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 1 year 

from the date of discharge to submit a 

claim to us. 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, 2013, we 

would create the data extract on 

September 30, 2013, and use that data 

to calculate the claims based measures 

for that applicable period. Hospitals 

would then receive the Domain 1 Score 

in their confidential reports and 

accompanying discharge-level 

information, and they would have an 

opportunity to review and submit 

corrections for the calculations of the 

measures in Domain 1. As we stated 

above, hospitals would not be able to 

submit corrections to the underlying 

claims snapshot used for the Domain 1 

measure calculations after the extract 

date, and also would not be able to add 

claims to this data set. Therefore, we 

would consider hospitals’ claims data to 

be complete for purposes of calculating 

the Domain 1 for the HAC 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. 

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Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 27635 

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 1 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 episodebased 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 HAC 

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. We believe this would 

create an unacceptably long delay both 

for hospitals and for us 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 

Domain 1 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. 

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 

Domain 1 measures and the resulting 

Domain Score 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 Total HAC Score ends 

at the conclusion of the review and 

correction period. 

(c) Total HAC Score 

We are proposing to provide hospitals 

with a period of 30 days to review and 

submit corrections for their Total HAC 

Scores for the HAC Reduction Program. 

This 30-day period would begin when 

the hospitals’ confidential reports and 

accompanying discharge-level 

information are posted to their 

QualityNet accounts. This proposed 

requirement will enable us to evaluate 

correction requests and provide 

decisions on those requests in a timely 

manner. 

We believe that this proposed review 

and corrections process will ensure that 

hospitals are able to fully and fairly 

review their domain and Total HAC 

Score. We view the review and 

corrections process as a means to ensure 

that the information posted on the 

Hospital Compare Web site is accurate. 

We are inviting public comments on the 

proposed review and corrections 

process for the HAC Reduction Program. 

Based on previous experience with 

public reporting of measures under the 

Hospital IQR Program, and review and 

correction processes currently in place 

for the Hospital Readmission Reduction 

Program and the Hospital VBP Program, 

we believe this 30-day period allows 

enough time for hospitals to review 

their data and notify us of calculation 

errors, and for us to incorporate 

appropriate corrections to the HAC 

calculations prior to making the data 

available to the public. We are 

proposing that the Total HAC Score 

would be made available to the public 

via Hospital Compare Web site after the 

review and correction period. During 

the review and correction period, 

hospitals should notify us of suspected 

errors in their Total HAC Score using 

the technical assistance contact 

information provided in their 

confidential reports. 

During the 30-day review and 

correction process for the Total HAC 

Score, if a subsection (d) hospital 

suspects that discrepancies exist in our 

application of the HAC scoring 

methodology (assignment of points to 

measures, domain scoring, domain 

weighting), it should notify us 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 Total 

HAC Score, we would correct the 

calculations, issue new confidential 

reports to affected subsection (d) 

hospitals, and then publicly report the 

corrected Total HAC Score. However, if 

the errors take more time than 

anticipated to correct, we would notify 

hospitals that corrected HAC Scores will 

be made available through delivery of 

confidential reports followed by a 

second 30-day review and correction 

period, subsequent publication, and 

posting on Hospital Compare Web site. 

In addition, we are proposing that any 

corrections to a hospital’s Total HAC 

Score would then be used to recalculate 

a hospital’s quartile under section 

1886(p)(2)(B)(i) of the Act in order to 

determine the hospital’s adjustment 

factor in accordance with section 

1886(p)(2)(B)(ii) of the Act. 

We believe that this proposed process 

would fulfill the statutory requirements 

at section 1886(p)(2)(B), section 

1886(p)(6)(B), and section 1886(p)(6)(C) 

of the Act. We further believe that the 

proposed process would allow hospitals 

to review and correct their Total HAC 

Score. 

We are proposing to codify this 

review and correction process at 

proposed § 412.172(f). In summary, we 

are specifying that CMS will make 

information available to the public 

regarding HAC rates of all hospitals 

described in section 1886(d)(1)(B) of the 

Act, including hospitals in Maryland 

paid under section 1814(b)(3) of the Act, 

under the HAC Reduction Program 

(proposed paragraph (f)). To ensure that 

a hospital has the opportunity to review 

and submit corrections for its HAC rates 

for the applicable conditions for a fiscal 

year that are used to determine its total 

hospital acquired conditions score, we 

are specifying that CMS will provide 

each hospital with confidential hospitalspecific reports and discharge level 

information used in the calculation of 

its total hospital acquired conditions 

score (proposed paragraph (f)(2)). 

Hospitals will have a period of 30 days 

after receipt of the information provided 

to review and submit corrections for the 

hospital acquired conditions domain 

score for each condition that are used to 

calculate the Total HAC score for the 

fiscal year (proposed paragraph (f)(2)). 

The administrative claims data used to 

calculate a hospital’s total hospital 

acquired conditions score for the 

conditions for a fiscal year will not 

subject to review and correction 

(proposed paragraph (f)(3)). CMS will 

post the total hospital acquired 

condition score for the applicable 

conditions for a fiscal year for each 

applicable hospital on the Hospital 

Compare Web site (proposed paragraph 

(f)(4)). 

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27636 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

f. Limitation on Administrative and 

Judicial Review 

Section 1886(p)(7) of the Act provides 

that there will be no administrative or 

judicial review under Section 1869 of 

the Act, under Section 1878 of the Act, 

or otherwise for any of the following: 

• The criteria describing an 

applicable hospital under section 

1886(p)(2)(A) of the Act. 

• The specification of hospital 

acquired conditions under section 

1886(p)(3) of the Act. 

• The specification of the applicable 

period under section 1886(p)(4) of the 

Act. 

• The provision of reports to 

applicable hospitals under section 

1886(p)(5) of the Act. 

• The information made available to 

the public under section 1886(p)(6) of 

the Act. 

We are proposing to include these 

statutory provisions under proposed 

§ 412.172(g). We note that section 

1886(p)(6) of the Act requires the 

Secretary to make information available 

to the public regarding HAC scores of 

each applicable hospital under the HAC 

Reduction Program. Section 

1886(p)(6)(B) of the Act also requires the 

Secretary to ensure that an applicable 

hospital has the opportunity to review, 

and submit corrections for, the 

information to be made available to the 

public, prior to that information being 

made public. We believe that the review 

and correction process explained above 

will provide hospitals with the 

opportunity to correct data prior to its 

release on the Hospital Compare Web 

site. 

J. Payments for Direct Graduate Medical 

Education (GME) Costs (§§ 412.106 and 

413.75 through 413.83) 

1. Background 

Section 1886(h) of the Act, as added 

by section 9202 of the Consolidated 

Omnibus Budget Reconciliation Act 

(COBRA) of 1985 (Pub. L. 99–272) and 

as currently implemented in the 

regulations at 42 CFR 413.75 through 

413.83, establishes a methodology for 

determining payments to hospitals for 

the direct costs of approved graduate 

medical education (GME) programs. 

Section 1886(h)(2) of the Act sets forth 

a methodology for the determination of 

a hospital-specific base-period per 

resident amount (PRA) that is calculated 

by dividing a hospital’s allowable direct 

costs of GME in a base period by its 

number of full-time equivalent (FTE) 

residents in the base period. The base 

period is, for most hospitals, the 

hospital’s cost reporting period 

beginning in FY 1984 (that is, October 

1, 1983 through September 30, 1984). 

The base year PRA is updated annually 

for inflation. In general, Medicare direct 

GME payments are calculated by 

multiplying the hospital’s updated PRA 

by the weighted number of FTE 

residents working in all areas of the 

hospital complex (and at nonprovider 

sites, when applicable), and the 

hospital’s Medicare share of total 

inpatient days. 

Section 1886(d)(5)(B) of the Act 

provides for a payment adjustment 

known as the indirect medical 

education (IME) adjustment under the 

hospital inpatient prospective payment 

system (IPPS) for hospitals that have 

residents in an approved GME program, 

in order to account for the higher 

indirect patient care costs of teaching 

hospitals relative to nonteaching 

hospitals. The regulations regarding the 

calculation of this additional payment 

are located at 42 CFR 412.105. The 

hospital’s IME adjustment applied to the 

DRG payments is calculated based on 

the ratio of the hospital’s number of FTE 

residents training in either the inpatient 

or outpatient departments of the IPPS 

hospital to the number of inpatient 

hospital beds. 

The calculation of both direct GME 

and IME payments is affected by the 

number of FTE residents that a hospital 

is allowed to count. Generally, the 

greater the number of FTE residents a 

hospital counts, the greater the amount 

of Medicare direct GME and IME 

payments the hospital will receive. 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. Regulations 

implementing these changes are 

discussed in the November 24, 2010 

final rule (75 FR 72133) and the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53416). 

2. Proposed Inclusion of Labor and 

Delivery Days in the Calculation of 

Medicare Utilization for Direct GME 

Purposes and for Other Medicare 

Inpatient Days Policy 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53411), we discussed 

Medicare’s policies with respect to the 

treatment of labor and delivery services 

in the calculation of the Medicare DSH 

payment adjustment. We noted that, in 

the FY 2010 IPPS/LTCH PPS final rule, 

we made a change to include, in the 

DPP of the Medicare DSH payment 

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. We stated that we made 

the change because the costs associated 

with labor and delivery patient days are 

generally payable under the IPPS. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53413), we finalized a policy 

extending our current approach of 

including labor and delivery patient 

days in the DPP of the Medicare DSH 

payment adjustment to our rules for bed 

counting for purposes of both the IME 

payment adjustment and the Medicare 

DSH payment adjustment. We stated 

that if a patient day is counted for DSH 

payment purposes because the services 

furnished are generally payable under 

the IPPS, the bed in which the services 

are furnished also should be considered 

to be available for IPPS-level care. To 

implement this policy, we amended the 

regulations at 42 CFR 412.105(b)(4) to 

remove from the list of excluded beds 

those beds associated with ‘‘ancillary 

labor/delivery services.’’ This change 

was effective for cost reporting periods 

beginning on or after October 1, 2012. 

In response to our proposal in the FY 

2013 IPPS/LTCH proposed rule to 

include labor and delivery bed days as 

available bed days for DSH and IME 

payment adjustment purposes, 

commenters noted that if these days are 

considered inpatient days, they also 

should be considered patient days for 

purposes of allocating direct GME 

payments. However, the Medicare cost 

report currently does not allow for labor 

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Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 27637 

and delivery patient days to be counted 

in the direct GME patient load. In the 

FY 2013 IPPS/LTCH PPS final rule (77 

FR 53413), we stated that we would 

undertake further review to determine 

whether it was necessary to make any 

changes in the manner in which patient 

days are reported on the Medicare cost 

report and whether these labor and 

delivery patient days should be 

excluded or included from the 

calculation of the Medicare patient load. 

For this FY 2014 IPPS/LTCH PPS 

proposed rule, we have analyzed the 

calculation of the Medicare patient load 

and the cost reporting implications. 

Direct GME payments are calculated 

using three variables: the hospital’s per 

resident amount; the number of FTE 

residents a hospital is training subject to 

its FTE cap and the rolling average; and 

the hospital’s Medicare patient load. 

‘‘Medicare patient load’’ is defined at 42 

CFR 413.75(b) as ‘‘with respect to a 

hospital’s cost reporting period, the total 

number of hospital inpatient days 

during the cost reporting period that are 

attributable to patients for whom 

payment is made under Medicare Part A 

divided by total hospital inpatient days. 

In calculating inpatient days, inpatient 

days in any distinct part of the hospital 

furnishing a hospital level of care are 

included and nursery days are 

excluded.’’ We agree with the 

commenters who stated that because 

labor and delivery days are considered 

inpatient days for DSH purposes, they 

also should be considered inpatient 

days for purposes of determining the 

Medicare share for direct GME 

payments. We believe that the best way 

to calculate a hospital’s Medicare 

patient load or the ‘‘Medicare 

utilization’’ (the term we will use for the 

remainder of this section) is to include 

all of the hospital’s inpatient days. 

Consistent with the inpatient day 

counting rules for DSH as clarified in 

the FY 2010 IPPS/RY 2010 LTCH PPS 

final rule, we are proposing that patient 

days associated with maternity patients 

who were admitted as inpatients and 

were receiving ancillary labor and 

delivery services at the time the 

inpatient routine census is taken, 

regardless of whether the patient 

actually occupied a routine bed prior to 

occupying an ancillary labor and 

delivery bed and regardless of whether 

the patient occupies a ‘‘maternity suite’’ 

in which labor, delivery recovery, and 

postpartum care all take place in the 

same room, will be included in the 

Medicare utilization calculation. We 

understand that including labor and 

delivery inpatient days in the Medicare 

utilization ratio invariably would 

reduce direct GME payments because 

the denominator of the ratio, which 

includes the hospital’s total inpatient 

days, would usually increase at a higher 

rate than the numerator of the ratio. 

However, because the Medicare 

utilization ratio is a comparison of a 

hospital’s total Medicare inpatient days 

to its total inpatient days, we believe 

that revising the ratio to include labor 

and delivery days is appropriate 

because they are inpatient days and, 

therefore, should be counted as such. 

Therefore, we are proposing that, 

effective for cost reporting periods 

beginning on or after October 1, 2013, 

for purposes of applying the Medicare 

utilization ratio, we would include labor 

and delivery inpatient days in the 

numerator (to the extent that there are 

any labor and delivery inpatient days 

associated with Medicare beneficiaries), 

and all labor and delivery inpatient days 

(associated with all inpatients of the 

hospital) in the denominator. In order to 

implement this proposed change, we 

note that we would need to amend the 

applicable cost report worksheets and 

instructions (in particular, Worksheet 

S–3, Part 1) to allow for the inclusion 

of labor and delivery inpatient days in 

the Medicare utilization ratio. 

In addition to direct GME, which uses 

the ratio of Medicare inpatient days to 

total inpatient days to determine 

payment, this proposal also impacts 

other Medicare policies where either the 

number of inpatient days or a ratio of 

Medicare inpatient days to total 

inpatient days is used to determine 

eligibility or payment. Regarding 

eligibility, for example, including labor 

and delivery days as inpatient days 

could affect a hospital’s eligibility for 

SCH status. A hospital can be classified 

as an SCH if it is located more than 35 

miles from other like hospitals or is 

located in a rural area (as defined at 

§ 412.64 of the regulations) and meets 

one of the conditions listed in the 

regulations at § 412.92(a). In 

determining whether a nearby hospital 

is a like hospital, CMS compares the 

total inpatient days of the SCH 

applicant hospital with the total 

inpatient days of the nearby hospital. If 

the total inpatient days of the nearby 

hospital are greater than 8 percent of the 

total inpatient days reported by the SCH 

applicant hospital, the nearby hospital 

is considered a like hospital for 

purposes of evaluating the applicant 

hospital’s eligibility for SCH status. 

Therefore, including labor and delivery 

days as inpatient days may impact the 

count of inpatient days for both the SCH 

applicant hospital and the nearby 

hospital and may affect the applicant 

hospital’s eligibility for SCH status. 

However, this proposal would not 

impact Medicare payments calculated 

on a reasonable cost basis for routine 

inpatient services, which are 

apportioned in accordance with 42 CFR 

413.53(a)(1). 

In summary, we are proposing to 

include labor and delivery days as 

inpatient days in the Medicare 

utilization calculation, effective for cost 

reporting periods beginning on or after 

October 1, 2013. 

3. Notice of Closure of Teaching 

Hospital and Opportunity To Apply for 

Available Slots 

a. Background 

Section 5506 of the Affordable Care 

Act authorizes the Secretary to 

redistribute residency cap slots after a 

hospital that trained residents in an 

approved medical residency program(s) 

closes. Specifically, section 5506 

amended the Act by adding a subsection 

(vi) to section 1886(h)(4)(H) and 

modifying the language at section 

1886(d)(5)(B)(v) to instruct the Secretary 

to establish a process to increase the 

FTE resident caps for other hospitals 

based upon the FTE resident caps in 

teaching hospitals that closed ‘‘on or 

after a date that is 2 years before the 

date of enactment’’ (that is March 23, 

2008). In the CY 2011 OPPS/ASC final 

rule with comment period issued in the 

Federal Register on November 24, 2010 

(75 FR 72212), we established 

regulations and an application process 

for qualifying hospitals to apply to CMS 

to receive direct GME and IME FTE 

resident cap slots from a hospital that 

closed. The procedures we established 

apply both to teaching hospitals that 

closed after March 23, 2008, and on or 

before August 3, 2010, and to teaching 

hospitals that closed after August 3, 

2010. We made clarifications and 

revisions to the policy regarding 

applications under section 5506 in the 

FY 2013 IPPS/LTCH PPS final rule (77 

FR 53434 through 53477). 

b. Notice of Closure of a Teaching 

Hospital 

This notice serves to notify the public 

of the closure of a teaching hospital, and 

to initiate another round of the section 

5506 application and selection process. 

This round would be the fourth round 

of the section 5506 (‘‘Round 4’’) 

application and selection process. The 

following closed teaching hospital is 

part of the Round 4 application process 

under section 5506: 

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Provider 

No. 

Provider 

name 

City and 

state CBSA Code Terminating date 

IME Cap (including +/¥ MMA 

Sec. 422 1 adjustment) 

Direct GME Cap (including +/¥ 

MMA Sec. 422 1 adjustment) 

330002 .... Peninsula 

Hospital 

Center.

Far Rockaway, NY.35644 April 9, 2012 28.31 + 0.01 section 422 increase = 28.32 2.28.31 + 8.03 section 422 increase = 36.34 3

1Section 422 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Public Law 108–173, redistributed unused residency slots effective July 1, 2005. 2Peninsula Hospital Center’s 1996 IME FTE cap is 28.31. Under section 422 of the MMA, the hospital received an increase of 0.01 to its IME 

FTE cap: 28.31 + 0.01 = 28.32. We note that, under 42 CFR 412.105(d)(4), IME FTE cap slots associated with an increase received under section 422 of the MMA are to be paid using a special multiplier of 0.66. 3Peninsula Hospital Center’s 1996 direct GME FTE cap is 28.31. Under section 422 of the MMA, the hospital received an increase of 8.03 to 

its direct GME FTE cap: 28.31 + 8.03 = 36.34. We note that under 42 CFR 413.77(g), direct GME FTE cap slots associated with an increase received under section 422 of the MMA are to be paid using the appropriate locality-adjusted national average per resident amount (PRA). 

c. Application Process for Available 

Resident Slots 

The application period for hospitals 

to apply for slots under section 5506 is 

90 days following notification to the 

public of a hospital closure. Therefore, 

hospitals wishing to apply for and 

receive slots from the above hospital’s 

FTE resident caps must submit 

applications directly to the CMS Central 

Office no later than July 25, 2013. 

Unlike in the first 2 rounds of section 

5506, under this round, hospitals need 

not submit applications to their 

respective CMS Regional Office. The 

mailing address for the CMS Central 

Office is included on the application 

form. Applications must be received, 

not postmarked, by July 25, 2013. After 

an applying hospital sends a hard copy 

of a section 5506 application to the CMS 

Central Office mailing address, we 

strongly encourage it to send an email 

to: ACA5506application@cms.hhs.gov. 

In the email, the hospital should state: 

‘‘I am sending this email to notify CMS 

that I have mailed a hard copy of a 

section 5506 application to CMS.’’ An 

applying hospital should not attach an 

electronic copy of the application to the 

email. The email will only serve to 

notify CMS Central Office that a hard 

copy application has been mailed to 

CMS Central Office. 

In the CY 2011 OPPS/ASC final rule 

with comment period, we did not 

establish a deadline by when CMS 

would issue the final determinations to 

hospitals that receive slots under 

section 5506 of the Affordable Care Act. 

However, we will review all 

applications received by the deadline, 

and will notify applicants of our 

determinations as soon as possible. 

We refer readers to the CMS Web site 

at http://www.cms.gov/Medicare/ 

Medicare-Fee-for-Service-Payment/ 

AcuteInpatientPPS/dgme.html to 

download a copy of the application 

form (Section 5506 CMS Application 

Form) that hospitals are to use to apply 

for slots under section 5506. We also 

refer readers to this same Web site to 

access a copy of the CY 2011 OPPS/ASC 

final rule with comment period, a copy 

of the FY 2013 IPPS/LTCH PPS final 

rule (CMS–1488–F, 77 FR 53434 

through 53447), and a list of additional 

section 5506 guidelines for an 

explanation of the policy and 

procedures for applying for slots, and 

the redistribution of the slots under 

sections 1886(h)(4)(H)(vi) and 

1886(d)(5)(B)(v) of the Act. 

4. Payments for Residents Training in 

Approved Residency Programs at CAHs 

a. Background 

Recently, we have received questions 

regarding how CMS would make 

payment for residency training 

occurring in a CAH. In the past, we have 

advised that (1) CAHs may be paid 

directly under the CAH payment 

methodology (that is, 101 percent of the 

reasonable costs of the CAH in 

accordance with sections 1814(l) and 

1834(g) of the Act), or (2) CAHs could 

function as nonhospital settings and 

therefore, as such, a hospital may be 

paid if it incurred the costs of training 

occurring in the CAH as provided under 

section 1886(d)(5)(B)(iv) of the Act for 

IME and section 1886(h)(4)(E) of the Act 

for direct GME. 

Section 5504 of the Affordable Care 

Act, titled ‘‘Counting Resident Time in 

Non-Provider Settings,’’ amended the 

Act in connection with ‘‘cost reporting 

periods beginning on or after July 1, 

2010,’’ for direct GME, and for 

discharges on or after July 1, 2010 for 

IME, to permit hospitals to count the 

time that a resident trains in activities 

related to patient care in a nonprovider 

site in its FTE count if the hospital 

incurs the costs of the residents’ salaries 

and fringe benefits for the time that the 

resident spends training in the 

nonprovider site. In connection with 

those periods and discharges, if more 

than one hospital incurs the residency 

training costs in a nonprovider setting, 

under certain circumstances, section 

5504 allows each hospital to count a 

proportional share of the training time 

that a resident spends training in that 

setting, as determined by a written 

agreement between the hospitals. When 

Congress enacted section 5504 of the 

Affordable Care Act, it retained the 

statutory language which provides that 

a hospital can only count the time so 

spent by a resident under an approved 

medical residency training program in 

its FTE count if that one single hospital 

by itself ‘‘incurs all, or substantially all, 

of the costs for the training program in 

that setting.’’ Congress made that 

longstanding substantive standard and 

requirement applicable to ‘‘cost 

reporting periods beginning before July 

1, 2010’’ for direct GME, and to 

‘‘discharges occurring on or after 

October 1, 1997, and before July 1, 

2010’’ for IME (Sections 

1886(d)(5)(B)(iv)(I) and 1886(h)(4)(E)(i) 

of the Act). 

Section 5504 also changed the manner 

in which the Act refers to sites outside 

the hospital in which residents train. 

Specifically, section 5504(a)(4), 

amended the Act by adding at the end 

of section 1886(h)(4)(E) a sentence that 

specifically identified such ‘‘outpatient 

settings’’ as ‘‘nonprovider setting[s].’’ 

That is, prior to the enactment of the 

Affordable Care Act, section 1886(h) of 

the Act did not include a specific term, 

but rather used the phrase, ‘‘without 

regard to the setting’’ in which the 

residents train, and now, with 

amendments from the Affordable Care 

Act, the Act specifically refers both to 

the phrase, ‘‘without regard to the 

setting’’ and to the phrase ‘‘time spent 

in a nonprovider setting.’’ (We invite 

readers to compare section 

1886(h)(4)(E)(i) of the Act) as of 2010 

with sections 1886(h)(4)(E)(i) and 

1886(h)(4)(E)(ii) of the Act as of 2011.) 

We also note that prior to the 

amendment in section 5504(b) of the 

Affordable Care Act, section 

1886(d)(5)(B)(iv) of the Act relating to 

IME referenced training in a 

‘‘nonhospital’’ setting. This remains true 

in the wake of the Affordable Care Act 

for ‘‘discharges occurring on or after 

October 1, 1997 and before July 1, 

2010.’’ (We refer readers to section 

1886(d)(5)(B)(iv)(I) of the Act.) However, 

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effective for ‘‘discharges occurring on or 

after July 1, 2010,’’ the IME statutory 

language refers to training in a 

‘‘nonprovider’’ setting. (We refer readers 

to section 5504(b) of the Affordable Care 

Act and section 1886(d)(5)(B)(iv)(II) of 

the Act.) 

We acknowledge that, prior to the 

effective date of section 5504 of the 

Affordable Care Act (July 1, 2010), in 

the preamble of rules and in other 

policy discussions, we have used both 

the term ‘‘nonhospital’’ and 

‘‘nonprovider’’ interchangeably in the 

context of allowing a hospital to count 

residents training at locations outside 

the hospital. We amended the 

regulations at § 412.105(f)(1)(ii)(E) for 

IME and § 413.78(g) for direct GME to 

reflect the changes made by section 

5504 of the Affordable Care Act. Section 

413.78(g) is explicitly made applicable 

only to ‘‘cost reporting periods 

beginning on or after July 1, 2010,’’ 

whereas earlier cost reporting periods 

are governed by other preceding 

paragraphs of § 413.78. 

b. Residents in Approved Medical 

Residency Training Programs That Train 

at CAHs 

Section 4201 of the BBA of 1997 (Pub. 

L. 105–33) amended section 1820 to the 

Act to create facilities called ‘‘Critical 

Access Hospitals’’ (CAHs). Following 

the enactment of the BBA, but before the 

enactment of the Affordable Care Act, 

we were asked if and how CMS would 

pay for residents that rotate to a CAH for 

some portion of the residency training 

program when another hospital pays for 

the costs of the training at the CAH. To 

answer this question, we considered 

that a CAH is a unique facility that, by 

definition, is not always a hospital. That 

is, section 1861(e) of the Act states that 

‘‘the term ‘hospital’ does not include, 

unless the context otherwise requires, a 

critical access hospital (as defined in 

section 1861(mm)(1)).’’ Because a CAH 

is generally not considered a ‘‘hospital’’ 

under section 1861(e) of the Act, we 

concluded that a CAH could be treated 

as a nonhospital site for GME purposes. 

If a CAH could be treated as a 

nonhospital site for GME purposes, we 

also concluded that if another hospital 

(such as an IPPS hospital that is subject 

to payment under section 1886(h) of the 

Act or an IPPS-excluded hospital), 

incurred the costs of training the FTE 

residents for the portion of the time that 

they train at the CAH, and met the 

requirements of the regulations at 

§§ 413.78(d) through (f), the hospital 

could claim the FTE residents training 

at the CAH for IME and/or direct GME 

purposes. 

We recently determined that, as a 

result of the amendments made by 

section 5504 of the Affordable Care Act, 

we should reevaluate our policy 

regarding whether payment can be made 

to a hospital that incurs the costs of the 

FTE residents training at a CAH. 

Section 1861(u) of the Act states that 

a ‘‘provider of services’’ is ‘‘a hospital, 

critical access hospital, skilled nursing 

facility, comprehensive outpatient 

rehabilitation facility, home health 

agency, hospice program, or . . . a 

fund.’’ Therefore, while section 1861(e) 

of the Act states that a CAH is excluded 

from the definition of ‘‘hospital’’ unless 

the context requires otherwise, a CAH is 

a ‘‘provider.’’ 

Because section 5504(a) of the 

Affordable Care Act amended sections 

1886(d)(5)(B)(iv)(II) and 1886(h)(4)(E) of 

the Act on a prospective basis to 

specifically identify the setting in which 

time spent by residents training outside 

of the hospital setting may be counted 

for both direct GME and IME purposes, 

a hospital’s ability to count residents 

not training in the hospital is now 

limited to only those settings that are 

‘‘nonproviders.’’ Although the term 

‘‘nonprovider’’ is not defined in the 

statute, we believe it is reasonable to 

define the term as meaning those 

settings that do not meet the definition 

of ‘‘provider’’ at section 1861(u) of the 

Act. 

Accordingly, because a CAH is 

defined as a provider in the statute, we 

are proposing that, effective for portions 

of cost reporting periods occurring on or 

after October 1, 2013, a hospital may not 

claim the time FTE residents are 

training at a CAH for IME and/or direct 

GME purposes. However, under policies 

that were applicable prior to October 1, 

2013, and that continue to apply on and 

after October 1, 2013, a CAH may incur 

the costs of training the FTE residents 

for the time that the FTE residents rotate 

to the CAH, and receive payment based 

on 101 percent of its Medicare 

reasonable costs under § 413.70 of the 

regulations. We also note that, 

consistent with the regulations at 

§ 413.24(d)(7), a CAH may not include 

as an allowable cost the portion of any 

training costs associated with the time 

that a resident is not training at the CAH 

and its provider-based facilities. 

5. Expiration of Inflation Update Freeze 

for High Per Resident Amounts (PRAs) 

The Balanced Budged Refinement Act 

(BBRA) of 1999 (Pub. L. 106–113) 

amended section 1886(h)(2) of the Act 

to establish a methodology for the use 

of a national average per resident 

amount (PRA) in computing direct GME 

payments for cost reporting periods 

beginning on or after October 1, 2000, 

and on or before September 30, 2005. 

The BBRA established a ‘‘floor’’ for 

hospital-specific PRAs at 70 percent of 

the locality-adjusted national average 

PRA. In addition, the BBRA established 

a ‘‘ceiling’’ that limited the annual 

adjustment to a hospital-specific PRA if 

the PRA exceeded 140 percent of the 

locality-adjusted national average PRA. 

Section 511 of the Benefits 

Improvement and Protection Act (BIPA) 

of 2000 (Pub. L. 106–554) further 

amended section 1886(h)(2) of the Act 

by increasing the floor established by 

the BBRA to 85 percent of the localityadjusted national average PRA, for cost 

reporting periods beginning in FY 2002. 

For purposes of calculating direct GME 

payments, each hospital-specific PRA is 

compared to the floor and ceiling to 

determine whether the hospital-specific 

PRA should be revised. Section 711 of 

the Medicare Modernization Act of 2003 

(Pub. L. 108–173) amended section 

1886(h)(2)(D)(iv)(I) of the Act by 

freezing the annual CPI–U updates to 

hospital-specific PRAs for those PRAs 

that exceed the ceiling for FYs 2004 

through 2013. The implementing 

regulations for these statutory 

provisions are located at 42 CFR 

413.77(d). 

We are providing notice here that the 

‘‘freeze’’ for PRAs that exceed the 

ceiling expires beginning in FY 2014. 

That is, for cost reporting periods 

beginning on or after October 1, 2013, 

the usual full CPI–U update, as 

determined under 42 CFR 413.77(c)(1), 

would apply to all PRAs for direct GME 

payment purposes. 

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 

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— 

• Is located in a rural area (as defined 

in section 1886(d)(2)(D) of the Act) or is 

treated as being located in a rural area 

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

• Has fewer than 51 beds (excluding 

beds in a distinct part psychiatric or 

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rehabilitation unit) as reported in its 

most recent cost report; 

• Provides 24-hour emergency care 

services; and 

• Is not designated or eligible for 

designation as a CAH under section 

1820 of the Act. 

Section 410A(a)(4) of Public Law 108– 

173 specified that the Secretary was to 

select for participation no more than 15 

rural community hospitals in rural areas 

of States that the Secretary identified as 

having low population densities. Using 

2002 data from the U.S Census Bureau, 

we identified the 10 States with the 

lowest population density in which 

rural community hospitals were to be 

located in order to participate in the 

demonstration: Alaska, Idaho, Montana, 

Nebraska, Nevada, New Mexico, North 

Dakota, South Dakota, Utah, and 

Wyoming. (Source: U.S. Census Bureau, 

Statistical Abstract of the United States: 

2003). 

CMS originally solicited applicants 

for the demonstration in May 2004; 13 

hospitals began participation with cost 

reporting periods beginning on or after 

October 1, 2004. In 2005, 4 of these 13 

hospitals withdrew from the program 

and converted to CAH status. This left 

nine hospitals participating at that time. 

In 2008, we announced a solicitation for 

up to six additional hospitals to 

participate in the demonstration 

program. Four additional hospitals were 

selected to participate under this 

solicitation. These four additional 

hospitals began under the 

demonstration payment methodology 

with the hospital’s first cost reporting 

period starting on or after July 1, 2008. 

At that time, 13 hospitals were 

participating in the demonstration. 

Five hospitals (3 of the hospitals were 

among the 13 hospitals that were 

original participants in the 

demonstration program and 2 of the 

hospitals were among the 4 hospitals 

that began the demonstration program 

in 2008) withdrew from the 

demonstration program during CYs 

2009 and 2010. (Three of these hospitals 

indicated that they would be paid more 

for Medicare inpatient hospital services 

under the rebasing option allowed 

under the SCH methodology provided 

for under section 122 of the Medicare 

Improvements for Patients and 

Providers Act of 2008 (Pub. L. 110–275). 

One hospital restructured to become a 

CAH, and one hospital closed.) In CY 

2011, one hospital that was among the 

original set of hospitals that participated 

in the demonstration withdrew from the 

demonstration. These actions left 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 Public Law 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 Public Law 

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 

reporting 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 

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 

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to be implemented by reducing other 

payments for these same hospitals. 

In the past nine 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 2013 IPPS final rules (69 

FR 49183; 70 FR 47462; 71 FR 48100; 

72 FR 47392; 73 FR 48670; 74 FR 43922, 

75 FR 50343, 76 FR 51698, and 77 FR 

53449, 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, in this FY 2014 IPPS/ 

LTCH PPS proposed rule, we are 

proposing to continue to use the 

methodology we finalized in FY 2013 to 

calculate a budget neutrality adjustment 

factor to the FY 2014 national IPPS 

rates. 

In general terms, in each of these 

previous years, we used available cost 

reports for the participating hospitals to 

derive an estimate of the additional 

costs attributable for the demonstration. 

Prior to FY 2013, we used finalized, or 

settled, cost reports, as available, and 

‘‘as submitted’’ cost reports for hospitals 

for which finalized cost reports were not 

available. Annual market basket 

percentage increase amounts provided 

by the CMS Office of the Actuary 

reflecting the growth in the prices of 

inputs for inpatient hospitals were 

applied to these cost amounts. In the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53452), we used ‘‘as submitted’’ cost 

reports (for cost reporting periods 

ending in CY 2010) for each hospital 

participating in the demonstration in 

estimating the costs of the 

demonstration. In addition, in FY 2013, 

we incorporated different update factors 

(the market basket percentage increase 

and the applicable percentage increase, 

as applicable, to several years of data as 

opposed to solely using the market 

basket percentage increase) for the 

calculation of the budget neutrality 

offset amount. Finally, in each of the 

previous years, an annual update factor 

provided by the CMS Office of the 

Actuary reflecting growth in the volume 

of inpatient operating services was also 

applied. For the budget neutrality 

calculations in the IPPS final rules for 

FYs 2005 through 2011, the annual 

volume adjustment applied was 2 

percent; for the IPPS final rules for FYs 

2012 and 2013, 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. (We note that section 

410A of Public Law 108–173 was later 

amended by the Affordable Care Act.) 

The reasonable cost-based methodology 

authorized by section 410A of Public 

Law 108–173, as amended, is hereafter 

referred to as the ‘‘reasonable cost 

methodology.’’ (We ascertained the 

estimated amount that would be paid in 

an earlier given year under the 

reasonable cost methodology and the 

estimated amount that would otherwise 

be paid without the demonstration in an 

earlier given year from ‘‘as submitted’’ 

cost reports that were submitted by the 

hospitals prior to the inception of the 

demonstration.) We then updated the 

estimated cost described above to the 

current year by multiplying it by the 

market basket percentage increases 

applicable to the years involved and the 

applicable annual volume adjustment. 

For the FY 2010 IPPS/RY 2010 LTCH 

PPS final rule, data from finalized cost 

reports reflecting the participating 

hospitals’ experience under the 

demonstration were available. 

Specifically, the finalized cost reports 

for the first 2 years of the 

demonstration, that is, cost reports for 

cost reporting years beginning in FYs 

2005 and 2006 (CYs 2004, 2005, and 

2006) were available. These data 

showed that the actual costs of the 

demonstration for these years exceeded 

the amounts originally estimated in the 

respective final rules for the budget 

neutrality adjustment. In the FY 2010 

IPPS/RY 2010 LTCH PPS final rule, we 

included in the budget neutrality offset 

amount an amount in addition to the 

estimate of the demonstration costs in 

that fiscal year. This additional amount 

was based on the amount that the costs 

of the demonstration for FYs 2005 and 

2006 exceeded the budget neutrality 

offset amounts finalized in the IPPS 

rules applicable for those years. 

Following upon the FY 2010 IPPS/RY 

2010 LTCH PPS final rule, we have 

continued to propose a methodology for 

calculating the budget neutrality offset 

amount to account for both the 

estimated demonstration costs in the 

upcoming fiscal year and an amount by 

which the actual demonstration costs 

corresponding to an earlier, given year 

(which would be known once we have 

finalized cost reports for that year) 

exceeded the budget neutrality offset 

amount finalized in the corresponding 

year’s IPPS final rule. However, we note 

that because of a delay affecting the 

settlement process for cost reports for 

IPPS hospitals occurring on a larger 

scale than merely for the demonstration, 

we 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 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.) 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53449 through 53453), we 

adopted changes to the methodology for 

calculating the budget neutrality offset 

amount in an effort to further improve 

and refine it. We noted that the revised 

methodology varied, in part, from that 

finalized in the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51698 through 

51705). Specifically, in adopting 

refinements to the methodology, our 

objective was to simplify the calculation 

so that it included as few steps as 

possible. In addition, we incorporated 

different update factors (the market 

basket percentage increase and the 

applicable percentage increase, as 

applicable, to several years of data as 

opposed to solely using the market 

basket percentage increase) for the 

calculation of the budget neutrality 

offset amount. We stated that we 

believed this approach would maximize 

the precision of our calculation because 

it would more closely replicate 

payments made with and without the 

demonstration. We refer readers to the 

FY 2013 IPPS/LTCH PPS final rule (77 

FR 53449 through 53453) for a detailed 

discussion of the methodology we used 

for FY 2013. We noted that, although we 

were making changes to certain aspects 

of the budget neutrality offset amount 

calculation for FY 2013, several core 

components of the methodology would 

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remain unchanged. For example, we 

continued to include in the budget 

neutrality offset amount methodology 

the estimate of the demonstration costs 

for the upcoming fiscal year and the 

amount by which the actual 

demonstration costs corresponding to an 

earlier year (which would be 

determined once we have finalized cost 

reports for that year) exceeded the 

budget neutrality offset amount 

finalized in the corresponding year’s 

IPPS final rule). However, finalized cost 

reports for the hospitals participating in 

the demonstration were not available for 

FYs 2007, 2008, 2009, and 2010 at the 

time of development of the FY 2013 

IPPS/LTCH PPS final rule. Therefore, 

we were unable to finalize this 

component of the budget neutrality 

offset calculation. We stated in the final 

rule that we expected settled cost 

reports for all of the demonstration 

hospitals that participated in the 

applicable fiscal year (FYs 2007, 2008, 

2009, and 2010) to be available prior to 

the FY 2014 IPPS/LTCH PPS proposed 

rule. 

2. Proposed FY 2014 Budget Neutrality 

Offset Amount 

For the reasons discussed in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53449 through 53453), we are proposing 

to continue to use the methodology 

finalized in that final rule to calculate 

a budget neutrality adjustment factor to 

be applied to the FY 2014 national IPPS 

payment rates. As we stated in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53451), we revised our methodology in 

that final rule to further improve and 

refine the calculation of the budget 

neutrality offset amount and to simplify 

the methodology so that it includes only 

a few steps. Consistent with the 

methodology finalized in the FY 2013 

IPPS/LTCH PPS final rule, the proposed 

methodology for calculating the 

estimated FY 2014 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 2011). The general 

reasonable cost amount calculated 

under the reasonable cost methodology 

is hereafter referred to as the 

‘‘reasonable cost amount.’’ As we 

explained in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53451), we believe 

that a way to streamline our 

methodology for calculating the budget 

neutrality offset amount would be to use 

cost reports with the same status and 

from the same time period for all 

hospitals participating in the 

demonstration. Because ‘‘as submitted’’ 

cost reports ending in CY 2011 are the 

most recent available cost reports, we 

believe they would be an accurate 

predictor of the costs of the 

demonstration in FY 2014 because they 

give us a recent picture of the 

participating hospitals’ costs. 

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 2011 reasonable cost 

amount for covered inpatient hospital 

services under the demonstration. As 

indicated above, we are proposing to 

use ‘‘as submitted’’ cost reports for the 

hospital’s cost reporting period ending 

in CY 2011 for this calculation. 

We are proposing to sum the two 

above-referenced amounts to calculate 

the general total estimated FY 2011 

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 2011 reasonable cost amount for 

covered inpatient hospital services for 

all 23 hospitals) by the FYs 2012, 2013, 

and FY 2014 IPPS market basket 

percentage increases, which are 

formulated by the CMS Office of the 

Actuary. In this proposed rule, we have 

used the current estimate of the FY 2014 

IPPS market basket percentage increase 

provided by the CMS Office of the 

Actuary. We are proposing to use the 

final IPPS market basket increase in the 

final rule. We also are proposing to then 

multiply the product of the general total 

estimated FY 2011 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 2012 through 2014—the result 

would be the general total estimated FY 

2014 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 2012 through 2014 to 

the FY 2011 reasonable cost amount 

described above to model the estimated 

FY 2014 reasonable cost amount under 

the demonstration. We are proposing to 

use the IPPS market basket percentage 

increases because we believe that these 

update factors appropriately indicate 

the trend of increase in inpatient 

hospital operating costs under the 

reasonable cost methodology for the 

years involved. The 3-percent annual 

volume adjustment was stipulated by 

the CMS Office of the Actuary and is 

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 2011 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 2011) if the demonstration was 

not implemented. Similarly, as in Step 

1, for the hospitals that provide swingbed 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 2011) and include 

it in the total FY 2011 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 2011 

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 

2011 total payments that generally 

would otherwise be paid for covered 

inpatient hospital services for all 23 

hospitals without the demonstration) by 

the FYs 2012 through 2014 IPPS 

applicable percentage increases. In this 

proposed rule, the current estimate of 

the applicable percentage increase is 

specified in section V.A.1. of this 

preamble. This methodology differs 

from Step 1, in which we are proposing 

to apply the market basket percentage 

increases to the sum of the hospitals’ 

general total FY 2011 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 

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constitute the majority of payments that 

would otherwise be made without the 

demonstration and the applicable 

percentage increase is the factor used 

under the IPPS to update the inpatient 

hospital payment rates. Hospitals 

participating in the demonstration 

would be participating under the IPPS 

payment methodology if they were not 

in the demonstration. Then we are 

proposing to multiply the product of the 

estimated FY 2011 total payments that 

generally would otherwise be made 

without the demonstration and the IPPS 

applicable percentage increases 

applicable to the years involved by a 3- 

percent annual volume adjustment for 

FYs 2012 through 2014. The result 

would be the general total estimated FY 

2014 costs that would otherwise be paid 

without the demonstration for covered 

inpatient hospital services to the 23 

participating hospitals. 

Step 3: We are proposing to subtract 

the amount derived in Step 2 

(representing the sum of estimated 

amounts that generally would otherwise 

be paid to the 23 hospitals for covered 

inpatient hospital services for FY 2014 

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 2014). 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 $46,515,865. For this FY 

2014 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 2014 final rule, we are proposing 

to use them to the extent appropriate to 

estimate the costs of the demonstration 

program in FY 2014. 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 to include in the budget 

neutrality offset amount the amount by 

which the actual demonstration costs 

corresponding to an earlier given year 

(which would be determined once we 

have finalized cost reports for that year) 

exceeded the budget neutrality offset 

amount finalized in the corresponding 

year’s IPPS final rule. Because of delays 

affecting the settlement process for cost 

reports for IPPS hospitals occurring on 

a larger scale than merely for the 

demonstration, we are unable to 

determine at this time the specific 

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 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 

offset impossible at this time for any 

given year.) 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 2014 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 Emergency Services Under 

EMTALA: Technical Change 

(§ 489.24(f)) 

In a final rule issued in the Federal 

Register on May 16, 2012 (77 FR 29002 

through 29031), we made changes to a 

number of regulations under 42 CFR 

Chapter IV governing the Medicare and 

Medicaid programs to achieve 

regulatory reforms under Executive 

Order 13563 on Improving Regulation 

and Regulatory Review and the 

Department’s Plan for Retrospective 

Review of Existing rules. In the May 16, 

2012 final rule (77 FR 29021), we stated 

that, in response to comments from the 

public recommending that we 

discontinue our use of the term 

‘‘recipient’’ under Medicaid, we made a 

nomenclature change to replace 

‘‘recipient’’ with ‘‘beneficiary’’ 

throughout 42 CFR Chapter IV in order 

to conform our regulations to our 

current use of the term ‘‘beneficiary.’’ 

Our current use of the term 

‘‘beneficiary’’ means all individuals 

who are entitled to, or eligible for, 

Medicare or Medicaid services. 

However, we inadvertently replaced 

‘‘recipient’’ with ‘‘beneficiary’’ in the 

title of the regulations at 42 CFR 

489.24(f), which now reads ‘‘Beneficiary 

hospital responsibilities.’’ The 

regulations at 42 CFR 489.24(f) 

specifically discuss the responsibilities 

of a hospital with specialized 

capabilities to accept the appropriate 

transfer of an individual as required by 

the Emergency Medical Treatment and 

Labor Act. The use of the word 

‘‘recipient’’ in the title of 42 CFR 

489.24(f) is appropriate because the 

regulations are discussing the 

requirements of the ‘‘receiving’’ 

hospital. The term ‘‘recipient’’ in this 

context is not referring to a Medicare or 

Medicaid patient, but rather to the 

hospital. Therefore, in this proposed 

rule, we are proposing to replace the 

word ‘‘beneficiary’’ with the word 

‘‘recipient’’ so that the section heading 

of paragraph (f) of 42 CFR 489.24 is 

corrected to read as it did prior to the 

nomenclature change. The corrected 

regulation text at 42 CFR 489.24(f) 

would read ‘‘Recipient hospital 

responsibilities.’’ 

M. Hospital 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 in the hospital. Under this 

revised policy, routine services 

furnished to Medicare beneficiaries as 

inpatients in 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.’’ 

As we stated in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53453 through 

53454), we have become aware that a 

number of hospitals affected by this 

policy 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 

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58CMS Pamphlets: ‘‘Are You a Hospital Inpatient 

or Outpatient? If You Have Medicare Ask!’’, CMS 

Product No. 11435, Revised, February 2011; ‘‘How 

Medicare Covers Self Administered Drugs Given in 

Hospital Outpatient Settings,’’ CMS Product No. 

11333, Revised, February 2011. 

hospital to Medicare beneficiaries 

‘‘under arrangement,’’ and that ‘‘routine 

services’’ must be furnished in the 

hospital. 

In the FY 2013 IPPS/LTCH PPS final 

rule, we stated that while we believe the 

policy to be correct and consistent with 

the statutory language, because a 

number of hospitals were actively 

pursuing compliance that involved 

building construction or restructuring, 

we postponed the effective date of the 

requirement to give hospitals additional 

time to comply with the provision. In 

the FY 2013 IPPS/LTCH PPS final rule, 

we changed the implementation date of 

the requirement to be effective for cost 

reporting periods beginning on or after 

October 1, 2013. We stated that we 

expected that, during FY 2013, hospitals 

would have completed the work needed 

to ensure compliance with the 

requirement. 

While we still believe that our policy 

is correct and consistent with the 

statutory language, we are aware that a 

number of hospitals are still actively 

pursuing compliance with the 

requirement through major building 

construction to be completed in 2014. 

Therefore, we believe it is appropriate to 

further postpone the effective date of 

this requirement to give those hospitals 

additional time to comply. In this 

proposed rule, we are proposing to 

change the implementation date of the 

requirement to be effective for services 

provided on or after January 1, 2015 

(instead of effective with cost reporting 

periods beginning on or after October 1, 

2013). Because there are hospitals in the 

midst of significant building projects 

that, when completed, will enable the 

hospital to provide routine services in 

compliance with the requirements of 

this revised policy, we believe it is 

appropriate to further delay the effective 

date. We expect that, with the 

additional time before the revised 

‘‘under arrangement’’ policy becomes 

effective, hospitals will complete the 

work needed to ensure compliance with 

the new requirement. Effective for 

services provided on or after January 1, 

2015, all hospitals would need to 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. 

N. Policy Proposal on Admission and 

Medical Review Criteria for Hospital 

Inpatient Services Under Medicare 

Part A 

In this section of the proposed rule, 

we are clarifying what is required for 

Medicare Part A payment of hospital 

inpatient services. In addition, we are 

proposing a time-based presumption of 

medical necessity for hospital inpatient 

services based on the beneficiary’s 

length of stay, as part of our medical 

review criteria for payment of hospital 

inpatient services under Part A. 

1. Background 

In the CY 2013 OPPS/ASC proposed 

rule (77 FR 45155 through 45157) and 

final rule with comment period (77 FR 

68426 through 68433), we expressed 

concern about recent increases in the 

length of time that Medicare 

beneficiaries spend as hospital 

outpatients receiving observation 

services. We also solicited and 

summarized public comments on 

potential policy changes we could make 

to improve clarity and consensus among 

providers, Medicare, and other 

stakeholders regarding the relationship 

between admissions decisions and 

appropriate Medicare payment, such as 

when a Medicare beneficiary is 

appropriately admitted to a hospital as 

an inpatient. (In this section, ‘‘hospital’’ 

means hospital as defined at section 

1861(e) of the Act, but includes critical 

access hospitals (CAHs) unless 

otherwise specified. Although the term 

‘‘hospital’’ does not generally include 

CAHs, section 1861(e) of the Act 

provides that the term ‘‘hospital’’ 

includes CAHs if the context otherwise 

requires. We believe it is appropriate to 

propose to apply our proposed policies 

to CAHs as well as other hospitals.) 

Observation care is a well-defined set of 

specific, clinically appropriate services, 

which include ongoing short-term 

treatment, assessment, and reassessment 

before a decision can be made regarding 

whether a patient will require further 

treatment as a hospital inpatient or if he 

or she is able to be discharged from the 

hospital (Section 20.6, Chapter 6 of the 

Medicare Benefit Policy Manual 

(MBPM) (Pub. 100–02)). 

In recent years, the number of cases 

of Medicare beneficiaries receiving 

observation services for more than 48 

hours, while still small, has increased 

from approximately 3 percent in 2006 to 

approximately 8 percent in 2011. This 

trend concerns us because of the 

potential financial impact on Medicare 

beneficiaries, and we have published 

educational materials for beneficiaries 

to inform them of their respective 

liabilities as a hospital outpatient or 

inpatient.58 Beneficiaries who are 

treated for extended periods of time as 

hospital outpatients receiving 

observation services may incur greater 

financial liability than they would if 

they were admitted as hospital 

inpatients. They may incur financial 

liability for Medicare Part B 

copayments; the cost of selfadministered drugs that are not covered 

under Part B, and the cost of posthospital SNF care because section 

1861(i) of the Act requires a prior 3-day 

hospital inpatient stay for coverage of 

post-hospital SNF care under Medicare 

Part A. In contrast, as a hospital 

inpatient under Medicare Part A, a 

beneficiary pays a one-time deductible 

for all hospital inpatient services 

provided during the first 60 days in the 

hospital of the benefit period. Therefore, 

an inpatient deductible does not 

necessarily apply to all hospitalizations. 

Medicare Part A coinsurance applies 

after the 60th day in the hospital. 

In the CY 2013 OPPS/ASC proposed 

rule and final rule with comment period 

(77 FR 45155 and 77 FR 68426, 

respectively) and in a proposed rule 

entitled, ‘‘Medicare Program; Part B 

Inpatient Billing in Hospitals’’ that went 

on display at the Office of the Federal 

Register on March 13, 2013, and was 

issued in the Federal Register on March 

18, 2013 (78 FR 16632) (‘‘Part B 

Inpatient Billing proposed rule’’), we 

discussed how the trend towards the 

provision of extended observation 

services may be attributable in part to 

hospitals’ concerns about Medicare’s 

payment policy for billing under Part B 

when a Part A hospital inpatient claim 

is denied because a Medicare review 

contractor determines that the inpatient 

admission was not reasonable and 

necessary under section 1862(a)(1)(A) of 

the Act. Under longstanding Medicare 

policy, in these situations, hospitals 

could only receive payment for a 

limited set of largely ancillary inpatient 

services under Part B. We stated that we 

have heard from various stakeholders 

that hospitals appear to be responding 

to the financial risk of admitting 

Medicare beneficiaries for inpatient 

stays that may later be denied upon 

contractor review by electing to treat 

beneficiaries as outpatients receiving 

observation services, often for long 

periods of time, rather than admitting 

them as inpatients. 

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As a step to address this issue, in the 

Part B Inpatient Billing proposed rule 

(78 FR 16632), we proposed to revise 

our Part B inpatient billing policy to 

allow payment for all hospital services 

that were furnished and would have 

been reasonable and necessary if the 

beneficiary had been treated as an 

outpatient, rather than admitted to the 

hospital as an inpatient. Specifically, we 

proposed that when a Medicare Part A 

claim for inpatient hospital services is 

denied because the inpatient admission 

was deemed not to be reasonable and 

necessary, or when a hospital 

determines under § 482.30(d) or 

§ 485.641 of the regulations after a 

beneficiary is discharged that his or her 

inpatient admission was not reasonable 

and necessary, a hospital may be paid 

for all Medicare Part B services (except 

for services that specifically require an 

outpatient status) that would have been 

reasonable and necessary had the 

beneficiary been treated as a hospital 

outpatient rather than admitted as an 

inpatient, if the beneficiary is enrolled 

in Medicare Part B. This policy would 

apply when CMS or a Medicare review 

contractor determines that the hospital 

admission was not reasonable and 

necessary or when a hospital determines 

after a beneficiary has been discharged 

that the beneficiary should have 

received hospital outpatient services 

rather than hospital inpatient services. 

We also proposed to continue applying 

the timely filing restriction to the billing 

of all Part B inpatient services, under 

which claims for Part B services must be 

filed within 1 year from the date of 

service. 

In addition to evaluating our policy 

related to Medicare Part B inpatient 

billing following denials of Medicare 

Part A inpatient claims on the basis that 

the inpatient admission was not 

reasonable and necessary or following a 

hospital self-audit, we also believe it is 

important to consider whether we can 

provide more clarity regarding the 

relationship between inpatient 

admission decisions and Medicare 

payment. In the CY 2013 OPPS/ASC 

final rule with comment period (77 FR 

68426 through 68433), we discussed 

revising hospital inpatient status criteria 

as one of several policy clarifications or 

changes suggested by stakeholders to 

improve our policies governing when a 

Medicare beneficiary should be 

admitted as an inpatient, and how 

hospitals should be paid by Medicare 

for the associated costs they incur. 

Specifically, stakeholders suggested 

that we redefine ‘‘inpatient’’ using 

parameters other than the current 

requirements of medical necessity and a 

physician order, such as using the 

beneficiary’s length of stay at the 

hospital. Currently, a beneficiary’s 

length of stay may be a factor in 

determining whether he or she should 

be admitted as an inpatient to the 

hospital, but it is not the only factor for 

this determination. Our current manual 

instructions state that, typically, the 

decision to admit a beneficiary as an 

inpatient should be made within 24 to 

48 hours of observation care, and that 

expectation of an overnight stay may be 

a factor in the admission decision 

(Section 20.6, Chapter 6 and Section 10, 

Chapter 1 of the Medicare Benefit Policy 

Manual (MBPM)). We state that 

physicians should use a 24-hour period 

as a benchmark, that is, they should 

order admission for patients who are 

expected to need hospital care for 24 

hours or more, and treat other patients 

on an outpatient basis. We state that, 

generally, a beneficiary is considered an 

inpatient if formally admitted as an 

inpatient with the expectation that he or 

she will remain at least overnight, 

whether or not the beneficiary is later 

discharged or transferred and is not 

present overnight. Nevertheless, our 

longstanding policy consistently has 

been that we do not define or pay under 

Medicare Part A for inpatient 

admissions solely on the basis of the 

length of time the beneficiary actually 

spends in the hospital. Rather, we rely 

on the physician to use his or her 

clinical judgment and evaluation of the 

patient’s needs to make the 

determination. We have stated in our 

manual guidance that the inpatient 

admission decision is a complex 

medical judgment that should take into 

consideration many factors, such as the 

patient’s medical history and medical 

needs, the types of facilities available to 

inpatients and outpatients, the 

hospital’s bylaws and admission 

policies, the relative appropriateness of 

treatment in each setting, patient risk of 

an adverse event, and other factors 

described in the MBPM provisions. The 

physician or other practitioner 

responsible for a patient’s care at the 

hospital also is responsible for deciding 

whether the patient should be admitted 

as an inpatient. 

We believe that our current inpatient 

admission criteria are valid and 

appropriately reflect that the decision to 

admit a patient as a hospital inpatient 

is a complex medical judgment that can 

be made only after the physician has 

considered a number of factors. 

However, upon evaluating the 

suggestions of stakeholders who 

requested that we provide more clarity 

in the definition of ‘‘inpatient’’ using 

parameters other than those that we 

currently use, we recognize that it 

would be helpful to address what the 

requirements are for Medicare Part A 

payment and when a beneficiary should 

be admitted as a hospital inpatient. 

Toward that end, in this proposed rule, 

we are clarifying that a beneficiary 

becomes a hospital inpatient if formally 

admitted following a physician order for 

hospital inpatient admission, and also 

are clarifying when we believe hospital 

inpatient admissions are reasonable and 

necessary based on how long 

beneficiaries have spent, or are 

reasonably expected to spend, in the 

hospital. 

Specifically, in sections V.N.2.a. and 

b. of the preamble of this proposed rule, 

we are clarifying that a beneficiary 

becomes a hospital inpatient if a 

physician (or other qualified 

practitioner as provided in the 

regulations) orders inpatient admission 

in accordance with the hospital 

conditions of participation (CoPs), and 

that Medicare pays under Part A for 

such an admission if the order is 

documented in the medical record. 

However, as we discuss in section 

V.N.3.d.(1) of the preamble of this 

proposed rule and as we specify under 

proposed 42 CFR 412.46(b), the order 

must be supported by objective medical 

information for purposes of the Part A 

payment determinations. During 

Medicare contractor review of an 

inpatient admission, documentation in 

the medical record is evaluated in 

conjunction with the physician order 

and the physician certification that is 

also required for payment of hospital 

inpatient services under section 1814(a) 

of the Act and 42 CFR 424.13. In section 

V.N.2. of the preamble of this proposed 

rule, we describe the requirements for 

the physician order. In section V.N.3. of 

the preamble of this proposed rule, we 

discuss the role of the physician 

certification in medical review where 

applicable. 

In addition, in section V.N.3. of the 

preamble of this proposed rule, we are 

proposing a new benchmark for 

purposes of medical review of hospital 

inpatient admissions, based on how 

long the beneficiary is in the hospital. 

Under our proposal, Medicare’s external 

review contractors would presume that 

hospital inpatient admissions are 

reasonable and necessary for 

beneficiaries who require more than 1 

Medicare utilization day (defined by 

encounters crossing 2 ‘‘midnights’’) in 

the hospital receiving medically 

necessary services. If a hospital is found 

to be abusing this 2-midnight 

presumption for nonmedically 

necessary inpatient hospital admissions 

and payment (in other words, the 

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hospital is systematically delaying the 

provision of care to surpass the 2- 

midnight timeframe), CMS review 

contractors would disregard the 2- 

midnight presumption when conducting 

review of that hospital. Similarly, we 

would presume that hospital services 

spanning less than 2 midnights should 

have been provided on an outpatient 

basis, unless there is clear 

documentation in the medical record 

supporting the physician’s order and 

expectation that the beneficiary would 

require care spanning more than 2 

midnights or the beneficiary is receiving 

a service or procedure designated by 

CMS as inpatient-only. We note that our 

current manual instructions referenced 

above, indicating that physicians should 

use a 24-hour period and the 

expectation of a beneficiary’s need for 

an overnight stay in the hospital as 

inpatient admission benchmarks, 

remain in effect until we have finalized 

a new policy, at which time we will 

consider whether and how the existing 

instructions should be updated. 

2. Requirements for Physician Orders 

The requirements for physician and 

other qualified practitioner orders are 

contained under the hospital and CAH 

CoPs (42 CFR Parts 482 and 485), which 

are the patient health and safety 

standards with which all Medicare and 

Medicaid hospitals and CAHs must 

comply in order to participate in the 

Medicare and Medicaid programs. The 

CoPs apply to facilities and services 

provided to all hospital patients, not 

just Medicare or Medicaid patients. The 

hospital medical record services CoP at 

§ 482.24(c) specifies that a patient’s 

medical record must contain 

information to justify admission and 

continued hospitalization, support the 

diagnosis, and describe the patient’s 

progress and response to medications 

and services. The hospital medical 

record services CoP also requires 

specific elements that must be included 

in the patient record; among these 

elements are an ‘‘admitting diagnosis’’ 

and ‘‘all practitioners’ orders.’’ The CAH 

CoP at § 485.638 contains similar, 

although not identical, language. In 

addition, under the hospital CoP at 

§ 482.12(c)(2), patients are admitted to 

the hospital as inpatients only on the 

recommendation of a physician or 

licensed practitioner permitted by the 

State to admit patients to a hospital. 

Under the hospital CoP at § 482.12(c)(1), 

every Medicare patient must be under 

the care of a physician or other type of 

practitioner listed in the regulations 

(‘‘the practitioner responsible for the 

care of the patient’’). Although the CoPs 

do not distinguish the term ‘‘inpatient 

admission order’’ from the required 

physician or practitioner orders in the 

regulatory text, it is an accepted 

standard of practice in hospitals and 

CAHs that such an order must be given 

before a patient can be admitted to a 

hospital or CAH. Similarly, the 

requirement that a patient is admitted as 

an inpatient ‘‘only on the 

recommendation of a physician or 

licensed practitioner permitted by the 

State to admit patients to a hospital’’ is 

understood to mean that a patient is 

admitted by way of an inpatient 

admission order given by the 

practitioner responsible for the care of 

the patient, provided that the 

practitioner, either a physician or other 

licensed practitioner, has been 

authorized by the State and granted 

such privileges by the hospital to do so. 

We note that, under these 

requirements of the CoPs, patients are 

admitted to the hospital only on the 

recommendation of a licensed 

practitioner permitted by his or her 

State to admit patients to a hospital. In 

addition, § 482.12(c)(2) of the 

regulations requires that a Medicare 

patient who is admitted by a 

practitioner not specified in paragraph 

(c)(1) of this same section of the CoPs 

must then be under the care of a doctor 

of medicine or osteopathy; however, 

this ‘‘. . . is not to be construed to limit 

the authority of a doctor of medicine or 

osteopathy to delegate tasks to other 

qualified health care personnel to the 

extent recognized under State law or a 

State’s regulatory mechanism.’’ 

Therefore, the CoPs do not specifically 

prohibit the delegation of an inpatient 

admission to a nonphysician 

practitioner; however, neither do they 

specifically authorize it. We have stated 

that for payment purposes, as provided 

in the COPs at § 482.12(c), the physician 

or other practitioner responsible for a 

patient’s care at the hospital is also 

responsible for deciding whether the 

patient should be admitted as an 

inpatient (Section 1, Chapter 10 of the 

MBPM). In specifying that the 

practitioner responsible for the patient’s 

care is responsible for making the 

admission decision, we precluded that 

practitioner from delegating the 

decision to another individual. 

Therefore, while the COPs do not 

preclude a doctor of medicine or 

osteopathy from delegating authority to 

other individuals, we are specifically 

clarifying in regulation that, for 

payment purposes, the authority to 

admit cannot be delegated to an 

individual who lacks that authority in 

his or her own right. 

The CoPs also allow for inpatient 

admission orders to be given verbally in 

person or over the telephone as well as 

through the use of preprinted and 

electronic standing orders, order sets, 

and protocols. Such inpatient admission 

orders must be in accordance with the 

requirements for orders found at 

§ 482.23(c)(3)(i) and (ii), and at 

§ 482.24(c)(2) and (3) of the regulations. 

Included in these provisions is the 

requirement that if verbal orders are 

used, they must be used infrequently. In 

addition, all orders must be 

authenticated promptly by the ordering 

practitioner or another practitioner 

responsible for the care of the patient. 

While the CoPs do allow for inpatient 

admission orders through these 

mechanisms, it must be stressed that the 

CoPs also require that the patient 

medical record contains documentation 

that supports the decision reflected in 

the physician order to admit the patient 

to the hospital. 

For all patients (not just Medicare 

beneficiaries), the physician admission 

order is the most basic means by which 

the hospital inpatient stay begins and by 

which the course of treatment and care 

is initially guided. The order details not 

only who is responsible for the patient’s 

care while in the hospital, but also 

directs that care through the various 

diagnostic, dietary, medication, and 

other treatment orders. Before a 

Medicare beneficiary or any patient can 

be treated, there must be physician 

orders (including, and perhaps most 

importantly, the initiating admission 

order) to guide that treatment. 

Therefore, under the CoPs, the 

practitioner responsible for the care of 

the patient must determine that 

inpatient admission is medically 

necessary and order both the admission 

and reasonable and necessary inpatient 

services. 

While the requirement for the 

physician admission order has long 

been clear in the CoPs, we are proposing 

to state explicitly in our payment 

regulations that admission pursuant to 

this order is the means whereby a 

beneficiary becomes a hospital inpatient 

and, therefore, is required for payment 

of hospital inpatient services under 

Medicare Part A. Accordingly, we are 

proposing to add a new § 412.3 titled 

‘‘Admissions,’’ that would define a 

hospital inpatient admission as follows: 

‘‘(a) For purposes of payment under 

Medicare Part A, an individual is 

considered an inpatient of a hospital, 

including a critical access hospital, if 

formally admitted as an inpatient 

pursuant to an order for inpatient 

admission by a physician or other 

qualified practitioner in accordance 

with paragraph (b) of this section 

[discussed below] and §§ 482.24(c), 

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482.12(c), and 485.638(a)(4)(iii) of this 

chapter for a critical access hospital.’’ 

This physician order must be present in 

the medical record and be supported by 

the physician admission and progress 

notes, in order for the hospital to be 

paid for hospital inpatient services 

under Medicare Part A. 

In proposed new § 412.3(b), we would 

clarify that, in contrast to the CoPs, for 

payment under Part A, the hospital 

inpatient admission order must be 

furnished by a physician or other 

specified practitioner as follows: ‘‘(b) 

The order must be furnished by a 

qualified and licensed practitioner who 

has admitting privileges at the hospital 

as permitted by State law, and who is 

responsible for the inpatient care of the 

patient at the hospital. The practitioner 

may not delegate the decision (order) to 

another individual who is not 

responsible for the care of that patient, 

is not authorized by the State to admit 

patients, or has not been granted 

admitting privileges applicable to that 

patient by the hospital’s medical staff.’’ 

3. Proposed Inpatient Admission 

Guidelines 

a. Background 

CMS is authorized under section 1893 

of the Act to implement the Medicare 

Integrity Program to conduct medical 

review of claims and ensure 

appropriateness of Medicare payment. 

Medicare review contractors, such as 

Medicare Administrative Contractors 

(MACs), Recovery Auditors (formerly 

known as the Recovery Audit 

Contractors, or RACs), the 

Comprehensive Error Rate Testing 

(CERT) Contractor, and other review 

contractors are hired by CMS to review 

claims on a pre-payment or postpayment basis to determine whether a 

claim should be paid or denied or 

whether a payment was properly made 

under Medicare payment rules. 

Following documentation reviews, 

many claim denials are made or 

improper payments identified because 

either— 

• The claim was incorrectly coded 

(for example, the provider did not 

appropriately assign the individual or 

grouper inpatient and/or outpatient 

coding for the care documented); or 

• The services were not medically 

necessary (that is, the review indicates 

that the services billed were not 

reasonable and necessary based upon 

Medicare payment policies or that the 

documentation was insufficient to 

support the medical necessity of the 

services billed). 

Hospital claim errors are identified 

more frequently for shorter lengths of 

stay. The majority of improper 

payments under Medicare Part A for 

short-stay inpatient hospital claims have 

been due to inappropriate patient status 

(that is, the services furnished were 

reasonable and necessary, but should 

have been furnished on a hospital 

outpatient, rather than hospital 

inpatient, basis). 

CMS developed the CERT program to 

calculate the Medicare FFS program 

improper payment rate. The CERT 

program considers any claim that was 

paid when it should have been denied 

or paid at another amount (including 

both overpayments and underpayments) 

to be an improper payment. In 2012, the 

CERT contractor found that Medicare 

Part A inpatient hospital admissions for 

1-day stays or less had an improper 

payment rate of 36.1 percent. The 

improper payment rate decreased 

significantly for 2-day or 3-day stays, 

which had improper payment rates of 

13.2 percent and 13.1 percent, 

respectively. The improper payment 

rate further decreased to 8 percent for 

those beneficiaries who were treated as 

hospital inpatients for 4 days. 

Inpatient hospital short-stay claim 

errors are frequently related to minor 

surgical procedures or diagnostic tests. 

In such situations, the beneficiary is 

typically admitted as a hospital 

inpatient after the procedure is 

completed on an outpatient basis, 

monitored overnight as an inpatient, 

and discharged from the hospital in the 

morning. Medicare review contractors 

typically find that while the underlying 

services provided were reasonable and 

necessary, the inpatient hospitalization 

following the procedure was not (that is, 

the services following the procedure 

should have been provided on an 

outpatient basis). 

Through this proposed rule, we are 

seeking to clarify our longstanding 

policy on how Medicare review 

contractors review inpatient hospital 

admissions for payment under Medicare 

Part A. We also will issue revised 

guidance to physicians and hospitals 

regarding when a hospital inpatient 

admission should be ordered for 

Medicare beneficiaries once this 

proposed rule is finalized. 

b. Correct Coding Reviews 

We are not proposing any changes to 

coding review strategies for hospital 

claims. Reviewers will continue to 

ensure that the correct codes were 

applied and are supported by the 

medical record documentation. 

c. Complete and Accurate 

Documentation 

When conducting complex medical 

review, Medicare review contractors 

will continue to employ clinicians to 

review practitioner documented 

procedures and ensure that they are 

supported by the submitted medical 

record documentation. Such is the case 

when complex medical review is 

performed currently and will continue 

to be the case when the proposed review 

criteria are implemented. 

d. Medical Necessity Reviews 

(1) Physician Order and Certification 

In statute and regulation, Medicare 

has certain requirements for physician 

orders and certifications, discussed 

above, that must be satisfied before 

payment may be made under Part A. We 

are proposing to codify in 42 CFR 

412.46(b) the longstanding requirement 

that medical documentation must 

support the physician’s order and 

certification, as prescribed by CMS 

Ruling 93–1. The proposed new 

paragraph (b) titled ‘‘Physician’s order 

and certification regarding medical 

necessity’’ would read, ‘‘No 

presumptive weight shall be assigned to 

the physician’s order under § 412.3 or 

the physician’s certification under 

Subpart B of Part 424 of this chapter in 

determining the medical necessity of 

inpatient hospital services under section 

1862(a)(1) of the Act. A physician’s 

order and certification will be evaluated 

in the context of the evidence in the 

medical record.’’ We are not proposing 

any changes to our current requirements 

for practitioner documentation of 

services ordered and furnished. While 

the physician order and the physician 

certification are required for all 

inpatient hospital admissions in order 

for payment to be made under Part A, 

the physician order and the physician 

certification are not considered by CMS 

to be conclusive evidence that an 

inpatient hospital admission or service 

was medically necessary. Rather, the 

physician order and physician 

certification are considered along with 

other documentation in the medical 

record. CMS and its medical review 

contractors base their payment 

determinations on objective medical 

information documented in the medical 

record about the patient’s condition and 

the services received. This 

documentation will be reviewed from 

the claims form and, when necessary, 

the medical record containing the 

physician order, the physician 

certification, and other supporting 

documentation that are required for 

payment under Medicare Part A. 

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(2) Medical Review Criteria for All 

Hospital Services 

We will continue to review individual 

claims to ensure the hospital services 

furnished to beneficiaries are 

‘‘reasonable and necessary for the 

diagnosis or treatment of illness or 

injury or to improve the functioning of 

a malformed body member,’’ as required 

by section 1862(a)(1) of the Act. Any 

hospital service determined to be not 

reasonable or necessary may not be paid 

under Medicare Part A or Part B. 

(3) Inpatient Hospital Admission 

Guidelines 

In this proposed rule, we are 

proposing inpatient hospital admission 

guidance under which a physician or 

other practitioner should order 

admission if he or she expects that the 

beneficiary’s length of stay will exceed 

a 2-midnight threshold or if the 

beneficiary requires a procedure 

specified as inpatient-only under 42 

CFR 419.22. We are proposing that the 

starting point for this time-based 

instruction would be when the 

beneficiary is moved from any 

outpatient area to a bed in the hospital 

in which the additional hospital 

services will be provided. However, we 

are soliciting public comments on this 

proposed method of calculating the 

length of stay for purposes of this 2- 

midnight threshold proposal. 

There are certain types of cases for 

which a hospital inpatient admission is 

rarely appropriate. We have stated in 

our existing Medicare manual that when 

a beneficiary receives a minor surgical 

procedure or other treatment in the 

hospital that is expected to keep him or 

her in the hospital for only a few hours 

(less than 24), the services should be 

provided as outpatient hospital services, 

regardless of the hour the beneficiary 

comes to the hospital, whether he or she 

uses a bed, and whether he or she 

remains in the hospital past midnight 

(Section 10, Chapter 1 of the MBPM). 

We note that there has been 

considerable variation in the 

interpretation of this instruction. 

Therefore, we are proposing to clarify 

this policy and codify our general rule 

at § 412.3(c)(1), that in addition to 

services designated by CMS as inpatient 

only, surgical procedures, disgnostic 

tests, and other treatments would be 

generally appropriate for inpatient 

hospital payment under Medicare Part 

A when the physician expects the 

patient to require a stay that crosses at 

least 2 midnights and admits the patient 

to the hospital based upon that 

expectation. Conversely, when a patient 

enters a hospital for a surgical 

procedure not specified by Medicare as 

inpatient only under § 419.22(n), a 

diagnostic test, or any other treatment, 

and the physician expects to keep the 

patient in the hospital for only a limited 

period of time that does not cross 2 

midnights, the services would be 

generally inappropriate for payment 

under Medicare Part A. This would be 

the case regardless of the hour that the 

patient came to the hospital or whether 

the patient used a bed. 

Under our proposed policy, the 

judgment of the physician and the 

physician’s order for inpatient 

admission should be based on such 

complex medical factors as patient 

history and comorbidities, the severity 

of signs and symptoms, current medical 

needs, and the risk of an adverse event. 

In accordance with current policy, 

factors that may result in an 

inconvenience to a beneficiary or family 

would not, by themselves, justify 

inpatient hospital admission. When 

such convenience factors affect the 

beneficiary’s health, CMS and/or its 

contractor would consider these factors 

in determining whether inpatient 

hospital admission was appropriate. 

The factors that lead a physician to 

admit a particular patient based on the 

physician’s clinical expectation are 

significant clinical considerations. 

In accordance with current policy and 

as discussed above, the physician would 

be required to clearly and completely 

document the clinical facts supporting 

the inpatient hospital admission. It is 

the documentation of the reasonable 

basis for the expectation of a stay 

crossing 2 midnights that would justify 

the medical necessity of the inpatient 

admission, regardless of the actual 

duration of the hospital stay and 

whether it ultimately crosses 2 

midnights. As a result of the 

relationship that develops between a 

physician and his or her patient, the 

physician is in a unique position to 

incorporate complete medical evidence 

in beneficiary’s medical records, 

including his or her opinions and the 

pertinent medical history of the patient. 

In creating the medical assessment, 

medical history, and discharge notes 

that become part of the medical record, 

we believe the physician has ample 

opportunity to explain in detail why the 

course of treatment was appropriate in 

the context of that patient’s acute 

condition. In addition, the physician 

has the opportunity to describe and 

explain aspects of the beneficiary’s 

medical history that may not otherwise 

be apparent. Therefore, the physician 

would be responsible for ensuring that 

the beneficiary’s medical record 

includes complete medical information, 

and this information would be the basis 

for determining the medical necessity of 

the prescribed treatment. The final 

determination by the Medicare review 

contractor for payment purposes would 

not be based solely on the physician’s 

order and certification, and would 

reflect equal weight and evaluation of 

all documentation contained in the 

medical record. 

We acknowledge that there may be an 

unforeseen circumstance that results in 

a shorter beneficiary stay than the 

physician’s expectation of 2 midnights. 

We expect that the majority of such 

inpatient hospital admissions would 

occur when an inpatient hospital 

admission is appropriately ordered, but 

a beneficiary’s transfer or death 

interrupts the beneficiary’s hospital stay 

that would have otherwise spanned 2 

midnights. Therefore, we provide an 

exception to the general rule in 

proposed § 412.3(c)(2), that ‘‘If an 

unforeseen circumstance, such as 

beneficiary death or transfer, results in 

a shorter beneficiary stay than the 

physician’s expectation of at least 2 

midnights, the patient may be 

considered to be appropriately treated 

on an inpatient basis, and the hospital 

inpatient payment may be made under 

Medicare Part A.’’ Documentation of 

such a circumstance constitutes 

supporting medical documentation in 

determining whether the inpatient 

hospital admission is reasonable and 

necessary for Medicare Part A payment. 

In addition, the physician must certify 

that inpatient hospital services were 

medically necessary in accordance with 

section 1814(a) of the Act and 42 CFR 

Part 424, Subpart B. 

(4) Medical Review Criteria for Payment 

of Inpatient Hospital Admissions Under 

Part A 

Until such time as this proposed rule 

is finalized, Medicare review 

contractors will continue to follow the 

current CMS policy and instruction 

regarding medical review criteria for 

payment of inpatient admissions under 

Medicare Part A. 

Under our proposed medical review 

policy, Medicare’s external review 

contractors would presume that hospital 

inpatient status is reasonable and 

necessary for beneficiaries who require 

more than 1 Medicare utilization day 

(defined as encounters crossing 2 

midnights) after admission. Medical 

review efforts for inpatient hospital 

admissions greater than 2 midnights 

would focus on undue delays in the 

provision of care in an attempt to meet 

the 2-midnight threshold (that is, 

inpatient hospital admissions where 

medically necessary treatment was not 

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provided on a continuous basis 

throughout the hospital stay and the 

services could have been furnished in a 

shorter timeframe). Beneficiaries should 

not be held in the hospital absent 

medically necessary care for the 

purpose of meeting the 2-midnight 

presumption. 

Patient status reviews for those 

admissions with lengths of stay greater 

than 2 midnights would typically be 

conducted if CMS suspects that a 

provider is using the time-based 

presumption to effectuate systematic 

abuse or gaming. Review contractors 

would continue to assess claims in 

which the beneficiary span of care 

crossed the 2-midnight threshold: 

• To ensure the services provided 

were medically necessary; 

• To validate provider coding and 

documentation as reflective of the 

medical evidence; 

• If the CERT Contractor is directed to 

do so under the Improper Payments 

Elimination and Recovery Improvement 

Act of 2012 (Pub. L. 112–248); or 

• If directed by CMS or other 

authoritative governmental entity 

(including but not limited to the HHS 

Office of Inspector General and 

Government Accountability Office). 

As a result of the proposed admission 

guidelines above, we are proposing that 

medical review efforts will focus on 

those inpatient hospital admissions 

with lengths of stay crossing only only 

1midnight or less (that is, only 1 

Medicare utilization day, as defined in 

42 CFR 409.61 and implemented in the 

Medicare Benefit Policy Manual, 

Chapter 3, Section 20.1). As we noted 

earlier, such claims have traditionally 

demonstrated the largest proportion of 

inpatient hospital improper payments 

under Medicare Part A. If the physician 

admits the beneficiary as an inpatient 

but the beneficiary is in the hospital for 

less than 2 midnights after admission, 

we are proposing that CMS and its 

medical review contractors would 

review the inpatient admission in 

accordance with current policy for Part 

A payment, as clarified below, and 

would not presume that the inpatient 

hospital admission was reasonable and 

necessary for payment purposes. 

Medicare review contractors would 

evaluate the physician order for 

inpatient admission to the hospital, the 

medical documentation supporting that 

order, and the physician certification in 

order to determine whether payment 

under Part A is appropriate. 

The Medicare review contractors 

would consider, in their review of the 

medical record, complex medical factors 

that support a reasonable expectation of 

the needed duration of the stay relative 

to the 2-midnight threshold. These 

factors include such things as 

beneficiary medical history and 

comorbidities, the severity of signs and 

symptoms, current medical needs, and 

the risk of an adverse event. In other 

words, if it was reasonable for the 

physician to expect the beneficiary to 

require a stay lasting 2 midnights, even 

though that did not transpire, payment 

would be made under Medicare Part A 

if the documentation in the medical 

record reflected such complex medical 

factors (and the physician’s order and 

certification requirements also are met). 

As discussed above, payment may be 

made in the case of services on 

Medicare’s inpatient only list and in 

exceptional cases such as beneficiary 

death or transfer. 

4. Proposed Payment Adjustment 

The accurate determination of a 

beneficiary’s patient status is an issue of 

concern across hospitals. As we discuss 

in section V.N.1. of the preamble of this 

proposed rule, in the CY 2013 OPPS/ 

ASC proposed rule, we sought comment 

on actions that we could potentially 

undertake to address stakeholders’ 

concerns. We received approximately 

350 public comments on this issue in 

response to our solicitation from 

hospitals and hospital associations, 

physician associations, rehabilitative 

and long-term care facilities, 

beneficiaries, beneficiary advocacy 

organizations, Quality Improvement 

Organizations (QIOs), organizations 

specializing in medical necessity 

review, and other interested parties. In 

particular, as stated in the CY 2013 

OPPS/ASC final rule with comment 

period (77 FR 68429) and discussed 

further in section V.N.1. of the preamble 

of this proposed rule, we heard from 

some stakeholders who specifically 

suggested a need for us to clarify our 

current instructions regarding the 

circumstances under which Medicare 

will pay for a hospital inpatient 

admission in order to improve hospitals’ 

ability to make appropriate admission 

decisions. 

The issue also has a substantial 

impact on improper payments under 

Medicare Part A for short-stay inpatient 

hospital claims. As discussed earlier, 

the majority of improper payments 

under Medicare Part A for short-stay 

inpatient hospital claims have been due 

to inappropriate patient status (that is, 

the services furnished were reasonable 

and necessary, but should have been 

furnished on a hospital outpatient, 

rather than hospital inpatient, basis.) In 

2012, the CERT contractor found that 

inpatient hospital admissions for 1-day 

stays or less had a Part A improper 

payment rate of 36.1 percent. The 

improper payment rate decreases 

significantly for 2-day or 3-day stays, 

which had improper payment rates of 

13.2 percent and 13.1 percent, 

respectively. We believe the magnitude 

of these national figures demonstrates 

that the appropriate determination of a 

beneficiary’s patient status is a systemic 

and widespread issue and is not isolated 

to a few hospitals. We also note that the 

RAs have recovered more than $1.6 

billion in improper payments because of 

inappropriate beneficiary patient status. 

Our actuaries have estimated that our 

proposed policy that medical review of 

inpatient admissions will include a 

presumption that hospital inpatient 

admissions are reasonable and 

necessary for beneficiaries who require 

more than 1 Medicare utilization day 

(defined by encounters crossing 2 

‘‘midnights’’) in the hospital receiving 

medically necessary services, as 

discussed in section V.N.3. of the 

preamble of this proposed rule, would 

increase IPPS expenditures by 

approximately $220 million. These 

additional expenditures result from an 

expected net increase in hospital 

inpatient encounters due to some 

encounters spanning more than 2 

midnights moving to the IPPS from the 

OPPS, and some encounters of less than 

2 midnights moving from the IPPS to 

the OPPS. Specifically, our actuaries 

examined FY 2009 through FY 2011 

Medicare claims data for extended 

hospital outpatient encounters and 

shorter stay hospital inpatient 

encounters and estimated that 

approximately 400,000 encounters 

would shift from outpatient to inpatient 

and approximately 360,000 encounters 

would shift from inpatient to outpatient, 

causing a net shift of 40,000 encounters. 

These estimated shifts of 400,000 

encounters from outpatient to inpatient 

and 360,000 encounters from inpatient 

to outpatient represent a significant 

portion of the approximately 11 million 

encounters paid under the IPPS. The net 

shift of 40,000 encounters represents an 

increase of approximately 1.2 percent in 

the number of shorter stay hospital 

inpatient encounters paid under the 

IPPS. Since shorter stay hospital 

inpatient encounters currently represent 

approximately 17 percent of the IPPS 

expenditures, our actuaries estimated 

that 17 percent of IPPS expenditures 

would increase by 1.2 percent under our 

proposed policy. These additional 

expenditures are partially offset by 

reduced expenditures from the shift of 

shorter stay hospital inpatient 

encounters to hospital outpatient 

encounters. Our actuaries estimated that 

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on average the per encounter payments 

for these hospital outpatient encounters 

would be approximately 30 percent of 

the per encounter payments for the 

hospital inpatient encounters. 

In light of the widespread impact of 

the proposed policy discussed in 

section V.N.3. of the preamble of this 

proposed rule on the IPPS and the 

systemic nature of the issue as 

demonstrated above, we believe it is 

appropriate to propose to use our 

exceptions and adjustments authority 

under section 1886(d)(5)(I)(i) of the Act 

to offset the estimated $220 million in 

additional IPPS expenditures associated 

with this proposed policy. This special 

exceptions and adjustment authority 

authorizes us to provide ‘‘for such other 

exceptions and adjustments to [IPPS] 

payment amounts . . . as the Secretary 

deems appropriate.’’ We are proposing 

to reduce the standardized amount, the 

hospital-specific rates, and the Puerto 

Rico-specific standardized amount by 

0.2 percent. 

VI. 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 capitalrelated costs. The IPPS for capitalrelated 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 capitalrelated costs from a reasonable costbased methodology to a prospective 

methodology (based fully on the Federal 

rate). 

FY 2001 was the last year of the 10- 

year transition period established to 

phase in the IPPS for hospital inpatient 

capital-related costs. For cost reporting 

periods beginning in FY 2002, capital 

IPPS payments are based solely on the 

Federal rate for almost all acute care 

hospitals (other than hospitals receiving 

certain exception payments and certain 

new hospitals). (We refer readers to the 

FY 2002 IPPS final rule (66 FR 39910 

through 39914) for additional 

information on the methodology used to 

determine capital IPPS payments to 

hospitals both during and after the 

transition period.) 

The basic methodology for 

determining capital prospective 

payments using the Federal rate is set 

forth in § 412.312 of the regulations. For 

the purpose of calculating capital 

payments for each discharge, the 

standard Federal rate is adjusted as 

follows: 

(Standard Federal Rate) × (DRG 

Weight) × (Geographic Adjustment 

Factor (GAF)) × (COLA for hospitals 

located in Alaska and Hawaii) × (1 + 

Capital DSH Adjustment Factor + 

Capital IME Adjustment Factor, if 

applicable). 

In addition, under § 412.312(c), 

hospitals also may receive outlier 

payments under the capital IPPS for 

extraordinarily high-cost cases that 

qualify under the thresholds established 

for each fiscal year. 

B. Additional Provisions 

1. Exception Payments 

The regulations at § 412.348 provide 

for certain exception payments under 

the capital IPPS. The regular exception 

payments provided under §§ 412.348(b) 

through (e) were available only during 

the 10-year transition period. For a 

certain period after the transition 

period, eligible hospitals may have 

received additional payments under the 

special exceptions provisions at 

§ 412.348(g). However, FY 2012 was the 

final year hospitals could receive 

special exceptions payments. For 

additional details regarding these 

exceptions policies, we refer readers to 

the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51725). 

Under § 412.348(f), a hospital may 

request an additional payment if the 

hospital incurs unanticipated capital 

expenditures in excess of $5 million due 

to extraordinary circumstances beyond 

the hospital’s control. Additional 

information on the exception payment 

for extraordinary circumstances in 

§ 412.348(f) can be found in the FY 2005 

IPPS final rule (69 FR 49185 and 49186). 

2. New Hospitals 

Under the capital IPPS, § 412.300(b) 

of the regulations defines a new hospital 

as a hospital that has operated (under 

previous or current ownership) for less 

than 2 years and lists examples of 

hospitals that are not considered new 

hospitals. In accordance with 

§ 412.304(c)(2), under the capital IPPS a 

new hospital is paid 85 percent of its 

allowable Medicare inpatient hospital 

capital-related costs through its first 2 

years of operation, unless the new 

hospital elects to receive full 

prospective payment based on 100 

percent of the Federal rate. We refer 

readers to the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51725) for additional 

information on payments to new 

hospitals under the capital IPPS. 

3. Hospitals Located in Puerto Rico 

Section 412.374 of the regulations 

provides for the use of a blended 

payment amount for prospective 

payments for capital-related costs to 

hospitals located in Puerto Rico. 

Accordingly, under the capital IPPS, we 

compute a separate payment rate 

specific to Puerto Rico hospitals using 

the same methodology used to compute 

the national Federal rate for capitalrelated 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. Other Proposed Changes for FY 

2014—Proposed Adjustment to Offset 

the Cost of the Policy Proposal on 

Admission and Medical Review Criteria 

for Hospital Inpatient Services Under 

Medicare Part A 

In the Medicare Part B Inpatient 

Billing in Hospitals proposed rule that 

went on display at the Office of the 

Fedreal Register on March 13, 2013, and 

that appeared in the Federal Register on 

March 18, 2013 (78 FR 16632), we 

proposed to revise our Part B inpatient 

billing policy to allow payment of all 

hospital services that were furnished 

and would have been reasonable and 

necessary if the beneficiary had been 

treated as an outpatient, rather than 

admitted to the hospital as an inpatient, 

except for those services specifically 

requiring an outpatient status. This 

policy would apply when CMS or a 

Medicare review contractor determines 

that the hospital admission was not 

reasonable and necessary or when a 

hospital determines after a beneficiary 

has been discharged that the beneficiary 

should have received hospital 

outpatient services rather than hospital 

inpatient services. We also proposed to 

continue applying the timely filing 

restriction to the billing of all Part B 

inpatient services, under which claims 

for Part B services must be filed within 

1 year from the date of service. As we 

discuss in section V.N. of the preamble 

of this proposed rule, in addition to 

evaluating our policy related to 

Medicare Part B inpatient billing 

following denials of Medicare Part A 

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inpatient claims on the basis that the 

inpatient admission was not reasonable 

and necessary or following a hospital 

self-audit, we also believe it is 

important to consider whether we can 

provide more clarity regarding the 

relationship between inpatient 

admission decisions and Medicare 

payment. Toward that end, we are 

presenting a proposal that would clarify 

that a beneficiary becomes a hospital 

inpatient when formally admitted 

following the physician order for 

hospital inpatient admission, and would 

also clarify when we believe hospital 

inpatient admissions are reasonable and 

necessary based on how long 

beneficiaries have spent, or are 

reasonably expected to spend, in the 

hospital as inpatients. Under this 

proposal, Medicare’s external review 

contractors would presume that hospital 

inpatient admissions are reasonable and 

necessary for beneficiaries who require 

more than one Medicare utilization day 

(defined by encounters crossing 2 

‘‘midnights’’) in the hospital receiving 

medically necessary services. Similarly, 

we would presume that generally 

services spanning less than 2 midnights 

should have been provided on an 

outpatient basis, unless there is clear 

physician documentation in the medical 

record supporting the physician’s order 

and expectation that the beneficiary 

required inpatient care. (For a complete 

discussion on our proposed inpatient 

admission guidelines, including our 

proposed time-based presumption of 

medical necessity for hospital inpatient 

services based on the beneficiary’s 

length of stay as part of our medical 

review criteria for payment of hospital 

inpatient services under Medicare Part 

A, we refer readers to section V.N.3 of 

the preamble of this proposed rule.) 

Our actuaries project an increase in 

IPPS expenditures as a result of our 

proposed policy that medical review of 

inpatient admissions will include a 

presumption that hospital inpatient 

admissions are reasonable and 

necessary for beneficiaries who require 

more than 1 Medicare utilization day 

(defined by encounters crossing 2 

‘‘midnights’’) in the hospital receiving 

medically necessary services as 

discussed in section V.N.3. of the 

preamble of this proposed rule (and as 

briefly summarized above). These 

additional expenditures result from an 

expected net increase in hospital 

inpatient encounters due to some 

encounters spanning more than 2 

midnights moving to the IPPS from the 

OPPS, and some encounters of less than 

2 midnights moving from the IPPS to 

the OPPS. In making this projection, the 

actuaries analyzed Medicare claims data 

for extended hospital outpatient 

encounters and shorter stay hospital 

inpatient encounters, and estimated the 

number of encounters that are expected 

to shift from outpatient to inpatient and 

vice versa (that is, the number that are 

expected to shift from inpatient to 

outpatient). These estimated shifts of 

encounters represent a significant 

portion of the total encounters paid 

under the IPPS. Our actuaries estimate 

that this projected net increase in 

inpatient encounters would increase 

IPPS expenditures by approximately 

$220 million. In light of the widespread 

impact on the IPPS of our proposed 

policy and the systemic nature of the 

issue, we believe it is appropriate to 

propose to use our exceptions and 

adjustments authority under section 

1886(d)(5)(I)(i) of the Act to offset the 

estimated $220 million in additional 

IPPS expenditures associated with this 

proposed policy by proposing to apply 

a ¥0.2 percent adjustment to the 

operating IPPS standardized amount, 

the hospital-specific rates, and the 

Puerto Rico-specific standardized 

amount. (For additional information on 

our actuarial estimate, we refer readers 

to section V.N.5. of the preamble of this 

proposed rule.) 

Consistent with the proposal that we 

are making for the operating national 

and Puerto Rico-specific standardized 

amounts and the hospital specific-rates, 

we believe that it is also appropriate, 

under the Secretary’s broad authority 

under section 1886(g) of the Act, to 

propose to reduce the national capital 

Federal rate and Puerto Rico-specific 

capital rate by 0.2 percent (an 

adjustment factor of 0.998) to offset the 

estimated increase in capital IPPS 

expenditures associated with the 

projected increase in inpatient 

encounters that is expected to result 

from our proposed inpatient admission 

guidelines. Because hospitals receive an 

operating IPPS payment and also a 

capital IPPS payment for each 

discharge, we believe it would be 

appropriate to reduce payments under 

both the operating and capital IPPS to 

fully offset the projected increase in 

expenditures associated with these 

inpatient discharges. (We refer readers 

to section V.N. of the preamble of this 

proposed rule for a complete discussion 

of our policy proposal on inpatient 

admission guidelines, including our 

proposed time-based presumption of 

medical necessity for hospital inpatient 

services based on the beneficiary’s 

length of stay as part of our medical 

review criteria for hospital inpatient 

services under Medicare Part A.) 

D. Proposed Annual Update for FY 2014 

The proposed annual update to the 

capital PPS Federal and Puerto Ricospecific rates, as provided for at 

§ 412.308(c), for FY 2014 is discussed in 

section III. of the Addendum to this 

proposed rule. 

We note that, in section II.D. of the 

preamble of this proposed rule, we 

present a discussion of the MS–DRG 

documentation and coding adjustment, 

including previously finalized policies 

and historical adjustments, as well as 

our proposed recoupment adjustment to 

the standardized amounts under section 

1886(d) of the Act for FY 2014 pursuant 

to the amendments made to section 

7(b)(1)(B) of Public Law 110–90 by 

section 631 of the ATRA. 

Additional prospective adjustments 

for the MS–DRG documentation and 

coding effect through FY 2010 

authorized under section 

1886(d)(3)(A)(vi) of the Act are 

discussed in section II.D.7. of this 

preamble. Based on an analysis of FY 

2010 data on claims paid through 

December 2011 using our historical 

claims-based methodology, we 

determined an additional prospective 

documentation and coding effect of +0.8 

through FY 2010. Consistent with our 

proposal for the operating IPPS 

standardized amounts, in the FY 2013 

IPPS/LTCH PPS proposed rule (77 FR 

27997), we proposed 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 through 

FY 2010. Numerous commenters 

objected to that proposal, and many 

commenters continued to assert that our 

estimates of documentation and coding 

were overstated, and could be explained 

by other factors. These commenters also 

focused on part of the analysis provided 

by MedPAC in its FY 2012 comment 

letter indicating that a slightly smaller 

additional prospective adjustment of 

¥0.55 percent rather than ¥0.8 percent 

might be required to offset the 

cumulative MS–DRG documentation 

and coding effect through FY 2010. (77 

FR 53278 through 53280) Many 

commenters requested that if CMS were 

to apply an additional prospective 

adjustment for the MS–DRG 

documentation and coding effect 

through FY 2010, it should subtract 0.25 

percentage points from its estimate, for 

an adjustment of ¥0.55 percent, given 

the MedPAC analysis. After 

consideration of the public comments, 

we recognized that the issue of the 

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estimate used for the cumulative MS– 

DRG documentation and coding effect 

through FY 2010 may merit further 

consideration. Therefore, consistent 

with the policy we adopted for the 

operating IPPS standardized amounts 

and hospital-specific rates for FY 2013, 

we did not finalize our proposal to 

apply a ¥0.8 percent adjustment to the 

national capital Federal rate until more 

analysis could be completed (77 FR 

53456). 

We continue to consider whether 

MedPAC’s recommendation that an 

adjustment to offset the cumulative 

documentation and coding effects 

through FY 2010 under section 

1886(d)(3)(A)(iv) of the Act is 

appropriate and supported by a review 

of the claims data. As discussed in 

section II.D.7. of the preamble of this 

proposed rule, after further 

consideration of the MedPAC analysis 

and the requests by public commenters, 

if we were to apply an additional 

adjustment for the cumulative MS–DRG 

documentation and coding effect 

through FY 2010, we believe the most 

appropriate additional adjustment is 

¥0.55 percent. While we are not 

proposing an additional prospective 

adjustment in FY 2014 for the 

cumulative MS–DRG documentation 

and coding effects through FY 2010 at 

this time, we are soliciting comments on 

the issue of applying a prospective 

adjustment to the operating IPPS 

standardized amount (and hospitalspecific rates) for the cumulative MS– 

DRG documentation and coding effect 

through FY 2010. 

Section 631 of the ATRA, discussed 

in section II.D.6. of the preamble of this 

proposed rule, amended section 

7(b)(1)(B) of Public Law 110–90 to 

require the Secretary to make a 

recoupment adjustment to the operating 

IPPS standardized amounts totaling $11 

billion by FY 2017. This adjustment 

represents the amount of the increase in 

aggregate payments as a result of not 

completing the prospective adjustment 

to the operating IPPS standardized 

amounts authorized under section 

7(b)(1)(A) of Public Law 110–90 until 

FY 2013. Delaying the implementation 

of that prospective adjustment to the 

operating IPPS standardized amounts 

resulted in overstated payment rates in 

FYs 2010, 2011, and 2012, and those 

resulting overpayments could not be 

recovered under Public Law 110–90. 

Therefore, under the provisions of 

section 631 of ATRA, we are proposing 

a ¥0.8 percent recoupment adjustment 

to the operating IPPS standardized 

amount in FY 2014. Because section 631 

of the ATRA requires CMS to make a 

recoupment adjustment only to the 

operating IPPS standardized amount, we 

are not proposing a similar adjustment 

to the national or Puerto Rico capital 

IPPS rates (or to the operating IPPS 

hospital specific rates or Puerto Ricospecific standardized amount). This 

approach is consistent with our 

historical approach regarding the 

application of the recoupment 

adjustment authorized by section 

7(b)(1)(B) of Public Law 110–90. In 

section II.D.7. of the preamble of this 

proposed rule, we are soliciting public 

comments as to whether any portion of 

the aforementioned ¥0.8 percent 

recoupment adjustment to the operating 

IPPS standardized amount should be 

reduced and instead applied as a 

prospective adjustment to the operating 

IPPS standardized amount (and 

hospital-specific rates) for the 

cumulative MS–DRG documentation 

and coding effect through FY 2010. 

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. We 

continue to believe that it is appropriate 

to make adjustments to the capital IPPS 

rates to eliminate increased Medicare 

expenditures that result from the effect 

of any documentation and coding 

changes due to the implementation of 

the MS–DRGs, since that portion of the 

increase in aggregate payments is not 

due to an increase in patient severity of 

illness (and costs). As a result, aggregate 

capital IPPS payments would be 

inappropriately high because annual 

aggregate capital IPPS payments are 

higher than payments that otherwise 

would have been made through FY 2010 

absent the change to the MS–DRGs (77 

FR 53456). Because the cumulative 

documentation and coding effect 

through FY 2010 results in 

inappropriately high capital IPPS 

payments, if we were to apply a 

prospective adjustment to the operating 

IPPS standardized amount and the 

hospital-specific rates to remove this 

effect, we would also do so for the 

national capital IPPS Federal rate. This 

approach would be consistent with our 

past practice regarding the application 

of prospective documentation and 

coding adjustments. In order to make 

this adjustment to the national capital 

IPPS Federal rate, as we have done in 

the past, we would use the Secretary’s 

broad authority under section 1886(g) of 

the Act to establish and implement the 

capital IPPS (discussed previously in 

this preamble), in conjunction with 

section 1886(d)(3)(A)(vi) of the Act. 

Therefore, if we attribute a portion of 

the proposed ¥0.8 percent recoupment 

adjustment to the operating IPPS 

standardized amount for FY 2014 to the 

prospective adjustment, under the 

Secretary’s broad authority under 

section 1886(g) of the Act, we would 

also make an appropriate adjustment to 

the national capital IPPS Federal rate. 

The capital IPPS Puerto Rico rate (and 

operating IPPS Puerto Rico-specific 

standardized amount) would not be 

affected as we previously found no 

significant additional MS–DRG 

documentation and coding effect 

through FY 2010 for Puerto Rico that 

would warrant any additional 

adjustment (77 FR 53279 and 53457). 

VII. Proposed Changes for Hospitals 

Excluded From the IPPS 

A. Proposed Rate of Increase in 

Payments to Excluded Hospitals for FY 

2014 

Historically, certain 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-ofincrease ceiling. A per discharge limit 

(the target amount as defined in 

§ 413.40(a) of the regulations) 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 

§ 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 certain 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. 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 42 CFR 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, 

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59Produced by the Cecil G. Sheps Center for 

Health Services Research at the University of North 

Carolina under a Cooperative Agreement with the 

Federal ORHP. 

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. 

Certain hospitals excluded from a 

propective payment system, including 

children’s hospitals and 11 cancer 

hospitals, continue to be subject to the 

rate-of-increase ceiling based on the 

hospital’s own historical cost 

experience. In accordance with 

§ 403.752(a) of the regulations, RNHCIs 

are also subject to the rate-of-increase 

limits established under § 413.40 of the 

regulations. 

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 and RNHCIs. 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 number of providers being paid 

based on reasonable cost subject to a 

ceiling, including 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. 

Therefore, for FY 2014 and subsequent 

fiscal years, we would continue to use 

the percentage increase in the IPPS 

operating market basket to update the 

target amounts for these cancer 

hospitals, children’s hospitals, and 

RNHCIs for the reasons discussed in the 

FY 2006 IPPS final rule. 

However, as described in section IV. 

of the preamble of this proposed rule, 

we are proposing to revise and rebase 

the IPPS operating market basket to a FY 

2010 base year. Therefore, we are 

proposing to use the percentage increase 

in the FY 2010-based IPPS operating 

market basket to update the target 

amounts for children’s hospitals, the 11 

cancer hospitals, and RNHCIs for FY 

2014 and subsequent fiscal years. 

Accordingly, the FY 2014 rate-ofincrease percentage to be applied to the 

target amount for these cancer hospitals, 

children’s hospitals, and RNHCIs would 

be the FY 2014 percentage increase in 

the FY 2010-based IPPS operating 

market basket. Based on IHS Global 

Insight, Inc.’s 2013 first quarter forecast, 

we estimate that the FY 2010-based 

IPPS operating market basket update for 

FY 2014 is 2.5 percent (that is, the 

estimate of the market basket rate-ofincrease). 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 2014. 

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 2014. The annual 

updates for the IRF PPS and the IPF PPS 

are issued by the agency in separate 

Federal Register documents. 

B. Critical Access Hospitals (CAHs): 

Proposed Changes to the Conditions of 

Participation Relating to Payment for 

Inpatient Services 

1. Background 

Sections 1820 and 1861(mm) of the 

Act, as amended by section 4201 of the 

Balanced Budget Act (BBA) of 1997, 

replaced the Essential Access 

Community Hospitals and Rural 

Primary Care Hospitals (EACH/RPCH) 

program with the Medicare Rural 

Hospital Flexibility Program (MRHFP), 

under which a qualifying facility can be 

designated as a CAH. CAHs 

participating in the MRHFP must meet 

the conditions for designation by the 

State and be certified by the Secretary 

in accordance with section 1820 of the 

Act. Further, in accordance with section 

1820(e)(3) of the Act, a CAH must meet 

other criteria that the Secretary 

specifies. 

Among the statutory requirements 

under section 1820(c) of the Act, a CAH 

must be located in a rural area (or in an 

area treated as rural); be located more 

than a 35-mile drive (or in the case of 

mountainous terrain or in areas with 

only secondary roads available, more 

than a 15-mile drive) from a hospital or 

another CAH, unless otherwise 

designated as a ‘‘necessary provider’’ 

prior to January 1, 2006; have not more 

than 25 acute care inpatient beds for 

furnishing inpatient care for a period 

that does not exceed 96 hours per 

patient on an annual, average basis; and 

make available 24-hour emergency care 

services. The conditions of participation 

(CoPs) located at 42 CFR Part 485, 

Subpart F, incorporate these statutory 

requirements as well as other criteria 

specified in section 1820(e)(3) of the 

Act. 

2. Proposed Policy Changes 

We have received a number of 

questions from stakeholders in the CAH 

provider community relating to whether 

CAHs are required to furnish acute care 

inpatient services under the CAH CoPs. 

Our interpretation is that CAHs must 

provide acute care inpatient services, 

and we are proposing revisions to 

clarify and restate this requirement. 

Using the July 2010 through June 2011 

cost reports, we were able to review data 

for 1,230 of the existing 1,328 CAHs.59

These data suggest that 99 percent of 

CAHs are regularly providing acute care 

inpatient services and are in compliance 

with such requirements. However, the 

data regarding the remaining 1 percent, 

along with the questions we have 

received, suggest that there may be some 

service gaps. We further believe that a 

few CAHs would benefit from 

clarification of our interpretation that 

CAHs must furnish acute care inpatient 

services. 

The CAH program was established to 

improve access for rural residents to 

essential health care services and 

particularly hospital services which 

include acute care inpatient services. 

We are proposing certain clarifications 

to ensure continued access to these 

critical services. Indeed, once a facility 

has been designated and certified as a 

CAH, that facility is expected to provide 

services as a CAH, and it is entrusted 

with the reliance of the general public 

and of the local community. When a 

CAH is not routinely furnishing 

inpatient services, service gaps arise. 

For example, we are aware of one 

instance in the past where a CAH was 

functioning, in essence, as a nursing 

home/skilled nursing facility. However, 

because it was classified as a CAH, it 

prevented a nearby rural hospital from 

converting to CAH status in order to 

continue providing acute care inpatient 

services to the community. In this case, 

the CAH in question, instead of assuring 

critically needed access to acute care 

inpatient services, not only was not 

offering such services, but also putting 

at risk the continued availability of such 

services in the rural community. We 

believe the proposed change in 

regulation in this proposed rule would 

address these gaps in service by clearly 

stating that CAHs are required to 

provide acute care inpatient services. 

As set forth in section 1820 of the Act, 

the CAH program was established to 

improve access to hospital and other 

health services for rural residents of a 

State. We believe that the statutory 

requirements related to the provision of 

emergency care and acute care inpatient 

services, including those at section 

1820(c)(2)(B) of the Act, suggest that a 

CAH must furnish these acute care 

inpatient services, albeit, in a more 

limited fashion than would be expected 

of a hospital. Hospitals are subject to a 

different set of CoPs, found in 42 CFR 

part 482. 

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We recognize that, given its resources 

and the needs of the community it 

serves, a CAH may not be actively 

treating inpatients at all times. Indeed, 

the Act fully recognizes the variable 

nature of a CAH’s inpatient census, as 

it provides specific contingency 

language for the staffing requirements 

under section 1820(c)(2)(B)(iv) of the 

Act. For example, section 

1820(c)(2)(B)(iv)(I) requires a CAH to 

meet the rural hospital staffing 

requirements under section 1861(e) of 

the Act, with the exception that the 

CAH does not need to meet the hospital 

standards relating to the number of 

hours per day or days per week when 

the CAH must be open and fully staffed, 

except as needed to make available 24- 

hour emergency care and nursing 

services, and to staff the CAH whenever 

an inpatient is present. 

We note that a CAH is not specifically 

required to maintain a minimum 

average daily census (ADC) of inpatients 

receiving inpatient acute care services 

or a minimum number of certified 

inpatient beds. We are aware that there 

are significant seasonal variations in the 

inpatient occupancy rates as well as 

variations that are a function of the size 

of the community in which a CAH is 

located. We also recognize the need for 

inpatient acute care services to be 

furnished in the best setting for the 

patient. However, while it is true that 

CAHs generally are not able to handle 

patients requiring complex, specialized 

inpatient services, such as those 

services provided by trauma centers, or 

cardiac surgery centers, it is also true 

that CAHs should be able to handle a 

range of patient needs requiring 

admission. We believe it is not in the 

best interest of patients for them to 

routinely be transferred to a more 

distant hospital if instead their care can 

be provided locally without 

compromising quality. The blue ‘‘H’’ 

hospital signs posted along the 

roadways for CAHs serve as public 

reminders of the services for which 

CAHs were created to provide. 

We also wish to clarify the 

relationship between a CAH’s written 

policies and the services it offers. The 

regulations at 42 CFR 485.635(a) require 

a CAH to furnish health care services in 

accordance with appropriate written 

policies. Among other items, the CAH 

must describe its procedures for 

emergency medical services and its 

procedures for inpatient services. 

Therefore, we expect CAHs to be 

appropriately prepared to provide the 

described services. For example, a 

CAH’s policies and procedures should 

be reflected in the number of certified 

beds, appropriate equipment, and 

available staffing (whether as employees 

or through arrangements or agreements). 

Similarly, we would expect CAHs to, in 

fact, be providing the same services 

outlined in their policies and 

procedures, as appropriate to the needs 

of individual patients. To further clarify 

the interrelated standards at § 485.635(a) 

and (b) of the regulations, we are 

proposing to amend the regulatory 

language at § 485.635(b), as noted 

below, and we are proposing to revise 

the language under the standard for 

‘‘Patient care policies’’ under 

§ 485.635(a)(3)(vii) to remove the 

conditional phrase ‘‘If a CAH furnishes 

inpatient services.’’ By removing this 

conditional phrase, we would eliminate 

regulatory language that could be 

creating ambiguity where none was 

intended. The elimination of this 

language would clarify that CAHs are 

required to provide acute care inpatient 

services. Our revision also would align 

the standard with the structure of 

neighboring standards under 

§ 485.635(a). 

We are proposing to remove 

paragraph (c)(1)(i) under § 485.635 

requiring CAHs to furnish inpatient 

hospital care services through 

agreements or arrangements; to 

redesignate the existing language of 

paragraph (b)(1) as paragraph (b)(1)(i); 

and to add a new paragraph (b)(1)(ii) 

under the standard ‘‘Patient services’’ 

that more clearly requires CAHs to 

furnish acute care inpatient services. 

(Because we are proposing to remove 

paragraph (c)(1)(i), we are proposing to 

redesignate existing paragraphs (c)(1)(ii) 

through (c)(1)(iv) as paragraphs (c)(1)(i) 

through (c)(1)(iii), respectively.) 

These proposed clarifying changes are 

in the spirit of the policies finalized in 

the May 16, 2012 final rule, ‘‘Medicare 

and Medicaid Programs; Reform of 

Hospital and Critical Access Hospital 

Conditions of Participation,’’ that sought 

to reduce outmoded and unnecessarily 

burdensome regulations, and to increase 

the ability of CAHs to devote more 

resources to providing high quality 

patient care (77 FR 29034). In that final 

rule, at § 485.635(b), we revised the 

heading of the standard to read ‘‘Patient 

services’’ instead of ‘‘Direct services’’ to 

specify that a CAH can furnish certain 

types of services through agreement or 

arrangements rather than directly. We 

noted our expectation that furnishing 

timely services would be best achieved 

by providing CAH services onsite at the 

CAH as much as possible, whether 

through CAH employees or through 

agreements or arrangements (77 FR 

29059). Our proposed addition of 

paragraph (b)(1)(ii) to § 485.635 would 

clarify that a CAH must provide acute 

care inpatient services. We expect that 

these services would be provided as 

appropriate to a CAH’s resources and as 

appropriate to meet the needs of its 

patients. We regard the services 

furnished in accordance with 

§ 485.635(c) as other additional services, 

which a CAH may also provide through 

agreements or arrangements. 

Notwithstanding these clarifications 

and proposed revisions, in accordance 

with section 1820(d) of the Act, each 

CAH member of a Rural Health Network 

would still be required to have an 

agreement with at least one full-service 

acute care hospital member of the 

network regarding patient referral and 

transfer. 

We believe these proposed changes, 

as discussed above, would address the 

issues described in this section as well 

as eliminate existing provider confusion 

by clearly stating that CAHs are required 

to provide acute care inpatient services. 

We expect a CAH to meet all of the 

conditions of participation under 42 

CFR Part 485, including all the 

standards relating to the furnishing of 

acute care inpatient services. In the 

event that a CAH decides that it is no 

longer able to comply, or that the 

circumstances no longer warrant 

compliance, with all of the CAH 

requirements, such a facility may wish 

to engage in a dialogue with CMS to 

explore its options, including avenues 

other than the CAH program, for 

continued participation in the Medicare 

program. 

Finally, we are proposing a technical 

change at § 485.620(a), the section 

addressing the ‘‘Number of beds’’ 

standard. Specifically, we are proposing 

to remove the phrase ‘‘after January 1, 

2004,’’ a prospective effective date 

established in the Medicare Prescription 

Drug, Improvement, and Modernization 

Act of 2003 (MMA) (Pub. L. 108–173) 

and which was subsequently restated in 

regulation at § 485.620(a) (69 FR 49215). 

The MMA revised the bed limit 

upwards, to allow CAHs a maximum of 

25 acute care beds for inpatient services, 

regardless of the swing-bed approval. 

Prior to the MMA, CAHs were restricted 

to 15 acute care beds and a total of 25 

beds if the CAH had been granted 

swing-bed approval. Retaining this date 

in regulation no longer serves the 

purpose of providing CAHs with notice 

that they could expand beyond 15 acute 

care beds. The effective date of January 

1, 2004 has passed and the revised 

maximum bed limit of 25 continues to 

apply. 

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VIII. Proposed Changes to the LongTerm Care Hospital Prospective 

Payment System (LTCH PPS) for FY 

2014 

A. Background of the LTCH PPS 

1. Legislative and Regulatory Authority 

Section 123 of the Medicare, 

Medicaid, and SCHIP (State Children’s 

Health Insurance Program) Balanced 

Budget Refinement Act of 1999 (BBRA) 

(Pub. L. 106–113) as amended by 

section 307(b) of the Medicare, 

Medicaid, and SCHIP Benefits 

Improvement and Protection Act of 

2000 (BIPA) (Pub. L. 106–554) provides 

for payment for both the operating and 

capital-related costs of hospital 

inpatient stays in long-term care 

hospitals (LTCHs) under Medicare Part 

A based on prospectively set rates. The 

Medicare prospective payment system 

(PPS) for LTCHs applies to hospitals 

that are described in section 

1886(d)(1)(B)(iv) of the Act, effective for 

cost reporting periods beginning on or 

after October 1, 2002. 

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

defines a LTCH as ‘‘a hospital which has 

an average inpatient length of stay (as 

determined by the Secretary) of greater 

than 25 days.’’ Section 

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

provides an alternative definition of 

LTCHs: specifically, a hospital that first 

received payment under section 1886(d) 

of the Act in 1986 and has an average 

inpatient length of stay (LOS) (as 

determined by the Secretary of Health 

and Human Services (the Secretary)) of 

greater than 20 days and has 80 percent 

or more of its annual Medicare inpatient 

discharges with a principal diagnosis 

that reflects a finding of neoplastic 

disease in the 12-month cost reporting 

period ending in FY 1997. 

Section 123 of the BBRA requires the 

PPS for LTCHs to be a ‘‘per discharge’’ 

system with a diagnosis-related group 

(DRG) based patient classification 

system that reflects the differences in 

patient resources and costs in LTCHs. 

Section 307(b)(1) of the BIPA, among 

other things, mandates that the 

Secretary shall examine, and may 

provide for, adjustments to payments 

under the LTCH PPS, including 

adjustments to DRG weights, area wage 

adjustments, geographic reclassification, 

outliers, updates, and a disproportionate 

share adjustment. 

In the August 30, 2002 Federal 

Register, we issued a final rule that 

implemented the LTCH PPS authorized 

under the BBRA and BIPA (67 FR 

55954). For the initial implementation 

of the LTCH PPS (FYs 2003 through FY 

2007), the system used information from 

LTCH patient records to classify 

patients into distinct long-term care 

diagnosis-related groups (LTC–DRGs) 

based on clinical characteristics and 

expected resource needs. Beginning in 

FY 2008, we adopted the Medicare 

severity long-term care diagnosis-related 

groups (MS–LTC–DRGs) as the patient 

classification system used under the 

LTCH PPS. Payments are calculated for 

each MS–LTC–DRG and provisions are 

made for appropriate payment 

adjustments. Payment rates under the 

LTCH PPS are updated annually and 

published in the Federal Register. 

The LTCH PPS replaced the 

reasonable cost-based payment system 

under the Tax Equity and Fiscal 

Responsibility Act of 1982 (TEFRA) 

(Pub. L. 97–248) for payments for 

inpatient services provided by a LTCH 

with a cost reporting period beginning 

on or after October 1, 2002. (The 

regulations implementing the TEFRA 

reasonable cost-based payment 

provisions are located at 42 CFR Part 

413.) With the implementation of the 

PPS 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 hospitalspecific 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, we describe Medicare 

discharges.) The August 30, 2002 final 

rule further details the payment policy 

under the TEFRA system (67 FR 55954). 

In the August 30, 2002 final rule, we 

provided for a 5-year transition period 

from payments under the TEFRA system 

to payments under the LTCH PPS. 

During this 5-year transition period, a 

LTCH’s total payment under the PPS 

was based on an increasing percentage 

of the Federal rate with a corresponding 

decrease in the percentage of the LTCH 

PPS payment that is based on 

reasonable cost concepts, unless a LTCH 

made a one-time election to be paid 

based on 100 percent of the Federal rate. 

Beginning with LTCHs’ cost reporting 

periods beginning on or after October 1, 

2006, total LTCH PPS payments are 

based on 100 percent of the Federal rate. 

In addition, in the August 30, 2002 

final rule, we presented an in-depth 

discussion of the LTCH PPS, including 

the patient classification system, 

relative weights, payment rates, 

additional payments, and the budget 

neutrality requirements mandated by 

section 123 of the BBRA. The same final 

rule that established regulations for the 

LTCH PPS under 42 CFR part 412, 

Subpart O, also contained LTCH 

provisions related to covered inpatient 

services, limitation on charges to 

beneficiaries, medical review 

requirements, furnishing of inpatient 

hospital services directly or under 

arrangement, and reporting and 

recordkeeping requirements. We refer 

readers to the August 30, 2002 final rule 

for a comprehensive discussion of the 

research and data that supported the 

establishment of the LTCH PPS (67 FR 

55954). 

We refer readers to the FY 2012 IPPS/ 

LTCH PPS final rule (76 FR 51733 

through 51743) for a chronological 

summary of the main legislative and 

regulatory developments affecting the 

LTCH PPS through the annual update 

cycles prior to the FY 2013 rulemaking 

cycle. 

2. Criteria for Classification as a LTCH 

a. Classification as a LTCH 

Under the existing regulations at 

§§ 412.23(e)(1) and (e)(2)(i), which 

implement section 1886(d)(1)(B)(iv)(I) of 

the Act, to qualify to be paid under the 

LTCH PPS, a hospital must have a 

provider agreement with Medicare and 

must have an average Medicare 

inpatient length of stay of greater than 

25 days. Alternatively, § 412.23(e)(2)(ii) 

states that, for cost reporting periods 

beginning on or after August 5, 1997, a 

hospital that was first excluded from the 

PPS in 1986 and can demonstrate that 

at least 80 percent of its annual 

Medicare inpatient discharges in the 12- 

month cost reporting period ending in 

FY 1997 have a principal diagnosis that 

reflects a finding of neoplastic disease 

must have an average inpatient length of 

stay for all patients, including both 

Medicare and non-Medicare inpatients, 

of greater than 20 days. 

b. Hospitals Excluded From the LTCH 

PPS 

The following hospitals are paid 

under special payment provisions, as 

described in § 412.22(c) and, therefore, 

are not subject to the LTCH PPS rules: 

• Veterans Administration hospitals. 

• Hospitals that are reimbursed under 

State cost control systems approved 

under 42 CFR Part 403. 

• Hospitals that are reimbursed in 

accordance with demonstration projects 

authorized under section 402(a) of the 

Social Security Amendments of 1967 

(Pub. L. 90–248) (42 U.S.C. 1395b–1) or 

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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-ofincrease test at section 1814(b) of the 

Act). 

• Nonparticipating hospitals 

furnishing emergency services to 

Medicare beneficiaries. 

3. Limitation on Charges to Beneficiaries 

In the August 30, 2002 final rule, we 

presented an in-depth discussion of 

beneficiary liability under the LTCH 

PPS (67 FR 55974 through 55975). In the 

RY 2005 LTCH PPS final rule (69 FR 

25676), we clarified that the discussion 

of beneficiary liability in the August 30, 

2002 final rule was not meant to 

establish rates or payments for, or define 

Medicare-eligible expenses. Under 

§ 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 §§ 409.82, 409.83, and 

409.87 and for items and services as 

specified under § 489.30(a). However, 

under the LTCH PPS, Medicare will 

only pay for days for which the 

beneficiary has coverage until the shortstay outlier (SSO) threshold is exceeded. 

Therefore, if the Medicare payment was 

for a SSO case (§ 412.529) that was less 

than the full LTC–DRG payment amount 

because the beneficiary had insufficient 

remaining Medicare days, the LTCH 

could also charge the beneficiary for 

services delivered on those uncovered 

days (§ 412.507). 

4. Administrative Simplification 

Compliance Act (ASCA) and Health 

Insurance Portability and 

Accountability Act (HIPAA) 

Compliance 

Claims submitted to Medicare must 

comply with both the Administrative 

Simplification Compliance Act (ASCA) 

(Pub. L. 107–105), and the Health 

Insurance Portability and 

Accountability Act of 1996 (HIPAA) 

(Pub. L. 104–191). Section 3 of the 

ASCA requires that the Medicare 

Program deny payment under Part A or 

Part B for any expenses incurred for 

items or services ‘‘for which a claim is 

submitted other than in an electronic 

form specified by the Secretary.’’ 

Section 1862(h) of the Act (as added by 

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 LongTerm Care Diagnosis-Related Group 

(MS–LTC–DRG) Classifications and 

Relative Weights for FY 2014 

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 longterm 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, 

implementation, and rationale for the 

use of the MS–DRGs and MS–LTC– 

DRGs, we refer readers to the FY 2008 

IPPS final rule with comment period (72 

FR 47141 through 47175 and 47277 

through 47299). (We note that, in that 

same final rule, we revised the 

regulations at § 412.503 to specify that 

for LTCH discharges occurring on or 

after October 1, 2007, when applying 

the provisions of 42 CFR Part 412, 

Subpart O applicable to LTCHs for 

policy descriptions and payment 

calculations, all references to LTC– 

DRGs would be considered a reference 

to MS–LTC–DRGs. For the remainder of 

this section, we present the discussion 

in terms of the current MS–LTC–DRG 

patient classification system unless 

specifically referring to the previous 

LTC–DRG patient classification system 

that was in effect before October 1, 

2007.) 

The MS–DRGs adopted in FY 2008 

represent an increase in the number of 

DRGs by 207 (that is, from 538 to 745) 

(72 FR 47171). The MS–DRG 

classifications are updated annually. As 

described in section II.G. of this 

preamble, for FY 2014, 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 2014. Consistent with 

section 123 of the BBRA, as amended by 

section 307(b)(1) of the BIPA, and 

§ 412.515 of the regulations, we use 

information derived from LTCH PPS 

patient records to classify LTCH 

discharges into distinct MS–LTC–DRGs 

based on clinical characteristics and 

estimated resource needs. We then 

assign an appropriate weight to the MS– 

LTC–DRGs to account for the difference 

in resource use by patients exhibiting 

the case complexity and multiple 

medical problems characteristic of 

LTCHs. Below we provide a general 

summary of our existing methodology 

for determining the MS–LTC–DRG 

relative weights. 

In a departure from the IPPS, and as 

discussed in greater detail below in 

section VIII.B.3.f. of this preamble, we 

are proposing to continue to use lowvolume 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 lowvolume MS–LTC–DRGs, we are 

proposing to group all of the lowvolume MS–LTC–DRGs into five 

quintiles based on average charge per 

discharge. (A detailed discussion of the 

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initial development and application of 

the quintile methodology appears in the 

August 30, 2002 LTCH PPS final rule 

(67 FR 55978).) Under our existing 

methodology, we are proposing to 

account for adjustments to payments for 

SSO cases (that is, cases where the 

covered length of stay at the LTCH is 

less than or equal to five-sixths of the 

geometric average length of stay for the 

MS–LTC–DRG). Furthermore, we are 

proposing to make adjustments to 

account for nonmonotonically 

increasing weights, when necessary. 

That is, theoretically, cases under the 

MS–LTC–DRG system that are more 

severe require greater expenditure of 

medical care resources and will result in 

higher average charges such that, in the 

severity levels within a base MS–LTC– 

DRG, the relative weights should 

increase monotonically with severity 

from the lowest to highest severity level. 

(We discuss nonmonotonicity in greater 

detail and our proposed methodology to 

adjust the proposed MS–LTC–DRG 

relative weights to account for 

nonmonotonically increasing relative 

weights in section VIII.B.3.g. (Step 6) of 

this preamble.) 

2. Patient Classifications into MS–LTC– 

DRGs 

a. Background 

The MS–DRGs (used under the IPPS) 

and the MS–LTC–DRGs (used under the 

LTCH PPS) are based on the CMS DRG 

structure. As noted above in this 

section, we refer to the DRGs under the 

LTCH PPS as MS–LTC–DRGs although 

they are structurally identical to the 

MS–DRGs used under the IPPS. 

The MS–DRGs are organized into 25 

major diagnostic categories (MDCs), 

most of which are based on a particular 

organ system of the body; the remainder 

involve multiple organ systems (such as 

MDC 22, Burns). Within most MDCs, 

cases are then divided into surgical 

DRGs and medical DRGs. Surgical DRGs 

are assigned based on a surgical 

hierarchy that orders operating room 

(O.R.) procedures or groups of O.R. 

procedures by resource intensity. The 

GROUPER software program does not 

recognize all ICD–9–CM procedure 

codes as procedures affecting DRG 

assignment. That is, procedures that are 

not surgical (for example, EKG), or 

minor surgical procedures (for example, 

biopsy of skin and subcutaneous tissue 

(procedure code 86.11)) do not affect the 

MS–LTC–DRG assignment based on 

their presence on the claim. 

Generally, under the LTCH PPS, a 

Medicare payment is made at a 

predetermined specific rate for each 

discharge and that payment varies by 

the MS–LTC–DRG to which a 

beneficiary’s stay is assigned. Cases are 

classified into MS–LTC–DRGs for 

payment based on the following six data 

elements: 

• Principal diagnosis; 

• Additional or secondary diagnoses; 

• Surgical procedures; 

• Age; 

• Sex; and 

• Discharge status of the patient. 

Through FY 2010, the number of 

diagnosis and procedure codes 

considered for MS–DRG assignment was 

limited to nine and six, respectively. 

However, for claims submitted on the 

5010 format beginning January 1, 2011, 

we increased the capacity to process 

diagnosis and procedure codes up to 25 

diagnoses and 25 procedures. This 

includes one principal diagnosis and up 

to 24 secondary diagnoses for severity of 

illness determinations. We refer readers 

to section II.G.11.c. of the preamble of 

the FY 2011 IPPS/LTCH PPS final rule 

for a complete discussion of this change 

(75 FR 50127). 

Under HIPAA transactions and code 

sets regulations at 45 CFR Parts 160 and 

162, covered entities must comply with 

the adopted transaction standards and 

operating rules specified in Subparts I 

through S of Part 162. Among other 

requirements, by January 1, 2012, 

covered entities were required to use the 

ASC X12 Standards for Electronic Data 

Interchange Technical Report Type 3— 

Health Care Claim: Institutional (837), 

May 2006, ASC X12N/005010X223, and 

Type 1 Errata to Health Care Claim: 

Institutional (837) ASC X12 Standards 

for Electronic Data Interchange 

Technical Report Type 3, October 2007, 

ASC X12N/005010X233A1 for the 

health care claims or equivalent 

encounter information transaction (45 

CFR 162.1102). 

HIPAA requires covered entities to 

use the applicable medical data code set 

requirements when conducting HIPAA 

transactions (45 CFR 162.1000). 

Currently, upon the discharge of the 

patient, the LTCH must assign 

appropriate diagnosis and procedure 

codes from the most current version of 

the Internal Classification of Diseases, 

Ninth Revision, Clinical Modification 

(ICD–9–CM). For additional information 

on the ICD–9–CM Coding System, we 

refer readers to the FY 2008 IPPS final 

rule with comment period (72 FR 47241 

through 47243 and 47277 through 

47281). We also refer readers to the 

detailed discussion on correct coding 

practices in the August 30, 2002 LTCH 

PPS final rule (67 FR 55981 through 

55983). Additional coding instructions 

and examples are published in the 

Coding Clinic for ICD–9–CM, a product 

of the American Hospital Association. 

(We refer readers to section II.G.11. of 

this preamble for additional information 

on the annual revisions to the ICD–9– 

CM codes.) 

On October 1, 2014, covered entities 

must begin using the ICD–10–CM and 

ICD–10–PCS coding systems (45 CFR 

162.1102(c)). 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.10. 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.11. of this preamble for 

additional information on the 

implementation of the ICD–10–CM and 

ICD–10–PCS systems. 

To create the MS–DRGs (and by 

extension, the MS–LTC–DRGs), base 

DRGs were subdivided according to the 

presence of specific secondary 

diagnoses designated as complications 

or comorbidities (CCs) into one, two, or 

three levels of severity, depending on 

the impact of the CCs on resources used 

for those cases. Specifically, there are 

sets of MS–DRGs that are split into 2 or 

3 subgroups based on the presence or 

absence of a CC or a major complication 

or comorbidity (MCC). We refer readers 

to section II.D. of the FY 2008 IPPS final 

rule with comment period for a detailed 

discussion about the creation of MS– 

DRGs based on severity of illness levels 

(72 FR 47141 through 47175). 

Medicare 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 hospitalmstockstill on DSK4VPTVN1PROD with PROPOSALS2

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specific adjustments. Under the LTCH 

PPS, we provide an opportunity for 

LTCHs to review the MS–LTC–DRG 

assignments made by the Medicare 

contractor and to submit additional 

information within a specified 

timeframe as provided in § 412.513(c). 

The GROUPER software is used both 

to classify past cases to measure relative 

hospital resource consumption to 

establish the MS–LTC–DRG relative 

weights and to classify current cases for 

purposes of determining payment. The 

records for all Medicare hospital 

inpatient discharges are maintained in 

the MedPAR file. The data in this file 

are used to evaluate possible MS–DRG 

and MS–LTC–DRG classification 

changes and to recalibrate the MS–DRG 

and MS–LTC–DRG relative weights 

during our annual update under both 

the IPPS (§ 412.60(e)) and the LTCH PPS 

(§ 412.517), respectively. 

b. Proposed Changes to the MS–LTC– 

DRGs for FY 2014 

As specified by our regulations at 

§ 412.517(a), which require that the MS– 

LTC–DRG classifications and relative 

weights be updated annually, and 

consistent with our historical practice of 

using the same patient classification 

system under the LTCH PPS as is used 

under the IPPS, we are proposing to 

update the MS–LTC–DRG classifications 

effective October 1, 2013, through 

September 30, 2014 (FY 2014) 

consistent with the proposed changes to 

specific MS–DRG classifications 

presented in section II.G. of this 

preamble (that is, proposed GROUPER 

Version 31.0). Therefore, the proposed 

MS–LTC–DRGs for FY 2014 presented 

in this proposed rule are the same as the 

proposed MS–DRGs that are being used 

under the IPPS for FY 2014. In addition, 

because the proposed MS–LTC–DRGs 

for FY 2014 are the same as the 

proposed MS–DRGs for FY 2014, the 

other proposed changes that affect MS– 

DRG (and by extension MS–LTC–DRG) 

assignments under proposed Version 

31.0 of the GROUPER discussed in 

section II.G. of the preamble of this 

proposed rule, including the proposed 

changes to the MCE software and the 

ICD–9–CM coding system, are also 

applicable under the LTCH PPS for FY 

2014. 

3. Development of the Proposed FY 

2014 MS–LTC–DRG Relative Weights 

a. General Overview of the Development 

of the MS–LTC–DRG Relative Weights 

One of the primary goals for the 

implementation of the LTCH PPS is to 

pay each LTCH an appropriate amount 

for the efficient delivery of medical care 

to Medicare patients. The system must 

be able to account adequately for each 

LTCH’s case-mix in order to ensure both 

fair distribution of Medicare payments 

and access to adequate care for those 

Medicare patients whose care is more 

costly (67 FR 55984). To accomplish 

these goals, we have annually adjusted 

the LTCH PPS standard Federal 

prospective payment system rate by the 

applicable relative weight in 

determining payment to LTCHs for each 

case. 

The basic methodology used to 

develop the proposed MS–LTC–DRG 

relative weights generally continues to 

be consistent with the general 

methodology established when the 

LTCH PPS was implemented in the 

August 30, 2002 LTCH PPS final rule 

(67 FR 55989 through 55991), with the 

exception of some modifications of our 

historical procedures for assigning 

relative weights in cases of zero volume 

and/or nonmonotonicity resulting from 

the adoption of the MS–LTC–DRGs. (For 

details on the modifications to our 

historical procedures for assigning 

proposed relative weights in cases of 

zero volume and/or nonmonotonicity, 

we refer readers to the FY 2008 IPPS 

final rule with comment period (72 FR 

47289 through 47295) and the FY 2009 

IPPS final rule (73 FR 48542 through 

48550).) Under the LTCH PPS, relative 

weights for each MS–LTC–DRG are a 

primary element used to account for the 

variations in cost per discharge and 

resource utilization among the payment 

groups (§ 412.515). To ensure that 

Medicare patients classified to each 

MS–LTC–DRG have access to an 

appropriate level of services and to 

encourage efficiency, we calculate a 

relative weight for each MS–LTC–DRG 

that represents the resources needed by 

an average inpatient LTCH case in that 

MS–LTC–DRG. For example, cases in a 

MS–LTC–DRG with a relative weight of 

2 will, on average, cost twice as much 

to treat as cases in a MS–LTC–DRG with 

a relative weight of 1. 

b. Development of the Proposed MS– 

LTC–DRG Relative Weights for FY 2014 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53462 through 53467), we 

presented our policies for the 

development of the MS–LTC–DRG 

relative weights for FY 2013. The basic 

methodology we used to develop the FY 

2013 MS–LTC–DRG relative weights 

was the same as the methodology we 

used to develop the FY 2012 MS–LTC– 

DRG relative weights in the FY 2012 

IPPS/LTCH PPS final rule and was 

consistent with the general methodology 

established when the LTCH PPS was 

implemented in the August 30, 2002 

LTCH PPS final rule (67 FR 55989 

through 55991). We are proposing to 

continue to apply our established 

methodology for FY 2014. Our 

development of the proposed FY 2014 

MS–LTC–DRG relative weights include 

application of established policies 

related to the data, the hospital-specific 

relative value (HSRV) methodology, the 

treatment of severity levels in the MS– 

LTC–DRGs, low-volume and no-volume 

MS–LTC–DRGs, adjustment for 

nonmonotonicity, and the steps for 

calculating the MS–LTC–DRG relative 

weights with a budget neutrality factor. 

Below we present the methodology that 

we are proposing to continue to use to 

determine the MS–LTC–DRG relative 

weights for FY 2014, which is consistent 

with the methodology presented in the 

FY 2013 IPPS/LTCH PPS final rule. 

Beginning with the FY 2008 update, 

we established a budget neutrality 

requirement for the annual update to the 

MS–LTC–DRG classifications and 

relative weights at § 412.517(b) (in 

conjunction with § 412.503), such that 

estimated aggregate LTCH PPS 

payments would be unaffected, that is, 

would be neither greater than nor less 

than the estimated aggregate LTCH PPS 

payments that would have been made 

without the classification and relative 

weight changes (72 FR 26882 through 

26884). Consistent with § 412.517(b), we 

are proposing to continue to apply our 

established two-step budget neutrality 

methodology, which is based on the 

current year MS–LTC–DRG 

classifications and relative weights. We 

are proposing to continue to apply our 

established two-step budget neutrality 

methodology such that the annual 

update to the MS–LTC–DRG 

classifications and relative weights for 

FY 2014 are based on the FY 2013 MS– 

LTC–DRG classifications and relative 

weights established in Table 11 listed in 

section VI. of the Addendum to the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53716 through 53717). (For additional 

information on the established two-step 

budget neutrality methodology, we refer 

readers to the FY 2008 IPPS final rule 

(72 FR 47295 through 47296).) 

c. Data 

For this proposed rule, to calculate 

the proposed MS–LTC–DRG relative 

weights for FY 2014, we are proposing 

to obtain total charges from FY 2012 

Medicare LTCH bill data from the 

December 2012 update of the FY 2012 

MedPAR file, which are the best 

available data at this time, and to use 

the proposed Version 31.0 of the 

GROUPER to classify LTCH cases. 

Consistent with our existing 

methodology, we also are proposing that 

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if more recent data become available, we 

would use those data and the finalized 

Version 31.0 of the GROUPER in 

establishing the FY 2014 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 

exclude Medicare Advantage (Part C) 

claims, which are now included in the 

MedPAR files, in the calculations for the 

proposed relative weights under the 

LTCH PPS that are used to determine 

payments for Medicare fee-for-service 

claims. Specifically, we are proposing 

not to use any claims from the MedPAR 

files that have a GHO Paid indicator 

value of ‘‘1,’’ which effectively removes 

Medicare Advantage claims from the 

proposed relative weight calculations 

(73 FR 48532). Accordingly, in the 

development of the proposed FY 2014 

MS–LTC–DRG relative weights in this 

proposed rule, we excluded 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 2012 update of the FY 

2012 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 ventilatordependent patients and treatment of 

infections and wound care. Some case 

types (MS–DRGs) may be treated, to a 

large extent, in hospitals that have, from 

a perspective of charges, relatively high 

(or low) charges. This nonrandom 

distribution of cases with relatively high 

(or low) charges in specific MS–LTC– 

DRGs has the potential to 

inappropriately distort the measure of 

average charges. 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 2014. We believe this 

method removes this hospital-specific 

source of bias in measuring LTCH 

average charges (67 FR 55985). 

Specifically, under this methodology, 

we reduce the impact of the variation in 

charges across providers on any 

particular proposed MS–LTC–DRG 

relative weight by converting each 

LTCH’s charge for a case to a relative 

value based on that LTCH’s average 

charge. 

Under the HSRV methodology, we 

standardize charges for each LTCH by 

converting its charges for each case to 

hospital-specific relative charge values 

and then adjust those values for the 

LTCH’s case-mix. The adjustment for 

case-mix is needed to rescale the 

hospital-specific relative charge values 

(which, by definition, average 1.0 for 

each LTCH). The average relative weight 

for a LTCH is its case-mix, so it is 

reasonable to scale each LTCH’s average 

relative charge value by its case-mix. In 

this way, each LTCH’s relative charge 

value is adjusted by its case-mix to an 

average that reflects the complexity of 

the cases it treats relative to the 

complexity of the cases treated by all 

other LTCHs (the average case-mix of all 

LTCHs). 

In accordance with our established 

methodology, 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 § 412.529 as described 

in section VIII.B.3.g. (Step 3) of this 

preamble) by the average adjusted 

charge for all cases at the LTCH in 

which the case was treated. SSO cases 

are cases with a length of stay that is 

less than or equal to five-sixths the 

average length of stay of the MS–LTC– 

DRG (§ 412.529 and § 412.503). The 

average adjusted charge reflects the 

average intensity of the health care 

services delivered by a 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 casemix, 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 

proposed MS–LTC–DRG relative 

weights, under our historical 

methodology, there are three different 

categories of MS–DRGs based on 

volume of cases within specific MS– 

LTC–DRGs. 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). 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 2014. (We 

provide in-depth discussions of our 

policy regarding weight-setting for 

proposed low-volume MS–LTC–DRGs 

in section VIII.B.3.f. of the preamble of 

this proposed rule and for proposed novolume MS–LTC–DRGs, under Step 5 in 

section VIII.B.3.g. of this preamble.) 

Furthermore, in determining the 

proposed FY 2014 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 VIII.B.3.g. of this preamble. 

We refer readers to the discussion in the 

FY 2010 IPPS/RY 2010 LTCH PPS final 

rule for our rationale for including an 

adjustment for nonmonotonicity (74 FR 

43953 through 43954). 

f. Proposed Low-Volume MS–LTC– 

DRGs 

In order to account for proposed MS– 

LTC–DRGs with low volume (that is, 

with fewer than 25 LTCH cases), 

consistent with our existing 

methodology for purposes of 

determining the proposed FY 2014 MS– 

LTC–DRG relative weights, we are 

proposing to continue to employ the 

quintile methodology for proposed lowvolume MS–LTC–DRGs, such that we 

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group the proposed ‘‘low-volume MS– 

LTC–DRGs’’ (that is, MS–LTC–DRGs 

that contained between 1 and 24 cases 

annually) into one of five categories 

(quintiles) based on average charges (67 

FR 55984 through 55995 and 72 FR 

47283 through 47288). In determining 

the proposed FY 2014 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 results in nonmonotonicity 

within a base-DRG, in order to ensure 

appropriate Medicare payments, 

consistent with our historical 

methodology, we are proposing to make 

adjustments to the treatment of 

proposed low-volume MS–LTC–DRGs to 

preserve monotonicity, as discussed in 

detail below in section VIII.B.3.g. (Step 

6) of this preamble. 

In this proposed rule, using LTCH 

cases from the December 2012 update of 

the FY 2012 MedPAR file (which is 

currently the best available data), we 

identified 280 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 lowvolume quintiles, each containing 56 

proposed MS–LTC–DRGs (280/5 = 56 

with no proposed MS–LTC–DRGs as the 

remainder). We are proposing to assign 

a proposed low-volume MS–LTC–DRG 

to a specific low-volume quintile by 

sorting the proposed low-volume MS– 

LTC–DRGs in ascending order by 

average charge in accordance with our 

established methodology. Based on the 

data available for this proposed rule, the 

number of proposed MS–LTC–DRGs 

with less than 25 cases was evenly 

divisible by 5. However, had the 

number of proposed MS–LTC–DRGs 

with less than 25 cases not been evenly 

divisible by 5, consistent with our 

historical approach we would have used 

the average charge of the low-volume 

quintile to determine which of the lowvolume quintiles contain the additional 

low-volume MS–LTC–DRGs. (For an 

example of the application of this 

approach, we refer readers to the 

discussion of the treatment of the lowvolume MS–LTC–DRGs for FY 2013 (77 

FR 53463).) Specifically for this 

proposed rule, after organizing the 

proposed MS–LTC–DRGs by ascending 

order by average charge, we are 

proposing to assign the first fifth (1st 

through 56th) 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 were assigned into Quintile 

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 proposed MS– 

LTC–DRGs for FY 2014. 

Accordingly, in order to determine 

the proposed FY 2014 relative weights 

for the proposed MS–LTC–DRGs with 

low volume, we are proposing to use the 

five low-volume quintiles described 

above. We determined a proposed 

relative weight and (geometric) average 

length of stay for each of the five lowvolume quintiles using the methodology 

that we applied to the proposed MS– 

LTC–DRGs (25 or more cases), as 

described below in section VII.B.3.g. of 

this preamble. We are proposing to 

assign the same proposed relative 

weight and average length of stay to 

each of the proposed low-volume MS– 

LTC–DRGs that make up an individual 

low-volume quintile. We note that, as 

this system is dynamic, it is possible 

that the number and specific type of 

MS–LTC–DRGs with a low volume of 

LTCH cases will vary in the future. 

Furthermore, we note that we will 

continue to monitor the volume (that is, 

the number of LTCH cases) in the lowvolume 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 2014 MS–LTC–DRG Relative 

Weights 

In this proposed rule, we are 

proposing to determine the FY 2014 

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 2014 MS–LTC–DRG relative weights, 

we are proposing to group LTCH cases 

to the appropriate proposed MS–LTC– 

DRG, while taking into account the lowvolume quintile (as described above). 

After grouping the cases to the 

appropriate MS–LTC–DRG (or lowvolume quintile), we calculate the 

proposed FY 2014 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 

adjust the number of cases in each 

proposed MS–LTC–DRG (or low-volume 

quintile) for the effect of SSO cases 

(Step 3 below). After removing 

statistical outliers (Step 1 below) and 

cases with a length of stay of 7 days or 

less (Step 2 below), the SSO adjusted 

discharges and corresponding charges 

were then used to calculate ‘‘relative 

adjusted weights’’ for each proposed 

MS–LTC–DRG (or low-volume quintile) 

using the HSRV method. 

Below we discuss in detail the steps 

for calculating the proposed FY 2014 

MS–LTC–DRG relative weights. We note 

that, as we discussed in section 

VIII.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 2012 update of the FY 2012 

MedPAR file. 

Step 1—Remove statistical outliers. 

The first step in the calculation of the 

proposed FY 2014 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 

MS–LTC–DRGs. (For additional 

information on this step of the relative 

weight methodology, we refer readers to 

67 FR 55989 and 74 FR 43959.) 

Step 2—Remove cases with a length 

of stay of 7 days or less. 

The MS–LTC–DRG relative weights 

reflect the average of resources used on 

representative cases of a specific type. 

Generally, cases with a length of stay of 

7 days or less do not belong in a LTCH 

because these stays do not fully receive 

or benefit from treatment that is typical 

in a LTCH stay, and full resources are 

often not used in the earlier stages of 

admission to a LTCH. If we were to 

include stays of 7 days or less in the 

computation of the proposed FY 2014 

MS–LTC–DRG relative weights, the 

value of many proposed relative weights 

would decrease and, therefore, 

payments would decrease to a level that 

may no longer be appropriate. We do 

not believe that it would be appropriate 

to compromise the integrity of the 

payment determination for those LTCH 

cases that actually benefit from and 

receive a full course of treatment at a 

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LTCH by including data from these very 

short stays. Therefore, consistent with 

our historical relative weight 

methodology, in determining the 

proposed FY 2014 MS–LTC–DRG 

relative weights, we are proposing to 

remove LTCH cases with a length of stay 

of 7 days or less. (For additional 

information on this step of the relative 

weight methodology, we refer readers to 

67 FR 55989 and 74 FR 43959.) 

Step 3—Adjust charges for the effects 

of SSOs. 

After removing cases with a length of 

stay of 7 days or less, we are left with 

cases that have a length of stay of greater 

than or equal to 8 days. As the next step 

in the calculation of the proposed FY 

2014 MS–LTC–DRG relative weights, 

consistent with our historical relative 

weight methodology, we are proposing 

to adjust each LTCH’s charges per 

discharge for those remaining cases for 

the effects of SSOs (as defined in 

§ 412.529(a) in conjunction with 

§ 412.503). 

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 MS– 

LTC–DRG for non-SSO cases. This has 

the effect of proportionately reducing 

the impact of the lower charges for the 

SSO cases in calculating the average 

charge for the MS–LTC–DRG. This 

process produces the same result as if 

the actual charges per discharge of an 

SSO case were adjusted to what they 

would have been had the patient’s 

length of stay been equal to the average 

length of stay of the MS–LTC–DRG. 

Counting SSO cases as full discharges 

with no adjustment in determining the 

proposed FY 2014 MS–LTC–DRG 

relative weights would lower the 

proposed FY 2014 MS–LTC–DRG 

relative weight for affected MS–LTC– 

DRGs because the relatively lower 

charges of the SSO cases would bring 

down the average charge for all cases 

within an MS–LTC–DRG. This would 

result in an ‘‘underpayment’’ for nonSSO cases and an ‘‘overpayment’’ for 

SSO cases. Therefore, we are proposing 

to adjust for SSO cases under § 412.529 

in this manner because it results in 

more 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 

2014 MS–LTC–DRG relative weights on 

an iterative basis. 

Consistent with our historical relative 

weight methodology, we are proposing 

to calculate the proposed FY 2014 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 an adjusted hospitalspecific 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 2014 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 MS–LTC–DRG 

relative weights by its total number of 

cases. The LTCHs’ hospital-specific 

relative charge values (from above) are 

then multiplied by the hospital-specific 

case-mix indexes. The 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 was less 

than 0.0001. 

Step 5—Determine a proposed FY 

2014 relative weight for MS–LTC–DRGs 

with no LTCH cases. 

As we stated above, we are proposing 

to determine the proposed FY 2014 

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 2012 update of the FY 

2012 MedPAR file for this proposed 

rule). Using these data, we identified the 

proposed MS–LTC–DRGs for which 

there were no LTCH cases in the 

database, such that no patients who 

would have been classified to those 

proposed MS–LTC–DRGs were treated 

in LTCHs during FY 2012 and, 

therefore, no charge data were available 

for these proposed MS–LTC–DRGs. 

Thus, in the process of determining the 

proposed MS–LTC–DRG relative 

weights, we 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 relative weight to each of the 

proposed no-volume MS–LTC–DRGs 

based on clinical similarity and relative 

costliness (with the exception of 

proposed ‘‘transplant’’ MS–LTC–DRGs 

and proposed ‘‘error’’ 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 2014 relative 

weights for the proposed MS–LTC– 

DRGs with no LTCH cases in the 

December 2012 update of the FY 2012 

MedPAR file used in this proposed rule 

(that is, proposed ‘‘no-volume’’ MS– 

LTC–DRGs) by cross-walking each 

proposed no-volume MS–LTC–DRG to 

another proposed MS–LTC–DRG with a 

calculated proposed relative weight 

(determined in accordance with the 

methodology described above). Then, 

the proposed ‘‘no-volume’’ MS–LTC– 

DRG is assigned the same proposed 

relative weight (and average length of 

stay) of the proposed MS–LTC–DRG to 

which it was cross-walked (as described 

in greater detail below). 

Of the 751 proposed MS–LTC–DRGs 

for FY 2014, we identified 236 proposed 

MS–LTC–DRGs for which there are no 

LTCH cases in the database (including 

the 8 proposed ‘‘transplant’’ MS–LTC– 

DRGs and 2 proposed ‘‘error’’ MS–LTC– 

DRGs). As stated above, we are 

proposing to assign proposed relative 

weights for each of the 236 proposed novolume MS–LTC–DRGs (with the 

exception of the 8 proposed 

‘‘transplant’’ MS–LTC–DRGs and the 2 

proposed ‘‘error’’ MS–LTC–DRGs, 

which are discussed below) based on 

clinical similarity and relative costliness 

to one of the remaining 515 (751—236= 

515) proposed MS–LTC–DRGs for 

which we are able to determine 

proposed relative weights based on FY 

2012 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 236 proposed ‘‘no 

volume’’ MS–LTC–DRGs, with the 

exception of the 8 proposed 

‘‘transplant’’ MS–LTC–DRGs and the 2 

proposed ‘‘error’’ MS–LTC–DRGs, for 

purposes of determining a proposed 

relative weight.) Then, we are proposing 

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to assign the proposed no-volume MS– 

LTC–DRG the proposed relative weight 

of the proposed cross-walked MS–LTC– 

DRG. (As explained below in Step 6, 

when necessary, we made adjustments 

to account for nonmonotonicity.) 

For this proposed rule, we are 

proposing to cross-walk the proposed 

no-volume MS–LTC–DRG to a proposed 

MS–LTC–DRG for which there are 

LTCH cases in the December 2012 

update of the FY 2012 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 2014. (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 2014, the proposed relative weights 

assigned based on the proposed crosswalked MS–LTC–DRGs would result in 

an appropriate LTCH PPS payment 

because the proposed crosswalks, which 

are based on similar clinical similarity 

and relative costliness, generally require 

equivalent relative resource use. 

We 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 novolume MS–LTC–DRG and the 

proposed cross-walked MS–LTC–DRG) 

have the same proposed relative weight 

for FY 2014. 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 

proposed no-volume MS–LTC–DRG is 

cross-walked has 24 or less cases and, 

therefore, is designated to one of the 

proposed low-volume quintiles for 

purposes of determining the proposed 

relative weights, we assigned the 

proposed relative weight of the 

applicable proposed low-volume 

quintile to the proposed no-volume MS– 

LTC–DRG such that both of these 

proposed MS–LTC–DRGs (that is, the 

proposed no-volume MS–LTC–DRG and 

the proposed cross-walked MS–LTC– 

DRG) have the same proposed relative 

weight for FY 2014. (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 were 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–DRGs to 

which each is cross-walked (that is, the 

proposed cross-walked MS–LTC–DRGs) 

for FY 2014 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 2014 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 2014 

provided in Table 13B. 

Example: There are no cases in the FY 

2012 MedPAR file used for this proposed 

rule for proposed MS–LTC–DRG 61 (Acute 

Ischemic Stroke with Use of Thrombolytic 

Agent with MCC). We determined that 

proposed MS–LTC–DRG 70 (Nonspecific 

Cerebrovascular Disorders with MCC) was 

similar clinically and based on resource use 

to proposed MS–LTC–DRG 61. Therefore, we 

assigned the same proposed relative weight 

of proposed MS–LTC–DRG 70 of 0.8222 for 

FY 2014 to proposed MS–LTC–DRG 61 

(obtained from Table 11, which is listed in 

section VI. of the Addendum to this proposed 

rule and is available via the Internet). 

Again, we note that, as this system is 

dynamic, it is entirely possible that the 

number of 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 2014, consistent 

with our historical relative weight 

methodology, we are proposing to 

establish the proposed MS–LTC–DRG 

relative weight of 0.0000 for the 

following proposed transplant MS– 

LTC–DRGs: Heart Transplant or Implant 

of Heart Assist System with MCC (MS– 

LTC–DRG 1); Heart Transplant or 

Implant of Heart Assist System without 

MCC (MS–LTC–DRG 2); Liver 

Transplant with MCC or Intestinal 

Transplant (MS–LTC–DRG 5); Liver 

Transplant without MCC (MS–LTC– 

DRG 6); Lung Transplant (MS–LTC– 

DRG 7); Simultaneous Pancreas/Kidney 

Transplant (MS–LTC–DRG 8); Pancreas 

Transplant (MS–LTC–DRG 10); and 

Kidney Transplant (MS–LTC–DRG 652). 

This is because Medicare will only 

cover these procedures if they are 

performed at a hospital that has been 

certified for the specific procedures by 

Medicare and presently no LTCH has 

been so certified. At the present time, 

we include these eight proposed 

transplant MS–LTC–DRGs in the 

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 2014 

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 MS–DRG is 

subdivided into either two levels or the 

base MS–DRG is not subdivided. The 

two-level subdivisions could consist of 

the MS–DRG with CC/MCC and the 

MS–DRG without CC/MCC. 

Alternatively, the other type of twolevel subdivision may consist of the 

MS–DRG with MCC and the MS–DRG 

without MCC. 

In those base MS–LTC–DRGs that are 

split into either two or three severity 

levels, cases classified into the ‘‘without 

CC/MCC’’ MS–LTC–DRG are expected 

to have a lower resource use (and lower 

costs) than the ‘‘with CC/MCC’’ MS– 

LTC–DRG (in the case of a two-level 

split) or both the ‘‘with CC’’ and the 

‘‘with MCC’’ MS–LTC–DRGs (in the 

case of a three-level split). That is, 

theoretically, cases that are more severe 

typically require greater expenditure of 

medical care resources and will result in 

higher average charges. Therefore, in the 

three severity levels, proposed relative 

weights should increase by severity, 

from lowest to highest. If the proposed 

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relative weights decrease as severity 

increases (that is, if within a base MS– 

LTC–DRG, an 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 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 2014 MS–LTC–DRG 

relative weights in this proposed rule, 

consistent with our historical 

methodology, we are proposing to 

combine MS–LTC–DRG severity levels 

within a base proposed MS–LTC–DRG 

for the purpose of computing a 

proposed relative weight when 

necessary to ensure that monotonicity is 

maintained. For a comprehensive 

description of our existing methodology 

to adjust for nonmonotonicity, we refer 

readers to the FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 43964 

through 43966). Any adjustments for 

nonmonotonicity that were made in 

determining the proposed FY 2014 MS– 

LTC–DRG relative weights in this 

proposed rule by applying this proposed 

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 

2014 budget neutrality factor. 

In accordance with the regulations at 

§ 412.517(b) (in conjunction with 

§ 412.503), the annual update to the 

MS–LTC–DRG classifications and 

relative weights is done in a budget 

neutral manner such that estimated 

aggregate LTCH PPS payments would be 

unaffected, that is, would be neither 

greater than nor less than the estimated 

aggregate LTCH PPS payments that 

would have been made without the MS– 

LTC–DRG classification and relative 

weight changes. (For a detailed 

discussion on the establishment of the 

budget neutrality requirement for the 

annual update of the MS–LTC–DRG 

classifications and relative weights, we 

refer readers to the RY 2008 LTCH PPS 

final rule (72 FR 26881 and 26882).) 

The MS–LTC–DRG classifications and 

relative weights are updated annually 

based on the most recent available 

LTCH claims data to reflect changes in 

relative LTCH resource use (§ 412.517(a) 

in conjunction with § 412.503). Under 

the budget neutrality requirement at 

§ 412.517(b), for each annual update, the 

MS–LTC–DRG relative weights are 

uniformly adjusted to ensure that 

estimated aggregate payments under the 

LTCH PPS would not be affected (that 

is, decreased or increased). Consistent 

with that provision, we are proposing to 

update the MS–LTC–DRG classifications 

and relative weights for FY 2014 based 

on the most recent available LTCH data, 

and apply a budget neutrality 

adjustment in determining the proposed 

FY 2014 MS–LTC–DRG relative weights. 

To ensure budget neutrality in the 

proposed update to the MS–LTC–DRG 

classifications and relative weights 

under § 412.517(b), we are proposing to 

continue to use our established two-step 

budget neutrality methodology. In this 

proposed rule, in the first step of our 

MS–LTC–DRG budget neutrality 

methodology, for FY 2014, we are 

proposing to calculate and apply a 

normalization factor to the recalibrated 

relative weights (the result of Steps 1 

through 6 above) to ensure that 

estimated payments are not influenced 

by changes in the composition of case 

types or the changes to the classification 

system. That is, the normalization 

adjustment is intended to ensure that 

the recalibration of the proposed MS– 

LTC–DRG relative weights (that is, the 

process itself) neither increases nor 

decreases the average CMI. 

To calculate the proposed 

normalization factor for FY 2014 (the 

first step of our budget neutrality 

methodology), we are proposing to use 

the following three steps: (1.a.) we use 

the most recent available LTCH claims 

data (FY 2012) and group them using 

the proposed FY 2014 GROUPER 

(Version 31.0) and the recalibrated 

proposed FY 2014 MS–LTC–DRG 

relative weights (determined in steps 1 

through 6 of the Steps for Determining 

the Proposed FY 2014 MS–LTC–DRG 

Relative Weights above) to calculate the 

average CMI; (1.b.) we group the same 

LTCH claims data (FY 2012) using the 

FY 2013 GROUPER (Version 30.0) and 

FY 2013 MS–LTC–DRG relative weights 

and calculate the average CMI; and (1.c.) 

we compute the ratio of these average 

CMIs by dividing the average CMI for 

FY 2013 (determined in Step 1.b.) by the 

proposed average CMI for FY 2014 

(determined in Step 1.a.). In 

determining the proposed MS–LTC– 

DRG relative weights for FY 2014, each 

recalibrated MS–LTC–DRG relative 

weight is multiplied by 1.11546 

(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 2014 MS–LTC–DRG 

classifications and relative weights) are 

equal to estimated aggregate LTCH PPS 

payments before reclassification and 

recalibration (that is, the FY 2013 MS– 

LTC–DRG classifications and relative 

weights). Accordingly, consistent with 

our existing methodology, we are 

proposing to use FY 2012 discharge data 

to simulate payments and compare 

estimated aggregate LTCH PPS 

payments using the FY 2013 MS–LTC– 

DRGs and relative weights to estimate 

aggregate LTCH PPS payments using the 

proposed FY 2014 MS–LTC–DRGs and 

relative weights. Specifically, for this 

proposed rule, as discussed previously 

in section VIII.B.3.c. of this preamble, 

we are using LTCH claims data from the 

December 2012 update of the FY 2012 

MedPAR file, as these are the best 

available data at this time. 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 2014 in the 

final rule. 

For this proposed rule, we are 

proposing to determine the proposed FY 

2014 budget neutrality adjustment factor 

using the following three steps: (2.a.) we 

simulate estimated total LTCH PPS 

payments using the proposed 

normalized relative weights for FY 2014 

and proposed GROUPER Version 31.0 

(as described above); (2.b.) we simulate 

estimated total LTCH PPS payments 

using the FY 2013 GROUPER (Version 

30.0) and the FY 2013 MS–LTC–DRG 

relative weights in Table 11 of the 

Addendum to the FY 2013 IPPS/LTCH 

PPS final rule available on the Internet 

(76 FR 53716); and (2.c.) we calculate 

the ratio of these estimated total LTCH 

PPS payments by dividing the estimated 

total LTCH PPS payments using the FY 

2013 GROUPER (Version 30.0) and the 

FY 2013 MS–LTC–DRG relative weights 

(determined in Step 2.b.) by the 

estimated total LTCH PPS payments 

using the proposed FY 2014 GROUPER 

(Version 31.0) and the proposed 

normalized MS–LTC–DRG relative 

weights for FY 2014 (determined in Step 

2.a.). In determining the proposed FY 

2014 MS–LTC–DRG relative weights, 

each proposed normalized relative 

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weight is multiplied by a proposed 

budget neutrality factor of 0.9953277 

(determined in Step 2.c.) in the second 

step of the budget neutrality 

methodology to determine the proposed 

budget neutral FY 2014 relative weight 

for each 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 1.11546 and a 

budget neutrality factor of 0.9953277 

(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, fivesixths of the geometric mean length of 

stay (used to identify SSO cases under 

§ 412.529(a)), and the proposed ‘‘IPPS 

Comparable Thresholds’’ (used in 

determining SSO payments under 

§ 412.529(c)(3)), for FY 2014 (and reflect 

both the proposed normalization factor 

of 1.11546 and the proposed budget 

neutrality factor of 0.9953277). 

C. Proposed LTCH PPS Payment Rates 

for FY 2014 

1. Overview of Development of the 

LTCH Payment Rates 

The basic methodology for 

determining LTCH PPS Federal 

prospective payment rates is set forth at 

§ 412.515 through § 412.536. In this 

section, we discuss the factors that we 

are proposing to use to update the LTCH 

PPS standard Federal rate for FY 2014, 

that is, effective for LTCH discharges 

occurring on or after October 1, 2013 

through September 30, 2014. 

For further details on the 

development of the FY 2003 standard 

Federal rate when the LTCH PPS was 

initially implemented, we refer readers 

to the August 30, 2002 LTCH PPS final 

rule (67 FR 56027 through 56037). For 

subsequent updates to the LTCH PPS 

standard Federal rate as implemented 

under § 412.523(c)(3), we refer readers 

to the following final rules: RY 2004 

LTCH PPS final rule (68 FR 34134 

through 34140); RY 2005 LTCH PPS 

final rule (68 FR 25682 through 25684); 

RY 2006 LTCH PPS final rule (70 FR 

24179 through 24180); RY 2007 LTCH 

PPS final rule (71 FR 27819 through 

27827); RY 2008 LTCH PPS final rule 

(72 FR 26870 through 27029); RY 2009 

LTCH PPS final rule (73 FR 26800 

through 26804); FY 2010 IPPS/RY 2010 

LTCH PPS final rule (74 FR 44021 

through 44030); FY 2011 IPPS/LTCH 

PPS final rule (75 FR 50443 through 

50444); FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51769 through 51773); and 

FY 2013 IPPS/LTCH PPS final rule (77 

FR 53479 through 53481). 

The proposed update to the LTCH 

PPS standard Federal rate for FY 2014 

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 2014 are 

discussed below, including the 

reduction to the annual update for 

LTCHs that fail to submit quality 

reporting data for fiscal year FY 2014 as 

required by the statute (as discussed 

below in section VIII.C.2.c. of this 

preamble). Furthermore, as discussed 

below in section VIII.C.3. of this 

preamble, for FY 2014, in addition to 

the proposed update factor, under the 

second year of the 3-year phase-in under 

the current regulations at 

§ 412.523(d)(3), we are proposing to 

make a one-time prospective adjustment 

to the standard Federal rate for FY 2014 

so that the effect of any significant 

difference between the data used in the 

original computations of budget 

neutrality for FY 2003 and more recent 

data to determine budget neutrality for 

FY 2003 is not perpetuated in the 

prospective payment rates for future 

years . In addition, as discussed in 

section V.A. of the Addendum of this 

proposed rule, we are 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 2014 

on estimated aggregate LTCH PPS 

payments, in accordance with 

§ 412.523(d)(4). (We refer readers to the 

discussion of the proposed reduction to 

the annual update for LTCHs that fail to 

submit quality reporting data in section 

VIII.C.2.c. of this preamble, the 

proposed application of the one-time 

prospective adjustment under the 

second year of the 3-year phase-in in 

section VIII.C.3. of this preamble, and 

the proposed budget neutrality 

adjustment for changes in the area wage 

levels in section V.A. of the Addendum 

of this proposed rule.) 

2. Proposed FY 2014 LTCH PPS Annual 

Market Basket Update 

a. Overview 

Historically, the Medicare program 

has used a market basket to account for 

price increases in the services furnished 

by providers. The market basket used 

for the LTCH PPS includes both 

operating and capital-related costs of 

LTCHs because the LTCH PPS uses a 

single payment rate for both operating 

and capital-related costs. As discussed 

in the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53468 through 53476), we 

adopted the newly created FY 2009- 

based LTCH-specific market basket for 

use under the LTCH PPS beginning in 

FY 2013. For additional details on the 

historical development of the market 

basket used under the LTCH PPS, we 

refer readers to the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53467 through 

53468) and this preamble. 

Section 3401(c) of the Affordable Care 

Act provides for certain adjustments to 

any annual update to the standard 

Federal rate and refers to the timeframes 

associated with such adjustments as a 

‘‘rate year’’ (which are discussed in 

more detail in section VIII.C.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 3004(a) 3401(c), 10319, and 

1105(b) of the Affordable Care Act refers 

to years 2010 and thereafter under the 

LTCH PPS as ‘‘rate year,’’ consistent 

with our change in the terminology used 

under the LTCH PPS from ‘‘rate year’’ to 

‘‘fiscal year,’’ for purposes of clarity, 

when discussing the annual update for 

the LTCH PPS, including the provisions 

of the Affordable Care Act, we use 

‘‘fiscal year’’ rather than ‘‘rate year’’ for 

2011 and subsequent years. 

b. Revision of Certain Market Basket 

Updates as Required by the Affordable 

Care Act 

Section 1886(m)(3)(A) of the Act, as 

added by section 3401(c) of the 

Affordable Care Act, specifies that, for 

rate year 2010 and each subsequent rate 

year through 2019, any annual update to 

the standard Federal rate shall be 

reduced: 

• For rate year 2010 through 2019, by 

the ‘‘other adjustment’’ specified in 

sections 1886(m)(3)(A)(ii) and (m)(4) of 

the Act; and 

• For rate year 2012 and each 

subsequent year, by the productivity 

adjustment (which we refer to as ‘‘the 

multifactor productivity (MFP) 

adjustment’’) described in section 

1886(b)(3)(B)(xi)(II) of the Act. 

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 

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year being less than such payment rates 

for the preceding rate year. 

Section 1886(b)(3)(B)(xi)(II) of the Act 

defines the MFP adjustment as equal to 

the 10-year moving average of changes 

in annual economy-wide, private 

nonfarm business multifactor 

productivity (as projected by the 

Secretary for the 10-year period ending 

with the applicable fiscal year, calendar 

year, cost reporting period, or other 

annual period). Under our methodology, 

the end of the 10-year moving average 

of changes in the MFP coincides with 

the end of the appropriate FY update 

period. In addition, the MFP adjustment 

that is applied in determining any 

annual update to the LTCH PPS 

standard Federal rate is the same 

adjustment that is required to be applied 

in determining the applicable 

percentage increase under the IPPS 

under section 1886(b)(3)(B)(i) of the Act 

as they are both based on a fiscal year. 

The MFP adjustment is derived using a 

projection of MFP that is currently 

produced by IHS Global Insight, Inc. 

(For additional details on the 

development of the MFP adjustment 

and its application under the LTCH 

PPS, we refer readers to the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51691 

through 51692 and 51770 through 

51771).) 

For FY 2014, we are proposing to 

continue to use our methodology for 

calculating and applying the proposed 

MFP adjustment to determine the 

annual update to the LTCH PPS 

standard Federal rate for FY 2014. (For 

details on the development of the MFP 

adjustment, 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. Adjustment to the Annual Update to 

the LTCH PPS Standard Federal Rate 

Under the Long-Term Care Hospital 

Quality Reporting (LTCHQR) Program 

1. Background 

In accordance with section 1886(m)(5) 

of the Act, as added by section 3004(a) 

of the Affordable Care Act, the Secretary 

established the Long-Term Care 

Hospital Quality Reporting (LTCHQR) 

Program. (As noted above, although the 

language of section 3004(a) of the 

Affordable Care Act refers to years 2011 

and thereafter under the LTCH PPS as 

‘‘rate year,’’ consistent with our change 

in the terminology used under the LTCH 

PPS from ‘‘rate year’’ to ‘‘fiscal year,’’ for 

purposes of clarity, when discussing the 

annual update for the LTCH PPS, 

including the provisions of the 

Affordable Care Act, we use ‘‘fiscal 

year’’ rather than ‘‘rate year’’ for 2011 

and subsequent years.) Under the 

LTCHQR Program, as required by 

section 1886(m)(5)(A)(i) of the Act, for 

FY 2014 and each subsequent year, in 

the case of a LTCH that does not submit 

quality reporting data to the Secretary in 

accordance with section 1886(m)(5)(C) 

of the Act with respect to such a year, 

any annual update to a standard Federal 

rate for discharges for the hospital 

during the year, and after application of 

section 1886(m)(3) of the Act, shall be 

reduced by 2.0 percentage points. 

Section 1886(m)(5)(A)(ii) of the Act 

provides that the application of the 2.0 

percentage points reduction may result 

in an annual update that is less than 0.0 

for a year, and may result in LTCH PPS 

payment rates for a year being less than 

such LTCH PPS payment rates for the 

preceding year. Furthermore, section 

1886(m)(5)(B) of the Act specifies that 

the 2.0 percentage points reduction is 

applied in a noncumulative manner, 

such that any reduction made under 

section 1886(m)(5)(A) of the Act shall 

apply only with respect to the year 

involved, and shall not be taken into 

account in computing the LTCH PPS 

payment amount for a subsequent year. 

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 the FY 2014 payment 

determination 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 

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). In that same final 

rule as discussed in section IX.C. of the 

preamble of this proposed rule, we 

adopted the following three quality 

measures for the FY 2014 payment 

determination: Urinary CatheterAssociated Urinary Tract Infection 

(CAUTI) rate per 1, 000 urinary catheter 

days, for Intensive Care Unit Patients 

(NQF #013); Central Line CatheterAssociated Blood Stream Infection 

(CLABSI) Rate for ICU and High-Risk 

Nursery Patients (NQF #0139); and 

Percent of Residents with Pressure 

Ulcers That are New or Worsened 

(Application of NQF #0678). For 

additional discussion and details of the 

history of the LTCHQR Program, 

including the statutory authority and 

further details on the three measures 

previously finalized for the FY 2014 

payment determination, we refer readers 

to section IX.C. of the preamble of this 

proposed rule and to the FY 2012 IPPS/ 

LTCH PPS final rule (76 FR 51743 

through 51756). 

2. Proposed Reduction to the Annual 

Update to the LTCH PPS Standard 

Federal Rate Under the LTCHQR 

Program 

Consistent with section 

1886(m)(5)(A)(i) of the Act, for FY 2014 

and subsequent fiscal years, we are 

proposing that for LTCHs that do not 

submit quality reporting data under the 

LTCHQR Program with respect to such 

a fiscal year, any annual update to a 

standard Federal rate for discharges for 

the LTCH during the fiscal year and 

after application of the market basket 

update adjustments required by section 

1886(m)(3) of the Act, would be further 

reduced by 2.0 percentage points. That 

is, in establishing an update to the 

LTCH PPS standard Federal rate for FY 

2014 and subsequent fiscal years, the 

full LTCH PPS market basket increase 

estimate, subject to an adjustment based 

on changes in economy-wide 

productivity (‘‘the MFP adjustment’’) 

required under section 1886(m)(3)(A)(i) 

of the Act and an additional reduction 

required by sections 1886(m)(3)(A)(ii) 

and 1886(m)(4) of the Act, would be 

further reduced by 2.0 percentage points 

for LTCHs that fail to submit quality 

reporting data under the LTCHQR 

Program. Accordingly, in this proposed 

rule, we are proposing to implement the 

reduction in the annual update to the 

LTCH PPS standard Federal rate for 

failure to report quality data under the 

LTCHQR Program for FY 2014 and 

subsequent fiscal years under proposed 

§ 412.523(c)(4). Specifically, consistent 

with section 1886(m)(5)(A)(i) of the Act, 

under proposed § 412.523(c)(4)(i), we 

are proposing that for a LTCH that does 

not submit quality reporting data in the 

form and manner and at the time 

specified by the Secretary under the 

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LTCHQR Program, the annual update to 

the standard Federal rate under 

§ 412.523(c)(3) would be further 

reduced by 2.0 percentage points. (Note, 

as discussed previously this section, the 

annual update to the standard Federal 

rate implemented under § 412.523(c)(3) 

reflects the application of the 

adjustments to any annual update as 

required by sections 1886(m)(3) and 

(m)(4) of the Act.) In addition, under 

proposed § 412.523(c)(4)(ii), consistent 

with section 1886(m)(5)(A)(ii) of the 

Act, we are proposing that any 

reduction of the annual update to the 

standard Federal rate under proposed 

§ 412.523(c)(4)(i) would apply only to 

the fiscal year involved and would not 

be taken into account in computing the 

annual update to the standard Federal 

rate for a subsequent fiscal year. Lastly, 

consistent with section 1886(m)(5)(B) of 

the Act, under proposed 

§ 412.523(c)(4)(iii), we are proposing 

that the application of any reduction of 

the annual update to the standard 

Federal rate under proposed 

§ 412.523(c)(4)(i) may result in an 

annual update that would be less than 

0.0 percent for a fiscal year, and may 

result in payment rates for a fiscal year 

that would be less than such payment 

rates for the preceding rate year. 

We also discuss this proposed 

application of the 2.0 percentage point 

reduction under proposed 

§ 412.523(c)(4)(i) in our discussion of 

the proposed annual market basket 

update to the LTCH PPS standard 

Federal rate for FY 2014 below in 

section VIII.C.2.e. of this preamble. 

d. Proposed Market Basket Under the 

LTCH PPS for FY 2014 

Under the authority of section 123 of 

the BBRA as amended by section 307(b) 

of the BIPA, in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53468), we 

adopted a newly created FY 2009-based 

LTCH-specific market basket for use 

under the LTCH PPS beginning in FY 

2013. The FY 2009-based LTCH-specific 

market basket is based solely on the 

Medicare cost report data submitted by 

LTCHs and, therefore, specifically 

reflects the cost structures of only 

LTCHs. For additional details on the 

development of the FY 2009-based 

LTCH-specific market basket, we refer 

readers to the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53467 through 53476). 

For FY 2014, we are proposing to 

continue to use the FY 2009-based 

LTCH-specific market basket to update 

the LTCH PPS for FY 2014. We continue 

to believe that the FY 2009-based LTCHspecific market basket appropriately 

reflects the cost structure of LTCHs for 

the reasons discussed when we adopted 

the FY 2009-based LTCH-specific 

market basket for use under the LTCH 

PPS in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53467 through 53476). 

e. Proposed Annual Market Basket 

Update for LTCHs for FY 2014 

Consistent with our historical 

practice, we are proposing to estimate 

the market basket update and the MFP 

adjustment based on IGI’s forecast using 

the most recent available data. Based on 

IGI’s first quarter 2013 forecast, the 

proposed FY 2014 full market basket 

estimate for the LTCH PPS using the FY 

2009-based LTCH-specific market basket 

is 2.5 percent. Using our established 

methodology for determining the MFP 

adjustment, the current estimate of the 

MFP adjustment for FY 2014 based on 

IGI’s first quarter 2013 forecast is 0.4 

percent (for additional details, we refer 

readers to section V.A.1. of this 

preamble). 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 2014, 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 2014 

market basket update by the FY 2014 

MFP adjustment. To determine the 

market basket update for LTCHs for FY 

2014, as reduced by the proposed MFP 

adjustment, consistent with our 

established methodology, we are 

proposing to subtract the FY 2014 MFP 

adjustment from the FY 2014 market 

basket update. Furthermore, sections 

1886(m)(3)(A)(ii) and 1886(m)(4)(D) of 

the Act requires that any annual update 

to the standard Federal rate for FY 2014 

be reduced by the ‘‘other adjustment’’ 

described in paragraph (4), which is 0.3 

percentage point for FY 2014. Therefore, 

following application of the 

productivity adjustment, we are 

proposing to reduce the proposed 

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. (For additional details on our 

established methodology for adjusting 

the market basket increase by the MFP 

and the ‘‘other adjustment’’ required by 

the statute, we refer readers to the FY 

2012 IPPS/LTCH PPS final rule (76 FR 

51771).) 

As discussed previously in section 

VIII.C.2.c. of this preamble, for FY 2014, 

section 1886(m)(5) of the Act requires 

that for LTCHs that do not submit 

quality reporting data under the 

LTCHQR Program, any annual update to 

a standard Federal rate, after application 

of the adjustments required by section 

1886(m)(3) of the Act, will be further 

reduced by 2.0 percentage points. 

Therefore, the proposed update to the 

LTCH PPS standard Federal rate for FY 

2014 for LTCHs that fail to submit 

quality reporting data under the 

LTCHQR Program, the full LTCH PPS 

market basket increase estimate, subject 

to an adjustment based on changes in 

economy-wide productivity (‘‘the MFP 

adjustment’’) as required under section 

1886(m)(3)(A)(i) of the Act and an 

additional reduction required by 

sections 1886(m)(3)(A)(ii) and 

1886(m)(4) of the Act, will also be 

further reduced by 2.0 percentage 

points. 

In this proposed rule, in accordance 

with the statute we are proposing to 

reduce the proposed FY 2014 full 

market basket estimate of 2.5 percent 

(based on the first quarter 2013 forecast 

of the FY 2009-based LTCH-specific 

market basket) by the proposed FY 2014 

MFP adjustment (that is, the 10-year 

moving average of MFP for the period 

ending FY 2014, as described in section 

V.A.1. of the preamble of this proposed 

rule) of 0.4 percentage point (based on 

IGI’s first quarter 2013 forecast). 

Following application of the proposed 

productivity adjustment, the proposed 

adjusted market basket update of 2.1 

percent (2.5 percent minus 0.4 

percentage point) is then reduced by 0.3 

percentage point, as required by 

sections 1886(m)(3)(A)(ii) and 

1886(m)(4)(D) 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 2014 of 1.8 percent (that is, the most 

recent estimate of the LTCH PPS market 

basket update at this time of 2.5 percent 

less the MFP adjustment of 0.4 

percentage point less the 0.3 percentage 

point required under section 

1886(m)(4)(D) of the Act), provided the 

LTCH submits quality reporting data in 

accordance with section 1886(m)(5) of 

the Act (as discussed above in section 

VIII.C.2.c. of this preamble). 

Accordingly, we are proposing to revise 

§ 412.523(c)(3) by adding a new 

paragraph (x), which specifies that the 

standard Federal rate for FY 2014 is the 

standard Federal rate for the previous 

LTCH PPS year updated by 1.8 percent, 

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and as further adjusted, as appropriate, 

as described in § 412.523(d). For LTCHs 

that fail to submit quality reporting data 

under the LTCHQR Program, under 

proposed § 412.523(c)(3)(x) in 

conjunction with proposed 

§ 412.523(c)(4), we are proposing to 

further reduce the annual update to the 

LTCH PPS standard Federal rate by 2.0 

percentage points in accordance with 

section 1886(m)(5) of the Act (as 

discussed previously in section 

VIII.C.2.c. of this preamble). 

Accordingly, we are proposing to 

establish an annual update to the LTCH 

PPS standard Federal rate of ¥0.2 

percent (that is, 1.8 percent minus 2.0 

percentage points) for FY 2014 for 

LTCHs that fail to submit quality 

reporting data under the LTCHQR 

Program. 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 2014. (We note that we also 

are proposing to adjust the FY 2014 

standard Federal rate by the proposed 

application of the one-time prospective 

adjustment under the second year of the 

3-year phase-in under § 412.523(d)(3) 

(discussed below in section VIII.C.3. of 

this preamble) and by a proposed area 

wage level budget neutrality factor in 

accordance with § 412.523(d)(4) (as 

discussed in section V.B.5. of the 

Addendum of this proposed rule).) 

3. Proposed Adjustment for the Second 

Year of the Phase-In of the One-Time 

Prospective Adjustment to the Standard 

Federal Rate Under § 412.523(d)(3) 

We set forth regulations implementing 

the LTCH PPS, based upon the broad 

authority granted to the Secretary, under 

section 123 of the BBRA (as amended by 

section 307(b) of the BIPA). Section 

123(a)(1) of the BBRA required that the 

system ‘‘maintain budget neutrality’’ in 

the August 30, 2002 LTCH PPS final 

rule (67 FR 55954). The statutory budget 

neutrality requirement means that 

estimated aggregate payments under the 

LTCH PPS for FY 2003 would be equal 

to the estimated aggregate payments that 

would have been made if the LTCH PPS 

were not implemented for FY 2003. The 

methodology for determining the LTCH 

PPS standard Federal rate for FY 2003 

that would ‘‘maintain budget neutrality’’ 

is described in considerable detail in the 

August 30, 2002 final rule (67 FR 56027 

through 56037). Our methodology for 

estimating payments for the purposes of 

budget neutrality calculations used the 

best available data, and necessarily 

reflected several assumptions (for 

example, costs, inflation factors, and 

intensity of services provided) in 

estimating aggregate payments that 

would have been made if the LTCH PPS 

had not been implemented (without 

accounting for certain statutory 

provisions that affect the level of 

payments to LTCHs in years prior to the 

implementation of the LTCH PPS, as 

required by the statute). 

In the August 30, 2002 final rule, we 

also stated our intentions to monitor 

LTCH PPS payment data to evaluate 

whether later data varied significantly 

from the data available at the time of the 

original budget neutrality calculations 

(for example, data related to inflation 

factors, intensity of services provided, 

or behavioral response to the 

implementation of the LTCH PPS). To 

the extent the later data significantly 

differed from the data employed in the 

original calculations, the aggregate 

amount of payments during FY 2003 

based on later data may be higher or 

lower than the estimates upon which 

the budget neutrality calculations were 

based. Therefore, in that same final rule, 

under the broad authority conferred 

upon the Secretary in developing the 

LTCH PPS, including the authority for 

establishing appropriate adjustments, 

under section 123(a)(1) of the BBRA, as 

amended by section 307(b) of the BIPA, 

we provided in § 412.523(d)(3) of the 

regulations for the possibility of making 

a one-time prospective adjustment to 

the LTCH PPS rates, so that the effect of 

any significant difference between 

actual payments and estimated 

payments for the first year of the LTCH 

PPS would not be perpetuated in the 

LTCH PPS rates for future years. We 

refer readers to the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53487 through 

53488) for a complete discussion of the 

history of the development of the onetime prospective adjustment to the 

LTCH PPS standard Federal rate at 

§ 412.523(d)(3). 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53495), we finalized our 

policy to make a one-time prospective 

adjustment to the standard Federal rate 

so that it will be permanently reduced 

by approximately 3.75 percent to 

account for the estimated difference 

between projected aggregate FY 2003 

LTCH PPS payments and the projected 

aggregate payments that would have 

been made in FY 2003 under the TEFRA 

payment system if the LTCH PPS had 

not been implemented. Specifically, 

using the methodology we adopted in 

that same final rule, we determined that 

permanently applying a factor of 0.9625 

(that is, a permanent reduction of 

approximately 3.75 percent) to the 

standard Federal rate is necessary to 

ensure estimated total FY 2003 LTCH 

PPS payments equal estimated total FY 

2003 TEFRA payments consistent with 

our stated policy goal of the one-time 

prospective adjustment under 

§ 412.523(d)(3) (that is, to ensure that 

the difference between estimated total 

FY 2003 LTCH PPS payments and 

estimated total FY 2003 TEFRA 

payments is not perpetuated in the 

LTCH PPS payment rates in future 

years). (We refer readers to the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53487 

through 53502) for a complete 

discussion of the evaluation approach, 

methodology, and determination of the 

one-time prospective adjustment to the 

LTCH PPS standard Federal rate at 

§ 412.523(d)(3).) 

Given the magnitude of this 

adjustment, in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53501 through 

53502), under § 412.523(d)(3), we 

established a policy to phase-in the 

permanent adjustment of 0.9625 to the 

standard Federal rate over a 3-year 

period. To achieve a permanent 

adjustment of 0.9625, under the phasein of this adjustment, in that same final 

rule, we explained that we will apply a 

factor of 0.98734 to the standard Federal 

rate in each year of the 3-year phase-in, 

that is, in FY 2013 (which does not 

apply to payments for discharges 

occurring on or after October 1, 2012, 

and on or before December 28, 2012, 

consistent with current law), FY 2014, 

and FY 2015. By applying a permanent 

factor of 0.98734 to the standard Federal 

rate in each year for FYs 2013, 2014, 

and 2015, we will completely account 

for the entire adjustment by having 

applied a cumulative factor of 0.9625 

(calculated as 0.98734 × 0.98734 × 

0.98734 = 0.9625) to the standard 

Federal rate. Accordingly, in accordance 

with the existing regulations at 

§ 412.523(d)(3), we are proposing to 

apply a permanent factor of 0.98734 for 

FY 2014 to the standard Federal rate 

under the second year of the 3-year 

phase-in of the one-time prospective 

adjustment. (The proposed LTCH PPS 

standard Federal rate for FY 2014 is 

presented in section V.A. of the 

Addendum to this proposed rule.) 

D. Expiration of Certain Payment Rules 

for LTCH Services—The 25-Percent 

Threshold Payment Adjustment 

Section 114(c) of the MMSEA, as 

amended by section 4302(a) of the 

ARRA and sections 3106(c) and 

10312(a) of the Affordable Care Act 

provided for a 5-year moratorium on the 

full application of the 25-percent 

payment adjustment threshold policy 

that expired for some LTCHs and LTCH 

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satellites for cost reporting periods 

beginning on or after October 1, 2012 

(‘‘October’’ LTCHs) and for other LTCHs 

and LTCH satellites for cost reporting 

periods beginning on or after July 1, 

2012 (‘‘July’’ LTCHs). In the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53483 

through 53484) as amended by the FY 

2013 IPPS/LTCH PPS correcting 

amendment (77 FR 63751 through 

63753), we provided for extensions to 

the expiring statutory moratoria for both 

‘‘October’’ and ‘‘July’’ LTCHs and LTCH 

satellites. 

Specifically, we established a 1-year 

extension (that is, for cost reporting 

periods beginning on or after October 1, 

2012, and before October 1, 2013) on the 

full application of the 25-percent 

threshold payment adjustment policy 

for ‘‘October’’ LTCHs, and for those 

‘‘July’’ LTCHs that would have been 

affected by the ‘‘gap’’ between the 

expiration of the statutory moratorium 

(for cost reporting periods beginning on 

or after July 1, 2012) and our 

prospective regulatory relief (for cost 

reporting periods beginning on or after 

October 1, 2012) we also provided for an 

additional moratorium based on LTCH 

discharges occurring on or after October 

1, 2012 and ending at the start of their 

next cost reporting period. For those 

‘‘July’’ LTCHs with cost reporting 

periods beginning on or after October 1, 

2012, the regulatory extension of the 

statutory moratorium, described above, 

effective for the hospital’s first cost 

reporting period beginning on or after 

October 1, 2012, resulted in seamless 

coverage for that group. But for those 

‘‘July’’ LTCHs with cost reporting 

periods beginning on or after July 1, 

2012, and before October 1, 2012, that 

would have otherwise been subject to 

the ‘‘gap’’ between the expiration of the 

statutory moratorium and the effective 

date of the regulatory moratoria we 

established a second regulatory 

moratorium effective with discharges 

occurring beginning October 1, 2012, 

through the end of the hospital cost 

reporting period (that is, the end of the 

cost reporting period that began on or 

after July 1, 2012, and before October 1, 

2012). For more details about these 

moratoriums, we refer readers to the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53483 through 53484). 

Under current law, the regulatory 

moratorium on the full application of 

the 25-percent threshold payment 

adjustment policy will expire for all 

LTCHs (both ‘‘October’’ and ‘‘July’’ 

LTCHs) for cost reporting periods 

beginning on or after October 1, 2013. 

As discussed in greater detail below, we 

do not anticipate further extending the 

regulatory moratorium of the 25-percent 

threshold payment adjustment policy. 

Therefore, LTCHs are encouraged to 

familiarize themselves with the prior 

rulemakings that established the 

adjustments for the various types of 

LTCHs and LTCH satellites. (We refer 

readers to the FY 2005 IPPS final rule 

(69 FR 49205 through 49214) and the 

RY 2007 LTCH PPS final rule (72 FR 

26929). We note that the 25-percent 

threshold payment adjustment policy 

does not apply to ‘‘subclause (II)’’ 

LTCHs, that is, an LTCH described 

under section 1886(d)(1)(B)(iv)(II) of the 

Act as implemented at § 412.23(e)(2)(ii) 

of the regulations. Subclause (II) LTCHs 

meeting that definition continue to be 

exempted from this policy. 

While we could propose further 

extending the regulatory moratoria, we 

do not believe it would be appropriate 

to do so. We are allowing the moratoria 

to expire because we continue to be 

concerned that LTCHs that admit more 

than the applicable percentage of 

patients from a particular referring 

hospital are, in effect, behaving like 

step-down units of the referring 

hospital, and that results in two separate 

Medicare payments—one to the 

referring hospital and one to the 

LTCH—for what we believe should be 

structured as one episode of care. In 

light of our duties to protect the fiscal 

integrity of the Medicare program, we 

believe that it would be inappropriate to 

continue to offer the mortaria pending 

the implementation of the policy 

outcomes of the research described 

below. We welcome public comments 

on this approach. 

In section VIII.E. of the preamble of 

this proposed rule we present interim 

results of CMS’ research initiatives that 

have been directed towards studying the 

different types of patients presently 

treated at LTCHs, and the potential 

options for establishing LTCH patientlevel criteria. Although we are not 

proposing any policy changes based on 

the described research at this time, we 

indicate that such a policy might 

obviate the need for the 25-percent 

threshold payment adjustment policy. 

Therefore, we are inviting public 

comments on that possibility. 

E. Research on the Development of a 

Patient Criteria-Based Payment 

Adjustment Under the LTCH PPS 

1. Overview 

CMS has been researching the 

development of patient and/or facilitylevel criteria for LTCHs, as originally 

recommended by MedPAC in its June 

2004 Report to the Congress, ‘‘New 

Approaches in Medicare.’’ In that 

report, MedPAC recommended such 

criteria in the report’s fifth chapter on 

‘‘Defining long-term care hospitals’’ (p. 

121 through 135). This report is 

hereinafter referred to as the MedPAC 

2004 Report. Section 114(a) of the 

Medicare, Medicaid, and SCHIP 

Extension Act (MMSEA) of 2007, which 

added section 1861(ccc) to the Act, 

specified certain facility-level criteria 

for LTCHs. Therefore, we generally 

focused our subsequent research 

initiatives on the development of 

potential LTCH patient-level criteria. 

In the FY 2013 IPPS/LTCH PPS 

proposed rule, we noted that two 

research projects were currently 

underway that we believed could 

potentially result in ‘‘. . . revisions to 

our payment policies that could render 

the 25-percent payment adjustment 

threshold policy unnecessary’’ (77 FR 

28022). In the FY 2013 IPPS/LTCH PPS 

final rule, we noted that, ‘‘. . . [w]e 

continue to share MedPAC’s concerns 

regarding the treatment of medically 

appropriate patients in LTCHs’’ (77 FR 

53485). We quoted MedPAC’s March 

2012 Report to Congress, ‘‘Medicare 

Payment Policy,’’ in which MedPAC 

noted, ‘‘. . . if medically complex cases 

in LTCHs are, in essence, 

indistinguishable from medically 

complex cases in acute care hospitals, 

then Medicare must ensure that its 

payments for the same set of services are 

equitable, regardless of where the 

services are provided . . . policymakers 

must consider whether certain models 

of care will best serve the needs of 

medically complex patients. These steps 

will help ensure that Medicare 

beneficiaries receive appropriate, high 

quality care in the least costly setting 

consistent with their clinical 

conditions’’ (77 FR 53485). 

We agreed with MedPAC’s assertions, 

and further noted our ongoing research 

that focused on determining whether 

there were some patient-level criteria 

that could be used to identify patients 

that are appropriately treated in a LTCH, 

consistent with their higher costs. At 

that time we shared our contractors’ 

preliminary findings that, 

‘‘. . . focusing on a subset of patients 

who are ‘chronically critically ill,’ that 

is who have been in intensive or 

coronary care units for a significant 

period of time at IPPS hospitals 

immediately preceding the admission to 

the LTCH may prove to be an important 

step at this point.’’ In the final rule we 

ended our response to the comments 

received with the following assurance: 

‘‘[a]s we have in the past, when this 

research reaches the appropriate stage, 

we intend to reach out to hospital 

industry stakeholders for reactions and 

feedback’’ (77 FR 53485). 

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In this proposed rule, we are 

describing the preliminary findings of 

this ongoing research that is being 

conducted by Kennell and Associates 

(Kennell) and its subcontractor, RTI, 

under the guidance of CMS’ Center for 

Medicare and Medicaid Innovation (the 

Innovation Center). We believe that this 

project, in large part, establishes a 

framework that can potentially be used 

to empirically identify the population of 

Medicare beneficiaries who we believe 

should form the core of LTCH patients 

appropriate for higher Medicare 

payments under the LTCH PPS. 

Although this research has not been 

completed, we believe that the 

preliminary findings suggest that certain 

types of patients, who are chronically 

critically ill and considered medically 

complex, as identified by specific 

clinical factors, are more appropriate 

candidates for high-cost treatment at a 

LTCH than other types of patients. It is 

worth noting that this is the same 

population that the LTCH industry in 

discussions with CMS has repeatedly 

defined as its target population. 

The framework, described below, 

represents the latest research for 

refining the LTCH PPS. Historically 

CMS refinements have included the 

input of advocates for the LTCH 

industry and MedPAC, as well as CMS 

and its contractors. We hope that they 

will continue to offer their insights to 

the framework presented below as well, 

and CMS will continue to take into 

consideration all stakeholders’ input. 

However, we emphasize that we are not 

proposing a new payment policy at this 

time. Rather, we are interested in 

receiving feedback from the public on 

the findings of this research study and 

also on the potential impact that our 

framework could have on hospital 

markets with the expectation of 

formulating a proposal for FY 2015. 

In the discussion below, we provide 

a summary of the research findings, 

discuss issues presented by our analyses 

of Medicare data from LTCHs and other 

hospital-level providers, describe the 

steps that led to our contractor’s 

findings, and present the resulting 

framework and our current 

understanding of the likely impact of 

this work on the Medicare payment 

system if we were to implement this 

framework. 

2. MedPAC’s 2004 Report to the 

Congress 

Within a year of CMS’ 

implementation of the LTCH PPS, 

MedPAC noted in its June 2003 Report 

to the Congress, ‘‘Variation and 

Innovation in Medicare,’’ that, 

‘‘. . . LTCH patients have higher 

mortality rates and Medicare pays more 

for their care, compared with patients 

who do not use LTCHs’’ (p. 71) and 

‘‘. . . total payments for LTCH users 

were 140 to 260 percent of payments for 

post-acute users in market areas without 

LTCHs (in 42 out of 44 DRG-severity 

levels). Death rates were higher for 

LTCH users compared with post-acute 

users in markets without LTCHs; this 

phenomenon may reflect unmeasured 

severity of illness’’ (p. 85). 

Although the report explicitly stated 

that MedPAC’s findings were drawn 

from pre-PPS data, MedPAC noted that, 

‘‘. . . more research is needed to 

determine the role that LTCHs play for 

Medicare patients and to understand 

quality outcomes in this setting’’ (p. 87). 

The following year, in its June 2004 

Report to Congress, ‘‘New Approaches 

in Medicare,’’ MedPAC provided a 

comprehensive examination of the 

LTCH universe based upon ‘‘. . . both 

qualitative and quantitative approaches 

to answer our key questions regarding 

the role that LTCHs play, where patients 

in areas without LTCHs are treated, and 

the differences in Medicare payments 

and outcomes for patients who use 

LTCHs compared to those treated in 

other settings’’ (p. 123). (For a detailed 

description of the methodology and data 

used in MedPAC’s analysis, we refer 

readers to MedPAC’s June 2004 Report 

to the Congress, p. 121 through 135). 

MedPAC’s analysis resulted in the 

following findings: 

• ‘‘In the absence of LTCHs, clinically 

similar patients are principally treated 

in acute hospitals or in freestanding 

SNFs that are equipped to handle 

patients requiring a high level of care’’ 

(p. 127). 

• ‘‘Medicare should use more precise 

criteria to ensure that LTCHs treat only 

appropriate patients. In general, 

beneficiaries treated in long-term care 

hospitals cost Medicare more than 

patients treated in alternative settings; 

however, if LTCH care is better targeted 

to those patients who appear to be most 

suitable for LTCH care, the costs to 

Medicare are more comparable’’ (p. 

127). 

• ‘‘. . . Criteria that limit the types of 

patients treated in LTCHs may help 

avoid some of the problems that may 

result from current payment incentives, 

growth of the LTCH industry and high 

payment rates’’ (pp. 127 and 128). 

Based on these and other findings, in 

that same report MedPAC made the 

following recommendation as 

‘‘Recommendation 5A’’: 

‘‘The Congress and the Secretary 

should define long-term care hospitals 

by facility and patient criteria that 

ensure that patients admitted to these 

facilities are medically complex and 

have a good chance of improvement. 

• Facility-level criteria should 

characterize this level of care by features 

such as staffing, patient evaluation and 

review processes, and mix of patients. 

• Patient-level criteria should identify 

specific clinical characteristics and 

treatment modalities’’ (p. 130). 

MedPAC’s 2004 recommendations for 

the development of patient-level criteria 

for LTCHs have driven discussion 

regarding CMS’ policy on Medicare 

payments to LTCHs since that time. If 

LTCHs actually (and appropriately) 

treated a unique category of patients 

with specific clinical features, we could 

justify the larger payments (as compared 

to alternative care settings) being made 

under the LTCH PPS. At the same time, 

the MedPAC Report noted that there 

were only 350 LTCHs nationwide, and 

these LTCHs were not dispersed 

throughout the country in a manner that 

reflected Medicare beneficiary 

demographics. In areas without LTCHs, 

they found that clinically similar 

patients were treated in acute care 

hospitals and SNFs (pp. 124 and 125). 

3. LTCHs in the Medicare Program 

The concerns raised by MedPAC in 

2004 have continued as the number of 

LTCHs has grown by more than 25 

percent, from 350 in 2004 to 

approximately 440 in 2013. The above 

described geographic pattern appears to 

have continued with ‘‘many LTCHs that 

have entered the Medicare program ... 

located in markets where LTCHs already 

existed instead of in new markets with 

few or no LTCHs’’ (MedPAC March 

2012 Report to the Congress, ‘‘Medicare 

Payment Policy,’’ p. 261). For example, 

there are 38 LTCHs in Louisiana, where 

there is a beneficiary population of 

approximately 521,000, in New York 

State there are 4 LTCHs (all located in 

the New York City metropolitan area) 

with a beneficiary population of 

approximately 2,060,000. (We refer 

readers to the CMS Web site at: http:// 

www.cms.gov/Research-Statistics-Dataand-Systems/Statistics-Trends-andReports/MedicareMedicaidStatSupp/ 

2011.htm, Table 2.5). Our 2012 data 

indicates that less than 2 percent of all 

Medicare beneficiaries who were 

hospitalized in CY 2010 were treated in 

LTCHs. Our 2013 data indicates that 

New Hampshire, Maine, and Vermont 

have no LTCHs and the following States 

have five or fewer LTCHs: Connecticut, 

Delaware, Hawaii, Iowa, Idaho, Kansas, 

Maryland, Minnesota, Montana, 

Nebraska, New Mexico, New York, 

Wisconsin, West Virginia, Wyoming, 

and the District of Columbia. Therefore, 

the number of LTCHs and their 

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geographic distribution suggest to us 

that LTCHs are only treating a small 

percentage of the patients that they have 

identified as their target population 

nationwide. 

4. CMS’ Research: The RTI Report 

We awarded a multi-year contract to 

RTI (from 2004 through 2007) to 

identify and distinguish the role of 

LTCHs as Medicare providers. The 

name of the project was ‘‘Long Term 

Care Hospital (LTCH) Payment System 

Refinement/Evaluation.’’ 

RTI’s reports generated under the 

LTCH Payment System Refinement/ 

Evaluation project identified 

noteworthy trends that were developing 

in the LTCH industry since the 

introduction of the LTCH PPS, 

especially in terms of continued 

development of for-profit LTCHs, 

substantial increases in Medicare 

payments to LTCHs, and high LTCH 

profit margins for for-profit LTCHs 

under the LTCH PPS. (We refer readers 

to sections 1, 2, and 5 of the January 

2007 ‘‘LTCH Payment System 

Monitoring and Evaluation, Phase II 

Report,’’ (hereinafter referred to as the 

RTI Report). In addition, RTI’s findings 

suggested that LTCHs did not treat a 

‘‘unique’’ type of patient (p. 129). As a 

result, RTI believed that it would be 

difficult to identify patient-level criteria 

that differentiated a LTCH patient from 

patients receiving care in other provider 

settings, particularly in general acute 

care hospitals due to the non-unique 

nature of the LTCH patient (p. 133). 

RTI based these conclusions on an 

extensive and careful analysis of the 

Medicare populations served by LTCHs 

during 2004, and a comparison of these 

populations with those treated in other 

acute care settings, including IPPS, 

IRFs, IPFs, as well as those treated in 

less intensive settings such as SNFs. 

This analysis was further informed 

through the input from site visits and 

interviews with health professionals 

and hospitals. In addition, RTI 

contacted different stakeholder 

associations, including national hospital 

and quality review organizations, 

associations representing LTCHs 

(including one association that 

primarily represents non-profit LTCHs), 

and representatives of several of the 

larger LTCH chains. Through these 

organizations and others, RTI also 

sought input from physicians, nurses, 

and hospital administrators 

representing, in addition to LTCHs, 

acute care hospitals, IRFs, and ‘‘highacuity’’ SNFs, that treat the ‘‘type’’ of 

patient who is treated in LTCHs and as 

inpatients in other provider settings. 

These individuals formed two RTIconvened technical expert panels (TEPs) 

that met in early 2007. Both TEPs 

generally agreed that LTCHs specialize 

in treating many of the types of patients 

they admit, and noted that having a high 

volume of these intensively ill patients 

was a driver for their successful 

outcomes. However, it was additionally 

noted that these medical services are 

also provided in general acute care 

hospitals, particularly in ICU step-down 

units. Therefore, while LTCHs may 

specialize in a select group of 

intensively ill patients, they were not 

the only providers to successfully 

provide these treatments. For more 

information on the TEPs, we refer 

readers to the RY 2008 LTCH PPS final 

rule (72 FR 26947 through 26948). 

The Phase I and Phase II reports on 

RTI’s research were summarized in our 

RY 2009 LTCH PPS proposed rule (73 

FR 5374 through 5376) and have been 

posted under the ‘‘RTI reports’’ tab on 

the CMS Web site at: http:// 

www.cms.hhs.gov/ 

LongTermCareHospitalPPS/ 

02a_RTIReports.asp#TopOfPage. 

Of key significance in the discussion 

of the role of LTCHs under the Medicare 

program was our data-based assertion 

that we included in our RY 2008 LTCH 

PPS final rule that, ‘‘[a]cross the United 

States, the over 3,700 acute care 

hospitals that discharge approximately 

13 million Medicare beneficiaries treat 

the full range of medical issues 

including those that the commenters 

identify as LTCH cases,’’ as compared to 

the 130,000 LTCH discharges that 

occurred during FY 2005. This Medicare 

data challenged the LTCH-industry 

commenters who believed that acute 

care hospitals paid under the IPPS do 

not and cannot deal with the medical 

conditions in which LTCHs specialize, 

and that patients remaining in general 

acute care hospitals rather than being 

transferred to LTCHs would receive 

‘‘substandard care’’ (72 FR 26940). 

Several commenters argued that general 

acute care hospitals were ‘‘just not 

capable’’ of delivering the level of care 

required by typical LTCH patients. CMS 

responded to a number of these 

commenters by stating that, while ‘‘[w]e 

do not question that many LTCHs have 

highly regarded reputations for their 

success in treating respiratory and 

ventilator cases (DRG 475) but . . . the 

2004 MedPAR files indicate that [while] 

LTCHs treated 13,394 cases assigned to 

DRG 475 [which codes for respiratory 

system diagnosis requiring ventilator 

support], acute care hospitals treated 

18,727 Medicare patients [assigned to 

DRG 475 and] an additional 7,072 [that 

qualified for high cost outliers (HCOs) 

who were assigned to] DRG 475. For 

DRG 88, chronic obstructive pulmonary 

disease (COPD), LTCHs treated 4,894 

cases [and] acute care hospitals treated 

37,523 cases. Data on other common 

DRGs treated in LTCHs as compared to 

the same DRG treated in acute care 

hospitals reflect a similar pattern, 

particularly among the DRGs that could 

fall into the broad category of 

‘‘medically complex’’ patients’’ (72 FR 

26940 and 26041). 

5. CMS’ Report to Congress: 

Determining Medical Necessity and 

Appropriateness of Care for Medicare 

Long-Term Care Hospitals 

In 2007, Congress imposed LTCH 

facility and patient-level criteria 

research and reporting obligations on 

the Secretary under section 114(b) of the 

Medicare and Medicaid State Children’s 

Expansion Act of 2007 (MMSEA) (Pub. 

L. 110–173). The statute specified that: 

‘‘(1) In general.—The Secretary of 

Health and Human Services (in this 

section referred to as the ‘Secretary’) 

shall conduct a study on the 

establishment of national long-term care 

hospital facility and patient criteria for 

purposes of determining medical 

necessity, appropriateness of admission, 

and continued stay at, and discharge 

from, long-term care hospitals. 

(2) Report.—Not later than 18 months 

after the date of the enactment of this 

Act, the Secretary shall submit to 

Congress a report on the study 

conducted under paragraph (1), together 

with recommendations for such 

legislation and administrative actions, 

including timelines for implementation 

of patient criteria or other actions, as the 

Secretary determines appropriate. 

(3) Considerations.—In conducting 

the study and preparing the report 

under this subsection, the Secretary 

shall consider— 

(A) recommendations contained in a 

report to Congress by the Medicare 

Payment Advisory Commission in June 

2004 for long-term care hospital-specific 

facility and patient criteria to ensure 

that patients admitted to long-term care 

hospitals are medically complex and 

appropriate to receive long-term care 

hospital services; and 

(B) ongoing work by the Secretary to 

evaluate and determine the feasibility of 

such recommendations.’’ 

In fulfillment of this statutory 

mandate, in 2008 CMS’ Office of 

Research, Development, and 

Information (ORDI), which is now part 

of the Center for Medicare and Medicaid 

Innovation (the Innovation Center), 

awarded a contract to Kennell and 

Associates and their subcontractor RTI 

for additional analysis of data on 

Medicare payments and facility costs for 

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the treatment of similar patients in 

LTCHs and alternative providers, as 

well as an analysis of patient outcomes 

and the range of hospital-level care 

delivered in each setting. In accordance 

with section 114(b) of the MMSEA, 

Kennel/RTI was tasked with, among 

other things, considering MedPAC’s 

June 2004 recommendations in their 

research, as well as ‘‘. . . ongoing work 

by the Secretary to evaluate and 

determine the feasibility of such 

recommendations . . .’’ as they 

researched and developed the 2011 

Report to Congress (73 FR 26829). 

In March 2011, we submitted our 

CMS Report to Congress, ‘‘Determining 

Medical Necessity and Appropriateness 

of Care for Medicare Long Term Care 

Hospitals,’’ (hereinafter referred to as 

the 2011 Report to Congress) on the 

development of LTCH patient and 

facility-level criteria as required by 

section 114(b) of the MMSEA. The 

MMSEA-mandated 2011 Report to 

Congress concluded that, ‘‘. . . the 

Secretary does not recommend the 

development of additional patient and 

facility-level criteria for LTCHs at this 

time.’’ The research offered the 

following support for the Secretary’s 

conclusion: 

• ‘‘An examination of Medicare 

quality review contractors indicated that 

patients who are more appropriate for 

treatment at LTCHs than at other 

postacute care facilities have multiple 

comorbidities and require an intense 

level of care with frequent physician 

and nurse visits. 

• The two most important factors in 

predicting LTCH admission are: (1) 

Proximity to an LTCH; that is, whether 

the beneficiary lived in a state where 

many LTCHs were available; and (2) 

severity of illness. 

• There were no differences in 

average outcomes between episodes 

from areas that have high LTCH use and 

those that do not. 

• For the most medically complex 

ventilator patients, Medicare payments 

were the same or lower, mortality was 

lower, and the chance of being 

discharged to home was higher than 

those remaining in acute care settings. 

However, among the least complex 

ventilator patients, Medicare payments 

were much higher, hospital stays were 

longer, and all other outcome measures 

were the same or worse for those 

referred to LTCHs versus those 

remaining in acute care settings. This 

finding supports previous research by 

MedPAC that LTCHs may provide 

beneficial and cost-effective services for 

a subset of complex patients, but not for 

all types of patients admitted to these 

hospitals. 

• An LTCH admission was associated 

with a shorter length of stay in the 

general acute care hospital, on average, 

and controlling for a number of factors, 

including age, gender, number of 

comorbid conditions, and critical care 

use. * * * [A]t least for some patients, 

* * * LTCH care may be substituting 

for what would normally be provided in 

the later days of an acute care hospital 

stay. 

• Between 40 to 45 percent of all 

LTCH admissions qualify for a payment 

reduction as a ‘‘short-stay outlier’’. This 

means that payments for these cases are 

reduced if the length of stay is 

substantially less than the average 

length of stay for a given LTCH–DRG. A 

high percentage of short-stay cases in a 

payment system designed for long-stay 

patients highlight the complexity in 

discerning which patients are 

appropriate for admissions to LTCHs. 

• The RTI Technical Expert Panel 

(TEP) reached a consensus that LTCHs 

provide a service that is comparable to 

general acute step-down units and is not 

unique to LTCHs. Discussions with 

LTCH physicians and acute care 

hospital physicians practicing in areas 

that lack LTCHs confirmed that there is 

an overlap in the patient populations 

treated in LTCHs and in acute care. 

Critical care post-ICU patients whom 

LTCHs describe as their targeted 

population are treated throughout most 

of the country in acute care hospital 

step-down units. 

• The TEP acknowledged that 

Medicare patients with respiratory 

conditions requiring mechanical 

ventilation comprise less than 15 

percent of all LTCH patients. Thus, 

these patients insufficiently define 

which critically ill patients with 

complex medical conditions should be 

treated at LTCHs. It was not clear that 

any criteria can be developed which 

identifies patients who belong in a 

LTCH exclusively’’ (2011 Report to 

Congress, pp. 6 and 7). 

Regarding the establishment of 

facility-level criteria for LTCHs, the 

report noted the specific LTCH facility 

requirements established by section 

114(a) of the MMSEA and stated that 

‘‘CMS believes that these facility-level 

standards should improve the quality of 

care at LTCHs and has no plans for 

additional facility-level standards. CMS 

acknowledges that while these new 

requirements represent new standards 

for care provision, facility-level 

standards will be of very limited value 

in determining the appropriateness of 

patients for LTCH care’’ (2011 Report to 

Congress, pp. 10 and 11). The 2011 

Report to Congress, which is entitled 

‘‘Determining Medical Necessity and 

Appropriateness of Care for Medicare 

Long-Term Care Hospitals,’’ may be 

found on the CMS Web site at: http:// 

www.cms.gov/officeoflegislation/

downloads/RTC-long-term-carehospitals-final.pdf. Our contractors’ 

research findings can also be found in 

Appendix A of the 2011Report to 

Congress. 

Research on the development of 

patient and facility-level criteria for 

LTCHs, as summarized above, indicated 

the absence of any empirical findings 

indicating an exclusive or unique 

‘‘LTCH patient.’’ Rather, as noted in the 

2011 Report to Congress, ‘‘[f]ollowing 

the direction of MedPAC and the RTI 

TEP panels, CMS concurs with the view 

that LTCHs are appropriate providers 

for treating severely ill, but medically 

stable, patients with complex medical 

conditions. However, additional 

analysis of Medicare data across 

provider types is key in helping to 

formulate a clinically-based description 

of critically ill, medically complex 

patients’’ (2011 Report to Congress, pp. 

11 and 12). 

The Secretary also noted that 

additional follow-up research that CMS 

was sponsoring would update and 

refine our understanding of Medicare 

LTCH patients and payments. This 

research effort was part of the PostAcute Care Payment Reform 

Demonstration (PAC–PRD), a separate 

initiative and report to Congress 

mandated by section 5008 of the Deficit 

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

109–171), and collected standardized 

patient assessment information using 

the Continuity Assessment Record and 

Evaluation (CARE) tool, which had been 

designed to be administered to patients 

in all acute and post acute care settings 

with the goal of developing consistent 

measures for case-mix adjustment. The 

2011 Report to Congress indicated that, 

‘‘[o]going research using the CARE tool 

should facilitate CMS’ efforts to 

empirically define types of chronic, 

complex medical conditions that 

currently receive treatment in both 

general acute care hospitals and 

LTCHs.’’ To this end, the 2011 Report to 

Congress noted, ‘‘CMS is currently 

funding contract research to use the 

CARE tool to collect suitable patientlevel clinical data to better identify 

chronic, critically ill patients. CMS is 

also currently funding research to 

develop payment models that would 

pay for these patients’ care reasonably 

and appropriately in LTCHs or any 

other site of care’’ (2011 Report to 

Congress, pp. 12 and 13). 

The data collected using the CARE 

tool from the PAC–PRD project 

represent a significant new benchmark 

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in capturing clinical patient-level data 

to measure outcomes, quality of care, 

and performance at LTCHs and other 

provider settings treating similar 

conditions. Previously, claims data was 

the only clinical information available 

to inform RTI’s LTCH research from 

2004 through 2007. The data collected 

using the CARE tool has allowed 

Kennell/RTI’s follow-up research to 

evaluate ‘‘types of chronically ill 

patients with complex medical 

conditions, regardless of provider 

setting’’ and ‘‘to measure outcomes, 

quality of care and performance at 

LTCHs and other providers treating 

similar clinical conditions’’ (2011 

Report to Congress, p. 12). 

For additional information on the 

PAC–PRD report to Congress and for the 

CARE tool, we refer readers to: http://

www.cms.gov/Research-Statistics-Dataand-Systems/Statistics-Trends-andReports/Reports/downloads/Flood_

PACPRD_RTC_CMS_Report_Jan_2012.

pdf and http://www.cms.gov/ResearchStatistics-Data-and-Systems/StatisticsTrends-and-Reports/Reports/

downloads/GAGE_PACPRD_RTC_

Supp_Materials_May_2011.pdf. 

In response to the established need for 

additional research on the key findings 

of the MMSEA-mandated Report to 

Congress, CMS extended its research 

contract with Kennell/RTI to utilize the 

clinical data provided by the CARE tool, 

as described above, and to examine 

payment issues associated with 

chronically critically ill and medically 

complex patients with long-term 

hospital needs. Kennell/RTI was also 

tasked with developing a robust clinical 

definition of the subgroup of chronically 

critically ill and medically complex 

patients identified as appropriate for 

treatment in both LTCHs and general 

acute care hospitals in order to allow for 

the evaluation of appropriate payment 

policies for the various settings in 

which patients are treated. (We refer 

readers to Appendix A of the 2011 

Report to Congress, p. 79 through 86, for 

details on this follow-up research under 

the ‘‘Medical Necessity and 

Appropriateness of Care’’ contract for 

the ‘‘Long Term Care Hospitals and the 

Chronically Critically Ill Population 

Payment Recommendations’’ (CCIP– 

PR).) 

These additional recent research 

initiatives were focused on evaluations 

of clinical data on chronically critically 

ill Medicare beneficiaries. The 

variations in provider costs and the 

resulting Medicare payment 

differentials for treating these patients 

in different provider settings were also 

evaluated. 

6. Current Patterns in LTCHs 

Kennel/RTI’s follow-up research to 

the 2011 Report to Congress studied 

trends in LTCH utilization based on 100 

percent of the MedPAR data files for 

LTCH claims for 2004, 2006, 2008, and 

2010 provided the context and the 

foundation for the framework discussed 

below. This work indicated the 

following facts about LTCHs: 

• LTCHs and LTCH use has expanded 

significantly. 

Æ Between calendar year 2004 and 

2010: number of LTCHs grew from 369 

to 443 (+20%) 

Æ The number of LTCH discharges 

grew from 125,000 to 141,000 (+13%) 

Æ Medicare LTCH–PPS payments 

grew from $3.7 billion to $5.2 billion 

(+41%) 

• LTCH patients are becoming more 

complex: 

Æ More complex LTC–DRG types 

being admitted to LTCHs in terms of the 

relative value weights of the MS–LTC– 

DRGs used. 

Æ Higher mix of severity within LTC 

DRGs in terms of the percent of patients 

with an MCC level of comorbidity 

status. 

Æ Higher mix of severity within 

referral IPPS DRGs 

Æ Increasing proportion of patients 

admitted with critical care in their prior 

IPPS stay 

Æ Taken together, the evidence 

suggests real change in case mix, over 

and above any behavioral changes in 

coding 

Æ It should be noted that these trends 

began well before the 2008 

implementation of the MS–LTC–DRG 

system. 

• LTCH use is associated with 

substantial increases in: 

Æ Combined IPPS + LTCH PPS 

payments 

Æ Of combined IPPS + LTCH PPS 

costs 

Æ Total episode inpatient days 

Furthermore, RTI found that 

respiratory conditions (including 

mechanical ventilation, respiratory 

infections, pulmonary edema and 

respiratory failure), increased as a share 

of LTCH admissions from less than 20 

percent in 2004 to almost 30 percent in 

2010. The share of admissions for 

septicemia more than doubled, and the 

percentage of admissions for 

osteomyelitis nearly doubled. Other less 

complex conditions that accounted for a 

relatively large share of LTCH claims in 

CY 2004 declined rapidly. For example, 

the percentage of LTCH admissions for 

degenerative nervous system disorders 

and rehabilitation fell by more than half 

and the percentage of admissions for 

musculoskeletal and other types of 

aftercare fell by half. The number and 

percentage of patients with heart failure 

and shock and with COPD also 

declined. The percentage of admissions 

for wound and skin conditions 

(including cellulitis, skin graft and 

debridement, and wound debridement) 

did not change. Over this period, 

Medicare data indicated that LTCH 

case-mix has become more concentrated 

in complex respiratory care and 

treatment of certain types of complex 

infections. 

Medicare data also reveals changes in 

levels of severity both overall and 

within the conditions (or base DRG 

families) of LTCH admissions since the 

start of the LTCH PPS. The percentage 

of admissions assigned to MS–LTC– 

DRGs with major complications or 

comorbidities (MCCs) increased from 37 

percent to 61 percent over the study 

period, and the percentage of patients 

assigned to any of the single-severity 

ventilator DRGs increased from 12 

percent to 16 percent over the study 

period. Complications or comorbidities 

(CCs) that did not rise to the level of 

MCCs had accounted for 39 percent of 

LTCH admissions in CY 2004, but only 

20 percent in CY 2010. MS–LTC–DRGs 

with no CCs fell from 9 percent to 2 

percent. Finally, Kennell/RTI found that 

the shift toward higher severity levels is 

evident not only within more complex 

conditions where the patient load is 

increasing, but also within the less 

complex conditions where the relative 

patient load has been declining. In 

summary, since the implementation of 

the LTCH PPS in FY 2003 there have 

been significant changes in LTCH casemix and severity within case-mix. 

A comparison of MedPAR data from 

CY 2006 to CY 2010 also indicated that 

an increasing proportion of the patients 

transferred to LTCHs had received 

critical care services at an IPPS hospital 

immediately prior to their LTCH 

admission. The number of such 

individuals rose from 54.9 percent to 

58.5 percent of transfers. The number of 

individuals with at least one week of 

critical care in an IPPS hospital 

immediately prior to their LTCH 

admission also rose from 36.2 percent to 

38.8 percent of transfers; and the 

number of individuals who were 

discharged directly from critical care to 

a LTCH (having spent no time in general 

hospital routine units) rose from 25.2 

percent to 30.3 percent of transfers. 

As a result, Kennell/RTI reported that, 

for purposes of understanding the most 

efficient use of Medicare resources in 

LTCHs and other provider settings for 

high acuity patients, with a focus on 

LTCHs, a primary step is an analysis of 

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the spectrum of patients in LTCHs, with 

the chronically critically ill at one end, 

who overlap with hospital critical care 

and account for anywhere from a third 

to a half of the LTCH Medicare 

admissions continuum, and patients 

who may be approaching sub-acute 

levels of need at the other end. Kennell/ 

RTI found that the potentially sub-acute 

level of care patients could account for 

as much as 15 to 20 percent of LTCH 

Medicare admissions. 

The chart above is useful for 

visualizing the observed patient acuity 

levels associated with various treatment 

sites under Medicare. It should be noted 

that these ranges do not necessarily 

represent desired or even appropriate 

levels of care within a setting. 

While the data generally revealed an 

acuity continuum, RTI also developed 

three ‘‘categories’’ of patients in order to 

simplify presentation of their findings. 

The chart below summarizes RTI’s 

findings for these three acuity groups for 

LTCH patients treated in FYs 2004, 

2006, 2008, and 2010: 


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7. Identification of Chronically 

Critically Ill/Medically Complex (CCI/ 

MC) Patients 

As noted above, CMS extended its 

research contract with Kennell/RTI 

following CMS’ issuance of the 2011 

Report to Congress in order to develop 

a robust definition of the group of 

patients who our research confirmed 

could be appropriate for treatment at 

LTCHs and higher payments under the 

LTCH PPS—that is, those who are 

chronically critically ill and medically 

complex (CCI/MC). We also tasked RTI 

in the CCIP–PR contract with the 

examination of any payment issues 

across provider settings that might be 

associated with CCI/MC patients with 

long-term hospital treatment needs. 

The diagram below (which we discuss 

further below) illustrates the steps taken 

by Kennell/RTI to determine and refine 

the CCI/MC definition. 

BILLING CODE 4120–01–P 

BILLING CODE 4120–01–C 

The first step illustrated in the chart 

above represents Kennell/RTI’s further 

evaluation of the materials in Appendix 

A of the 2011 Report to Congress. Next, 

Kennel/RTI brought in several clinical 

consultants to provide feedback on 

those initial definitions. These experts 

suggested refinements to the clinical 

characteristics that could be used to 

describe CCI/MC patients in our request 

for RTI to examine clinical factors/ 

conditions that are related to very long 

IPPS hospital or IPPS hospital plus 

LTCH treatment episodes, as well as 

factors related to long ICU stays that had 

not been included in the initial 

definitions found in Appendix A of the 

Phase II Report. We were particularly 

interested in identifying patients with 

certain conditions that regularly 

exceeded the average length of stay for 

MS–DRGs or that routinely became IPPS 

outliers. 

In general, these clinical consultants 

agreed that the initial definitions 

provided in Appendix A of the Phase II 

Report gave an appropriate range of 

clinical conditions that could be used to 

define CCI/MC. However, they 

suggested some specific changes as well 

which, if accepted, would lead us to 

consider changes to some of the clinical 

conditions that we would want to 

include in our own eventual definition 

of CCI/MC. For example, based on 

feedback from the clinical consultants, 

we would add stroke, brain hemorrhage, 

and traumatic brain injury to the list of 

organ failure codes. We would also add 

leukemia and lymphoma as organ 

failures. Other suggestions would lead 

us to remove codes from the organ 

failure category. For example, we would 

remove chronic kidney disease and 

early stage pressure ulcers. 

To confirm whether the changes in 

clinical characteristics recommended by 

the clinical consultants would identify 

long-staying and high-cost patients, 

Kennell/RTI used a 2009 MedPAR data 

set to analyze the clinical consultants’ 

recommendations related to episode 

lengths of stay, costs, and prevalence of 

the condition. This 2009 data set 

included index IPPS stays and 

additional institutional stays during the 

episode of care. We found that the data 

supported the clinical suggestions, and 

that patients diagnosed with lymphoma 

and leukemia did have long median 

general acute care hospital lengths of 

stay. Patients with Stage III and IV 

pressure ulcers and congestive heart 

failure (unspecified) were included in 

the data, and the MedPAR analysis 

confirmed the inclusion of primary and 

secondary diagnoses of stroke, brain 

hemorrhage, and traumatic brain injury. 

Kennell/RTI also analyzed margins for 

Medicare payments to IPPS hospitals for 

those cases that met the preliminary 

definitions, including those with 

wounds, sepsis, multiple organ failure, 

and prolonged mechanical ventilation. 

As a result of these and additional 

evaluations, preliminary findings from 

Kennell/RTI’s project ‘‘Chronically 

Critically Ill Population Payment 

Reform (CCIP–PR)’’ identified CCI/MC 

patients generally as: 

• Requiring extended intensive care 

unit or critical care unit (ICU or CCU) 

stays in IPPS hospitals; 

• Having high Medicare payments; 

and 

• Having diagnoses including such 

factors as the presence of sepsis, 

prolonged mechanical ventilation 

(PMV), and multiple organ failure. 

Specifically, Kennell/RTI’s research 

defines CCI/MC patients as representing 

a population that is clinically variable 

in the presentation of its underlying 

disorders, yet definable in its final 

patterns of intensive service needs. 

MedPAC came to similar conclusions 

in their March 2012 Report to Congress. 

In that report, they highlighted a 

definition of chronically critically ill 

patients, which was originally proposed 

by Nierman and Nelson in 2002, that 

noted ‘‘ . . . the chronically critically ill 

patient exhibited metabolic, endocrine, 

physiologic, and immunologic 

abnormalities that resulted in profound 

debilitation and often ongoing 

respiratory failure, abnormalities that 

slowed or precluded recovery from a 

wide range of acute forms of medical, 

surgical, and neurologic critical illness’’ 

(pp. 273 and 274). 

Kennell/RTI’s follow-up research 

findings confirmed that a distinction 

can be drawn between chronically 

critically ill patients and patients who 

may need extended acute care, but do 

not require critical care. The medically 

complex (MC) patients are generally 

medically compromised (due to, for 

example, multiple comorbidities) and 

they may have prolonged care needs for 

surgical aftercare, wounds, or infections, 

but do not require long periods of 

mechanical ventilation and do not 

otherwise fit Kennell/RTI’s 

understanding of the clinical profile of 

CCI/MC patients. These patients may 

require hospitalization over several 

weeks or even months due to medical 

complexities in their care protocol that 

require acute-level nursing, but they 

have either not needed intensive-care 

nursing or have progressed from 

intensive to less intensive nursing care 

needs. However, both groups have a 

need for continued hospital-level care 

that can be met either through 

continued treatment in the initial acute 

care hospital or by a transfer to a LTCH 

or other provider setting. As noted, our 

research has indicated that the Medicare 


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costs of delivering care to such patients 

in the various settings that could meet 

their treatment needs varies widely. 

Moreover, our most recent Kennell/RTI 

research findings indicate that, although 

LTCHs are admitting an increasing 

number of chronically critically ill 

patients and an increasing number of 

patients with prior critical care stays in 

the general acute care hospital, the 

majority of LTCH cases during the years 

evaluated do not fit the operational 

definition of CCI/MC patients or even 

medically complex, high acuity 

patients. 

8. LTCH PPS Payments for CCI/MC 

Patients 

In summary, research sponsored by 

CMS under the original RTI contract 

(awarded from 2004 through 2007), 

findings from the PAC–PRD Report to 

Congress, the 2011 Report to Congress, 

and Kennell/RTI’s follow-up research 

under the CIPP–PR study, as well as 

findings in historic and recent MedPAC 

Reports to Congress, have led us to 

believe that there are specific factors 

that can be used to identify the CCI/MC 

patient population, which can, in turn, 

be used to provide a robust definition 

for the core group of patients that we 

believe are appropriate for treatment at 

LTCHs and payment under the LTCH 

PPS. Furthermore, as CMS and its 

contractors evaluated Medicare claims 

and utilized the information derived 

from the application of the CARE tool 

across treatment settings to further 

analyze the care needs of this unique 

group, we have determined that our 

CCI/MC definition would capture a 

distinct subset of patients with 

consistent and significant negative 

margins when treated by general acute 

care hospitals paid under the Medicare 

IPPS—a phenomenon that generally 

does not appear to be evident for other 

long-stay medically complex cases that 

are treated in the IPPS hospital setting. 

As noted above, CMS wants to ensure 

that LTCHs treat the most appropriate 

patients given the comparatively high 

payments in this provider setting. While 

the original MedPAC recommendation 

that we develop LTCH-specific patientlevel criteria has evolved somewhat 

over time, we believe we can identify 

CCI/MC patients as potentially 

appropriate for treatment in the LTCH 

setting. MedPAC’s and CMS’ data 

analyses have indicated that financial 

forces in the IPPS context may be 

encouraging the transfer of these and 

other high-cost cases to LTCHs, but the 

non-CCI/MC patients may not receive 

cost-effective care in the LTCH setting. 

Therefore, we are outlining potential 

revisions of the LTCH PPS that would 

be aimed at encouraging the LTCH 

industry to admit patients fitting the 

CCI/MC profile to ensure that such 

patients frame LTCHs’ ‘‘core’’ patient 

populations. We believe that the 

potential revisions to the LTCH PPS, 

which are described below would 

encourage LTCHs to refocus their 

admissions policies on serving 

medically stable but high-acuity 

patients. 

The research suggests that, for 

purposes of this discussion, we consider 

CCI/MC patients to be those with the 

specific characteristics described below. 

A system that would identify CCI/MC 

patients would facilitate limiting the 

full LTCH PPS payment to patients who 

meet this definition of CCI/MC while 

they were in an IPPS hospital inpatient 

setting if they are subsequently directly 

admitted to a LTCH. CCI/MC status 

would be used to identify patients as 

they are discharged from an IPPS 

hospital and then transferred to a LTCH. 

We could also apply an adjustment to 

LTCH payments for non-CCI/MC 

patients, that is, patients who by 

definition would not be most 

appropriate for treatment in a LTCH. 

Payment for non-CCI/MC patients 

would be made at an ‘‘IPPS comparable 

amount,’’ that is, an amount comparable 

to what would have been paid under the 

IPPS calculated as a per diem rate with 

total payments capped at the full IPPS 

MS–DRG payment rate. 

The research suggests that a patient 

would be identified as a CCI/MC patient 

in the IPPS setting based on having one 

or more of the five clinical factors listed 

in the table below, combined with a stay 

of 8 or more days in an ICU/CCU at an 

IPPS hospital. The CCI/MC patient 

definition would be used to identify 

patients as they are discharged from an 

IPPS hospital and then transferred to a 

LTCH. 

FIVE CRITICALLY ILL/MEDICALLY

COMPLEX STATUS CLINICAL FACTORS

Prolonged Mechanical Ventilation (PMV). 

Tracheotomy. 

Multiple Organ Failure/Stroke/Intercerebral 

Hemorrhage/TBI. 

Sepsis and Other Severe Infections. 

Severe Wounds. 

The CCI/MC patient population 

discussed above have been shown to 

have intensive service needs, high costs, 

and negative margins in IPPS hospitals. 

In addition, these patients typically 

have a predictable and consistent need 

for extended hospital-level care that can 

be met either from continued stays in 

the initial IPPS hospital in a step-down 

unit after ICU or CCU treatment, or 

through transfer to a LTCH. 

When the LTCH PPS was 

implemented in FY 2003, length of 

patient stay was considered a proxy 

measure for resource use. MedPAC’s 

early research findings, subsequently 

confirmed by our researchers, however, 

provided clear evidence that without 

knowing the mix of routine or critical 

care days, length of stay was not a 

reliable proxy for patient acuity. As 

noted above, Medicare data indicates 

that LTCHs treat many patients with 

very long episode stays that did not 

meet the CCI/MC criteria. Under section 

1886(d)(1)(B)(iv)(I) of the Act, a LTCH is 

an acute care hospital with an average 

length of stay of greater than 25 days. 

Therefore, under current law, an LTCH 

may treat even short-stay, non-critically 

ill patients as long as it maintains an 

average length of stay that exceeds 25 

days. However, under this framework an 

adjusted LTCH PPS payment equal to 

the ‘‘IPPS-comparable’’ amount could be 

paid to a LTCH for those patients 

admitted to the LTCH without meeting 

the CCI/MC designation—that is, an 

amount comparable to what would have 

been paid under the IPPS calculated as 

a per diem rate with total payments 

capped at the full IPPS MS–DRG 

payment rate. 

We anticipate that if the payment 

policy is revised consistent with the 

framework discussed above, the 

industry could make adjustments to 

their admission and referral practices, 

and the mix of patients admitted to 

LTCHs would change significantly. 

Furthermore, our data discussed above 

detailing significant changes in LTCH 

admission practices since the start of the 

LTCH PPS would appear to indicate that 

LTCHs are already slowly revising their 

practices by admitting more critically ill 

patients. We are inviting public 

comments on whether such a policy 

could obviate the need for the ‘‘25- 

percent threshold payment adjustment 

policy.’’ In the future, if LTCHs begin to 

focus on treating CCI/MC patients, 

based on our research we believe that 

the Medicare program would be 

purchasing specialized and costeffective services when making payment 

for these defined CCI/MC patients. 

We believe that the potential policy 

changes discussed above are consistent 

with a significant body of research, 

which identifies the CCI/MC patient 

criteria as a useful indicator of an 

appropriate LTCH admission. 

Furthermore the CCI/MC criteria would 

appear to identify the patients that 

LTCHs have asserted in their 

discussions with CMS that they are best 

equipped to treat. 

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Although Kennell/RTI’s research is 

not yet completed, we want to note that 

we believe that the findings from the 

LTCH research over the past decade, 

culminating in the payment policy 

discussion we have outlined, is 

consistent with MedPAC’s June 2004 

Report to Congress’ recommendations. 

As discussed earlier, in that report the 

Commission recommended that CMS 

develop LTCH criteria that would result 

in identifying those patients whose 

conditions would justify Medicare’s 

payments under the LTCH PPS and 

ultimately dissuade LTCHs from 

treating those patients who did not meet 

the criteria. As described above, the 

advent of the CARE tool significantly 

extended the depth and range of our 

prior research initiatives. By utilizing 

data from the CARE tool, in addition to 

the research methodology specified 

above, to identify the CCI/MC 

population, we believe that we have 

established a robust set of patient-level 

criteria for Medicare payment in LTCHs 

and have responded to MedPAC’s 

concerns. Finally, we note that at both 

its January 11, 2013 and April 5, 2013 

public meetings MedPAC discussed 

three ‘‘policy options’’ to ‘‘improve 

payment for chronically ill 

beneficiaries’’ that are also based in part 

on the use of ICU services as a defining 

characteristic of these CCI/MC patients. 

The first option offered by MedPAC 

would ‘‘remove the LTCH designation 

and pay for cases under a modified 

IPPS, which would include changes to 

the current IPPS high-cost outlier 

policy. The IPPS modifications would 

improve payment accuracy for very 

costly CCI patients.’’ A second option 

builds on the first by also breaking out 

CCI patients into separate MS–DRGs 

with higher payment relative weights. 

The third option would bundle 

expected post acute care costs into the 

new CCI MS–DRGs so that the hospital 

would be responsible for associated 

LTCH or SNF care for CCI/MC patients. 

MedPAC noted that more details of 

these options would be presented in 

‘‘the coming months.’’ We will continue 

to analyze MedPAC’s work and future 

recommendations. (Additional 

information on these public meetings, 

including transcripts, are available on 

MedPAC’s Web site: http:// 

www.medpac.gov/meetings.cfm.) 

We will post final reports on Kennell/ 

RTI’s follow-up research on the CMS 

Web site as soon as they are completed. 

As previously noted, we are eager to 

receive public comments regarding this 

discussion of the research and the 

development of a patient criteria-based 

payment adjustment under the LTCH 

PPS as well as on the impact of such a 

proposal on hospital markets in advance 

of a policy proposal that we are 

expecting to include in the FY 2015 

IPPS/LTCH PPS proposed rule in the 

spring of 2014. 

IX. 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 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 

reporting programs for multiple settings 

of care, including: 

• Hospital inpatient services, under 

the Hospital Inpatient Quality Reporting 

(IQR) Program (formerly referred to as 

the Reporting Hospital Quality Data for 

Annual Payment Update (RHQDAPU) 

Program); 

• Hospital outpatient services, under 

the Hospital Outpatient Quality 

Reporting (OQR) Program (formerly 

referred to as the Hospital Outpatient 

Quality Data Reporting Program (HOP 

QDRP)); 

• Care furnished by physicians and 

other eligible professionals, under the 

Physician Quality Reporting System 

(PQRS, formerly referred to as the 

Physician Quality Reporting Program 

Initiative (PQRI)); 

• Inpatient rehabilitation facilities, 

under the Inpatient Rehabilitation 

Facility Quality Reporting Program (IRF 

QRP); 

• Long term care hospitals, under the 

Long Term Care Hospital Quality 

Reporting (LTCHQR) Program; 

• PPS-exempt cancer hospitals, under 

the PPS-Exempt Cancer Hospital 

Quality Reporting (PCHQR) Program; 

• Ambulatory surgical centers, under 

the Ambulatory Surgical Center Quality 

Reporting (ASCQR) Program; 

• Inpatient psychiatric facilities, 

under the Inpatient Psychiatric 

Facilities Quality Reporting (IPFQR) 

Program; 

• Home health agencies, under the 

home health quality reporting program 

(HH QRP); and, 

• Hospices, under the Hospice 

Quality Reporting Program. 

CMS has also implemented an endstage 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 in 

the near future, 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 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), in section XVI. of the CY 2012 

OPPS/ASC final rule with comment 

period (76 FR 74527 through 74547) and 

in section VIII.C. of the FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53567 

through 53614). Under the Hospital VBP 

Program, hospitals will receive valuebased 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 

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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 

from a passive payer of claims into an 

active purchaser of quality healthcare 

for its beneficiaries. Value-based 

purchasing is an important step to 

revamping how care and services are 

paid for, moving increasingly toward 

rewarding better value, outcomes, and 

innovations instead of merely volume. 

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: 

• 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. 

• 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 

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. 

• 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, and reporting of 

quality data via Certified Electronic 

Health Record Technology (CEHRT), so 

the electronic collection of performance 

information is part of care delivery. 

• To the extent practicable, measures 

used by CMS should be nationally 

endorsed by a multi-stakeholder 

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 related, but 

separate, efforts to reduce HACs. The 

Hospital VBP Program is an incentive 

program that awards payments to 

hospitals based on quality performance 

on a wide variety of measures, while the 

program established by section 3008 of 

the Affordable Care Act, the HAC 

Reduction Program, creates a payment 

adjustment resulting in payment 

reductions for the lowest performing 

hospitals based on their rates of HACs. 

Proposals for the HAC Reduction 

Program are included in section V.I. of 

the preamble of this proposed rule. 

Although we intend to monitor the 

various interactions of programs 

authorized by the Affordable Care Act 

and their overall impact on providers 

and suppliers, we also view programs 

that could potentially affect a hospital’s 

Medicaid payment as separate from 

programs that could potentially affect a 

hospital’s Medicare payment. 

In the preamble of this proposed rule, 

we are proposing changes to the 

following Medicare quality reporting 

systems: 

• In section V.H., the Hospital VBP 

Program. 

• In section IX.A., the Hospital IQR 

Program. 

• In section IX.B., the PCHQR 

Program. 

• In section IX.C., the LTCHQR 

Program. 

• In section IX.D., the IPFQR 

Program. 

In addition, in section IX.E. of the 

preamble of this proposed rule, we are 

proposing changes to the Electronic 

Health Record Incentive Program and 

meaningful use. 

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 to the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53503 through 53555) 

for the measures we have adopted for 

the Hospital IQR measure set through 

FY 2016. 

b. Maintenance of Technical 

Specifications for Quality Measures 

The technical specifications for the 

Hospital IQR Program measures, or links 

to Web sites hosting technical 

specifications, are contained in the 

CMS/The Joint Commission (TJC) 

Specifications Manual for National 

Hospital Quality Measures 

(Specifications Manual). This 

Specifications Manual is posted on the 

QualityNet Web site at 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. We will provide ICD–9 to ICD– 

10 crosswalks for the measure 

specifications in the manual for preview 

and comment in the July 2013 manual 

release. 

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. 

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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 standardsetting 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, medication updates 

for categories of medications, 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 the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53504 through 53505), we 

finalized a policy under which we will 

use a subregulatory process to make 

non-substantive updates to NQFendorsed measures used for the Hospital 

IQR Program. With respect to what 

constitutes substantive versus 

nonsubstantive changes, we expect to 

make this determination on a case-bycase basis. Examples of non-substantive 

changes to measures might include 

updated diagnosis or procedure codes, 

medication updates for categories of 

medications, broadening of age ranges, 

and exclusions for a measure (such as 

the addition of a hospice exclusion to 

the 30-day mortality measures). We 

believe that non-substantive changes 

may also include updates to NQFendorsed measures based upon changes 

to guidelines upon which the measures 

are based. We will 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 will post 

the updates on the QualityNet Web site 

at https://www.QualityNet.org. We will 

provide sufficient lead time for 

hospitals to implement the changes 

where changes to the data collection 

systems would be necessary. 

We will continue to use rulemaking to 

adopt substantive updates made by the 

NQF to the endorsed measures we have 

adopted for the Hospital IQR Program. 

Examples of changes that we might 

consider to be substantive would be 

those in which the changes are so 

significant that the measure is no longer 

the same measure, or when a standard 

of performance assessed by a measure 

becomes more stringent (for example: 

changes in acceptable timing of 

medication, procedure/process, or test 

administration). Another example of a 

substantive change would be where the 

NQF has extended its endorsement of a 

previously endorsed measure to a new 

setting, such as extending a measure 

from the inpatient setting to hospice. 

The quality measure SCIP Infection 4, 

Controlled 6AM Glucose for Cardiac 

Surgery Patients (NQF #300), is an 

example of a measure that has 

undergone extensive changes as a result 

of the NQF maintenance process. The 

specifications have substantively 

changed and we are proposing to adopt 

these changes in this proposed rule. As 

we discuss below, the NQF Steering 

Committee voted to change the measure 

from controlled glucose at 6AM to 

controlled glucose 18–24 hours postsurgery for cardiac surgery patients. The 

specifications also require corrective 

action to be documented if a postoperative glucose is over 180mg/dl. The 

specifications for the proposed updated 

measure can be found at: http:// 

www.qualityforum.org. 

We believe that this policy adequately 

balances our need to incorporate nonsubstantive 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 also note that the NQF 

process incorporates an opportunity for 

public comment and engagement in the 

measure maintenance process. These 

policies regarding what is considered 

substantive versus non-substantive 

apply to all measures in the Hospital 

IQR Program. 

c. Proposed 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. We are proposing, 

for the FY 2014 Hospital IQR Program 

and subsequent years, to continue our 

current policy of reporting data from the 

Hospital IQR Program as soon as it is 

feasible on CMS Web sites such as the 

Hospital Compare Web site, http:// 

www.hospitalcompare.medicare.gov, 

and/or the interactive https:// 

data.medicare.gov Web site, 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/ 

or https://data.medicare.gov. 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 

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notified via CMS listservs, CMS email 

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. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53507 through 53508), we 

removed five Agency for Healthcare 

Research and Quality (AHRQ) Patient 

Safety Indicators (PSIs). We did so 

noting that four of these indicators were 

part of the AHRQ PSI–90 measure, and 

that this information could be made 

publically available in the future in 

addition to the PSI–90 composite 

measure results that we currently make 

publically available. We recently 

received feedback from consumer 

advocacy groups and large purchasers 

that data on the individual PSI 

indicators that are part of the PSI–90 

composite measure are highly relevant 

to consumers, and not publically 

reporting them would be a disservice to 

consumers of healthcare. Therefore, we 

are proposing to make publicly available 

hospital level data for the PSI indicators 

that are part of the PSI–90 composite in 

addition to the composite results. We 

invite public comment on this proposal. 

We also invite public comment on 

what additional quality measures and 

information featured on Hospital 

Compare may be highly relevant to 

patients and other consumers of 

healthcare, and how we may better 

display this information on the Hospital 

Compare Web site. One option we have 

considered is aggregating measures in a 

graphical display, such as star ratings. 

2. Removal and Suspension of Hospital 

IQR Program Measures 

a. Considerations in Removing Quality 

Measures From the Hospital IQR 

Program 

Generally, we 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. 

We refer readers to the FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53505 

through 53506) for a discussion of the 

considerations we use in removing 

(formerly referred to as retiring) 

previously adopted Hospital IQR 

Program measures. 

b. Hospital IQR Program Measures 

Removed in Previous Rulemaking 

In previous rulemakings, we have 

removed numerous Hospital IQR 

Program quality measures, including: 

• 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). 

• 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. To this 

end, we confirmed the removal of the 

AMI–6 measure in the FY 2010 IPPS/ 

LTCH PPS rulemaking cycle after 

immediate suspension because the 

measure posed patient safety risks. 

• Mortality for Selected Procedures 

Composite measure because the 

measure is not considered suitable for 

purposes of comparative reporting by 

the measure developer (75 FR 50186). 

• 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). 

• 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). 

• 17 measures set out below (77 FR 

53506 through 53509) 

Topic 17 Measures removed from hospital IQR program measure set for the FY 2015 payment determination and subsequent years 

Surgical Care Improvement Project (SCIP) Measure 

• SCIP INF–VTE-1: Surgery patients with recommended Venous Thromboembolism (VTE) prophylaxis ordered * 

AHRQ Patient Safety Indicators (PSIs), Inpatient Quality Indicators (IQIs) and Composite Measures 

• PSI 06: Iatrogenic pneumothorax, adult ** 

• PSI 11: Post Operative Respiratory Failure ** 

• PSI 12: Post Operative PE or DVT ** 

• PSI 14: Postoperative wound dehiscence ** 

• PSI 15: Accidental puncture or laceration ** 

• IQI 11: Abdominal aortic aneurysm (AAA) mortality rate (with or without volume) ** 

• IQI 19: Hip fracture mortality rate ** 

• IQI 91: Mortality for selected medical conditions (composite) ** 

Hospital Acquired Condition Measures 

• Foreign Object Retained After Surgery ** 

• Air Embolism ** 

• Blood Incompatibility ** 

• Pressure Ulcer Stages III & IV ** 

• Falls and Trauma: (Includes: Fracture Dislocation Intracranial Injury Crushing Injury Burn Electric Shock) ** 

• Vascular Catheter-Associated Infection ** 

• Catheter-Associated Urinary Tract Infection (UTI) ** 

• Manifestations of Poor Glycemic Control ** 

* Chart-abstracted measure. 

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** Claims-based measure. 

c. Proposed Removal of Hospital IQR 

Program Measures for the FY 2016 

Payment Determination and Subsequent 

Years 

As we move toward more outcomerelated measures, we have considered 

the removal of additional measures 

using our stated removal criteria. We are 

proposing to remove 8 measures from 

the Hospital IQR Program. Three 

measures are chart-abstracted (one 

pneumonia measure, one heart failure 

measure, and one immunization 

measure), and one is a structural 

measure (Systematic Clinical Database 

Registry for Stroke Care). We are are also 

proposing to remove 4 additional chartabstracted measures from the Hospital 

IQR Program because they were either 

recommended for removal by the MAP 

during the pre-rulemaking process or 

are considered ‘‘topped out.’’ 

(1) Proposed Removal of PN–3b: Blood 

Culture Performed in the Emergency 

Department Prior to First Antibiotic 

Received in the Hospital Measure 

In the FY 2007 IPPS final rule, we 

adopted PN–3b: Blood Culture 

Performed in the Emergency 

Department Prior to First Antibiotic 

Received in the Hospital. We are 

proposing to remove this measure based 

on several considerations. First, the 

measure is no longer NQF-endorsed. 

Second, the MAP recommended 

removal of the measure from the 

Hospital IQR Program in a February 

2013 pre-rulemaking report that made 

recommendations on measures under 

consideration by HHS. The MAP 

believed the measure was topped-out 

with no room for improvement. Third, 

the measure lacks an adequate 

association between processes of care 

and patient outcomes. Accordingly, 

since there is only limited data showing 

impact from drawing blood cultures 

prior to administering antibiotics and to 

address concerns of overuse of blood 

cultures, we are proposing to remove 

PN–3b from the Hospital IQR Program. 

(2) Proposed Removal of HF–1: 

Discharge Instructions Measure 

In the FY 2007 IPPS final rule we 

adopted HF–1: Discharge Instructions. 

We are proposing to remove this 

measure based on several 

considerations. First, the measure is no 

longer NQF-endorsed. Second, the MAP 

recommended removal of the measure 

from the Hospital IQR Program in a 

February 2013 pre-rulemaking report 

that made recommendations on 

measures under consideration by HHS. 

The MAP was concerned because 

research showed a weak correlation 

between this measure and patient 

outcomes. Third, while we consider 

discharge instructions an important 

aspect of patient care, we face a 

challenge in validating the efficacy of 

the information received with this 

measure. Therefore, we are proposing to 

remove HF–1 from the Hospital IQR 

Program. 

(3) Proposed Removal of IMM–1: 

Immunization for Pneumonia Measure 

We adopted IMM–1: Immunization 

for Pneumonia for the Hospital IQR 

Program for the FY 2014 payment 

determination with data collection 

beginning with January 1, 2012 

discharges. We are proposing to remove 

this measure based on the following 

consideration. In October of 2012, the 

Advisory Committee on Immunization 

Practices (ACIP) released new 

guidelines on the administration of 

pneumococcal vaccination for various 

populations. Because IMM–1 was 

already required as part of the Hospital 

IQR Program before the new guidelines 

were published, we cannot feasibly 

implement the measure to incorporate 

the potential iterations of the new 

guidelines. We believe that maintaining 

the measure in the Hospital IQR 

Program during this period of rapid 

guideline changes would detract from 

hospitals efforts to administer vaccines 

appropriately. 

We emphasize that, despite the 

removal of IMM–1 from the Hospital 

IQR Program, we expect hospitals to 

continue to keep up-to-date with the 

vaccination recommendations for 

various populations. 

(4) Proposed Removal of the Systematic 

Clinical Database Registry for Stroke 

Care Measure 

We adopted the Systematic Clinical 

Database Registry for Stroke Care 

measure for the Hospital IQR Program 

for the FY 2013 payment determination 

beginning with January 1, 2011 

discharges. We are proposing to remove 

this measure based on the following 

consideration. Since the adoption of this 

structural measure, we have adopted a 

Stroke measure set beginning with 

January 1, 2013 discharges. We believe 

that the Stroke measure set will provide 

more meaningful and detailed 

information regarding how well stroke 

care is being managed in a hospital 

setting than the current structural 

measure, which consists of a general 

yes/no response. 

(5) Proposed Removal of Four 

Additional Chart-Abstracted Measures 

We are also proposing to remove four 

chart-abstracted measures from the 

Hospital IQR Program because these 

measures were either recommended for 

removal by the MAP during the prerulemaking process or are considered 

‘‘topped out.’’ 

• AMI–2: Aspirin prescribed at 

discharge 

• AMI–10: Statin prescribed at 

discharge 

• HF–3: ACEI or ARB for LVSD 

• SCIP-Inf–10: Surgery Patients with 

perioperative temperature management 

We invite public comment on our 

proposal to remove these measures. 

Topic Proposed removal of hospital IQR program measures for the FY 2016 payment determination and subsequent years 

Acute Myocardial Infarction 

• AMI–2 Aspirin prescribed at discharge. 

• AMI–10 Statin prescribed at discharge. 

Pneumonia 

• PN–3b Blood culture performed in the emergency department prior to first antibiotic received in hospital. 

Heart Failure 

• HF–1 Discharge instructions. 

• HF–3 ACEI or ARB for LVSD. 

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Topic Proposed removal of hospital IQR program measures for the FY 2016 payment determination and subsequent years 

Surgical Care Improvement Project 

• SCIP–Inf–10 Surgery patients with perioperative temperature management. 

Immunization 

• IMM–1 Immunization for pneumonia. 

Structural Measure 

• Participation in a systematic clinical database registry for stroke care. 

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. 

Topic Hospital IQR program measures suspended for the FY 2014 payment determination and subsequent years 

Acute Myocardial Infarction (AMI) 

• AMI–1 Aspirin at arrival. 

• AMI–3 ACEI/ARB for left ventricular systolic dysfunction. 

• AMI–5 Beta-blocker prescribed at discharge. 

Surgical Care Improvement Project (SCIP) 

• SCIP INF–6 Appropriate Hair Removal. 

We suspended, rather than removed, 

these measures, despite having evidence 

that these measures may be topped-out 

(that is, their performance is uniformly 

high nationwide, with little variability 

among hospitals) because we believe 

that the processes assessed by these 

measures are tied to better patient 

outcomes, and that permanent removal 

of the measures from the Hospital IQR 

Program may result in declines in 

performance and, therefore, worse 

outcomes. Therefore, we decided not to 

remove these measures from the 

Hospital IQR Program. 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 email 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. Process for Retaining Previously 

Adopted Hospital IQR Program 

Measures for Subsequent Payment 

Determinations 

For the purpose of streamlining the 

rulemaking process, in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53512 

through 53513), we finalized our policy 

that when we adopt measures for the 

Hospital IQR Program beginning with a 

particular payment determination, these 

measures are automatically adopted for 

all subsequent payment determinations 

unless we propose to remove, suspend, 

or replace the measures. 

4. Additional Considerations in 

Expanding and Updating Quality 

Measures Under the Hospital IQR 

Program 

We refer readers to the FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53510 

through 53512) for a discussion of the 

considerations we use to expand and 

update quality measures under the 

Hospital IQR Program and our policy, 

beginning with the FY 2013, to use one 

calendar year of data for chartabstracted measures for payment 

determinations. 

5. Proposed Changes to Hospital IQR 

Program Measures Previously Adopted 

for the FY 2015 and FY 2016 Payment 

Determinations and Subsequent Years 

a. Previously Adopted Hospital IQR 

Program Measures for the FY 2015 

Payment Determination and Subsequent 

Years 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53512 through 53531), we 

finalized 59 measures for the Hospital 

IQR Program measure set for the FY 

2015 payment determination and 

subsequent years. These 59 measures 

are listed below. 

Topic Hospital IQR program measures previously adopted for the FY 2015 payment determination and subsequent years 

Acute Myocardial Infarction (AMI) Measures 

• AMI–2 Aspirin prescribed at discharge 

• AMI–7a Fibrinolytic (thrombolytic) agent received within 30 minutes of hospital arrival 

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Topic Hospital IQR program measures previously adopted for the FY 2015 payment determination and subsequent years 

• AMI–8a Timing of Receipt of Primary Percutaneous Coronary Intervention (PCI) 

• AMI–10 Statin Prescribed at Discharge 

Heart Failure (HF) Measures 

• HF–1 Discharge instructions 

• HF–2 Evaluation of left ventricular systolic function 

• HF–3 Angiotensin Converting Enzyme Inhibitor (ACE–I) or Angiotensin II Receptor Blocker (ARB) for left ventricular systolic 

dysfunction 

Stroke (STK) Measure Set 

• STK–1 VTE prophylaxis 

• STK–2 Antithrombotic therapy for ischemic stroke † 

• STK–3 Anticoagulation therapy for Afib/flutter † 

• STK–4 Thrombolytic therapy for acute ischemic stroke † 

• STK–5 Antithrombotic therapy by the end of hospital day 2 † 

• STK–6 Discharged on Statin † 

• STK–8 Stroke education † 

• STK–10 Assessed for rehab † 

VTE Measure Set 

• VTE–1 VTE prophylaxis † 

• VTE–2 ICU VTE prophylaxis † 

• VTE–3 VTE patients with anticoagulation overlap therapy † 

• VTE–4 Patients receiving un-fractionated Heparin with doses/labs monitored by protocol † 

• VTE–5 VTE discharge instructions † 

• VTE–6 Incidence of potentially preventable VTE † 

Pneumonia (PN) Measures 

• PN–3b Blood culture performed in the emergency department prior to first antibiotic received in hospital 

• PN–6 Appropriate initial antibiotic selection 

Surgical Care Improvement Project (SCIP) Measures 

• SCIP INF–1 Prophylactic antibiotic received within 1 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 (48 hours for cardiac surgery) 

• 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 with day of surgery being day zero 

• SCIP INF–10: Surgery patients with perioperative temperature management 

• SCIP Cardiovascular-2: Surgery Patients on a Beta Blocker prior to arrival who received a Beta Blocker during the 

perioperative period 

• SCIP–VTE–2: Surgery patients who received appropriate VTE prophylaxis within 24 hours pre/post surgery 

Mortality Measures (Medicare Patients) 

• Acute Myocardial Infarction (AMI) 30-day mortality rate 

• Heart Failure (HF) 30-day mortality rate 

• Pneumonia (PN) 30-day mortality rate 

Patients’ Experience of Care Measures 

• HCAHPS survey (expanded to include one 3-item care transition set * and two new ‘‘About You’’ items) * 

Readmission Measures (Medicare Patients) 

• Acute Myocardial Infarction 30-day Risk Standardized Readmission Measure 

• Heart Failure 30-day Risk Standardized Readmission Measure 

• Pneumonia 30-day Risk Standardized Readmission Measure 

• 30-day Risk Standardized Readmission following Total Hip/Total Knee Arthroplasty * 

• Hospital-Wide All-Cause Unplanned Readmission (HWR) * 

AHRQ Patient Safety Indicators (PSIs) Composite Measures 

• Complication/patient safety for selected indicators (composite) 

AHRQ PSI and Nursing Sensitive Care 

• PSI–4 Death among surgical inpatients with serious treatable complications 

Structural Measures 

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Topic Hospital IQR program measures previously adopted for the FY 2015 payment determination and subsequent years 

• Participation in a Systematic Database for Cardiac Surgery 

• Participation in a Systematic Clinical Database Registry for Stroke Care 

• Participation in a Systematic Clinical Database Registry for Nursing Sensitive Care 

• Participation in a Systematic Clinical Database Registry for General Surgery 

Healthcare-Associated Infections Measures 

• Central Line Associated Bloodstream Infection 

• Surgical Site Infection 

—SSI following Colon Surgery 

—SSI following Abdominal Hysterectomy 

• Catheter-Associated Urinary Tract Infection 

• MRSA Bacteremia 

• Clostridium difficile (C. difficile) 

• Healthcare Personnel Influenza Vaccination 

Surgical Complications 

• Hip/Knee Complication: Hospital-level Risk-Standardized Complication Rate (RSCR) following Elective Primary Total Hip 

Arthroplasty * 

Emergency Department (ED)Throughput Measures 

• ED–1 Median time from emergency department arrival to time of departure from the emergency room for patients admitted to 

the hospital † 

• 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 (IMM) Measures 

• Immunization for Influenza 

• Immunization for Pneumonia 

Cost Efficiency 

• Medicare Spending per Beneficiary 

Perinatal Care 

• PC–01 Elective delivery prior to 39 completed weeks of gestation */† 

* New or expanded measures/items for the FY 2015 payment determination and subsequent years. 

† Proposed measure for electronic reporting via CEHRT in the Hospital IQR Program (voluntary participation in CY 2014). 

b. Proposed Refinements to Existing 

Measures in the Hospital IQR Program 

We are proposing to incorporate 

refinements for several measures that 

are currently adopted in the Hospital 

IQR Program. These refinements have 

either arisen out of the NQF 

endorsement maintenance process, or 

during our internal efforts to harmonize 

measurement approaches. The measure 

refinements include the following: (1) 

Incorporation of the planned 

readmission algorithm in 30-day 

readmission measures for AMI, HF, PN, 

THA/TKA, and Hospital-Wide 

Readmission to match recent NQF 

endorsement maintenance decisions 

beginning in 2013; (2) expansion of 

CLABSI and CAUTI measures to select 

non-ICU locations in IPPS hospitals 

beginning with infections occurring on 

or after January 1, 2014 (consistent with 

NQF expansion of the measures beyond 

ICUs); (3) updates to SCIP Inf 4 to match 

recent NQF endorsement maintenance 

decisions beginning with January 1, 

2014 discharges; and (4) an update to 

the MSPB measure to include Railroad 

Retirement Board (RRB) beneficiaries 

beginning in 2014. These proposed 

refinements are described in greater 

detail below. 

(1) Proposed Incorporation of Planned 

Readmission Algorithm for 30-Day 

Readmission Measures 

In response to stakeholder comments, 

we have developed an algorithm to 

identify readmissions that are likely to 

be planned as part of ongoing medical 

or surgical treatment. Planned 

readmissions are identified in claims 

data using the CMS Planned 

Readmission Algorithm Version 2.1 

which detects readmissions that are 

typically planned and may occur within 

30 days of discharge from the hospital. 

For more information on the 

methodology used to identify planned 

readmissions, and the list of planned 

diagnoses and procedures used in the 

algorithm, we refer to the Web site at: 

http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/

Measure-Methodology.html, as well as 

the discussion of planned readmissions 

under section 3025 of the Affordable 

Care Act in section V.G. of the preamble 

of this proposed rule. We submitted this 

algorithm for NQF review during annual 

maintenance of the AMI, HF, PN, and 

Total Hip/Total Knee Replacement 

readmission measures as well as for the 

recently adopted Hospital Wide 

Readmission measure. 

NQF has endorsed the use of the 

algorithm for these measures, and we 

are proposing to incorporate the 

Planned Readmission Algorithm into 

the AMI, HF, PN, and Total Hip/Knee 

Replacement readmission measures in 

addition to the Hospital-Wide 

Readmission Measure beginning in 

2013. We invite public comment on this 

proposal. 

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(2) Proposed Expansion of Collection of 

CLABSI and CAUTI to Select Non-ICU 

Locations 

We are proposing to expand the 

collection of the CAUTI and CLABSI 

measures to include several non-ICU 

locations beginning with infections 

occurring on or after January 1, 2014. 

Those proposed locations are medical 

wards, surgical wards, and medical/ 

surgical wards. This expansion is 

consistent with the NQF re-endorsement 

update to these measures allowing 

application of the measures beyond 

ICUs. We are proposing this expansion 

to allow hospitals that do not have ICU 

locations to use the tools and resources 

of the NHSN for quality improvement 

and public reporting efforts. We invite 

public comment on this proposal. 

(3) Proposed Refinement of SCIP–INF– 

4 to Match Refinements Made During 

NQF Reendorsement 

The quality measure SCIP Infection 4, 

Controlled 6AM Glucose for Cardiac 

Surgery Patients (NQF #300), is an 

example of a measure that has 

undergone extensive changes as a result 

of the NQF endorsement maintenance 

process. The specifications have 

changed so substantially that we are 

proposing to adopt them in this 

proposed rule. Specifically, the NQF 

Steering Committee voted to change the 

measure from controlled glucose at 6AM 

to a more comprehensive measure, 

controlled glucose 18–24 hours postcardiac surgery. The revised 

specifications also require corrective 

action to be documented if a postoperative glucose is over 180mg/dl. We 

are proposing to adopt these revised 

specifications for SCIP–INF–4 beginning 

with January 1, 2014 discharges and 

invite public comment on this proposal. 

The revised specifications for the 

measure can be found at http:// 

www.qualityforum.org/QPS/0300. 

(4) Proposed Refinement of Medicare 

Spending Per Beneficiary Measure 

(MSPB) 

(a) Inclusion of Railroad Retirement 

Board Beneficiaries (RRB) 

We are proposing a refinement to the 

Medicare spending per beneficiary 

(MSPB) measure previously finalized for 

the FY 2015 and subsequent years’ 

payment determination. We are 

proposing to include Railroad 

Retirement Board (RRB) beneficiaries in 

the measure for the FY 2016 and 

subsequent years’ payment 

determinations. We do not consider this 

refinement to be a substantive change. 

However, we are proposing this 

refinement through rulemaking because 

we explicitly stated in previous 

rulemaking that these beneficiaries 

would be excluded from the measure 

(76 FR 51620). Since that time, we have 

learned that we have complete claims 

data for RRB beneficiaries, and believe 

that eligible MSPB episodes generated 

by RRB hospital discharges should be 

included in the MSPB measure. We 

finalized the details of MSPB episode 

construction and adjustment in the FY 

2012 IPPS/LTCH PPS final rule (76 FR 

51618 through 51626). The effect of 

including RRB beneficiaries on the 

MSPB ratio is minimal. For the majority 

of hospitals, the change in their MSPB 

measure rates would be small—between 

¥0.01 and 0.01. 

We welcome public comment on this 

proposal to refine the MSPB measure to 

include RRB beneficiaries. 

(b) Incorporating Maryland Hospitals 

We are considering how best to 

incorporate Maryland hospitals paid 

under the waiver under section 

1814(b)(3) of the Act into the MSPB 

measure. The payments made to 

Maryland hospitals pose a unique 

challenge to the payment 

standardization methodology currently 

used for the MSPB measure. Currently, 

hospitalizations in Maryland hospitals 

that are captured in the post-discharge 

window of the MSPB measure are 

standardized by applying the hospital 

wage index to the labor-related share of 

the IPPS payment, according to the 

methodology found on page 10 of the 

‘‘CMS Price Standardization’’ document 

(http://www.qualitynet.org/dcs/Content

Server?c=Page&pagename=Qnet

Public%2FPage%2FQnetTier4&

cid=1228772057350). This approach 

does not account for the absence of 

outlier payments on Maryland claims. 

In order to make a comparison of 

Maryland hospitals to other subsection 

(d) hospitals paid under the IPPS, in the 

event that MSPB measure rates are 

calculated for Maryland hospitals in the 

future, outliers would have to be 

imputed. If we were to include 

Maryland hospitals in the MSPB 

measure in the future, we would do so 

through future rulemaking. 

We welcome public comment on the 

best approach to including Maryland 

hospitals in the MSPB measure and 

calculating MSPB measure rates for 

them. 

6. Proposed Additional Hospital IQR 

Program Measures for the FY 2016 

Payment Determination and Subsequent 

Years 

We are proposing to add five new 

risk-adjusted claims-based outcome 

measures to the Hospital IQR Program 

for the FY 2016 payment determination 

and subsequent years: (1) 30-day risk 

standardized COPD Readmission; (2) 30- 

day risk standardized COPD Mortality; 

(3) 30-day risk standardized Stroke 

Readmission; (4) 30-day risk 

standardized Stroke Mortality; and (5) 

AMI payment per Episode of Care. In 

section IX.A.7. of the preamble of this 

proposed rule, we also are proposing 

that hospitals may voluntarily report 

certain Hospital IQR measures in an 

electronic format. 

The proposed measures were 

included on a publicly available 

document entitled ‘‘List of Measures 

Under Consideration for December 1, 

2012’’ in compliance with section 

1890A(a)(2) of the Act, and they were 

reviewed by the MAP in its ‘‘MAP PreRulemaking Report: 2013 

Recommendations on Measures Under 

Consideration by HHS,’’ which has been 

made available on the NQF Web site at 

http://www.qualityforum.org/Setting_

Priorities/Partnership/Measure_

Applications_Partnership.aspx. We 

considered the input and 

recommendations provided by the MAP 

in selecting measures to propose for the 

Hospital IQR Program. 

For purposes of the Hospital IQR 

Program, section 1886(b)(3)(B)(IX)(aa) of 

the Act requires that any measure 

specified by the Secretary must have 

been endorsed by the entity with a 

contract under section 1890(a) of the 

Act. However, the statutory 

requirements under section 

1886(b)(3)(B)(IX)(bb) of the Act provide 

an exception that, in the case of a 

specified area or medical topic 

determined appropriate by the Secretary 

for which a feasible and practical 

measure has not been endorsed by the 

entity with a contract under section 

1890(a) of the Act, the Secretary may 

specify a measure that is not so 

endorsed as long as due consideration is 

given to measures that have been 

endorsed or adopted by a consensus 

organization identified by the Secretary. 

The proposed measures are described 

in greater detail below. 

a. Proposed Hospital 30-Day, All-Cause, 

Risk-Standardized Readmission Rate 

(RSRR) Following Chronic Obstructive 

Pulmonary Disease (COPD) 

Hospitalization Measure (NQF #1891) 

We are proposing to include this 

NQF-endorsed measure in the Hospital 

IQR Program beginning with the FY 

2016 payment determination. The MAP 

supports this measure. In 2007, 

MedPAC published a report to Congress 

in which it identified the seven 

conditions associated with the most 

costly potentially preventable 

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Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 27685 

60Committee MPA. Report to the Congress: 

Promoting Greater Efficiency in Medicare. 2007. 

61American Lung Association. Trends in COPD 

(Chronic Bronchitis and Emphysema): Morbidity 

and Mortality. 2010; Available at: http:// 

www.lungusa.org/finding-cures/our-research/trendreports/copd-trend-report.pdf. 

62 Grosso L.M., Lindenauer P., Wang C., et al. 

Hospital-level 30-day Readmission Following 

Admission for an Acute Exacerbation of Chronic 

Obstructive Pulmonary Disease: Report prepared for 

the Centers for Medicare & Medicaid Services. 2011; 

Available at: http://www.qualitynet.org/. 

63AHRQ Quality Indicators. Fact Sheet: 

Prevention Quality Indicators. 2006; Available at: 

http://qualityindicators.ahrq.gov/downloads/pqi/ 

2006-Feb-PreventionQualityIndicators.pdf. 

64National Heart L, and Blood Institute,. The 

Morbidity & Mortality: Chart Book on 

Cardiovascular, Lung and Blood Diseases. 2009; 

Available at: http://www.nhlbi.nih.gov/resources/ 

docs/2009_ChartBook.pdf. 

65The Centers for Disease Control and 

Prevention. National Center for Health Statistics 

Chronic Lower Respiratory Disease. FastStats 2010; 

Available at: http://www.cdc.gov/nchs/fastats/ 

copd.htm. 

66Agency for Healthcare Research and Quality. 

Healthcare Cost and Utilization Project Statistics on 

Hospitals Stays. 2009; Available at: http:// 

hcupnet.ahrq.gov/. 

67Andrews RM. The National Hospital Bill: The 

Most Expensive Conditions by Payer, 2006. 

Rockville: Agency for Healthcare Research and 

Quality; 2008. 

68 Grosso L.M., Lindenauer P., Wang C., et al. 

Hospital-level 30-day Mortality Following 

Admission for an Acute Exacerbation of Chronic 

Obstructive Pulmonary Disease: Report prepared for 

the Centers for Medicare & Medicaid Services. 2011; 

Available at: http://www.qualitynet.org. 

69 Global strategy for Diagnosis M, and Prevention 

of COPD,. 2009; Available at: http:// 

www.goldcopd.org/. 

70National Institute for Health and Clinical 

Excellence. Chronic Obstructive Pulmonary 

Disease: Management of Chronic Obstructive 

Pulmonary Disease in Adults in Primary and 

Secondary Care (Partial Update):. National 

Collaborating Centre for Acute and Chronic 

Conditions. Available at: http://www.nice.org.uk/ 

nicemedia/live/13029/49397/49397.pdf. 

71Walters JA, PG Gibson, R Wood-Baker, M 

Hannay, EH Walters. Systemic corticosteroids for 

acute exacerbations of chronic obstructive 

pulmonary disease. Cochrane Database Syst Rev. 

2009; CD001288(1). 

72Lightowler JV, Wedzicha JA, Elliott MW, Ram 

FS. Non-invasive positive pressure ventilation to 

treat respiratory Failure resulting from 

exacerbations of chronic obstructive pulmonary 

disease: Cochrane systematic review and metaanalysis. Bmj. 2003;326(7382). 

73 Krumholz H, Normand S–L, Spertus JA, 

Shahian DM, Bradley EH. Measuring Performance 

for Treating Heart Attacks and Heart Failure: The 

Case for Outcomes Measurement. Health Affairs 

2007;26:75–85. 

74Bradley EH, Herrin J, Elbel B, et al. Hospital 

Quality for Acute Myocardial Infarction: Correlation 

Among Process Measures and Relationship With 

Short-term Mortality. The Journal of the American 

Medical Association 2006;296:72–8. 

readmissions; among these seven, COPD 

ranked fourth.60 In 2008, 12.1 million 

U.S. adults were estimated to have 

COPD resulting in approximately 

672,000 hospital discharges.61 There is 

also evidence of variation in outcomes 

at hospitals for COPD patients, 

supporting the finding that there are 

opportunities for improving care. The 

median 30-day risk-standardized 

readmission rate among Medicare feefor-service (FFS) patients aged 65 or 

older hospitalized for COPD in 2008 

was 22.0 percent, and ranged from 18.33 

percent—25.03 percent across 4,546 

hospitals.62

The AHRQ has identified COPD as an 

ambulatory-care-sensitive condition 

(ACSC). ACSCs are conditions for which 

good outpatient care can potentially 

prevent the need for hospitalization or 

for which early intervention can prevent 

complications or more severe disease.63

Although COPD is an ACSC, 

readmission rates are also influenced by 

inpatient care. 

To better assess hospital care and care 

transitions for COPD patients, we 

developed a hospital-level readmission 

measure for patients hospitalized with 

an acute exacerbation of COPD. We are 

proposing this measure for use in the 

Hospital IQR Program as well as the 

Hospital Readmissions Reduction 

Program. We discuss the measure 

methodology in detail in the section of 

this proposed rule pertaining to the 

Hospital Readmissions Reduction 

Program. We refer readers to section 

IX.A.6.b. of the preamble of this 

proposed rule on COPD for details of the 

measure specifications. Details on the 

technical specifications of the measure 

can also be found on our Web site at: 

(http://cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/ 

Measure-Methodology.html. 

We invite public comment on this 

proposal. 

b. Proposed Hospital 30-Day, All-Cause, 

Risk-Standardized Mortality Rate 

(RSMR) Following Chronic Obstructive 

Pulmonary Disease (COPD) 

Hospitalization Measure (NQF #1893) 

(1) Background 

COPD affects as many as 24 million 

individuals in the United States and is 

the nation’s fourth leading cause of 

death. Between 1998 and 2008, the 

number of patients hospitalized 

annually for acute exacerbations of 

COPD (AECOPD) increased by 

approximately 18 percent.64 65 66

Moreover, COPD is one of the top 20 

conditions contributing to Medicare 

costs.67 Finally, there is evidence of 

variation in outcomes at hospitals for 

COPD patients, supporting the finding 

that there are opportunities for 

improving care. The median 30-day 

risk-standardized mortality rate among 

Medicare FFS patients aged 65 or older 

hospitalized for COPD in 2008 was 8.5 

percent, and ranged from 5.9 percent to 

13.5 percent across 4,537 hospitals.68

We are proposing to include a 

hospital 30-day, all-cause riskstandardized rate of mortality following 

an admission for an AECOPD in the 

Hospital IQR Program. The measure 

aims to address a prevalent and costly 

health problem in the nation. In 

addition, the measure aligns with our 

priority objectives to promote quality 

improvements leading to successful 

transition of care for patients from acute 

care to outpatient settings, and reducing 

short term, preventable mortality rates. 

We plan to implement this measure to 

encourage improvement of outcomes by 

providing patients, physicians, and 

hospitals with information about 

hospital-level, risk-standardized 

mortality rates following hospitalization 

for an AECOPD. Clinical trials and 

observational studies suggest that 

several aspects of care provided to 

patients hospitalized for AECOPD can 

have significant effects on mortality, 

thus supporting the essential construct 

of mortality as an appropriate outcome 

to measure quality.69 70 71 72 Moreover, 

by proposing an outcome measure, we 

intend to broaden the view of quality of 

care that encompasses more than what 

can be captured by merely measuring 

individual processes-of-care. Through 

outcome measures, we can capture 

complex and critical aspects of care, 

such as communication between 

providers, prevention of, and response 

to, complications, patient safety and 

coordinated transitions to the outpatient 

environment, all contribute to patient 

outcomes but are difficult to measure by 

individual process measures.73 74

The specifics of the measure 

methodology are included in the 

measure methodology report we have 

posted on our Web site at: http:// 

cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/ 

HospitalQualityInits/MeasureMethodology.html. Please see the report 

for further details on the risk-adjustment 

statistical model. 

(2) Overview of Measure 

The measure is a NQF-endorsed 30- 

day, all-cause risk-standardized rate of 

mortality after admission for an 

AECOPD to any non-federal acute care 

hospital. The MAP supports this 

measure for inclusion in the Hospital 

IQR Program. 

In general, the measure uses the same 

approach to risk-adjustment and 

hierarchical logistic modeling (HLM) 

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27686 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

methodology that is specified for our 

inpatient outcome measures previously 

adopted for the Hospital IQR Program, 

including AMI, HF, and PN readmission 

and mortality measures. For a 

discussion of this methodology, we refer 

readers to our Web site at: http:// 

cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/ 

HospitalQualityInits/MeasureMethodology.html. 

(3) Data Sources 

The proposed measure is claimsbased and uses Medicare administrative 

data that contain hospitalizations for 

FFS Medicare beneficiaries hospitalized 

with AECOPDs. 

(4) Outcome 

The outcome for this measure is 30- 

day all-cause mortality defined as a 

death from any cause within 30 days of 

the admission date for the index 

hospitalization. This outcome period is 

consistent with other NQF-endorsed 

publicly reported mortality measures 

(AMI, HF, and PN). 

The measure assesses all-cause 

mortality not just COPD-specific 

mortality for several reasons. First, 

limiting the measure to COPD-related 

mortalities may limit the focus of efforts 

to improve care to a narrow set of 

approaches (such as processes that will 

prevent a recurrent exacerbation) as 

opposed to encouraging broader 

initiatives aimed at improving the 

overall in-hospital care. Second, cause 

of death may be unreliably recorded and 

it is often not possible to exclude 

quality issues and accountability based 

on the documented cause of mortality. 

For example, a COPD patient who 

develops a hospital-acquired infection 

may ultimately die from sepsis. It would 

be inappropriate to treat this death as 

unrelated to the care the patient 

received for COPD. Finally, from a 

patient perspective, death is the 

outcome that matters, regardless of 

cause. 

(5) Cohort 

COPD is a group of lung diseases 

characterized by airway obstruction. 

Patients hospitalized for an AECOPD 

present with varying degrees of severity 

ranging from a worsening of baseline 

symptoms (dyspnea, cough, and/or 

sputum) to respiratory failure. To 

capture the full spectrum of severity of 

patients hospitalized for an AECOPD, 

we included patients with a principal 

diagnosis of COPD, as well as those with 

a principal diagnosis of respiratory 

failure who had a secondary diagnosis 

of an AECOPD. Requiring AECOPD as a 

secondary code helps to identify 

respiratory failure due to COPD 

exacerbation versus another condition 

(for example, heart failure). For detailed 

information on the cohort definition 

please reference the COPD mortality 

technical report on our Web site at: 

http://cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/ 

Measure-Methodology.html. 

(6) Inclusion and Exclusion Criteria 

The measure includes 

hospitalizations for patients 65 years or 

older at the time of index admission and 

for whom there was a complete 12 

months of FFS enrollment to allow for 

adequate risk-adjustment. The measure 

excludes the following admissions from 

the measure cohort: (1) Admissions for 

patients having a principal diagnosis of 

an AECOPD during the index 

hospitalization who were transferred 

from another acute care facility are 

excluded because the hospital where the 

patient was initially admitted made 

critical acute care decisions (including 

the decision to transfer and where to 

transfer); (2) admissions for patients 

enrolled in the Medicare Hospice 

Program any time in the 12 months 

prior to the index hospitalization, 

including the first date of the index 

admission are excluded because it is 

likely that these patients are continuing 

to seek comfort care and their goal may 

not be survival; and (3) admissions for 

patients that are discharged alive and 

against medical advice are excluded 

because providers did not have the 

opportunity to deliver full care and 

prepare the patient for discharge. 

(7) Risk Adjustment 

The measure adjusts for differences 

across hospitals in how at risk their 

patients are for death relative to patients 

cared for by other hospitals. Consistent 

with NQF guidelines, the model does 

not adjust for socioeconomic status or 

race because risk-adjusting for these 

characteristics would hold hospitals 

with a large proportion of minority or 

low socioeconomic status patients to a 

different standard of care than other 

hospitals. One goal of this measure is to 

illuminate quality differences that such 

risk adjustment would obscure. 

(8) Calculating the Risk-Standardized 

Mortality Ratio (RSMR) 

The measure is calculated using 

hierarchical logistic modeling (HLM). 

This approach appropriately accounts 

for the types of patients a hospital treats 

(that is, hospital case mix), the number 

of patients it treats, and the quality of 

care it provides. The HLM is an 

appropriate statistical approach to 

measuring quality based on patient 

outcomes when the patients are 

clustered within hospitals (and 

therefore the patients’ outcomes are not 

statistically independent) and the 

number of eligible patients for the 

measure varies from hospital to 

hospital. As noted above, the measure 

methodology defines hospital case mix 

based on the clinical diagnoses 

provided in the hospital claims for their 

patients’ inpatient and outpatient visits 

for the 12 months prior to the COPD 

hospitalization, as well as those present 

in the claims for care at admission. The 

methodology, however, specifically 

does not account for diagnoses present 

in the index admission that may 

indicate complications rather than 

patient comorbidities. 

The RSMR is calculated as the ratio of 

the number of predicted deaths to the 

number of expected deaths and then the 

ratio is multiplied by the national 

unadjusted mortality rate. The ratio is 

greater than one for hospitals that have 

more deaths that would be expected for 

an average hospital with similar cases 

and less than one if the hospital has 

fewer deaths than would be expected for 

an average hospital with similar cases. 

This approach is analogous to a ratio of 

‘‘observed’’ or ‘‘crude’’ rate to an 

‘‘expected’’ or risk-adjusted rate used in 

other similar types of statistical 

analyses. 

The RSMR is a point estimate—the 

best estimate of a hospital’s mortality 

rate based on the hospital’s case mix. 

For displaying the measure for the 

Hospital IQR Program, we computed an 

interval estimate, which is similar to the 

concept of a confidence interval, to 

characterize the level of uncertainty 

around the point estimate. We use the 

point estimate and interval estimate to 

determine hospital performance (for 

example, higher than expected, as 

expected, or lower than expected). For 

more detailed information on the 

calculation methodology please refer to 

our Web site at: http://cms.gov/ 

Medicare/Quality-Initiatives-PatientAssessment-Instruments/ 

HospitalQualityInits/MeasureMethodology.html. 

We invite public comment on this 

proposal. 

c. Proposed Hospital 30-day, All-Cause 

Risk-Standardized Rate of Readmission 

Following Acute Ischemic Stroke 

(Stroke Readmission) Measure 

(1) Background 

Stroke is an important and common 

diagnosis among Medicare patients. 

Ischemic stroke affects hundreds of 

thousands of adults in the United States 

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

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75American Heart Association, Heart Disease and 

Stroke Statistics—2012 Update. American Heart 

Association, Circulation 2012, 125:e2–e220. 

76Sacco RL, Hauser WA, Mohr JP, Foulkes MA. 

One-year outcome after cerebral infarction in 

whites, blacks, and Hispanics. Stroke 1991;22:305– 

11. 

77Andersen HE, Schultz-Larsen K, Kreiner S, 

Forchhammer BH, Eriksen K, Brown A. Can 

readmission after stroke be prevented? Results of a 

randomized clinical study: a postdischarge 

follow-up service for stroke survivors. Stroke 

2000;31:1038–45. 

78 Gooding J, Jette AM. Hospital readmissions 

among the elderly. Journal of the American 

Geriatric Society 1985;33:595–601. 

79Andrews RM. The National Hospital Bill: The 

Most Expensive Conditions by Payer, 2006. 

Rockville: Agency for Healthcare Research and 

Quality; 2008. 

80Bernheim S.M., Wang C., Wang Y., et al. 

Hospital 30-Day Readmission Following Acute 

Ischemic Stroke Hospitalization Measure: Report 

prepared for the Centers for Medicare & Medicaid 

Services. 2010; Available at: http:// 

www.qualitynet.org. 

81 Jack BW, Chetty VK, Anthony D, et al. A 

Reengineered Hospital Discharge Program to 

Decrease Rehospitalization. Annals of Internal 

Medicine 2009;150:178–88. 

82Naylor MD, Brooten D, Cambell R, et al. 

Comprehensive Discharge Planning and Home 

Follow-up of Hospitalized Elders: A Randomized 

Clinical Trial. The Journal of the American Medical 

Association 1999; 281:613–20. 

83Bravata DM, Ho SY, Meehan TP, Brass LM, 

Concato J. Readmission and death after 

hospitalization for acute ischemic stroke: 5-year 

follow-up in the Medicare population. Stroke 2007; 

38:1899–904. 

84 Krumholz H, Normand S–L, Spertus JA, 

Shahian DM, Bradley EH. Measuring Performance 

for Treating Heart Attacks and Heart Failure: The 

Case for Outcomes Measurement. Health Affairs 

2007;26:75–85. 

85Bradley EH, Herrin J, Elbel B, et al. Hospital 

Quality for Acute Myocardial Infarction: Correlation 

Among Process Measures and Relationship With 

Short-term Mortality. The Journal of the American 

Medical Association 2006;296:72–8. 

86 Jack BW, Chetty VK, Anthony D, et al. A 

Reengineered Hospital Discharge Program to 

Decrease Rehospitalization. Annals of Internal 

Medicine 2009;150:178–88. 

87Coleman EA, Parry C, Chalmers S, Min S-j. The 

Care Transitions Intervention: Results of a 

Randomized Controlled Trial. Archives of Internal 

Medicine 2006;166:1822–8. 

88Anderson C, Deepak BV, Amoateng-Adjepong 

Y, Zarich S. Benefits of Comprehensive Inpatient 

Education and Discharge Planning Combined With 

Outpatient Support in Elderly Patients With 

Congestive Heart Failure. Congestive Heart Failure 

2005;November–December:315–21. 

each year and leaves many with new 

disability and at increased risk for 

complications, recurrent stroke and 

clinical deterioration.75 Hospital 

readmissions after stroke may result 

from the progression of disease, but may 

also be an indicator of poor care. 

Approximately 10 percent of stroke 

survivors will have a recurrent stroke 

within a year and one out of four stroke 

patients will be readmitted to the 

hospital.76 77 78 Moreover, stroke is one 

of the top 20 conditions contributing to 

Medicare costs.79 Finally, there is 

evidence of variation in outcomes at 

hospitals for stroke patients, supporting 

the finding that there are opportunities 

for improving care. The median 30-day 

risk-standardized readmission rate 

among Medicare FFS patients aged 65 or 

older hospitalized for stroke in 2007 

was 14.7 percent, and ranged from 11.6 

percent to 19.4 percent across 4,242 

hospitals.80

We are proposing to include this nonNQF-endorsed hospital 30-day, allcause risk-standardized rate of 

readmission following acute ischemic 

stroke measure in the Hospital IQR 

Program, under the exception authority 

in section 1886(b)(3)(B)(IX)(bb) of the 

Act as previously discussed in section 

IX.A.6. of the preamble to this proposed 

rule. Although the proposed measure is 

not currently NQF-endorsed or MAP 

supported, we considered other 

available measures that have been 

endorsed or adopted by a consensus 

organization, and found no other 

feasible and practical measures on this 

topic. We believe it is imperative to 

adopt this measure as it aims to address 

a prevalent and costly health problem in 

the nation. In addition, the measure 

aligns with our priority objectives to 

promote quality improvements leading 

to successful transition of care for 

patients from acute care to outpatient 

settings, and reduce short term, 

preventable readmission rates. 

We plan to implement this measure to 

encourage improvement of outcomes by 

providing patients, physicians, and 

hospitals with information about 

hospital-level, risk-standardized 

readmission rates following 

hospitalization for acute ischemic 

stroke. Studies have shown stroke 

readmission to be related to quality of 

care, and that improvements in care can 

reduce readmission rates.81 82 83

Moreover, by proposing an outcome 

measure, we intend to broaden the view 

of quality of care that encompasses more 

than what can be captured by merely 

measuring individual processes-of-care. 

Through outcome measures, we can 

capture complex and critical aspects of 

care, such as communication between 

providers, prevention of, and response 

to, complications, patient safety and 

coordinated transitions to the outpatient 

environment, all of which contribute to 

patient outcomes but are difficult to 

measure by individual process 

measures.84 85

The specifics of the measure 

methodology are included in the 

measure methodology report we have 

posted on our Web site at: http:// 

cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/ 

HospitalQualityInits/MeasureMethodology.html. We refer readers to 

the report for further details on the riskadjustment statistical model. 

(2) Overview of Measure 

The measure is a 30-day, all-cause 

risk-standardized rate of readmission 

following hospitalization for acute 

ischemic stroke to any non-federal acute 

care hospital. The measure includes 

Medicare FFS patients aged 65 or older 

admitted for an acute ischemic stroke 

and assesses if the patient was 

readmitted within 30 days of discharge. 

In general, the measure uses the same 

approach to risk-adjustment and HLM 

methodology that is specified for our 

inpatient outcome measures previously 

adopted for the Hospital IQR Program, 

including AMI, HF, and PN readmission 

and mortality measures. For a 

discussion of this methodology, we refer 

readers to our Web site at: http:// 

cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/ 

HospitalQualityInits/MeasureMethodology.html. 

Furthermore this measure, which is 

calculated using CMS claims or 

administrative data, is validated by 

comparing it to a medical record model 

in a matched cohort of admissions for 

which stroke medical record data and 

administrative claims data are available. 

(3) Data Sources 

The proposed measure is claimsbased and uses Medicare administrative 

data that contain hospitalizations for 

fee-for-service Medicare beneficiaries 

hospitalized with acute ischemic stroke. 

(4) Outcome 

The outcome for this measure is 30- 

day all-cause readmission defined as an 

unplanned subsequent inpatient 

admission to any acute care facility from 

any cause within 30 days of the 

admission date for the index 

hospitalization. A number of studies 

have demonstrated that improvements 

in care at the time of patient discharge 

can reduce 30-day readmission 

rates.86 87 88 It is a timeframe in which a 

readmission may reasonably be 

attributed to the hospital care and 

transitional period to a non-acute 

setting. 

The measure assesses all-cause 

unplanned readmission (excluding 

planned readmissions) rather than only 

stroke-specific readmissions for several 

reasons. First, from the patient 

perspective, readmission for any reason 

is likely to be an undesirable outcome 

of care, even though not all 

readmissions are preventable. Second, 

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27688 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

89Thom T, Haase N, Rosamond W, et al. Heart 

Disease and Stroke Statistics—2006 Update: A 

Report From the American Heart Association 

Statistics Committee and Stroke Statistics 

Subcommittee. Journal of the American Heart 

Association 2006:85–151. 

limiting the measure to stroke-related 

readmissions may limit the focus of 

efforts to improve care to a narrow set 

of approaches (such as processes that 

will prevent recurrent stroke) as 

opposed to encouraging broader 

initiatives aimed overall at improving 

the care within the hospital and 

transitions from the hospital setting. 

Moreover, it is often hard to exclude 

quality issues and accountability based 

on the documented cause of 

readmission, for instance, a patient who 

came back with pneumonia may have 

aspirated due to inadequate preventive 

measures and therefore we would not 

want to discount such a readmission. 

The measure does not count 

readmissions that are considered 

planned. Planned readmissions are 

identified in claims data using the CMS 

Planned Readmission Algorithm 

Version 2.1 which detects readmissions 

that are typically planned and may 

occur within 30 days of discharge from 

the hospital. For more information on 

the methodology used to identify 

planned readmissions, and the list of 

planned diagnoses and procedures used 

in the algorithm, please refer to on our 

Web site at: http://cms.gov/Medicare/ 

Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/ 

Measure-Methodology.html. The stroke 

readmission measure makes one 

modification to the planned 

readmissions algorithm as it does not 

consider readmissions as planned for 

patients who are readmitted for 

debridement of wound; infection or 

burn (AHRQ’s Clinical Classification 

Software procedure category 169). Such 

treatments are commonly provided for 

decubitus ulcers that can easily be 

unplanned readmissions following 

stroke care, because such ulcers can 

complicate a stroke. The algorithm 

includes planned readmissions for 

common related follow-up care for 

stroke patients (for example, carotid 

endarterectomy) as well as readmissions 

which are generally planned regardless 

of the original admission (for example, 

a stroke patient readmitted for 

cholecystectomy). Unplanned 

readmissions that fall within the 30-day 

post discharge timeframe from the index 

admission are not counted as outcomes 

for the index admission if they are 

preceded by a planned readmission. 

(5) Cohort 

The cohort of index hospital 

admissions included in the measure is 

restricted to hospitalizations for 

ischemic stroke. The measure is limited 

to ischemic stroke hospitalizations for 

several reasons. First, ischemic strokes 

are the most common type of stroke, 

accounting for the vast majority of 

stroke hospitalizations.89 Second, the 

etiology and prognosis of ischemic 

stroke is quite different than that of 

hemorrhagic stroke, so a combined 

cohort would be more heterogeneous. 

This heterogeneity could make it more 

difficult to account for a hospital’s 

patient mix and lead to a less fair 

measure. Similarly, patients with 

transient ischemic attacks (TIAs) are not 

included largely due to concerns about 

inconsistency in the use of 

administrative codes to define TIA and 

potential for inclusion of patients 

without cerebrovascular conditions. For 

detailed information on the cohort 

definition, we refer readers to the stroke 

readmission technical report on our 

Web site at: http://cms.gov/Medicare/ 

Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/ 

Measure-Methodology.html. 

(6) Inclusion and Exclusion Criteria 

The measure includes 

hospitalizations for patients 65 years or 

older at the time of index admission and 

for whom there was a complete 12 

months of FFS enrollment to allow for 

adequate risk-adjustment. The measure 

excludes the following admissions from 

the measure cohort: (1) Admissions for 

patients who die during the initial 

hospitalization because they are not 

eligible for readmission; (2) admissions 

for patients having a principal diagnosis 

of stroke during the index 

hospitalization and subsequently 

transferred to another acute care facility 

are excluded because the measure’s 

focus is on hospitals that discharge 

patients to a non-acute setting (for 

example, to home or a skilled nursing 

facility); (3) admissions for patients that 

are discharged against medical advice 

are excluded because providers did not 

have the opportunity to deliver full care 

and prepare the patient for discharge; 

(4) admissions for patients without at 

least 30-days post-discharge enrollment 

in Medicare FFS are excluded because 

the 30-day readmission outcome cannot 

be assessed in this group; and (5) 

additional stroke admissions for 

patients within 30 days of discharge 

from an index stroke admission will be 

considered readmissions and not 

additional index admissions. 

(7) Risk Adjustment 

The measure adjusts for differences 

across hospitals in how at risk their 

patients are for readmission relative to 

patients cared for by other hospitals. 

Consistent with NQF guidelines, the 

model does not adjust for 

socioeconomic status or race because 

risk-adjusting for these characteristics 

would hold hospitals with a large 

proportion of minority or low 

socioeconomic patients to a different 

standard of care than other hospitals. 

One goal of this measure is to illuminate 

quality differences that such riskadjustment would obscure. 

(8) Calculating the Risk Standardized 

Readmission Ratio (RSRR) 

The measure is calculated using HLM. 

This approach appropriately accounts 

for the types of patients a hospital treats 

(that is, hospital case mix), the number 

of patients it treats, and the quality of 

care it provides. HLM is an appropriate 

statistical approach to measuring quality 

based on patient outcomes when the 

patients are clustered within hospitals 

(and therefore the patients’ outcomes 

are not statistically independent) and 

the number of eligible patients for the 

measure varies from hospital to 

hospital. As noted above, the measure 

methodology defines hospital case mix 

based on the clinical diagnoses 

provided in the hospital claims for their 

patients’ inpatient and outpatient visits 

for the 12 months prior to the ischemic 

stroke hospitalization, as well as those 

present in the claims for care at 

admission. However, the methodology 

specifically does not account for 

diagnoses present in the index 

admission that may indicate 

complications rather than patient 

comorbidities. In addition, the measure 

takes into account situations where 

patients initially present at one ED but 

are then admitted to another hospital for 

their index stroke hospitalization. The 

measure includes a risk-adjustment 

factor to account for ED-transfer 

patients. 

The RSRR is calculated as the ratio of 

the number of predicted readmissions to 

the number of expected readmissions 

and then the ratio is multiplied by the 

national unadjusted readmission rate. 

The ratio is greater than one for 

hospitals that have more readmission 

that would be expected for an average 

hospital with similar cases and less than 

one if the hospital has fewer 

readmissions than would be expected 

for an average hospital with similar 

cases. This approach is analogous to a 

ratio of ‘‘observed’’ or ‘‘crude’’ rate to an 

‘‘expected’’ or risk-adjusted rate used in 

other similar types of statistical 

analyses. 

The RSRR is a point estimate—the 

best estimate of a hospital’s readmission 

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90American Heart Association, Heart Disease and 

Stroke Statistics—2012 Update. American Heart 

Association, Circulation 2012, 125:e2–e220. 

91Andrews RM. The National Hospital Bill: The 

Most Expensive Conditions by Payer, 2006. 

Rockville: Agency for Healthcare Research and 

Quality; 2008. 

92Bernheim S.M., Wang C., Wang Y., et al. 

Hospital 30-Day Mortality Following Acute 

Ischemic Stroke Hospitalization Measure: Report 

prepared for the Centers for Medicare & Medicaid 

Services. 2010; Available at: http:// 

www.qualitynet.org. 

93Fonarow GC, Reeves MJ, Zhao X, et al. AgeRelated Differences in Characteristics, Performance 

Measures, Treatment Trends, and Outcomes in 

Patients With Ischemic Stroke. Journal of the 

American Heart Association 2010;121:879–91. 

94Bravata DM, Wells CK, Lo AC, et al. Processes 

of Care Associated With Acute Stroke Outcomes. 

Archives of Internal Medicine 2010;170:804–10. 

95 Krumholz H, Normand S-L, Spertus JA, 

Shahian DM, Bradley EH. Measuring Performance 

for Treating Heart Attacks and Heart Failure: The 

Case for Outcomes Measurement. Health Affairs 

2007;26:75–85. 

96Bradley EH, Herrin J, Elbel B, et al. Hospital 

Quality for Acute Myocardial Infarction: Correlation 

Among Process Measures and Relationship With 

Short-term Mortality. The Journal of the American 

Medical Association 2006;296:72–8. 

rate based on the hospital’s case mix. 

For displaying the measure for the 

Hospital IQR Program, we computed an 

interval estimate, which is similar to the 

concept of a confidence interval, to 

characterize the level of uncertainty 

around the point estimate. We use the 

point estimate and interval estimate to 

determine hospital performance (for 

example, higher than expected, as 

expected, or lower than expected). For 

more detailed information on the 

calculation methodology, we refer 

readers to our Web site at: http:// 

cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/ 

HospitalQualityInits/MeasureMethodology.html. 

We are proposing to adopt this 

measure in the Hospital IQR Program for 

the FY 2016 payment determination and 

subsequent years under the exception 

authority in section 

1886(b)(3)(B)(IX)(bb) of the Act as 

previously discussed in section IX.A.6. 

of the preamble of this proposed rule. 

Although the proposed measure is not 

currently NQF-endorsed or MAP 

supported, we considered other 

available measures that have been 

endorsed or adopted by the NQF, and 

were unable to identify any other NQFendorsed measures that assess stroke 

readmission with a standard period of 

follow-up. We also are not aware of any 

other 30-day stroke readmission 

measures that have been endorsed or 

adopted by a consensus organization. 

The development of this measure went 

through the same rigorous development 

process as the other publicly reported 

outcomes measures and involved 

extensive input by stakeholders and 

clinical experts. It follows the same 

scientific approach to evaluate hospital 

performance as other Hospital IQR 

Program outcome measures. Finally, it 

has been validated with medical record 

measures and shown to produce similar 

hospital-level results. Accordingly, we 

are proposing to adopt the 30-day stroke 

readmission 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. 

d. Proposed Hospital 30-Day, All-Cause 

Risk-Standardized Rate of Mortality 

Following an Admission for Acute 

Ischemic Stroke (Stroke Mortality) 

Measure 

(1) Background 

Stroke is an important and common 

diagnosis among Medicare patients. 

Stroke affects approximately 795,000 

people each year in the U.S. with high 

rates of mortality and morbidity. Stroke 

is the fourth most common cause of 

death after heart disease, cancer, and 

chronic lower respiratory disease.90

Moreover, stroke is one of the top 20 

conditions contributing to Medicare 

costs.91 Finally, there is evidence of 

variation in outcomes at hospitals for 

stroke patients, supporting the finding 

that there are opportunities for 

improving care. The median 30-day 

risk-standardized mortality rate among 

Medicare FFS patients aged 65 or older 

hospitalized for stroke in 2007 was 15.3 

percent, and ranged from 10.7 percent to 

23.5 percent across 4,288 hospitals.92

We are proposing to include a nonNQF endorsed hospital 30-day, all-cause 

risk-standardized rate of mortality 

following an admission for acute 

ischemic stroke measure in the Hospital 

IQR Program, under the exception 

authority in section 

1886(b)(3)(B)(IX)(bb) of the Act as 

previously discussed in section IX.A.6. 

of the preamble of this proposed rule. 

Although the proposed measure is not 

currently NQF-endorsed or MAP 

supported, we considered other 

available measures that have been 

endorsed or adopted by a consensus 

organization, and found no other 

feasible and practical measures on this 

topic. We believe it is important to 

adopt this measure as it aims to address 

a prevalent and costly health problem in 

the nation. In addition, the measure 

aligns with our priority objectives to 

promote quality improvements leading 

to successful transition of care for 

patients from acute care to outpatient 

settings, and reducing short term, 

preventable mortality rates. 

We plan to implement this measure to 

encourage improvement of outcomes by 

providing patients, physicians, and 

hospitals with information about 

hospital-level, risk-standardized 

mortality rates following hospitalization 

for acute ischemic stroke. Studies have 

shown stroke mortality to be related to 

quality of care, and that there are 

effective interventions that hospitals can 

adopt to reduce mortality rates.93 94

Moreover, by proposing an outcome 

measure, we intend to broaden the view 

of quality of care that encompasses more 

than what can be captured by merely 

measuring individual processes-of-care. 

Through outcome measures, we can 

capture complex and critical aspects of 

care, such as communication between 

providers, prevention of, and response 

to, complications, patient safety and 

coordinated transitions to the outpatient 

environment, all of which contribute to 

patient outcomes, but are difficult to 

measure by individual process 

measures.95 96

The specifics of the measure 

methodology are included in the 

measure methodology report we have 

posted on our Web site at: http:// 

cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/ 

HospitalQualityInits/MeasureMethodology.html. We refer readers to 

the report for further details on the riskadjustment statistical model. 

(2) Overview of Measure 

The measure is a 30-day, all-cause 

risk-standardized rate of mortality after 

admission for acute ischemic stroke to 

any non-federal acute care hospital. The 

measure includes Medicare fee-forservice patients aged 65 or older 

admitted for an acute ischemic stroke 

and assesses if the patient died within 

30 days of admission. 

In general, the measure uses the same 

approach to risk-adjustment and HLM 

methodology that is specified for our 

inpatient outcome measures previously 

adopted for the Hospital IQR Program, 

including AMI, HF, and PN readmission 

and mortality measures. For a 

discussion of this methodology, we refer 

readers to our Web site at: http:// 

cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/ 

HospitalQualityInits/MeasureMethodology.html. 

Furthermore this measure, which is 

calculated using CMS claims or 

administrative data, is validated by 

comparing it to a medical record model 

in a matched cohort of admissions for 

which stroke medical record data and 

administrative claim data are available. 

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27690 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

97Saposnik G, Hill MD, O’Donnell M, Fang J, 

Hachinski V, Kapral MK. Variables Associated With 

7-Day, 30-Day, and 1-Year Fatality After Ischemic 

Stroke. Journal of the American Heart Association 

2008;39. 

98Counsell C, Dennis M, McDowall M, Warlow C. 

Predicting Outcome After Acute and Subacute 

Stroke: Development and Validation of New 

Prognostic Models Journal of the American Heart 

Association 2002:1041–7. 

99American Heart Association, Heart Disease and 

Stroke Statistics—2012 Update. American Heart 

Association, Circulation 2012, 125:e2–e220. 

(3) Data Sources 

The proposed measure is claimsbased and uses Medicare administrative 

data that contain hospitalizations for 

Medicare FFS beneficiaries hospitalized 

with acute ischemic stroke. 

(4) Outcome 

The outcome for this measure is 30- 

day all-cause mortality defined as a 

death from any cause within 30 days of 

the admission date for the index 

hospitalization. Thirty days is a 

standard time period used in other 

measures of stroke mortality.97 98 It is a 

timeframe in which a death may 

reasonably be attributed to the hospital 

care and transitional period to a nonacute setting. 

The measure assesses all-cause 

mortality as opposed to stroke-specific 

mortality for several reasons. First of all, 

limiting the measure to stroke-related 

mortalities may limit the focus of efforts 

to improve care to a narrow set of 

approaches (such as processes that will 

prevent recurrent stroke) as opposed to 

encouraging broader initiatives aimed at 

improving the overall care within the 

hospital. Second, cause of death may be 

unreliably recorded and it is often 

impossible to exclude quality issues and 

accountability based on the documented 

cause of mortality. For example, a stroke 

patient who develops a hospitalacquired infection may ultimately die 

from sepsis. It would be inappropriate 

to treat this mortality as unrelated to the 

care the patient received for stroke. 

Finally, from a patient perspective, 

death is the outcome that matters, 

regardless of cause. 

(5) Cohort 

The cohort of index hospital 

admissions included in the measure is 

restricted to hospitalizations for 

ischemic stroke. The measure is limited 

to ischemic stroke hospitalizations for a 

few reasons. First, ischemic strokes are 

the most common type of stroke, 

accounting for the vast majority of 

stroke hospitalizations.99 Second, the 

causes and prognosis of ischemic stroke 

are quite different than that of 

hemorrhagic stroke, so a combined 

cohort would be more heterogeneous. 

This heterogeneity could make it more 

difficult to account for a hospital’s 

patient mix and lead to a less fair 

measure. Similarly, patients with TIAs 

are not included largely due to concerns 

about inconsistency in the use of 

administrative codes to define TIA and 

potential for inclusion of patients 

without cerebrovascular conditions. For 

detailed information on the cohort 

definition please reference the stroke 

mortality technical report on our Web 

site at: http://cms.gov/Medicare/ 

Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/ 

Measure-Methodology.html. 

(6) Inclusion and Exclusion Criteria 

The measure includes 

hospitalizations for patients 65 years or 

older at the time of index admission and 

for whom there was a complete 12 

months of FFS enrollment to allow for 

adequate risk-adjustment. The measure 

excludes the following admissions from 

the measure cohort: (1) Admissions for 

patients having a principal diagnosis of 

stroke during the index hospitalization 

who were transferred from another 

acute care facility are excluded because 

the hospital where the patient was 

initially admitted made critical acute 

care decisions (including the decision to 

transfer and where to transfer); (2) 

admissions for patients enrolled in the 

Medicare Hospice program any time in 

the 12 months prior to the index 

hospitalization, including the first date 

of the index admission are excluded 

because it is likely that these patients 

are continuing to seek comfort care and 

their goal may not be survival; and (3) 

admissions for patients that are 

discharged alive and against medical 

advice are excluded because providers 

did not have the opportunity to deliver 

full care and prepare the patient for 

discharge. 

(7) Risk Adjustment 

The measure adjusts for differences 

across hospitals in how at risk their 

patients are for death relative to patients 

cared for by other hospitals. Consistent 

with NQF guidelines, the model does 

not adjust for socioeconomic status or 

race because risk-adjusting for these 

characteristics would hold hospitals 

with a large proportion of minority or 

low socioeconomic status patients to a 

different standard of care than other 

hospitals. One goal of this measure is to 

illuminate quality differences that such 

risk-adjustment would obscure. 

(8) Calculating the Risk Standardized 

Mortality Ratio (RSMR) 

The measure is calculated using 

hierarchical logistic modeling (HLM). 

This approach appropriately accounts 

for the types of patients a hospital treats 

(that is, hospital case mix), the number 

of patients it treats, and the quality of 

care it provides. The HLM is an 

appropriate statistical approach to 

measuring quality based on patient 

outcomes when the patients are 

clustered within hospitals (and 

therefore the patients’ outcomes are not 

statistically independent) and the 

number of eligible patients for the 

measure varies from hospital to 

hospital. As noted above, the measure 

methodology defines hospital case mix 

based on the clinical diagnoses 

provided in the hospital claims for their 

patients’ inpatient and outpatient visits 

for the 12 months prior to the stroke 

hospitalization, as well as those present 

in the claims for care at admission. 

However, the methodology specifically 

does not account for diagnoses present 

in the index admission that may 

indicate complications rather than 

patient comorbidities. In addition, the 

measure takes into account situations 

where patients initially present at one 

ED, are then admitted to another 

hospital for their index stroke 

hospitalization. The measure includes a 

risk-adjustment factor to account for EDtransfer patients. 

The RSMR is calculated as the ratio of 

the number of predicted deaths to the 

number of expected deaths and then the 

ratio is multiplied by the national 

unadjusted mortality rate. The ratio is 

greater than one for hospitals that have 

more deaths that would be expected for 

an average hospital with similar cases 

and less than one if the hospital has 

fewer deaths than would be expected for 

an average hospital with similar cases. 

This approach is analogous to a ratio of 

an ‘‘observed’’ or ‘‘crude’’ rate to an 

‘‘expected’’ or risk-adjusted rate used in 

other similar types of statistical 

analyses. 

The RSMR is a point estimate—the 

best estimate of a hospital’s mortality 

rate based on the hospital’s case mix. 

For displaying the measure for the 

Hospital IQR Program, we computed an 

interval estimate, which is similar to the 

concept of a confidence interval, to 

characterize the level of uncertainty 

around the point estimate. We use the 

point estimate and interval estimate to 

determine hospital performance (for 

example, higher than expected, as 

expected, or lower than expected). For 

more detailed information on the 

calculation methodology, we refer 

readers to our Web site at: http:// 

cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/ 

HospitalQualityInits/MeasureMethodology.html. 

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Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 27691 

100 Kim N., Bernheim S.M., Ott L.S., et al. 

Hospital-level, Risk-Standardized Payment 

Associated with a 30-Day Episode-of-Care for AMI: 

Report prepared for the Centers for Medicare & 

Medicaid Services. 2013; Available at: http:// 

www.qualitynet.org. 

We are proposing to adopt this 

measure in the Hospital IQR Program for 

the FY 2016 payment determination and 

subsequent years under the exception 

authority in section 

1886(b)(3)(B)(IX)(bb) of the Act as 

previously discussed in section IX.A.6. 

of the preamble of this proposed rule. 

Although the proposed measure is not 

currently NQF-endorsed or MAP 

supported, we considered other 

available measures that have been 

endorsed or adopted by the NQF, and 

were unable to identify any other NQFendorsed measures that assess stroke 

mortality with a standard period of 

follow-up. We also are not aware of any 

other 30-day stroke mortality measures 

that have been endorsed or adopted by 

a consensus organization. The 

development of this measure went 

through the same rigorous development 

process as the other publicly reported 

outcomes measures and involved 

extensive input by stakeholders and 

clinical experts. It follows the same 

scientific approach to evaluate hospital 

performance as other Hospital IQR 

outcome measures. Finally, it has been 

validated with medical record measures 

and shown to produce similar hospitallevel results. Accordingly, we are 

proposing to adopt the 30-day stroke 

mortality 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. 

e. Proposed Hospital Risk-Standardized 

Payment Associated With a 30-day 

Episode-of-Care for Acute Myocardial 

Infarction (AMI) Measure 

(1) Background 

Providing high-value care is an 

essential part of our mission to provide 

better health care for individuals, better 

health for populations, and lower costs 

for health care. In order to incentivize 

innovation that promotes high-quality 

care at high value it is critical to 

examine measures of payment and 

patient outcomes concurrently. There is 

evidence of variation in payments at 

hospitals for AMI patients; mean 30-day 

risk-standardized payment among 

Medicare FFS patients aged 65 or older 

hospitalized for AMI in 2008 was 

$20,207, and ranged from $15,521 to 

$27,317 across 1,846 hospitals.100

However, high or low payments to 

hospitals are difficult to interpret in 

isolation. Some high payment hospitals 

may have better clinical outcomes when 

compared with low payment hospitals 

while other high payment hospitals may 

not have better outcomes. For this 

reason, the value of hospital care is 

more clearly assessed when pairing 

hospital payments with hospital quality. 

Therefore, we are proposing to include 

a non-NQF-endorsed measure: hospital 

risk-standardized payment associated 

with a 30-day episode-of-care for acute 

myocardial infarction (AMI) in the 

Hospital IQR Program under the 

exception authority in section 

1886(b)(3)(B)(IX)(bb) of the Act as 

previously discussed in section IX.A.6. 

of the preamble of this proposed rule. 

Although the proposed measure is not 

currently NQF-endorsed, we considered 

other available measures that have been 

endorsed or adopted by a consensus 

organization, and found no other 

feasible and practical measures on this 

topic. The MAP supports this measure 

contingent on NQF-endorsement. 

We believe it is important to adopt 

this measure as it is aligned with our 30- 

day AMI mortality measure and can also 

be paired with our 30-day AMI 

readmission measure. This would 

facilitate assessing hospital value, 

because including this measure in the 

Hospital IQR Program and publicly 

reporting it on Hospital Compare will 

allow stakeholders to assess information 

about a hospital’s quality and cost of 

care for AMI. The measure reflects 

differences in the management of care 

for patients with AMI both during 

hospitalization and immediately postdischarge. AMI is a condition with 

substantial variation in costs of care 

and, therefore, is an ideal condition for 

assessing relative value for an episodeof-care that begins with an acute 

hospitalization. By focusing on one 

specific condition, value assessments 

may provide actionable feedback to 

hospitals and incentivize targeted 

improvements in care. 

(2) Rationale for Examining Payments 

for a 30-Day Episode-of-Care 

When examining variation in 

payments, consideration of the episodeof-care triggered by admission is 

meaningful for several reasons. First, 

hospitalizations represent a brief period 

of illness that requires ongoing 

management post-discharge and 

decisions made at the admitting hospital 

affect payments for care in the 

immediate post-discharge period. 

Second, attributing payments for a 

continuous episode-of-care to admitting 

hospitals may reveal practice variations 

in the full care of the illness that can 

result in increased payments. Third, a 

30-day preset window provides a 

standard observation period by which to 

compare all hospitals. Lastly, the AMI 

payment measure is intended to be 

paired with our 30-day AMI mortality 

and readmission measures and capture 

payments for Medicare patients across 

all care settings, services, and supplies, 

except for Medicare Part D (that is, 

inpatient, outpatient, skilled nursing 

facility, home health, hospice, 

physician/clinical laboratory/ambulance 

services, supplier Part B items, and 

durable medical equipment, prosthetics/ 

orthotics, and supplies). 

We have posted the measure 

methodology report on our Web site at: 

http://cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/ 

Measure-Methodology.html. We refer 

readers to the report for further details 

on the risk adjustment statistical model 

as well as the model results. 

(3) Overview of the Measure 

The AMI payment measure assesses 

hospital risk-standardized payment 

associated with a 30-day episode-of-care 

for AMI for any non-federal acute care 

hospital. The measure includes 

Medicare FFS patients aged 65 or older 

admitted for an AMI and calculates 

payments for these patients over a 30- 

day episode-of-care beginning with the 

index admission. In general, the 

measure uses the same approach to riskadjustment as our 30-day outcome 

measures previously adopted for the 

Hospital IQR Program, including the 

AMI, HF, and PN readmission and 

mortality measures. We refer readers to 

our Web site at: http://cms.gov/ 

Medicare/Quality-Initiatives-PatientAssessment-Instruments/ 

HospitalQualityInits/MeasureMethodology.html. 

(4) Data Sources 

The proposed measure is claimsbased and uses Medicare administrative 

data that contain hospitalizations and 

payments for Medicare FFS 

beneficiaries hospitalized with AMI. 

(5) Outcome 

The primary outcome of the AMI 

payment measure is the hospital-level 

risk-standardized payment for an AMI 

episode-of-care. The measure captures 

payments for Medicare patients across 

all care settings, services, and supplies, 

except Part D. By risk-standardizing the 

payment measure, we are able to adjust 

for case-mix at any given hospital and 

compare a specific hospital’s AMI 

payment to other hospitals with the 

same case-mix. The analytic time frame 

for the AMI payment measure begins 

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27692 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

with the index admission for AMI and 

ends 30 days post-admission. 

In order to isolate payment variation 

that reflects practice patterns rather than 

CMS payment adjustments, the AMI 

payment measure excludes policy and 

geography payment adjustments 

unrelated to clinical care decisions. We 

achieve this by ‘‘stripping’’ or 

‘‘standardizing’’ payments for each care 

setting. Stripping refers to removing 

geographic differences and policy 

adjustments in payment rates for 

individual services from the total 

payment for that service. Standardizing 

refers to averaging payments across 

geographic areas for those services 

where geographic differences in 

payment cannot be stripped. Stripping 

and standardizing the payment amounts 

allows for a fair comparison across 

hospitals based solely on payments for 

decisions related to clinical care of AMI. 

(6) Cohort 

We created the AMI payment measure 

cohort to be aligned with the publicly 

reported AMI mortality measure cohort. 

Consistent with these measures, the 

AMI payment measure includes 

hospitalizations with a principal 

hospital discharge diagnosis of AMI 

using the International Classification of 

Diseases, Ninth revision, Clinical 

Modification. A full list of ICD–9–CM 

codes included in the final cohort can 

be found in Appendix B of the technical 

report on our Web site at: http:// 

cms.gov/Medicare/Quality-InitiativesPatient-Assessment-Instruments/ 

HospitalQualityInits/MeasureMethodology.html. An index 

hospitalization is the initial AMI 

admission that triggers the 30-day 

episode-of-care for this payment 

calculation. The measure includes only 

those hospitalizations from short-stay 

acute care hospitals in the index cohort 

and restricts the cohort to patients 

enrolled in FFS Medicare Parts A and B 

(with no Medicare Advantage coverage). 

(7) Inclusion and Exclusion Criteria 

The AMI payment measure includes 

hospitalizations for patients 65 years or 

older at the time of index admission and 

for whom there was a complete 12 

months of FFS enrollment to allow for 

adequate risk adjustment. The measure 

excludes the following admissions from 

the measure cohort: (1) Admissions for 

patients with fewer than 30 days of 

post-admission enrollment in Medicare 

because this is necessary in order to 

identify the outcome (payments) in the 

sample over the analytic period; (2) 

admissions for patients having a 

principal diagnosis of AMI during the 

index hospitalization who were 

transferred from another acute care 

facility are excluded, because the 

hospital where the patient was initially 

admitted made the critical acute care 

decisions (including the decision to 

transfer and where to transfer); (3) 

admissions for AMI patients who were 

discharged on the same or next day as 

the index admission and did not die or 

get transferred are excluded, because it 

is unlikely these patients suffered a 

clinically significant AMI; (4) 

admissions for patients enrolled in the 

Medicare Hospice program any time in 

the 12 months prior to the index 

hospitalization, including the first date 

of the index admission are excluded, 

because it is likely that these patients 

are continuing to seek comfort care and 

their goal may not be survival; (5) 

admissions for patients who are 

discharged alive and against medical 

advice are excluded because providers 

did not have the opportunity to deliver 

full care and prepare the patient for 

discharge; (6) admissions for patients 

transferred to or from federal or 

Veterans Administration hospitals are 

excluded, because we do not have 

claims data for these hospitals; thus, 

including these patients would 

systematically underestimate payments; 

and (7) admissions without a DRG or 

DRG weight for the index 

hospitalization are excluded, because 

we cannot calculate a payment for these 

patients’ index admission using the 

IPPS; this would underestimate 

payments for the entire episode-of-care. 

(8) Risk Adjustment 

The measure adjusts for differences 

across hospitals in how payments are 

affected by patient comorbidities 

relative to patients cared for by other 

hospitals. Consistent with NQF 

guidelines, the model does not adjust 

for socioeconomic status or race, 

because risk-adjusting for these 

characteristics would hold hospitals 

with a large proportion of minority or 

low socioeconomic status patients to a 

different standard of care than other 

hospitals. One goal of this measure is to 

illuminate quality differences that such 

risk-adjustment would obscure. 

(9) Calculating the Risk Standardized 

Payment (RSP) 

The measure is calculated using 

hierarchical generalized linear statistical 

models with a log link and an inverse 

Gaussian error distribution. This 

approach appropriately models a 

positive, continuous, right-skewed 

outcome like payment and also accounts 

for the types of patients a hospital treats 

(that is, hospital case mix), the number 

of patients it treats, and the quality of 

care it provides. The hierarchical 

generalized linear model is an 

appropriate statistical approach to 

measuring quality based on patient 

outcomes when the patients are 

clustered within hospitals (and 

therefore the patients’ outcomes are not 

statistically independent) and sample 

sizes vary across hospitals. As noted 

above, the measure methodology defines 

hospital case mix based on the clinical 

diagnoses provided in the hospital 

claims for their patients’ inpatient and 

outpatient visits for the 12 months prior 

to the AMI hospitalization, as well as 

those present in the claims for care at 

admission. This methodology 

specifically does not, however, account 

for diagnoses present in the index 

admission that may indicate 

complications rather than patient 

comorbidities. 

The RSP is calculated as the ratio of 

predicted payments to expected 

payments and then the ratio is 

multiplied by the national unadjusted 

average payment for an episode-of-care. 

The ratio is greater than one for 

hospitals that have higher payments 

than would be expected for an average 

hospital with similar cases and less than 

one if the hospital has lower payments 

than would be expected for an average 

hospital with similar cases. This 

approach is analogous to a ratio of 

‘‘observed’’ or ‘‘crude’’ rate to an 

‘‘expected’’ or ‘‘risk-adjusted’’ rate used 

in other similar types of statistical 

analyses. 

The RSP is a point estimate—the best 

estimate of a hospital’s payment based 

on the hospital’s case mix. For 

displaying the measure for the Hospital 

IQR Program, we computed an interval 

estimate, which is similar to the concept 

of a confidence interval, to characterize 

the level of uncertainty around the point 

estimate, we use the point estimate and 

interval estimate to determine hospital 

performance (for example, higher than 

expected, as expected, or lower than 

expected). For more detailed 

information on the calculation 

methodology, we refer readers to our 

Web site at: http://cms.gov/Medicare/ 

Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/ 

Measure-Methodology.html. 

We are proposing to adopt the AMI 

payment measure in the Hospital IQR 

Program for the FY 2016 payment 

determination and subsequent years 

under the exception authority in section 

1886(b)(3)(B)(IX)(bb) of the Act as 

previously discussed in section IX.A.6. 

of the preamble of this proposed rule. 

Although the proposed measure is not 

currently NQF-endorsed, we considered 

available measures that have been 

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endorsed or adopted by the NQF, and 

we were unable to identify any 

measures that assess hospital riskstandardized payment associated with a 

30-day episode-of-care for acute 

myocardial infarction. We also are not 

aware of any other 30-day episode-ofcare for acute myocardial infarction 

measures that have been endorsed or 

adopted by a consensus organization. 

This measure is meant to be paired 

with our 30-day AMI mortality and/or 

readmission measure in order for us to 

gain a better understanding of the value 

of care for a hospital’s patients and the 

nation as a whole. We invite public 

comment on this proposal. 

Set out below is a table showing both 

the previously adopted and proposed 

new quality measures for the FY 2016 

payment determination and subsequent 

years. This table does not include 

suspended measures and measures 

proposed for removal. 

Topic Previously adopted and proposed hospital IQR program measures for the FY 2016 payment determination and subsequent 

years 

Acute Myocardial Infarction (AMI) Measures 

• AMI–7a Fibrinolytic (thrombolytic) agent received within 30 minutes of hospital arrival 

• AMI–8a Timing of Receipt of Primary Percutaneous Coronary Intervention (PCI) 

Heart Failure (HF) Measures 

• HF–2 Evaluation of left ventricular systolic function 

Stroke Measure (STK) Set 

• STK–1 VTE prophylaxis 

• STK–2 Antithrombotic therapy for ischemic stroke† 

• STK–3 Anticoagulation therapy for Afib/flutter† 

• STK–4 Thrombolytic therapy for acute ischemic stroke† 

• STK–5 Antithrombotic therapy by the end of hospital day 2† 

• STK–6 Discharged on Statin† 

• STK–8 Stroke education† 

• STK–10 Assessed for rehab† 

VTE Measure Set 

• VTE–1 VTE prophylaxis† 

• VTE–2 ICU VTE prophylaxis† 

• VTE–3 VTE patients with anticoagulation overlap therapy† 

• VTE–4 Patients receiving un-fractionated Heparin with doses/labs monitored by protocol† 

• VTE–5 VTE discharge instructions† 

• VTE–6 Incidence of potentially preventable VTE† 

Pneumonia (PN) Measures 

• PN–6 Appropriate initial antibiotic selection 

Surgical Care Improvement Project (SCIP) Measures 

• SCIP INF–1 Prophylactic antibiotic received within 1 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 (48 hours for cardiac surgery) 

• 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 with day of surgery being day zero 

• SCIP Cardiovascular-2: Surgery Patients on a Beta Blocker prior to arrival who received a Beta Blocker during the 

perioperative period 

• SCIP–VTE-2: Surgery patients who received appropriate VTE prophylaxis within 24 hours pre/post surgery 

Mortality Measures (Medicare Patients) 

• Acute Myocardial Infarction (AMI) 30-day mortality rate 

• Heart Failure (HF) 30-day mortality rate 

• Pneumonia (PN) 30-day mortality rate 

• Stroke 30-day mortality rate*** 

• COPD 30-day mortality rate*** 

Patients’ Experience of Care Measures 

• HCAHPS survey (expanded to include one 3-item care transition set* and two new ‘‘About You’’ items)* 

Readmission Measures (Medicare Patients) 

• Acute Myocardial Infarction (AMI) 30-day Risk Standardized Readmission Measure 

• Heart Failure (HF) 30-day Risk Standardized Readmission Measure 

• Pneumonia (PN) 30-day Risk Standardized Readmission Measure 

• 30-day Risk Standardized Readmission following Total Hip/Total Knee Arthroplasty* 

• Hospital-Wide All-Cause Unplanned Readmission (HWR)* 

• Stroke 30-day Risk Standardized Readmission*** 

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Topic Previously adopted and proposed hospital IQR program measures for the FY 2016 payment determination and subsequent 

years 

• COPD 30-day Risk Standardized Readmission*** 

AHRQ Patient Safety Indicators (PSIs) Composite Measures 

• Complication/patient safety for selected indicators (composite) 

AHRQ PSI and Nursing Sensitive Care 

• PSI–4 Death among surgical inpatients with serious treatable complications 

Structural Measures 

• Participation in a Systematic Database for Cardiac Surgery 

• Participation in a Systematic Clinical Database Registry for Nursing Sensitive Care 

• Participation in a Systematic Clinical Database Registry for General Surgery 

• Safe Surgery Checklist Use** 

Healthcare-Associated Infections Measures 

• Central Line Associated Bloodstream Infection 

• Surgical Site Infection 

—SSI following Colon Surgery 

—SSI following Abdominal Hysterectomy 

• Catheter-Associated Urinary Tract Infection 

• MRSA Bacteremia 

• Clostridium difficile (C. difficile) 

• Healthcare Personnel Influenza Vaccination 

Surgical Complications 

• Hip/Knee Complication: Hospital-level Risk-Standardized Complication Rate (RSCR) following Elective Primary Total Hip 

Arthroplasty* 

Emergency Department (ED) Throughput Measures 

• ED–1 Median time from emergency department arrival to time of departure from the emergency room for patients admitted to 

the hospital† 

• 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 (IMM) Measures 

• Immunization for Influenza 

Cost Efficiency 

• Medicare Spending per Beneficiary 

• AMI Payment per Episode of Care*** 

Perinatal Care 

• Elective delivery prior to 39 completed weeks of gestation*/† 

* New or expanded measures/items for FY 2015 payment determination and subsequent years. 

** New measures for FY 2016 payment determination and subsequent years. 

*** Proposed measures for FY 2016 payment determination and subsequent years. 

† Proposed measure for electronic reporting via CEHRT in the Hospital IQR Program (voluntary participation in CY 2014). 

7. Electronic Clinical Quality Measures 

We believe that collection and 

reporting of data through health 

information technology will greatly 

simplify and streamline reporting for 

many CMS quality reporting programs. 

Through electronic reporting, hospitals 

will be able to leverage EHRs to capture, 

calculate, and electronically submit 

quality data that is currently manually 

chart-abstracted and submitted to CMS 

for the Hospital IQR Program. As we 

noted in the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51614), we recognize 

the need to align and harmonize 

measures across hospital quality 

reporting programs to minimize the 

reporting burden imposed on hospitals. 

In the Medicare EHR Incentive Program 

Stage 2 final rule (77 FR54083 through 

54087), we finalized 29 clinical quality 

measures from which hospitals must 

select a total of 16 measures covering at 

least three domains to report beginning 

in FY 2014. We anticipate that, as health 

information technology evolves and 

infrastructure is expanded, we will have 

the capacity to accept electronic 

reporting of many of the chartabstracted measures that are currently 

part of the Hospital IQR Program. 

Recently, we published in the Federal 

Register (78 FR 308 through 310) a 

Request for Information (RFI) entitled, 

‘‘Medicare Program; Request for 

Information on Hospital and Vendor 

Readiness for Electronic Health Records 

Hospital Inpatient Quality Data 

Reporting’’ to gather stakeholder 

feedback to determine the optimal 

timing and transition strategy for 

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adopting electronic reporting of quality 

measures by hospitals participating in 

the Hospital IQR Program. The 

information sent in response to the RFI 

was considered as the proposals set 

forth below were developed. We are 

proposing an approach that begins to 

align the Hospital IQR and Medicare 

EHR Incentive Programs by providing 

hospitals currently participating in the 

Hospital IQR Program with the option of 

electronically reporting a subset of 

measures. 

We are proposing that hospitals 

would be able to, on a voluntary basis, 

electronically report 16 measures across 

four measure sets, (stroke [STK], venous 

thromboembolism [VTE], emergency 

department [ED] and perinatal care [PC]) 

in CY 2014 for the FY 2016 Hospital 

IQR Program payment determination. 

These four measure sets are also already 

included in the Hospital IQR Program as 

chart-abstracted measures. The 

measures in three of these four measure 

sets—STK, VTE, ED—(15 measures) are 

already included in the Medicare EHR 

Incentive Program Electronic Reporting 

Pilot for Eligible Hospitals and CAHs 

(76 FR 74489). With regard to the 

measure set perinatal care (PC), we 

stated in the 2013 IPPS/LTCH PPS final 

rule that we would consider electronic 

reporting when the e-specification of the 

PC–01 measure became available. The 

electronic specifications for these 

measures are included in the electronic 

clinical quality measure library at: 

http://www.cms.gov/Regulations-andGuidance/Legislation/ 

EHRIncentivePrograms/ 

eCQM_Library.html. We recognize that 

PC–01 is a highly burdensome measure 

for hospitals to report via chart 

abstraction. Also, we do not believe that 

the measures, in their electronically 

specified form, are substantively 

different than they are in their chartabstracted form, although we recognize 

that the EHR-based extraction 

methodology is different from the chart 

abstraction data collection methodology. 

We considered proposing to require 

hospitals to electronically report either 

a greater or lesser number of Hospital 

IQR quality measures. Based on the RFI 

comments, we grew concerned that 

hospitals, vendors and other 

stakeholders might not be able to 

comply with a requirement to report 

certain quality measures electronically 

in CY 2014. As a result, we are 

proposing to make electronic reporting 

voluntary in CY 2014. We strongly 

encourage participation in voluntary 

electronic reporting during CY 2014 to 

prepare for required electronic reporting 

that we intend to propose for certain 

measures beginning in CY 2015. The 

proposed requirements for electronic 

reporting are discussed below in section 

IX.A.9.d.of the preamble of this 

proposed rule. We invite public 

comment on this proposal. 

8. Possible New Quality Measures and 

Measure Topics for Future Years 

We anticipate that, as EHR technology 

evolves, hospitals will electronically 

report all chart-abstracted clinical 

process of care and HAI measures which 

are currently part of the Hospital IQR 

Program or which have been proposed 

for adoption into the Program. As stated 

above, we intend for the future direction 

of electronic quality measure reporting 

to significantly reduce administrative 

burden on hospitals under the Hospital 

IQR Program. We will continue to work 

with measure stewards and developers 

to develop new measure concepts, and 

conduct pilot, reliability and validity 

testing. We believe that this proposal 

will provide hospitals and CMS with 

the ability to test systems in CY 2014 in 

order to prepare for required electronic 

reporting that we intend to propose for 

CY 2015. We believe this will simplify 

measure collection and submission for 

the Hospital IQR Program, and will 

reduce the burden on hospitals to report 

chart-abstracted measures. 

We intend to propose that hospitals 

report additional electronic measures in 

an effort to reduce the burden associated 

with reporting chart abstracted 

measures and to continue to promote 

the adoption of CEHRT. 

We are inviting public comment on 

our intention to add 5 new measures to 

be collected via EHRs in the future. The 

five new measures listed below were 

reviewed by the MAP for inclusion in 

the Hospital IQR Program: 

• Severe Sepsis and Septic Shock 

Management Bundle NQF #0500 (MAP 

supported) 

• PC–02 Cesarean Section NQF #0471 

(MAP supported) 

• PC–05 Exclusive Breast Milk 

Feeding NQF #0480 (MAP supported) 

• Healthy Term Newborn NQF #0716 

(MAP supported the direction of this 

measure) 

• Hearing Screening Prior to Hospital 

Discharge NQF #1354 (MAP supported). 

9. Form, Manner, and Timing of Quality 

Data Submission 

a. Background 

Sections 1886(b)(3)(B)(viii)(I) and (II) 

of the Act state that the applicable 

percentage increase for FY 2007 and 

each subsequent fiscal year shall be 

reduced by 2.0 percentage points (or 

beginning with FY 2015, by one-quarter 

of such applicable percentage increase 

(determined without regard to sections 

1886(b)(3)(B)(ix), (xi), or (xii) of the 

Act)) for any subsection (d) hospital that 

does not submit, to the Secretary in 

accordance with this clause and in a 

form and manner, and at a time, 

specified by the Secretary, data required 

to be submitted on measures selected 

under this clause with respect to such 

a fiscal year. For each Hospital IQR 

Program year, we require that hospitals 

submit data on each measure in 

accordance with the measure’s 

specifications for a particular period of 

time. The data submission 

requirements, Specifications Manual, 

and submission deadlines are posted on 

the QualityNet Web site at: http:// 

www.QualityNet.org/. Hospitals submit 

quality data through the secure portion 

of the QualityNet (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. Procedural Requirements for the FY 

2016 Payment Determination and 

Subsequent Years 

The Hospital IQR Program procedural 

requirements are now codified in 

regulation at 42 CFR § 412.140. 

Hospitals should generally refer to the 

regulation for participation 

requirements. We are, however, 

proposing to make three changes to the 

procedural requirements in this 

proposed rule. 

We are proposing to align the last date 

to withdraw with the final submission 

deadline. The current withdrawal 

deadline is August 15 of the fiscal year 

preceding the fiscal year for which a 

Hospital IQR Program payment 

determination will be made. We are 

proposing to change that deadline to 

May 15 prior to the start of the payment 

year affected in order to align with the 

last submission quarter deadline. For 

example, if a hospital wanted to 

withdraw from the program for the FY 

2016 payment determination, the 

hospital would need to complete the 

withdrawal by May 15, 2015. We are 

proposing to amend the language at 42 

CFR § 412.140(b) to reflect this proposal. 

We are proposing this change because 

we are striving to provide more timely 

feedback to hospitals regarding their 

annual payment update (APU) status. 

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We do not believe this change would 

add any additional burden to hospitals 

and it would provide CMS the ability to 

make earlier participation decisions. We 

invite public comment on this proposal. 

In addition, we are proposing two 

technical corrections to the regulation 

text at 42 CFR § 412.140. The first 

correction is to the title of this section. 

The current title is ‘‘Participation, Data 

Submission, and Validation 

Requirements under the Hospital 

Inpatient Quality Review (IQR) 

Program.’’ This should state 

‘‘Participation, Data Submission, and 

Validation Requirements Under the 

Hospital Inpatient Quality Reporting 

(IQR) Program.’’ The second technical 

correction is at paragraph (a)(3) which 

states: ‘‘Submit a completed Notice of 

Participation Form to CMS if the 

hospital is participating in the program 

for the first time, has previously 

withdrawn from the program and would 

like to participate again, or has received 

a new CMS Certification Number 

(CNN).’’ We are proposing to correct the 

acronym ‘‘CNN’’ to ‘‘CCN’’. The 

proposed language would state: ‘‘Submit 

a completed Notice of Participation 

Form to CMS if the hospital is 

participating in the program for the first 

time, has previously withdrawn from 

the program and would like to 

participate again, or has received a new 

CMS Certification Number (CCN).’’ 

c. Proposed Data Submission 

Requirements for Chart-Abstracted 

Measures 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53536 through 53537), for 

the FY 2015 payment determination and 

subsequent years, we retained the 41⁄2

months quarterly submission deadline 

for chart-abstracted quality measures. 

We also retained 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 nonMedicare discharges for the topic areas 

for which chart-abstracted data must be 

submitted (76 FR 51640 through 51641). 

We adopted the same 14-day period 

after the aggregate population and 

sample size count deadline to submit 

the required patient-level records. For 

the FY 2016 payment determination and 

subsequent years, hospitals must submit 

data for four consecutive calendar year 

discharge quarters. For example, for the 

FY 2016 payment determination, the 

submission quarters are as follows: 1Q 

CY 2014, 2Q CY 2014, 3Q CY 2014 and 

4Q CY 2014. We also adopted this 

submission deadline for the new chartabstracted measure for FY 2016, Elective 

Delivery Prior to 39 Completed Weeks 

Gestation: Percentage of Babies 

Electively Delivered Prior to 39 

Completed Weeks Gestation which is 

collected via a Web Based Tool. 

For the FY 2016 payment 

determination and subsequent years, we 

are proposing to clarify the submission 

deadline time. Although we have 

historically stated that the submission 

deadline is 11:59 p.m., we have not 

clarified which time zone. For the FY 

2016 payment determination and 

subsequent years we are proposing to 

clarify that submissions to QualityNet 

will be accepted until 11:59 p.m. Pacific 

time. We invite public comment on this 

proposal. 

d. Proposed Data Submission 

Requirements for Quality Measures That 

May be Voluntarily Electronically 

Reported for the FY 2016 Payment 

Determination 

We are proposing the following 

approach to begin to align quality 

measure reporting under the Hospital 

IQR and Medicare EHR Incentive 

Programs. (We note that this proposal 

does not implement any statutory 

provisions of the HITECH Act or change 

any of the existing regulatory provisions 

of the Medicare EHR Incentive Program, 

which are the subject of section IX.E of 

the preamble of this proposed rule, 

separate rulemaking and public 

comment.) Under the Hospital IQR 

Program, for the FY 2016 payment 

determination, hospitals may choose to 

either (1) electronically report at least 

one quarter of CY 2014 quality measure 

data for each measure in each of four 

Hospital IQR measure sets (STK, VTE, 

ED and PC), or (2) to continue reporting 

all of these measures using chartabstracted data for all four quarters of 

CY 2014. If a hospital chooses to 

electronically report the four measure 

sets, all of the quality measures in those 

four measure sets must be electronically 

reported for the same reporting 

quarter(s) although, as stated above, the 

hospital may choose which quarter(s) to 

report. 

We strongly recommend hospitals 

electronically report the 16 measures in 

these four measure sets in CY 2014, to 

provide hospitals and CMS with the 

ability to test systems and adjust 

workflow in CY 2014 in order to prepare 

for required electronic reporting that we 

intend to propose for CY 2015 in the 

Hospital IQR Program. We believe this 

will simplify quality reporting and 

submission for the Hospital IQR 

Program, and will reduce the reporting 

burden on hospitals. To further 

incentivize hospitals to choose this 

option, we also intend to use the 

electronically reported data to 

determine whether the hospital has 

satisfied the Medicare EHR Incentive 

Program clinical quality measure 

reporting requirement. The hospital 

must also satisfy all other requirements 

for the Medicare EHR Incentive 

Program. 

We are proposing different Hospital 

IQR Program data submission deadlines 

for each quarter depending on whether 

the hospital is submitting the data solely 

for the Hospital IQR Program (that is, if 

the hospital does not want the data to 

be used to determine whether the 

hospital has satisfied the Medicare EHR 

Incentive Program clinical quality 

measure reporting requirement) or 

whether the hospital wishes to satisfy 

the requirements of both programs. 

If a hospital chooses to report the four 

measure sets electronically for the 

Hospital IQR Program, but does not 

want the data to be used to determine 

whether the hospital has satisfied the 

Medicare EHR Incentive Program 

clinical quality measure reporting 

requirement, the reporting periods and 

deadlines are as follows: 

FY 2016 HOSPITAL IQR PROGRAM CHART-ABSTRACTED MEASURE REPORTING PERIODS AND DEADLINES

Discharge reporting periods Submission 

deadlines 

January 1, 2014–March 31, 2014 .............................................................................................................................................. August 15, 2014. 

April 1, 2014–June 30, 2014 ...................................................................................................................................................... November 15, 2014. 

July 1, 2014–September 30, 2014 ............................................................................................................................................. February 15, 2015. 

October 1, 2014–December 31, 2014 ....................................................................................................................................... May 15, 2015. 

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101We refer readers to Tables 5 and 6 at 77 FR 

54051. 

However, if the hospital does want us 

to use the electronically reported data to 

also determine whether the hospital has 

satisfied the Medicare EHR Incentive 

Program clinical quality measure 

reporting requirement, we are proposing 

to modify this data submission schedule 

to align the reporting periods and 

deadlines for the Hospital IQR and 

Medicare EHR Incentive Programs. 

Specifically, we are proposing that if a 

hospital wants us to also use the 

electronically reported data to 

determine whether the hospital has 

satisfied the Medicare EHR Incentive 

Program clinical quality measure 

reporting requirement, the Medicare 

EHR Incentive Program reporting 

periods and deadlines could be used to 

satisfy the Hospital IQR Program 

requirements. The Medicare EHR 

Incentive Program clinical quality 

measure reporting follows the Federal 

fiscal year while the Hospital IQR 

Program follows the calendar year. The 

table below lists the FY 2014 Medicare 

EHR Incentive Program reporting 

periods and submission deadlines. 

MEDICARE EHR INCENTIVE PROGRAM REPORTING PERIODS AND DEADLINES FY 2014 101

Reporting periods Submission 

deadlines 

For eligible hospitals in their first year of the Medicare EHR Incentive Program—Any 90 consecutive days in FY 2014 

prior to July 1, 2014.

July 1, 2014. 

For eligible hospitals that are beyond their first year of the Medicare EHR Incentive Program reporting electronically—Any 

FY 2014 quarter, or the entire FY 2014 (October 1, 2013—September 30, 2014).

November 30, 2014. 

We note that the submission deadline 

is November 30, 2014 for hospitals that 

are beyond their first year of the 

Medicare EHR Incentive Program. 

Accordingly, if such a hospital chooses 

to electronically report 3Q CY 2014 data 

under the Hospital IQR Program, it 

would need to submit the data by 

November 30, 2014 (not February 15, 

2015) for us to also use that data to 

determine whether the hospital has 

satisfied its Medicare EHR Incentive 

Program clinical quality measurement 

requirement. In addition, as noted 

above, the hospital must satisfy all other 

program requirements established for 

the Medicare EHR Incentive Program. 

We also note that because of the 

difference in reporting deadlines, we 

will not be able to use 4Q 2014 

electronically submitted Hospital IQR 

data for purposes of determining 

whether a hospital has satisfied its 

Medicare EHR Incentive Program 

clinical quality measurement 

requirement. Hospitals, however, can 

still report the data electronically to 

meet their Hospital IQR Program 

requirements. 

We are proposing in section IX.E. of 

the preamble of this proposed rule to 

extend the beginning of the electronic 

submission period to January 2. If 

finalized, we note that hospitals in their 

first year of demonstrating meaningful 

use could also electronically submit the 

four measure sets (STK, VTE, ED and 

PC) for one quarter by July 1, 2014 to 

meet the clinical quality measure 

reporting criteria for the Medicare EHR 

Incentive Program as well as the 

Hospital IQR Program reporting 

requirement for those measure sets. We 

are also proposing that hospitals 

choosing to report at least one quarter of 

quality measure data electronically 

would not need to submit chartabstracted quality measure data for the 

other quarters in CY 2014 for these four 

measure sets (STK, VTE, ED and PC). 

For hospitals choosing to report 

electronically in the Hospital IQR 

Program, we are proposing that 

hospitals submitting these four measure 

sets electronically must use the 

Medicare EHR Incentive Program 

process for electronically submitting 

quality measure data into QualityNet 

(for EHR-based reporting). We are 

proposing Hospital IQR Program 

hospitals follow the submission 

requirements finalized in the Medicare 

EHR Incentive Program Stage 2 final 

rule (77 FR 54080). Hospitals will 

utilize their existing QualityNet account 

to submit electronic quality measure 

data. Specific submission procedures 

will be posted on the QualityNet Web 

site at: https://www.qualitynet.org/. We 

are proposing to align with the case 

threshold exemption from the Medicare 

EHR Incentive Program, which means 

that for each quality measure for which 

hospitals do not have a minimum 

number of patients that meet the patient 

population denominator criteria for the 

relevant EHR reporting period, hospitals 

will have the ability to declare a ‘‘case 

threshold exemption’’ of five or fewer 

discharges. Our intent is to finalize the 

same process in both the Medicare EHR 

Incentive Program and the Hospital IQR 

Program as further detailed below. 

In preparation for this transition to 

electronic quality measure reporting 

under the Hospital IQR Program, we are 

proposing that if a hospital chooses to 

report the four measure sets (STK, VTE, 

ED and PC) electronically during CY 

2014, the hospital’s data will be 

extracted from the Certified Electronic 

Health Record Technology (CEHRT) and 

submitted to CMS using the Health 

Level Seven (HL7) Quality Reporting 

Document Architecture (QRDA) 

Category I Revision 2 standard. Certified 

EHR Technology is defined for the 

Medicare EHR Incentive Program at 42 

CFR § 495.4 and 45 CFR § 170.102. 

We recognize that a small percentage 

of Hospital IQR Program-participating 

hospitals are not currently participating 

in the Medicare EHR Incentive Program 

and that this proposal may not be 

applicable to those hospitals. These 

hospitals should continue to report the 

four measure sets using chartabstraction. However, we believe greater 

adoption of CEHRT and reporting of 

quality measures electronically across 

Medicare hospital quality reporting will 

reduce the administrative burden on 

hospitals associated with the reporting 

of chart-abstracted quality measures. 

This will help hospitals to meet both 

Hospital IQR Program and Medicare 

EHR Incentive Program requirements 

with a streamlined data submission to 

CMS. We invite public comment on this 

proposal. 

In the recent HHS ONC final rule 

regarding standards, implementation 

specifications, and certification criteria 

for health information technology (77 

FR 54163 through 54292), HHS adopted 

‘‘2014 Edition’’ EHR certification 

criteria that will require CEHRT to 

provide the capability to submit 

electronic clinical quality measure data 

in the HL7 QRDA Category I standard to 

support patient-level data submissions. 

We do not believe that our proposal to 

use QRDA Category I (patient-level) data 

under the Hospital IQR Program will 

create a new reporting burden for 

hospitals because we already require 

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level data under the Hospital IQR 

Program. 

The QRDA standard specifies the 

framework for quality reporting, 

standardizes measure-defined data 

elements for interoperability between 

organizations, and is used to transmit 

clinical quality measure data needed to 

meet meaningful use (MU) requirements 

under the Medicare EHR Incentive 

Program. 

We are proposing that we will not 

publicly report data collected from 

hospitals choosing to report these four 

measure sets electronically in CY 2014. 

After reviewing comments we received 

from our Request for Information (RFI) 

entitled ‘‘Medicare Program; Request for 

Information on Hospital and Vendor 

Readiness for Electronic Health Records 

Hospital Inpatient Quality Data 

Reporting’’ (78 FR 308 through 310), it 

became clear that we should consider 

not publicly reporting clinical quality 

measure data submitted electronically 

for the four proposed measure sets due 

to possible abnormalities in the data 

and/or the submission process that may 

occur during the first year of electronic 

reporting to CMS. This proposal will 

provide us time to assess the data 

reported to determine the optimal 

timing and transition strategy for 

electronic quality measure reporting by 

hospitals participating in the Hospital 

IQR Program. However, we would like 

to recognize hospitals that report 

electronically and invite public 

comment on whether hospitals choosing 

electronic reporting of quality measures 

would like to be acknowledged on the 

Hospital Compare Web site as 

‘‘Pioneers’’ in Medicare EHR-based 

reporting. However, the data results for 

Medicare EHR-based measures would 

not be publicly reported. 

We are concerned that a large number 

of hospitals would not be able to meet 

the Hospital IQR Program requirements 

for FY 2016 if we proposed to require 

hospitals to electronically report the 

four measure sets. Accordingly, we 

believe this proposal—providing 

hospitals the opportunity for voluntary 

electronic submission of data for one 

quarter of CY 2014 discharges— 

represents a balanced policy that some 

hospitals will be able to take advantage 

of while ensuring that the FY 2016 

Hospital IQR Program requirements are 

attainable for all participating hospitals. 

As we move further toward alignment of 

quality measures reporting among our 

reporting initiatives, we intend to 

propose in the future to require 

hospitals to report electronically 

specified quality measures. We invite 

public comment on this approach. 

We are not proposing to validate any 

of the data that is electronically reported 

for the FY 2016 Hospital IQR Program. 

However, we share the concern among 

hospitals, vendors, and other 

stakeholders that there is a need to 

develop a comprehensive validation 

process that applies to electronically 

reported data. We intend to develop and 

propose to adopt a data validation 

strategy for electronically reported 

quality measure data in the FY 2015 

IPPS/LTCH PPS proposed rule. This 

strategy will be informed, in part, by 

comments we receive in response to this 

proposed rule. We invite public 

comment regarding potential data 

validation methodologies. 

e. Sampling and Case Thresholds for the 

FY 2016 Payment Determination and 

Subsequent Years 

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. In the FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53537), we 

did not make any changes to these 

requirements. For the FY 2016 payment 

determination and subsequent years, we 

are not proposing to make 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. 

f. Proposed HCAHPS Requirements for 

the FY 2017 Payment Determination 

and Subsequent Years 

In the FY 2011 IPPS/LTCH PPS final 

rule (75 FR 50220), we adopted the 

HCAHPS requirements for the FY 2013 

and FY 2014 Hospital IQR Program 

payment determinations. 

In the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51641 through 51643), we 

made one change to these requirements. 

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. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53537 through 53538), for 

the FY 2016 Hospital IQR Program 

payment determination, we continued 

these HCAHPS requirements. 

For the FY 2017 payment 

determination and subsequent years, we 

are proposing to retain these 

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) selfadminister 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 2017 Hospital IQR 

Program, the HCAHPS data would be 

based on discharges from January 1, 

2015 through December 31, 2015. 

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.) 

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 

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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, survey vendors and hospitals 

that self-administer the HCAHPS Survey 

must: (1) Meet HCAHPS Minimum 

Survey Requirements and Rules of 

Participation presented in the current 

HCAHPS Quality Assurance Guidelines; 

(2) adhere to the HCAHPS survey 

administration protocols provided in 

the current HCAHPS Quality Assurance 

Guidelines and updated through 

HCAHPS Bulletins and announcements 

on the official HCAHPS On-Line Web 

site, www.hcahpsonline.org; and (3) 

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 strongly recommend that 

hospitals approved to self-administer 

the HCAHPS Survey attend both 

HCAHPS Introductory Training and 

HCAHPS Update Training every year. 

The dates of HCAHPS training session 

are announced on the HCAHPS On-Line 

Web site, www.hcahpsonline.org. 

The HCAHPS Survey is available in 

official translations in several languages 

other than English: Spanish (mail and 

telephone modes); Chinese (mail mode); 

Russian (mail mode); and Vietnamese 

(mail mode). All official translations of 

the HCAHPS Survey instrument are 

available in the current HCAHPS 

Quality Assurance Guidelines. We 

strongly encourage hospitals with a 

significant patient population that 

speaks Spanish, Chinese, Russian or 

Vietnamese to offer the HCAHPS Survey 

in those languages. We plan to offer an 

official translation of the HCAHPS 

Survey in Portuguese (mail mode) in 

2013. We encourage hospitals that serve 

patient populations that speak 

languages other than those noted to 

request CMS to create an official 

translation of the HCAHPS Survey in 

those languages. Only the official 

translations of the HCAHPS Survey 

instrument can be implemented. 

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 wish to emphasize that, barring 

the exception that the hospital is too 

small to obtain 300 completed surveys 

in a four-quarter period, IPPS hospitals 

that do not meet the minimum 300 

completed surveys requirement may not 

be in compliance with the Hospital IQR 

Program’s requirement that hospitals 

submit quality data in the form, manner, 

and time specified by the Secretary in 

order to receive the full APU. If we 

become aware of specific cases in which 

a hospital has not met the finalized 

HCAHPS survey protocols, we may 

determine that the hospital has failed to 

meet the applicable APU requirement, 

and will reduce that hospital’s APU 

accordingly. 

We are proposing to codify the 

current guideline that approved 

HCAHPS survey vendors and selfadministering hospitals must fully 

comply with all HCAHPS oversight 

activities, including allowing CMS and 

its HCAHPS Project Team to perform 

site visits at hospitals’ and survey 

vendors’ locations. We are proposing to 

codify this survey requirement at 

§ 412.140(f)(1). 

We are proposing to codify the 

current guideline that CMS approves 

survey vendor applicants to administer 

the HCAHPS survey for hospitals clients 

when applicants have met the Minimum 

Survey Requirements and Rules of 

Participation listed in the current 

HCAHPS Quality Assurance Guidelines 

and adhere to the survey administration 

protocols provided in the current 

HCAHPS Quality Assurance Guidelines 

and occasionally updated through 

HCAHPS Bulletins and announcements 

on the official HCAHPS On-Line Web 

site. We are proposing to include this 

survey requirement at § 412.140(f)(2). 

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 quarter 

period. Hospitals and HCAHPS survey 

vendors should regularly check the 

official HCAHPS Web site at http:// 

www.hcahpsonline.org for new 

information and program updates 

regarding the HCAHPS Survey, its 

administration, oversight and data 

adjustments. We invite public comment 

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on our proposal to continue using these 

HCAHPS requirements for the FY 2016 

payment determination and subsequent 

years. 

g. Proposed Data Submission 

Requirements for Structural Measures 

for the FY 2015 and FY 2016 Payment 

Determinations 

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 

structural measure information once 

annually for the structural measures via 

a Web-Based Measure 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. In the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53538 through 53539), 

we finalized our proposal to continue 

this policy for the FY 2015 payment 

determination and subsequent years. 

However, in order to provide the more 

timely feedback to hospitals regarding 

APU participation status, for the FY 

2015 payment determination, we are 

proposing to change the date that 

structural measures will be submitted 

from April 1 2014–May 15, 2014 to 

January 1, 2014–February 15 2014. For 

the FY 2016 payment determination, we 

are proposing that the period of data 

collection for which hospitals will 

submit the required registry 

participation information for the 

structural measures via a Web-Based 

Measure Tool be between January 1, 

2015 and February 15, 2015, with 

respect to the time period of January 1, 

2014 through December 31, 2014. These 

proposals will allow us to provide 

earlier feedback to hospitals regarding 

APU status. We invite public comment 

on our proposals. 

h. Proposed Data Submission and 

Reporting Requirements for HealthcareAssociated 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 2015 payment 

determination and subsequent years 

align with the submission timeframes 

for chart-abstracted measures with the 

exception of Healthcare Provider 

Influenza Vaccination as defined below. 

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 for 

CLABSI, SSI, CAUTI, MRSA Bacteremia 

and Clostridium difficile to NHSN. After 

the final Hospital IQR Program 

submission deadline has occurred for 

each calendar quarter of CY 2013, we 

will obtain the hospital-specific 

calculations that have been generated by 

the NHSN for the Hospital IQR Program. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53539), we continued the 

data submission and reporting standard 

procedures we adopted in the FY 2012 

IPPS/LTCH PPS final rule, with two 

exceptions discussed below, for the FY 

2015 payment determination and 

subsequent years. 

The HAI measures that will be 

included in the FY 2016 payment 

determination are included in the 

following chart: 

Topic FY 2016 Payment Determination: Hospital Associated Infection 

Measures (CDC/NHSN) 

Central Line Associated Blood Stream Infection. 

Surgical Site Infection. 

Catheter-Associated Urinary Tract Infection. 

MRSA Bacteremia. 

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. In the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53539), we provided 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 SSI measure that the data may not 

meaningfully assess the hospital’s 

performance on the measure. Therefore, 

in the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53539), we provided 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 CY 2013 is 

not required to report the SSI measure 

in CY 2014. We finalized our proposal 

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 is 

available on QualityNet at: https:// 

www.qualitynet.org/ HospitalsInpatient>Healthcare Associated 

Infections (HAI). For the FY 2016 

payment determination and subsequent 

years, we are not proposing to make any 

changes to these requirements and 

exceptions. 

In the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51631–51633) we finalized 

collection of the Healthcare Provider 

Influenza Vaccination measure data 

from October 1 through March 31st to 

coincide with the flu season. Because 

this measure is collected seasonally, we 

are proposing to collect this measure on 

May 15th of the calendar year for which 

the season ends. For example, for the 

Healthcare Provider Influenza 

Vaccination measure collection for 

vaccinations given from October 1, 2013 

(or when the vaccine becomes 

available)—March 31, 2014, the 

submission deadline would be May 15, 

2014. We invite public comment on this 

proposal. 

For the FY 2016 payment 

determination and subsequent years we 

are proposing to require hospitals to 

report the Medicare Beneficiary ID 

numbers to the NHSN system for all 

events reported for Medicare 

beneficiaries. The NHSN system 

currently supports the voluntary 

submission of this information, but CMS 

is proposing to make it mandatory for 

patients with HIC numbers. We make 

this proposal to better support our 

validation efforts. CMS currently 

matches medical records to NHSN data 

as part of validation. With the 

information available for matching, 

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CMS may occasionally fail to match a 

reported event. By requiring that 

hospitals report the HIC number when 

it is available, we increase our 

confidence that records reported to 

NHSN will appropriately be matched 

with the records we sample for 

validation. Because we cannot 

anticipate in advance which records 

may be sampled for validation, we are 

proposing to require that hospitals 

provide this information for all reported 

events. We invite public comment on 

this proposal. 

10. Proposed Modifications to the 

Validation Process for Chart-Abstracted 

Measures under the Hospital IQR 

Program 

For the FY 2015 payment 

determination and subsequent years, we 

are proposing some modifications to the 

validation requirements and methods 

we finalized in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53539 through 

53553). As described below, these 

proposals are intended to strengthen the 

Hospital IQR Program by validating new 

HAI measures while simultaneously 

decreasing burden relative to previous 

years. 

The procedures to which we are 

proposing to modify are organized into 

the following sections: (a) Number and 

timing of quarters included in 

validation; (b) selection of measures and 

sampling of charts to be included in 

validation; (c) procedures for computing 

the validation score; (d) selection of 

hospitals for validation of chartabstracted measures; and (e) procedures 

for submitting records for validation. 

a. Proposed Timing and Number of 

Quarters Included in Validation 

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 Hospital IQR 

Program payment determination are the 

4th calendar quarter (October through 

December) of the year that occurs 2 

years before the payment determination 

and the first 3 calendar quarters 

(January through September) of the 

following calendar year. For example, as 

illustrated below, for the FY 2015 

payment determination, the quarters 

previously finalized for inclusion in 

validation are the fourth quarter of CY 

2012 through the third quarter of CY 

2013. The first figure below shows the 

timeline and steps associated with the 

Hospital IQR Program and the 

subsequent steps in annual validation as 

previously finalized and as proposed. 

Section 1886(o)(1)(C)(ii)(I) of the Act 

precludes a hospital from participating 

in the Hospital VBP Program for a fiscal 

year if the hospital is subject to the 

payment reduction under the Hospital 

IQR Program for that fiscal year. As 

illustrated in the figure, the process 

previously finalized (75 FR 50219), 

yields the determination of a hospital’s 

Hospital IQR Program APU in August of 

every year. However, to support the 

hospital’s payment determination under 

the Hospital VBP Program in a timely 

manner, the IQR APU determination 

must be made by July 1 of each year. 

Therefore, we are proposing the changes 

discussed below. 

For the FY 2015 payment 

determination and subsequent years, we 

are proposing to change this 

requirement to include in validation 

only the 4th quarter of the calendar year 

that occurs 2 years before the payment 

determination and the first 2 calendar 

quarters (January through June) of the 

following calendar year. As illustrated 

below, for the FY 2015 payment 

determination, the quarters proposed for 

inclusion in validation are the fourth 

quarter of CY 2012 through the second 

quarter of CY 2013; and for the FY 2016 

payment determination, the quarters 

proposed for inclusion in validation are 

the fourth quarter of CY 2013 through 

the second quarter of CY 2014. 

For the FY 2016 payment 

determination and subsequent years, we 

are also proposing to change the 

validation requirement to include the 

3rd and 4th calendar quarters of the year 

that occurs 2 years before the payment 

determination is made and the 1st and 

2nd quarters of the subsequent year for 

validation. As discussed above, this 

timeframe still allows an APU 

determination by July 1 each year. From 

an operational standpoint, gathering 

data for the entire year is preferable to 

gathering data for only three quarters. 

Also, we believe that all four quarters of 

data that are used for the Hospital IQR 

and VBP Programs should be checked 

for accuracy. 

However, as described further below, 

we will not have built the infrastructure 

needed to support the proposed HAI 

validation process by the 3rd quarter of 

CY 2013. Therefore, for the FY 2016 

payment determination, we are 

proposing to validate all measures 

except for HAIs starting with 3rd quarter 

of CY 2013, and to initiate validation of 

HAIs in the 4th quarter of CY 2013. We 

invite public comment on this proposal. 

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b. Proposed Selection of Measures and 

Sampling of Charts To be Included in 

Validation 

(1) Clinical Process of Care Measures 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53540 through 53550), for 

the FY 2015 payment determination and 

subsequent years, we finalized separate 

processes for selecting and scoring for 

validation of 21 chart-abstracted clinical 

process of care measures and three HAI 

measures. The measures finalized for 

validation for clinical processes of care 

were included in 6 measure sets: acute 

myocardial infarction (AMI), heart 

failure (HF), pneumonia (PN), surgical 

care improvement project (SCIP), 

emergency department (ED) and 

immunization (IMM) (77 FR 53541 

through 53542). 

For the purposes of the FY 2016 

payment determination and subsequent 

years, we are proposing to retain for 

validation 12 of the 21 chart-abstracted 

clinical process of care measures and to 

suspend validation for the remaining 9 

chart-abstracted clinical process of care 

measures. With respect to seven of the 

nine measures, we are not proposing to 

include them in the FY 2016 measure 

set. 

However, we are proposing to 

suspend validation of ED–1 and ED–2, 

despite their proposed inclusion in the 

FY 2016 measure set, because we do not 

operationally have the ability to validate 

electronically reported versions of the 

measures. We believe that continuing to 

validate the measures only when they 

are reported via chart-abstraction could 

create inequity in the validation process 

that favors hospitals opting to report the 

measures electronically. Therefore, we 

are proposing to delete the ED measure 

set from the validation process. We 

invite public comment on these 

proposals. 

HOSPITAL IQR PROGRAM CHART-ABSTRACTED CLINICAL PROCESS OF CARE MEASURES PROPOSED FOR VALIDATION FOR

THE FY 2016 PAYMENT DETERMINATION

Measure 

AMI–7a Fibrinolytic (thrombolytic) agent received within 30 minutes of hospital arrival. 

AMI–8a Timing of receipt of primary percutaneous coronary intervention. 

HF–2 Evaluation of left ventricular systolic function. 

PN–6 Appropriate initial antibiotic selection. 

SCIP INF–1 Prophylactic antibiotic received within 1 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 (48 hours for cardiac surgery). 

SCIP INF–4: Cardiac surgery patients with controlled 6AM postoperative serum glucose. 

SCIP INF–9: Postoperative urinary catheter removal on postoperative day 1 or 2 with day of surgery being day zero. 

SCIP Cardiovascular–2: Surgery Patients on a Beta Blocker prior to arrival who received a Beta Blocker during the perioperative period. 

SCIP–VTE–2: Surgery patients who received appropriate VTE prophylaxis within 24 hours pre/post surgery. 

IMM–2 Immunization for pneumonia. 

The process for sampling of clinical 

process of care cases previously 

finalized for the FY 2015 payment 

determination and subsequent years in 

the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53540 through 53541) is as 

follows. A sample of 15 records per 

quarter is to be drawn for validation of 

the chart-abstracted clinical process of 

care measures (77 FR 53540 through 

53541). As finalized in the FY 2012 

IPPS/LTCH PPS final rule for the FY 

2014 payment determination and 

subsequent years, the sample is to 

include 3 records each sampled from 

among the AMI, HF, PN, and SCIP 

measure sets, and 3 records to validate 

for both the ED and IMM measures sets 

from among ‘‘principal diagnoses and 

surgical procedures not already 

included in the AMI, HF, PN, and SCIP 

populations eligible for validation 

sampling in these four topic areas (76 

FR 51648).’’ As finalized in the FY 2012 

IPPS/LTCH PPS final rule, the records 

sampled for AMI, HF, PN, and SCIP will 

also be validated for ED/IMM (76 FR 

51648), but as finalized in the FY 2013 

IPPS/LTCH PPS final rule these cases 

will not be validated from among charts 

sampled for HAI validation (77 FR 

53540 through 53541). 

We are proposing to modify this 

process for the FY 2016 payment 

determination and future years in two 

ways. First, we are proposing to 

eliminate validation of the ED measure 

set for the reasons described 

immediately above. Second, we are 

proposing to change the requirement to 

validate ED and IMM for all records 

included in the validation sample for 

AMI, HF, PN, and SCIP (77 FR 53540 

through 53541). When previously 

finalized, this policy was intended for 

two purposes. When a patient chart 

sampled for validation for AMI, HF, PN, 

or SCIP also had data submitted to the 

warehouse for ED/IMM, we have been 

evaluating the accuracy of the data 

submitted to the warehouse for ED and 

IMM and including our assessment of 

accuracy in the validation score. In 

addition, when a patient chart sampled 

for validation for AMI, HF, PN, or SCIP 

did not include data submitted to the 

warehouse, our intention in abstracting 

data on ED and IMM was to assess the 

extent to which hospitals may have 

misdrawn the sample such that the ED 

and IMM data reported to the 

warehouse was inaccurate. Although it 

was our intention to use the data for 

both reasons, we have found it 

challenging to use the data to evaluate 

inaccurate sampling and have not yet 

done so. 

Therefore, for the FY 2016 payment 

determination and future years, we are 

proposing to validate IMM for between 

3 and 15 charts per hospital per quarter. 

These include the 3 charts sampled for 

IMM from among principal diagnoses 

and surgical procedures not already 

included in the AMI, HF, PN, and SCIP 

populations eligible for validation 

sampling in these four topic areas, and 

as many of the 12 charts sampled for 

AMI, HF, PN, and SCIP populations as 

have IMM data submitted to the 

warehouse. We invite public comment 

on this proposal. 

(2) HAI Measures Included in the 

Current Validation Process 

The three HAIs specified for chartabstracted validation in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 

53542), for FY 2015 payment 

determination and subsequent years are 

CLABSI, CAUTI, and SSI for patients 

undergoing abdominal hysterectomies 

and colon procedures. HAIs are very 

rare events, which makes validating that 

they have been reported accurately more 

challenging than validating the clinical 

process of care measures. As previously 

finalized in the FY 2012 and FY 2013 

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102 ‘‘Catheter-Associated Urinary Tract Infection 

(CAUTI) Event’’ http://www.cdc.gov/nhsn/PDFs/

pscManual/7pscCAUTIcurrent.pdf, last accessed 

February 19, 2013. 

IPPS/LTCH PPS final rules (76 FR 51645 

through 51648 and 77 FR 53542 through 

53548, respectively), for each HAI, we 

identify a set of patient episodes of care 

which have a much higher probability 

of containing a reportable HAI than 

others. Each quarter, we sample up to 12 

of these candidates, request patient 

charts from hospitals to determine 

whether or not an HAI occurred, and 

score these charts by determining 

whether events were appropriately 

reported to NHSN. 

In order to identify candidate cases 

referenced above for CLABSI and 

CAUTI, we also require hospitals to 

submit supplemental information on 

certain patient episodes of care 

quarterly. In the FY 2012 and FY 2013 

IPPS/LTCH PPS final rules (76 FR 51645 

through 51648 and 77 53542 through 

53548, respectively), we identified the 

supplemental information to be 

provided and the types of patient 

episodes of care for which this 

information is needed. We require 

hospitals to submit this supplemental 

information in two separate ‘‘Validation 

Templates’’ according to formats 

specified on QualityNet. We require 

separate CLABSI and CAUTI Validation 

Templates because different information 

is required to identify candidate 

CLABSIs and candidate CAUTIs. For a 

detailed discussion of these 

requirements, we refer readers to our 

Web site at: https://www.qualitynet.org/ 

dcs/ContentServer?c=Page&pagename=

QnetPublic%2FPage%2FQnetTier2&

cid=1228760487021. 

As stated in the FY 2012 IPPS/LTCH 

PPS final rule (76 FR 51646), for the FY 

2012 payment determination and 

subsequent years, hospitals are required 

to report positive blood cultures for 

intensive care unit patients and are also 

required to ‘‘self-identify intensive care 

unit patients with a CVC [central venous 

catheter] that are on this blood culture 

list.’’ We are proposing for the FY 2016 

payment determination and subsequent 

years to remove the requirement to note 

a CVC and replace it with a requirement 

to note a ‘‘central line.’’ In other words, 

we are proposing to require that 

hospitals note on the CLABSI Validation 

Template whether patients had a 

‘‘central line’’ present at any time 

during their hospital stay. We are 

making this proposal to better align with 

current NHSN definitions. 

The FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51646) also specified which 

organisms should be reported on the 

CLABSI Validation Template, which are 

also regarded as common commensals 

(often referred to as skin contaminants), 

and where hospitals could find an 

updated list of these commensals. This 

list is frequently updated, but the link 

containing updates is currently out of 

date. When we review the CLABSI 

Validation Templates for the FY 2016 

payment determination and subsequent 

years, we are proposing to apply the 

most up-to-date list available at the time 

of review. At present that list may be 

found at: http://www.cdc.gov/nhsn/

acute-care-hospital/clabsi/index.html. 

We also are proposing for the FY 2016 

payment determination and subsequent 

years that hospitals must exclude from 

CAUTI Validation Templates urine 

cultures with more than 2 organisms, 

even if they have greater than or equal 

to 1,000 colony-forming units (CFUs)/ 

ml. We are making this proposal 

because, when we finalized the 

requirement to include on the CAUTI 

Validation Templates all urine cultures 

with greater than or equal to 1,000 

CFUs/ml (77 FR 53542 through 53545), 

our intention was to identify urine 

cultures that conform to NHSN 

definitions for CAUTI. Although these 

definitions vary, all require that there be 

no more than 2 organisms identified in 

the result (because multiple organisms 

often indicate contamination).102 We 

invite public comment on this proposal. 

We are proposing for the FY 2016 

payment determination and subsequent 

years to notify hospitals of future 

changes to the definition of candidate 

HAI events through HAI Validation 

guidance documents to be posted 

annually on QualityNet. As illustrated 

by several proposals immediately above 

identifying places where CMS and 

NHSN are slightly misaligned, we 

believe that these very detailed 

specifications may more appropriately 

be addressed through sub-regulatory 

guidance than through the rulemaking 

process. Therefore, we are making this 

proposal to simplify future proposed 

rules regarding validation, to ensure that 

we are able to remain current with 

NHSN guidance and protocols, and to 

ensure that hospitals are made aware of 

these updates. We invite public 

comment on this proposal. 

For the FY 2016 payment 

determination and subsequent years, we 

also are proposing to exclude from HAI 

validation all patient episodes of care 

with lengths of stay of more than 120 

days. Patient episodes of care involving 

lengths of stay over 120 days are very 

rare, accounting for much less than one 

percent of the records submitted for Q1 

2012 CLABSI validation. Because 

medical records for patients with very 

long lengths of stay may be tens of 

thousands of pages, the burden and 

costs of validation to hospitals and CMS 

are disproportionate to the information 

gained from their validation. In 

addition, this proposed change aligns 

the HAI episode of care maximum 

length of stay with the Hospital IQR 

Program’s clinical process of care 

measures episode of care maximum 

length of stay of 120 days as detailed in 

the Specifications Manual for the 

National Hospital Inpatient Quality 

Measures (http://www.qualitynet.org). 

We invite public comment on this 

proposal. 

For the FY 2016 payment 

determination and subsequent years, we 

also are proposing to require each 

hospital to submit data without 

modifications to the format within the 

Validation Template posted on 

QualityNet at the beginning of each 

validation cycle. We believe this 

requirement is needed based on our 

experience with the CLABSI Validation 

Template for the FY 2013 payment 

determination. We have observed that 

many hospitals enter the required data 

but alter the format of the downloadable 

Validation Template. For example, 

hospitals may change the length or 

format of a column or change its column 

name. Because our contractors must 

process hundreds of these templates in 

a matter of weeks, even minor 

alterations to formats of the data within 

the Template create significant 

operational delays. We will continue to 

give hospitals feedback on their 

Validation Templates prior to the 

submission deadline. To assist hospitals 

in meeting this formatting requirement, 

we will include formatting in future 

feedback. We invite public comment on 

this proposal. 

(3) HAI Measures To Be Added to the 

Validation Process 

For the FY 2016 payment 

determination and subsequent years, we 

are proposing to validate two new HAI 

measures: methicillin-resistant 

staphylococcus aureus (MRSA) 

bacteremia Laboratory-identified 

(LabID) Events and Clostridium difficile 

(CDI) LabID Events. MRSA and CDI 

were finalized for inclusion in the 

Hospital IQR Program in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51629 

through 51631) starting with the FY 

2015 payment determination. We are 

proposing to validate MRSA and CDI 

consistent with requirements under 

section 1886(b)(3)(B)(viii)(XI) of the Act 

which requires us to establish a process 

to validate measures included in the 

Hospital IQR Program as appropriate. 

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We invite public comment on this 

proposal. 

For MRSA and CDI validation, we are 

proposing a process similar to that for 

CLABSI and CAUTI for the FY 2016 

payment determination and subsequent 

years. Specifically, we are proposing to 

require sampled hospitals to provide to 

CMS or its contractor one list of final 

blood cultures positive for MRSA and a 

second list of all final stool specimens 

toxin positive for CDI. We note that 

although CMS only publicly reports 

hospital-onset infections, CMS requires 

hospitals to report both hospital and 

community-onset cases. We require 

hospitals to report community-onset 

cases because NHSN employs this 

information in risk-adjustment. 

Validation of MRSA and CDI requires 

confirmation that both hospital and 

community-onset cases are reported 

correctly and completely. Therefore, for 

the FY 2016 payment determination and 

subsequent years, we are proposing that 

both types of cases be included on the 

MRSA and CDI Validation Templates. 

For these payment determinations, we 

are proposing to collect the following 

information on the MRSA and CDI 

Validation Templates needed to identify 

each candidate event: (1) Laboratory 

accession number, collection date, and 

location; (2) necessary information to 

identify the patient (that is, patient 

identifier, Medicare Beneficiary number 

also known as the health insurance 

claim [HIC] number, sex, and date of 

birth); (3) the patient’s admission and 

discharge dates; and (4) necessary 

information to identify the hospital 

(NHSN Facility ID, Provider ID/CCN, 

Hospital Name and State, Contact 

Information for the Person Completing 

the Template). 

Draft versions of the proposed MRSA 

and CDI Validation Templates will be 

posted on the QualityNet Web site at: 

https://www.qualitynet.org/dcs/Content

Server?c=Page&pagename=Qnet

Public%2FPage%2FQnetTier2&cid=

1228760487021 during the public 

comment period. We are proposing this 

approach for MRSA and CDI validation, 

because we believe that this is the best 

way for us to systematically identify 

candidates that are likely to yield a high 

proportion of cases that should have 

appropriately been reported to NHSN. 

Consistent with the process we have 

been using for the CLABSI and CAUTI 

Validation Templates, we are proposing 

that quarterly submission deadlines 

correspond to those for population and 

sampling data as defined in section 

IX.A.9.e. of the preamble of this 

proposed rule. We invite public 

comment on this proposal. 

We recognize that the proposal to add 

two new HAI Validation Templates has 

the potential to increase burden to 

individual hospitals selected for 

validation. As finalized in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53551 

through 53553), for the FY 2015 

payment determination and subsequent 

years, the annual validation sample 

includes 400 randomly selected 

hospitals and up to 200 hospitals 

sampled based on targeting criteria. To 

add these new Templates without 

increasing burden for the FY 2016 

payment determination and subsequent 

years, we are proposing to randomly 

assign half of hospitals to submit 

templates for CLABSI and CAUTI 

validation and half of hospitals to 

submit templates for MRSA and CDI 

validation. We believe this proposal will 

limit hospital burden to that finalized in 

the FY 2013 IPPS/LTCH PPS final rule, 

because no hospital would be required 

to submit more than two templates per 

quarter. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53547 through 53548), we 

established a sample size of 12 records 

for HAI validation per quarter for the FY 

2015 payment determination and 

subsequent years. Each quarterly sample 

is to be drawn from a list of patient 

episodes of care for all three types of 

candidate HAIs (CLABSI, CAUTI, and 

SSI) combined in one non-stratified 

sampling frame. For the FY 2016 

payment determination and subsequent 

years, we are proposing to target 

separate sampling strata for each type of 

HAI. We are making this proposal 

because we believe that having separate 

sampling targets for each infection will 

better accommodate the very different 

incidence of different types of HAI 

events, particularly for hospitals which 

are to be validated for SSI, MRSA, and 

CDI. This proposal also supports the 

objective to evaluate how well each HAI 

is reported to NHSN when considered 

across all hospitals combined. 

APU Determination HAI Number of 

hospitals 

Number of 

quarters 

Number of 

records/quarter/hospital 

Number of 

records per 

hospital 

FY 2015 (previously finalized) ............. CLABSI, CAUTI, SSI combined .......... Up to 600 4 12 48 

In the preamble to this proposed rule 

FY 2015 ............................................... CLABSI, CAUTI, SSI combined .......... Up to 600 3 12 36 

FY 2016 ............................................... CLABSI ................................................ Up to 300 3 5 15 

FY 2016 ............................................... CAUTI .................................................. Up to 300 3 5 15 

FY 2016 ............................................... MRSA .................................................. Up to 300 3 5 15 

FY 2016 ............................................... CDI ...................................................... Up to 300 3 5 15 

FY 2016 ............................................... SSI ....................................................... Up to 600 3 2 6 

FY 2017 and subsequent years .......... CLABSI ................................................ Up to 300 4 3 .75 15 

FY 2017 and subsequent years .......... CAUTI .................................................. Up to 300 4 3 .75 15 

FY 2017 and subsequent years .......... MRSA .................................................. Up to 300 4 3 .75 15 

FY 2017 and subsequent years .......... CDI ...................................................... Up to 300 4 3 .75 15 

FY 2017 and subsequent years .......... SSI ....................................................... Up to 600 4 1 .5 6 

The sample sizes for each HAI 

proposed for the FY 2016 payment 

determination are shown in the table 

above. For hospitals submitting CLABSI 

and CAUTI templates, the infectionspecific sample sizes per hospital per 

quarter proposed are: 2 for SSI, 5 for 

CLABSI, and 5 for CAUTI (12 per 

quarter). For hospitals submitting MRSA 

and CDI Validation Templates, the 

infection-specific sample sizes per 

hospital per quarter proposed are: 2 for 

SSI, 5 for MRSA, and 5 for CDI. For each 

hospital, in each quarter, these cases 

would be drawn randomly from each 

individual Validation Template (or from 

claims for SSI) from among episodes of 

care containing at least one candidate 

event. Across all hospitals and quarters 

combined, we are assuming that 

approximately 10 percent of patients 

with candidate CLABSI events had a 

CLABSI. This will yield approximately 

450 hospital discharges with actual 

events. Assuming a design effect 

resulting from clustered data collection 

of no more than 2, this will allow us to 

estimate accurate reporting (+/¥5 

percentage points with 90 percent 

confidence) of CLABSI if it occurs 

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approximately 75 percent of the time. 

We developed sample size requirements 

based on a 75 percent score to align 

with CMS requirements for a 75 percent 

score to pass validation as specified in 

42 CFR § 412.140(d)(2), and using a twotailed 90 percent confidence interval as 

finalized in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53551). Based on 

these statistics, we believe this is the 

smallest sample size needed to meet the 

objective of accurately evaluating how 

well hospitals report CLABSI data to 

NHSN. 

Because we have less data on which 

to base sample size calculations for 

CAUTI, MRSA bacteremia, and CDI 

than we have for CLABSI, we are 

proposing similar sample size targets for 

these 4 HAIs. By proposing similar 

sample size requirements across these 4 

HAIs for the FY 2016 payment 

determination and subsequent years, we 

assure that hospitals will be required to 

submit the same number of records 

regardless of which set of Validation 

Templates they are assigned to submit. 

For SSI, the proposed sample size 

assumes that most hospitals will not 

have more than 2 candidate SSIs per 

quarter. By sampling fewer SSI cases 

over twice as many hospitals, we ensure 

that the sample size for SSI validation 

is also adequate. Because SSI cases may 

be sampled without the added 

submission requirement of a Validation 

Template, we foresee no difficulty in 

requiring all hospitals sampled for 

validation to provide information for 

SSI. We invite public comment on these 

proposals. 

Within each hospital for each type of 

HAI event each quarter, a random 

sample would be drawn from among 

patient episodes of care with at least one 

candidate event identified from the 

Validation Template (or claims data for 

SSI) to meet the targeted sample size. If 

there are not enough cases in any 

stratum, we are proposing for the FY 

2016 payment determination and 

subsequent years to reallocate those 

cases to any stratum or strata that have 

more than enough cases to meet sample 

size targets. We are proposing to 

reallocate cases because different 

hospitals may have different relative 

frequencies of each HAI. The proposed 

reallocation process will give CMS the 

flexibility to meet sample size quotas in 

the event that one hospital has more 

than enough candidate MRSA events 

but not enough candidate CDI events 

and the next hospital has more than 

enough candidate CDI events and not 

enough candidate MRSA events. We 

invite public comment on this proposal. 

For the FY 2017 payment 

determination and subsequent years, we 

are proposing to reduce the quarterly 

HAI sample from 12 to 9. Please see the 

chart above. This is to reflect the fact 

that we are proposing to collect data for 

4 quarters instead of for 3 quarters 

starting with the FY 2017 payment 

determination (section IX.A.10.a. of the 

preamble of this proposed rule). When 

we distribute over 4 quarters, the 15 

annual patient charts each for CLABSI, 

CAUTI, MRSA, and CDI and 6 annual 

patient charts each for SSI, the process 

produces fractions. We are proposing to 

request 9 patient charts by establishing 

quarterly targets of 3, 3, and 1 

respectively for CLABSI, CAUTI, and 

SSI and 3, 3, and 1 respectively for 

MRSA, CDI, and SSI, and then 

randomly allocating the remaining 2 

records to meet the hospital target of 9 

HAIs for the quarter. We invite public 

comment on these proposals. 

c. Proposed Procedures for Scoring 

Records for Validation 

We are not proposing any changes to 

the procedures for scoring records for 

validation for the clinical process of 

care measures for the FY 2016 payment 

determination or subsequent years. This 

process was described in the FY 2011 

IPPS/LTCH PPS final rule (75 FR 

50226). However, we are proposing 

changes to the procedures for scoring 

records for validation of HAI measures. 

(1) Scoring of CLABSI, CAUTI, and SSI 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53550 through 53551), for 

the FY 2015 payment determination and 

subsequent years), we finalized a 

scoring approach considering all three 

HAI measures simultaneously. In 

general, if hospitals have matched data 

on all three HAIs, they would receive a 

score of 1, and if they have a mismatch 

on one or more HAIs, they would 

receive a score of 0. For example, if a 

patient had a CLABSI during an episode 

of care and no CAUTI or SSI and the 

CLABSI was properly reported, the 

hospital received a score of 1 for that 

patient. We developed this approach 

primarily out of an interest in 

maximizing the information available to 

us about CLABSI, CAUTI, and SSI using 

the same set of records reviewed for all 

three infections at once, and because we 

recognized that an individual infection 

event could not simultaneously be 

attributed to more than one cause, that 

is, a particular infection was either a 

primary CLABSI, CAUTI, or SSI, but 

never all three at once. In addition, the 

records were sampled from a single 

unduplicated frame. With a single 

sampling frame for all three events, it 

was not always possible to determine in 

advance which event to evaluate for a 

particular case. Moreover, it is apparent 

that an event that was sampled because 

of a MRSA bacteremia result does not 

need to be evaluated for CDI or viceversa. For both of these reasons, we are 

proposing for the FY 2016 payment 

determination and subsequent years, to 

evaluate and score each case only for 

the infection for which it was sampled 

as having candidate events. For 

example, episodes of care for patients 

on the CLABSI Validation Template will 

be evaluated and scored only for 

CLABSI. We invite public comment on 

this proposal. 

We also are proposing for the FY 2016 

payment determination and subsequent 

years to score charts selected for SSI, 

CLABSI, and CAUTI in the manner that 

scoring was finalized for CLABSI in the 

FY 2012 IPPS/LTCH PPS final rule (76 

FR 51647). If the Clinical Data 

Abstraction Center (CDAC) contractor 

reviews a medical record and 

determines that patient had no CLABSI 

events and the hospital reported no 

CLABSI to NHSN, the case will receive 

a score of 1. If the CDAC contractor 

determines that the patient had a 

CLABSI and this was reported to NHSN, 

the case will also receive a score of 1. 

If a mismatch occurs and the CDAC 

contractor determined that the patient 

had no CLABSI when one is reported, 

or that the patient had a CLABSI that 

was not reported, the hospital will 

receive a score of 0. If the CMS quarterly 

validation process identified that 3 out 

of 4 total sampled records accurately 

reported the presence of CLABSI or did 

not report a CLABSI when none was 

present, then the hospitals’ quarterly 

CLABSI validation score would be 3⁄4 or 

75 percent. If two or more infections are 

detected for a patient episode of care, 

the case may receive separate scores for 

each event. For example, if one patient 

episode of care included two CLABSIs, 

both of which were reported correctly, 

and reported correctly for 2 of the 

remaining three records evaluated for 

CLABSI, then the validation score for 

CLABSI that quarter would be 4⁄5 or 80 

percent. 

(2) Scoring of MRSA and CDI 

MRSA bacteremia and CDI, have very 

different reporting requirements from 

other HAIs included in the Hospital IQR 

Program. The major difference between 

the case definitions for MRSA and CDI 

relative to other HAIs being reported as 

part of IQR is that MRSA and CDI are 

laboratory-identified events that do not 

require extensive clinical judgment on 

the part of the reporting hospital. If the 

laboratory events and date of hospital 

admission are reported accurately, CDC 

makes the determination as to whether 

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the event was community or hospital 

onset. 

Our proposal entails evaluating each 

patient episode of care on a minimum 

of two components, with a score of 1 for 

each matched component and 0 for each 

mismatched component. We are 

proposing to evaluate each laboratory 

identified event on the following 

components: (1) Whether it was 

reported to NHSN when it should have 

been reported; and (2) whether the 

correct dates of admission and event 

were reported such that NHSN correctly 

classified the event as hospital or 

community onset. Each of these 

components contributes to an 

assessment of the accuracy and 

completeness of the public reporting 

result that appears on Hospital 

Compare, and each is important. 

Because each candidate event will be 

scored on two different components, 

scores will be reported in multiples of 

two. For example, if a sampled patient 

episode of care has only one candidate 

event, and 1 out of 2 elements matched 

for that event, the total score for that 

candidate event would be 1/2. If a 

particular patient episode of care 

contains multiple candidate events, that 

patient episode will be evaluated on 

each of these events, increasing the 

number of possible elements to be 

validated by 2, one for each candidate 

event evaluated. The maximum number 

of events that we would validate for any 

episode of care would be 4. Therefore, 

the maximum possible score for any one 

patient episode of care would be 8 (2 × 

4). NHSN has an automated process to 

remove events that should not have 

been reported to NHSN if they occurred 

within 14 days of a previous laboratoryidentified event for the same infection. 

Because NHSN excludes these events 

automatically, we are proposing for the 

FY 2016 payment determination and 

subsequent years that hospitals will not 

be credited or penalized for reporting or 

failing to report an automatically 

excluded event. We invite public 

comment on these proposals. 

(3) Combined Scores 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53549), we finalized the 

process for combining the clinical 

process of care and HAI validation 

scores for the FY 2015 payment 

determination and subsequent years 

scores by weighting them proportionate 

to the number of measures validated in 

each group. We are not proposing any 

changes to this process. Using the 

finalized procedure for combining the 

clinical process of care and HAI 

validation scores, the relative weights 

for the FY 2016 payment determination 

would be 12/17 for the clinical process 

of care measures included in validation 

and 5/17 for the HAI measures included 

in validation. 

As previously finalized in the FY 

2013 IPPS/LTCH PPS payment rule for 

the FY 2015 payment determination and 

subsequent years (77 FR 53551), we use 

the upper bound of a two-tailed 90 

percent confidence interval around the 

combined score to determine if a 

hospital passes or fails validation. If this 

number is greater than or equal to 75 

percent, then the hospital passes 

validation. We are not proposing 

changes to this methodology. We intend 

to post the specific formulas used to 

compute the confidence interval on the 

QualityNet Web site at least one year 

prior to computation as we have done 

in the past (https://www.qualitynet.org/ 

dcs/ContentServer?c=Page&page

name=QnetPublic%2FPage%2FQnet

Tier2&cid=1138115987129). These 

formulas will continue to account 

appropriately for the manner in which 

patient charts are sampled and scored 

for the measures corresponding to the 

payment determination period. 

d. Proposed Procedures To Select 

Hospitals for Validation 

In the FY 2013 IPPS/LTCH PPS final 

rule, for the FY 2015 payment 

determination and subsequent years, we 

finalized an annual hospital validation 

sample size of 400 randomly selected 

hospitals and a supplemental sample of 

up to 200 hospitals to be selected for 

more targeted validation (77 FR 53552 

through 53553). The supplemental 

sample of up to 200 hospitals will 

include all hospitals that fail validation 

in the previous year and a random 

sample of hospitals meeting certain 

targeting criteria for the FY 2015 

payment determination and subsequent 

years. The targeting criteria were 

finalized in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53552 through 

53553) for the FY 2016 payment 

determination and subsequent years. A 

summary of these criteria is set out 

below. 

• Any hospital with abnormal or 

conflicting data patterns. 

• Any hospital with rapidly changing 

data patterns. 

• Any hospital that submits data to 

NHSN after the Hospital IQR Program 

data submission deadline has passed. 

• Any hospital that joined the 

Hospital IQR Program within the 

previous 3 years, and which has not 

been previously validated. 

• Any hospital that has not been 

randomly selected for validation in any 

of the previous 3 years. 

• Any hospital that passed validation 

in the previous year, but had a twotailed confidence interval that included 

75 percent. 

For the FY 2016 payment 

determination and subsequent years, we 

are proposing one additional criterion 

for targeting as follows: Any hospital 

which failed to report to NHSN at least 

half of actual HAI events detected as 

determined during the previous year’s 

validation effort. We are making this 

proposal to increase incentives for 

properly reporting HAI events that 

should have been reported to NHSN. To 

ensure a fair process for validation 

scoring, we credit hospitals for 

following NHSN protocols correctly. In 

this regard, hospitals receive credit for 

not reporting to NHSN candidate HAI 

events that we determine were not 

actually events and reporting candidate 

HAI events to NHSN that we determine 

were actually HAI events. We anticipate 

that hospitals may receive credit for not 

reporting many such candidate events. 

We believe it is appropriate to pass 

hospitals for following NHSN protocols 

correctly by not reporting non-events. 

However, we recognize that the Hospital 

VBP Program might give hospitals an 

unintended incentive to underreport 

HAI events because the lower their HAI 

measure rates, the more points they will 

earn. 

Therefore, we are proposing to use 

evidence of severe under-reporting (less 

than 50 percent) as a targeting criterion 

for supplemental validation. In making 

this proposal, we recognize that the 

sample size of events, which should 

have been reported to NHSN, may not 

be reliable as it is a subset of the sample 

of 36 candidate HAI events per hospital 

per year. For the 30 candidate CLABSI 

and CAUTI records selected each year, 

we expect less than half of candidate 

events to be actual events. We would 

not wish to fail hospitals based upon 

such a small sub-sample. Instead, in 

such situations we would like to gather 

more data, which is why we are 

proposing to add a targeting criterion for 

hospitals that appear to frequently 

under-report HAIs. We invite public 

comment on this proposal. 

e. Proposed Procedures for Submitting 

Records for Validation 

(1) Separate Submission Requirements 

for MRSA Bacteremia and CDI 

Validation 

Under section 412.140(d)(1) of our 

regulations, a hospital must submit to 

CMS a sample of patient charts that the 

hospital used for purposes of data 

submission under the program. 

Historically, we have requested the 

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entire medical record where the content 

of the medical record is defined under 

42 CFR § 482.24. For validation of the 

MRSA bacteremia and CDI measures for 

the FY 2016 payment determination and 

subsequent years, we are proposing to 

require hospitals to submit only those 

two specific parts of the medical record 

that are needed to validate these 

measures. For each sampled charts, the 

two required parts are: (1) All final 

positive blood cultures for MRSA and 

toxin-positive specimens for CDI with 

specimen collection dates; and (2) all 

documentation of the dates on which a 

patient was admitted to, transferred to, 

or discharged from each location within 

the hospital during his/her stay. We are 

proposing to request only this 

information because it is all that CMS 

needs to complete validation for these 

measures. Therefore, this proposal will 

save CMS effort in completing 

validation, resulting in more timely 

feedback to hospitals. In addition, we 

believe that this more limited request 

may alleviate burden for many 

hospitals. Finally, this proposal should 

reduce the cost to CMS in both 

photocopying and shipping compared 

with submission of the entire patient 

chart. We invite public comment on this 

proposal. 

(2) Proposed Secure Transmission of 

Electronic Versions of Medical 

Information 

The current regulation at 42 CFR 

§ 412.140(d)(1) states: 

‘‘(d) Validation of Hospital IQR 

Program data. CMS may validate one or 

more measures selected under section 

1886(b)(3)(B)(viii) of the Act by 

reviewing patient charts submitted by 

selected participating hospitals. (1) 

Upon written request by CMS or its 

contractor, a hospital must submit to 

CMS a sample of patient charts that the 

hospital used for purposes of data 

submission under the program. The 

specific sample that a hospital must 

submit will be identified in the written 

request. A hospital must submit the 

patient charts to CMS or its contractor 

within 30 days of the date identified on 

the written request.’’ 

We are proposing that this 

requirement may be met by employing 

either of the following options each 

quarter: (1) A hospital may submit paper 

medical records, which is the form in 

which CMS has historically requested 

them; or (2) a hospital may securely 

transmit electronic versions of medical 

information for the FY 2016 payment 

determination and subsequent years. 

The intent of this proposal is to offer an 

additional mode through which 

hospitals may meet the requirement to 

submit patient charts. The content of the 

patient charts to be submitted are 

defined at 42 CFR § 482.24(c). We are 

not proposing to change the content of 

these charts (except for MRSA 

bacteremia and CDI as proposed in 

section IX.A.10.e.(1) of the preamble of 

this proposed rule). We are proposing 

this change because hospitals are 

rapidly adopting EHR systems as their 

primary source of information about 

patient care. Our understanding is that 

as of December 2012, more than 4,000 

hospitals, including 77 percent of 

hospitals participating in the Hospital 

IQR Program, had enrolled in the 

Medicare EHR Incentive Program. 

Based on the instructions that we 

have historically provided with written 

requests for records under 42 CFR 

§ 412.140(d)(1), hospitals have only 

been able to submit this information in 

paper format. For records stored 

electronically, hospitals expend 

additional resources printing records 

onto paper that may be more efficiently 

transmitted electronically. We pay 

hospitals at a rate of 12 cents per page, 

plus shipping (70 FR 23667). In 

addition, the length of paper charts has 

been increasing, and the paper used to 

submit these records has an 

environmental impact. As shown in the 

table below, the average patient chart 

based on the most recent available 

statistics from our CDAC contractor, is 

much larger than when CMS began 

validating quality reporting data. 

IPPS/LTCH PPS Final or Proposed Rule FY 

Approximate 

average page 

length 

Citation 

Final 2006 ................................................................................................................................................................ 140 70 FR 47702 

Final 2009 ................................................................................................................................................................ 150 73 FR 49075 

Final 2012 ................................................................................................................................................................ 275 76 FR 51828 

Proposed 2014 ........................................................................................................................................................ 410 ........................

In examining the most recent statistics 

available, which are based on records 

submitted for 2Q 2012, most of the 

increase in chart length is attributable to 

including HAI charts in the sample; HAI 

charts are on average 1,500 pages long, 

but other inpatient chart lengths are also 

larger, now averaging about 300 pages. 

Therefore, the proposal to allow 

hospitals to choose between submitting 

paper copy patient charts and securely 

transmitting electronic versions of 

medical information has the potential 

for significant reduction in 

administrative burden, cost, and 

environmental impact. Furthermore, 

this potential for savings grows as the 

measures selected for Hospital IQR 

Program chart validation increasingly 

focus on HAIs. 

We are proposing for the FY 2016 

payment determination and subsequent 

years that those hospitals wishing to 

securely transmit electronic versions of 

medical information to download or 

copy the digital image of the patient 

chart onto CD, DVD, or flash drive and 

ship it following instructions similar to 

those for shipping paper copies of 

patient charts. The precise guidelines to 

achieve this process will be posted on 

QualityNet and included with CMS’ 

written requests for patient charts. This 

proposal requires hospitals to use this 

single method for secure transmission of 

electronic versions of medical 

information, because it will enable us to 

efficiently process records and provide 

timely feedback to hospitals. We 

recognize that there may be many other 

methodologies under which 

transmission of electronic versions of 

medical information might occur. After 

evaluating several different potential 

approaches, we are proposing the only 

one available at this time that has been 

successfully tested. We will continue to 

develop and test additional technologies 

for secure transmission of electronic 

versions of medical information. We 

will notify hospitals through QualityNet 

as we acquire any new capabilities for 

accepting electronic versions of medical 

information, and to update available 

methodologies through future payment 

rules. We invite public comment on this 

proposal. 

For the FY 2016 payment 

determination and subsequent years, we 

also are proposing to incentivize the 

electronic option by offering 

reimbursement for the labor and supply 

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costs of submitting electronic versions 

of medical information. Because 

hospitals can choose between the 

current paper and the proposed 

electronic option of submitting 

validation records, we believe that this 

proposal does not increase cost or 

burden to hospitals. We invite public 

comment on this proposal. 

11. Proposed Data Accuracy and 

Completeness Acknowledgement 

Requirements for the FY 2015 Payment 

Determination and Subsequent Years 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53554), we finalized our 

proposal to require hospitals to continue 

to electronically acknowledge their data 

accuracy and completeness once 

annually. For the FY 2015 payment 

determination and subsequent years, the 

submission deadline finalized for the 

Data Accuracy and Completeness 

Acknowledgement (DACA) was aligned 

with the final submission quarter for 

each fiscal year. For example, for the FY 

2015 payment determination, the 

submission deadline for the Data 

Accuracy and Completeness 

Acknowledgement is currently May 15, 

2014, with respect to the reporting 

period of January 1, 2013, through 

December 31, 2013. 

In order to provide the timely 

feedback to hospitals regarding the APU 

status, we are proposing that for the FY 

2015 payment determination and 

subsequent years, we would collect the 

DACA in alignment with the 3rd quarter 

submission deadline. This would mean, 

for example, the electronic 

acknowledgement of data accuracy and 

completeness for the FY 2015 payment 

determination would be submitted 

between January 1, 2014 and February 

15, 2014, with respect to the reporting 

period of January 1, 2013 through 

December 31, 2013. We invite public 

comment on this proposal. 

12. Public Display Requirements for the 

FY 2016 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. In the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53554), we did not 

make any changes to these 

requirements. For the FY 2016 payment 

determination and subsequent years, we 

are not proposing to make any changes 

to these requirements. As previously 

stated in section IX.A.9.d. of the 

preamble of this proposed rule, we are 

proposing that we would not publicly 

report data collected from hospitals 

choosing to report the four measure sets 

(VTE, STK, ED and PC) electronically in 

CY 2014. 

The Hospital IQR Program quality 

measures are typically reported on the 

Hospital Compare Web site at: http:// 

www.medicare.gov/hospitalcompare, 

but on occasion are reported on other 

CMS Web sites such as http:// 

www.cms.gov and/or https:// 

data.medicare.gov. We 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. 

13. Proposed Reconsideration and 

Appeal Procedures for the FY 2015 

Payment Determination and Subsequent 

Years 

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 

section 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/ >HospitalsInpatient>Hospital Inpatient Quality 

Reporting Program>APU 

Reconsiderations. We are proposing to 

interpret this requirement to allow for 

this form to be completed online via the 

secure portion of the QualityNet Web 

site. 

In the past, it has been CMS’s process 

to allow hospitals with a quarterly 

Overall Validation Result of <75 percent 

to request a review by or appeal 

mismatched data element(s) to their 

State Quality Improvement Organization 

(QIO). This process requires that the 

CDAC contractor copy and ship all 

records for any hospital that receives an 

overall validation score of <75 percent 

to the State QIO. In the past two years, 

none of the mismatch appeals would 

have resulted in a change to the final 

APU determination. As described at 

§ 412.140(e) of our regulations, hospitals 

can also request a reconsideration of a 

decision by CMS that the hospital has 

not met the requirements of the Hospital 

IQR Program for a particular fiscal year. 

This includes reconsideration on the 

basis that CMS concluded it did not 

meet the validation requirements. We 

believe this process is redundant and, 

for the FY 2015 payment determination 

and subsequent years, we are proposing 

to remove the quarterly appeal of 

mismatched data elements to the State 

QIO. We invite public comment on this 

proposal. 

14. Hospital IQR Program Extraordinary 

Circumstances Extensions or Waivers 

The Hospital IQR Program 

extraordinary circumstances disaster 

extensions or waiver requirements were 

adopted in the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51651 through 51652) 

and can be found at 42 CFR 

§ 412.140(c)(2). In the FY 2012 IPPS/ 

LTCH PPS final rule, we explained the 

requirements for disaster extensions or 

waivers. 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. 

We are proposing to allow for not 

only a CEO, but also other hospitaldesignated personnel contact to 

complete and sign waiver/extraordinary 

circumstances forms. This proposed 

change would allow hospitals to 

designate an appropriate, non-CEO, 

contact at its discretion. This individual 

would be responsible for the 

submission, and would be the one 

signing the form. 

In addition, we are proposing to allow 

for this form to be completed online via 

the secure portion of the QualityNet 

Web site securely online via the 

QualityNet Web site. 

We also are proposing that we may 

grant a waiver or extension to hospitals 

if we determine that a systemic problem 

with one of our data collection systems 

directly affected the ability of the 

hospitals to submit data. Because we do 

not anticipate that these types of 

systemic errors will happen often, we 

do not anticipate granting a waiver or 

extension on this basis frequently. 

If we make the determination to grant 

a waiver or extension, we are proposing 

to communicate this decision through 

routine communication channels to 

hospitals, vendors and QIOs by means 

of, for example, memoranda, emails, 

and notices on the QualityNet Web site. 

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We invite public comment on these 

proposals. 

B. PPS-Exempt Cancer Hospital Quality 

Reporting (PCHQR) Program 

1. Statutory Authority 

Section 3005 of the Affordable Care 

Act added new subsections (a)(1)(W) 

and (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 (referred to as a ‘‘PPS-Exempt 

Cancer Hospital’’ or ‘‘PCH’’). Section 

1866(k)(1) of the Act states that, for FY 

2014 and each subsequent fiscal year, a 

PCH 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 NQF currently 

holds this contract. The NQF is a 

voluntary, consensus-based, standardsetting organization with a diverse 

representation of consumer, purchaser, 

provider, academic, clinical, and other 

health care stakeholder organizations. 

The NQF was established to standardize 

healthcare quality measurement and 

reporting through its consensus 

development processes. We have 

generally adopted NQF-endorsed 

measures in our reporting programs. 

However, section 1866(k)(3)(B) of the 

Act provides an exception. Specifically, 

it provides that, in the case of a 

specified area or medical topic 

determined appropriate by the Secretary 

for which a feasible and practical 

measure has not been endorsed by the 

entity with a contract under section 

1890(a) of the Act, the Secretary may 

specify a measure that is not so 

endorsed as long as due consideration is 

given to measures that have been 

endorsed or adopted by a consensus 

organization identified by the Secretary. 

Under section 1866(k)(3)(C) of the 

Act, the Secretary was required to 

publish the measure selection for PCHs 

no later than October 1, 2012, with 

respect to FY 2014. 

Section 1866(k)(4) of the Act requires 

the Secretary to establish procedures for 

making public the data submitted by 

PCHs under the 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 

PCH prior to such data being made 

public. The Secretary must report 

quality measures of process, structure, 

outcome, patients’ perspective on care, 

efficiency, and costs of care that relate 

to services furnished by PCHs on the 

CMS Web site. 

2. Covered Entities 

Section 1886(d)(1)(B)(v) of the Act 

excludes particular cancer hospitals 

from payment under the IPPS. This 

proposed rule covers only those PPSexcluded cancer hospitals meeting 

eligibility criteria specified in 42 CFR 

412.23(f). 

3. Previously Finalized Quality 

Measures for PCHs Beginning With the 

FY 2014 Program 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53556 through 53561), we 

finalized five quality measures for the 

FY 2014 program and subsequent years. 

Specifically, we finalized two CDC/ 

NHSN-based HAI quality measures 

(outcome measures): (1) Central LineAssociated Bloodstream Infection 

(CLABSI); and (2) Catheter-Associated 

Urinary Tract Infection (CAUTI). We 

also finalized three cancer-specific 

process of care measures: (1) Adjuvant 

chemotherapy is considered or 

administered within 4 months (120 

days) of surgery to patients under the 

age of 80 with 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. 

The finalized measures are shown 

below. 

PCHQR PROGRAM MEASURES FINALIZED IN THE FY 2013 IPPS/LTCH 

PPS FINAL RULE BEGINNING WITH

THE FY 2014 PROGRAM YEAR

Safety and Healthcare-Associated Infections—HAI: 

• (NQF #0139) NHSN Central Line-Associated Bloodstream Infection 

(CLABSI) Outcome Measure 

• (NQF #0138) NHSN Catheter-Associated Urinary Tract Infections (CAUTI) 

Outcome Measure 

Clinical Process/Cancer-Specific Treatments: 

PCHQR PROGRAM MEASURES FINALIZED IN THE FY 2013 IPPS/LTCH 

PPS FINAL RULE BEGINNING WITH

THE FY 2014 PROGRAM YEAR— 

Continued 

• (NQF #0223) 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 #0559) Combination Chemotherapy is considered or administered 

within 4 months (120 days) of diagnosis for women under 70 with AJCC 

T1c, or Stage II or III hormone receptor negative breast cancer 

• (NQF #0220) Adjuvant Hormonal 

Therapy 

We are not proposing to remove or 

replace any of the previously finalized 

measures from the PCHQR program for 

the FY 2015 program year. We 

discussed the collection requirements 

and submission timeframes for these 

measures in the preamble of the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53563 through 53564). 

4. 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 

section 1866(k)(3)(B) of the Act applies. 

Section 1866(k)(3)(B) of the Act states 

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 the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53556), we indicated that we 

have taken a number of principles into 

consideration when developing 

measures for the PCHQR Program, and 

that many of these principles are 

modeled on those we use for measure 

development under the Hospital IQR 

Program: 

• Public reporting should rely on a 

mix of standards, outcomes, process of 

care measures, and patient experience of 

care measures, including measures of 

care transitions and changes in patient 

functional status. 

• The measure set should evolve so 

that it includes a focused core set of 

measures appropriate to cancer 

hospitals that reflects the level of care 

and the most important areas of service 

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furnished by those hospitals. The 

measures should address gaps in the 

quality of cancer care. 

• We also consider input solicited 

from the public through rulemaking and 

public listening sessions. 

• We consider suggestions and input 

from a PCH Technical Expert Panel 

(TEP), convened by a CMS measure 

development contractor, which rated 

potential PCH quality measures for 

importance, scientific soundness, 

usability, and feasibility. The TEP 

membership includes health-care 

providers specializing in the treatment 

of cancer, cancer researchers, consumer 

and patient advocates, disparities 

experts, and representatives from payer 

organizations. 

Like the Hospital IQR Program, the 

PCHQR Program also supports the 

National Quality Strategy, national 

priorities, HHS Strategic Plans and 

Initiatives, and CMS Strategic Plans, as 

well as takes into consideration the 

recommendations of the MAP and 

strives for burden reduction whenever 

possible. 

We invite public comment on these 

considerations. 

5. Proposed New Quality Measures 

For the PCHQR Program beginning 

with FY 2015, we are proposing to 

adopt one new measure: NHSN HAI 

measure of Surgical Site Infection (SSI). 

For the PCHQR Program beginning 

with FY 2016, we are proposing to 

adopt 13 new measures: six measures of 

Surgical Care Improvement Project 

(SCIP), six Clinical Process/Oncology 

Care Measures, and one Patient 

Experience of Care measure (the 

HCAHPS Survey). 

All 14 of these proposed measures are 

NQF-endorsed. Some address inpatient 

care, and others address outpatient care. 

All of the measures address treatment 

provided to cancer patients in PCH 

inpatient or outpatient settings. In 

addition, the adoption of measures that 

apply to more than one healthcare 

setting is one of our objectives in 

promoting quality care consistently 

across all health care settings. The 14 

proposed measures are a subset of 19 

measures that we included on a publicly 

available document entitled ‘‘List of 

Measures Under Consideration for 

December 1, 2012’’ in compliance with 

section 1890A(a)(2) of the Act. These 

measures were reviewed by the MAP, a 

multi-stakeholder body convened by the 

NQF for the purpose of providing input 

to HHS on the selection of measures, 

and the MAP’s conclusions can be 

found in the ‘‘MAP Pre-Rulemaking 

Report: 2013 Recommendations on 

Measures Under Consideration by 

HHS.’’ The MAP Report can be accessed 

at: http://www.qualityforum.org/

Publications/2013/02/MAP_PreRulemaking_Report_-_February_2013.

aspx. 

We considered the input and 

recommendations provided by the MAP 

in selecting the 14 measures we are 

proposing for the PCHQR Program. Of 

these 14 measures, the MAP supported 

the inclusion of 13 of them in the 

PCHQR Program, and supported the 

direction of the proposed HCAHPS 

measure, noting that additional 

experience with the survey is needed so 

that the survey questions are applicable 

for use in the PCH settings. Although we 

recognize that some stakeholders would 

prefer that we adopt an experience of 

care measure developed specifically for 

the cancer hospital setting, we believe 

that other stakeholders think HCAHPS 

is appropriate for the cancer hospital 

setting, and are aware that 

approximately 27 percent of PCHs are 

currently administering HCAHPS to 

their patients. For these reasons, we 

believe that until a new patient 

experience measure is developed 

specifically for the PCH setting, the 

HCAHPS will provide valuable 

information to the public on the patient 

experience of care in PCHs. 

In addition, the proposed measures 

address the National Quality Strategy 

domains of Patient Safety, Clinical 

Effectiveness, and Patient Experience/ 

Engagement, and further our goal of 

aligning measures across programs 

because they are already in use in either 

the Hospital IQR Program or the PQRS 

Program. We describe these proposed 

measures in greater detail below. 

a. Proposed New Measure Beginning 

With FY 2015—NHSN HealthcareAssociated Infection (HAI) Measure: 

Surgical Site Infection (SSI) (NQF 

#0753) 

This NQF-endorsed American College 

of Surgeons/CDC harmonized measure 

of surgical site infection (SSI) meets the 

measure selection requirements at 

section 1866(k)(3)(A) of the Act, and 

expands upon the existing HealthcareAssociated Infections (HAIs) 

measurement topic that is part of the 

PCHQR Program. The measure 

addresses HAIs, a topic area widely 

acknowledged by HHS, the Institute of 

Medicine, the National Priorities 

Partnership and others as a high priority 

requiring measurement and 

improvement. HAIs are among the 

leading causes of death in the United 

States. The CDC estimates that as many 

as 2 million infections are acquired each 

year in hospitals and that HAIs result in 

approximately 90,000 deaths per year. It 

is estimated that more Americans die 

each year from HAIs than from auto 

accidents and homicides combined. 

HAIs not only put the patient at risk, but 

also increase the days of hospitalization 

required for patients and add 

considerable health care costs. 

HAIs are largely preventable through 

interventions such as better hygiene and 

advanced scientifically tested 

techniques for surgical patients. 

Therefore, many health care consumers 

and organizations have called for public 

disclosure of HAIs, arguing that public 

reporting of HAI rates provides the 

information health care consumers need 

to choose the safest hospitals, and give 

hospitals an incentive to improve 

infection control efforts (75 FR 50201). 

Detailed specifications for this 

proposed measure can be found at: 

http://www.cdc.gov/nhsn/TOC_manual.

html. This measure assesses the 

incidence of surgical site infections 

following colon surgeries and 

abdominal hysterectomies performed by 

PCHs and includes laparoscopic 

procedures. The measure rate is 

calculated as the Standardized Infection 

Ratio for each procedure type. Adult 

patients 18 years and older with deep 

incisional and organ space infections 

during the 30-day postoperative period 

are included in the measure. This 

measure is risk-adjusted and reported at 

the facility level. It is not specific to a 

hospital ward or setting, rather it is 

applicable to all postoperative patients 

who fall into the numerator criteria. The 

denominator is calculated using logistic 

regression models, determining the 

expected number of SSI’s by facility and 

procedure type. We invite public 

comment on this proposed SSI measure. 

b. Proposed New Measures Beginning 

With the FY 2016 PQHQR Program 

(1) Surgical Care Improvement Project 

(SCIP) Measures 

Measures from the Surgical Care 

Improvement Project (SCIP) have been 

collected as part of the Hospital IQR 

Program for most subsection (d) 

hospitals paid under the IPPS and 

reported on the Hospital Compare Web 

site for a number of years, because they 

assess effective care for patients 

undergoing surgery. In general, these 

measures are also applicable to patients 

undergoing surgery in PCHs. We are 

proposing to adopt six NQF-endorsed, 

SCIP measures for the PCHQR Program 

beginning with the FY 2016 program 

year. All six of the measures are NQFendorsed and therefore meet the 

selection requirements at section 

1866(k)(3)(A) of the Act. 

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In addition, all six of these measures 

were supported by the MAP for 

inclusion in the PCHQR Program in its 

February 2013 pre-rulemaking report to 

HHS located at: http://www.quality

forum.org/Setting_Priorities/

Partnership/MAP_Final_Reports.aspx. 

Four of these measures: SCIP—Inf 1 

(NQF #0527); SCIP—Inf 2 (NQF #0528), 

SCIP—Inf 3 (NQF #0529); and SCIP—Inf 

9 (NQF #0453) assess hospital 

performance with regard to infection 

prevention practices. SCIP-Card-2 (NQF 

#0284) assesses the continuity of beta 

blocker treatment during the 

perioperative period for cardiac patients 

undergoing non-cardiac surgery. SCIP— 

VTE 2 (NQF #0218) assesses hospital 

performance regarding effective 

preventive care for venous 

thromboembolism. 

These measures are described below, 

and detailed measure specifications for 

all six of these measures can be found 

in the Hospital IQR Program 

Specifications Manual located at: 

https://www.qualitynet.org/dcs/Content

Server?c=Page&pagename=Qnet

Public%2FPage%2FQnetTier4&cid=

1228772433589. 

We invite public comment on these 

six proposed SCIP measures. 

(A) SCIP—Inf 1: Prophylactic 

Antibiotics Received Within 1 Hour 

Prior to Surgical Incision (NQF #0527) 

This measure assesses the percent of 

surgical patients with prophylactic 

antibiotics initiated within one hour 

prior to surgical incision. Patients who 

received vancomycin or a 

fluoroquinolone for prophylactic 

antibiotics should have the antibiotics 

initiated within 2 hours prior to surgical 

incision. This measure addresses the 

National Quality Strategy domain of 

Clinical Effectiveness, and complements 

the proposed SSI measure. 

(B) SCIP—Inf 2: Prophylactic Antibiotic 

Selection for Surgical Patients (NQF 

#0528) 

This measure assesses the percent of 

surgical patients who received 

prophylactic antibiotics consistent with 

current guidelines (specific to each type 

of surgical procedure). A goal of 

prophylaxis with antibiotics is to use an 

agent that is safe, cost-effective, and has 

a spectrum of action that covers most of 

the probable intraoperative 

contaminants for the operation. This 

measure addresses the National Quality 

Strategy domain of Clinical 

Effectiveness, and complements the SSI 

measure. 

(C) SCIP—Inf 3: Prophylactic Antibiotic 

Discontinuation Within 24 Hours After 

Surgery End Time (NQF #0529) 

This measure assesses the percentage 

of surgical patients whose prophylactic 

antibiotics were discontinued within 24 

hours after Anesthesia End Time. A goal 

of prophylaxis with antibiotics is to 

provide benefit to the patient with as 

little risk as possible. It is important to 

maintain therapeutic serum and tissue 

levels throughout the operation. 

Intraoperative re-dosing may be needed 

for long operations. However, 

administration of antibiotics for more 

than 24 hours after the incision is closed 

offers no additional benefit to the 

surgical patient. Prolonged 

administration increases the risk of 

Clostridium difficile infection and the 

development of antimicrobial resistant 

pathogens. This measure addresses the 

National Quality Strategy domain of 

Clinical Effectiveness, and complements 

the proposed SSI measure. 

(D) SCIP—Inf 9: Urinary Catheter 

Removed on Post-Operative Day 1 or 

Post-Operative Day 2 With Day Surgery 

Being Day Zero (NQF #0453) 

This measure assesses the percent of 

surgical patients with urinary catheter 

removed on Postoperative Day 1 or 

Postoperative Day 2 with day of surgery 

being day zero. The risk of catheterassociated urinary tract infection (UTI) 

increases with longer duration of 

indwelling urinary catheterization. This 

measure complements the CAUTI 

measure currently adopted for the 

PCHQR Program. 

(E) SCIP—Card 2: Surgery Patients on 

Beta Blocker Therapy Prior to 

Admission Who Received a Beta 

Blocker During the Perioperative Period 

(NQF #0284) 

This measure assesses the percent of 

surgery patients on beta-blocker therapy 

prior to arrival who received a betablocker during the perioperative period. 

The perioperative period for this 

measure is defined as the day prior to 

surgery through postoperative day two, 

with day of surgery being day zero. The 

American College of Cardiology/ 

American Heart Association promote 

continuation of beta-blocker therapy in 

the perioperative period as a class I 

indication, and accumulating evidence 

suggests that titration to maintain tight 

heart rate control should be the goal. We 

believe that this measure targets an 

important process of care, beta blocker 

administration for non-cardiac surgery 

patients. Concerns regarding the 

discontinuation of beta-blocker therapy 

in the perioperative period have existed 

for several decades. This measure 

addresses the National Quality Strategy 

domain of Clinical Effectiveness. 

(F) SCIP—VTE 2: Surgical Patients Who 

Received Appropriate VTE Prophylaxis 

Within 24 Hours Prior to Surgery to 24 

Hours After Surgery End Time (NQF 

#0218) 

This measure assesses the percent of 

surgery patients who received 

appropriate VTE prophylaxis within 24 

hours prior to Anesthesia Start Time to 

24 hours after Anesthesia End Time. 

The frequency of VTE, which includes 

deep vein thrombosis and pulmonary 

embolism, is related to the type and 

duration of surgery, patient risk factors, 

duration and extent of postoperative 

immobilization, and use or nonuse of 

prophylaxis. Despite the evidence that 

VTE is one of the most common 

postoperative complications and 

prophylaxis is the most effective 

strategy to reduce morbidity and 

mortality, it is often underused. We 

believe that this measure will encourage 

practices to reduce the risk of postoperative complications associated with 

VTE. This measure addresses the 

National Quality Strategy domain of 

Clinical Effectiveness. 

(2) Clinical Process/Oncology Care 

Measures 

We are proposing to add to the 

PCHQR Program, beginning with FY 

2016, six measures specific to assessing 

the quality of medical treatment and 

staging of cancer by PPS-exempt cancer 

hospitals. All six measures are specified 

and endorsed for outpatient settings to 

evaluate the performance of a cancer 

treatment team which is an integral part 

of a cancer center. In addition, all six of 

these measures are NQF-endorsed and 

address the quality of outpatient cancer 

treatment provided at PCHs; therefore, 

they meet the measure selection 

requirement at section 1866(k)(3)(A) of 

the Act. 

All six measures also are 

recommended as priorities for program 

alignment in the PCHQR Program by the 

MAP in a June 2012 Final Report 

entitled ‘‘Performance Measurement 

Coordination Strategy for PPS-Exempt 

Cancer Hospitals.’’ In addition, all six of 

the measures are supported for 

inclusion in the PCHQR Program by the 

MAP in its 2013 Pre-Rulemaking Final 

Report issued in February 2013. Both of 

these MAP reports can be located at: 

http://www.qualityforum.org/ 

Setting_Priorities/Partnership/ 

MAP_Final_Reports.aspx. 

Detailed specifications of these six 

proposed measures can be found in 

Appendix A of the December 2012 NQF 

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103NQF. Cancer Endorsement Maintenance 

2011.Candidate Review Consensus—Phase 1. 

Available at: http://www.qualityforum.org/Projects/ 

Cancer_Endorsement_Maintenance_2011.aspx#

t=2&s=&p=3%7C. 

104NQF. Cancer Endorsement Maintenance 

2011.Candidate Review Consensus—Phase 1. 

Available at: http://www.qualityforum.org/Projects/ 

Cancer_Endorsement_Maintenance_2011.aspx#

t=2&s=&p=3%7C. 

105NQF. Cancer Endorsement Maintenance 

2011.Candidate Review Consensus—Phase 1. 

Available at: http://www.qualityforum.org/Projects/ 

Cancer_Endorsement_Maintenance_2011.aspx#

t=2&s=&p=3%7C. 

106NQF. Cancer Endorsement Maintenance 

2011.Candidate Review Consensus—Phase 1. 

Available at: http://www.qualityforum.org/Projects/ 

Cancer_Endorsement_Maintenance_2011.aspx#

t=2&s=&p=3%7C. 

107NQF. Cancer Endorsement Maintenance 

2011.Candidate Review Consensus—Phase 1. 

Available at: http://www.qualityforum.org/Projects/ 

Cancer_Endorsement_Maintenance_2011.aspx#

t=2&s=&p=3%7C. 

108NQF. Cancer Endorsement Maintenance 

2011.Candidate Review Consensus—Phase 1. 

Available at: http://www.qualityforum.org/Projects/ 

Cancer_Endorsement_Maintenance_2011.aspx#

t=2&s=&p=3%7C. 

109NQF. Cancer Endorsement Maintenance 

2011.Candidate Review Consensus—Phase 1. 

Available at: http://www.qualityforum.org/Projects/ 

Cancer_Endorsement_Maintenance_2011.aspx#t=

2&s=&p=3%7C. 

Cancer endorsement maintenance 

project report at: http://www.quality

forum.org/Publications/2012/12/

Cancer_Endorsement_Maintenance_

2011.aspx. We invite public comment 

on these six proposed clinical process/ 

oncology care measures. 

(A) Clinical Process/Oncology Care— 

Multiple Myeloma-Treatment With 

Bisphosphonates (NQF #0380) 

This measure assesses the percentage 

of patients aged 18 years and older with 

a diagnosis of multiple myeloma, not in 

remission, for which intravenous 

bisphosphonate therapy was prescribed 

or received within the 12-month 

reporting period. This measure is 

intended to promote the appropriate use 

of bisphosphonates to reduce morbidity 

and mortality in multiple-myeloma 

patients. Bisphosphonates specifically 

decrease osteoclast activity, thereby 

reducing bone pain and fractures in 

patients with multiple myeloma.103 This 

measure addresses the National Quality 

Strategy domain of Clinical 

Effectiveness. 

(B) Clinical Process/Oncology Care— 

Radiation Dose Limits to Normal 

Tissues (NQF #0382) 

This measure assesses the percentage 

of patients, regardless of age, with a 

diagnosis of pancreatic or lung cancer 

receiving 3D conformal radiation 

therapy with documentation in the 

medical record that radiation dose 

limits to normal tissues were 

established prior to the initiation of a 

course of 3D conformal radiation for a 

minimum of two tissues. This measure 

is intended to assess the appropriate use 

of 3D conformal radiation therapy in the 

treatment of pancreatic and lung 

cancers. Treatment is important due to 

the high rate of morbidity and mortality 

associated with these cancers. For 

example, among cancers in US adults, 

lung cancers are the leading cause of 

deaths in both men and women. It is 

estimated from 2006–2008 rates that 

6.94 percent of U.S. men and women 

born today will be diagnosed with 

cancer of the lung and bronchus at some 

time during their lifetime.104

Regarding pancreatic cancer, there has 

been an increased frequency of this 

cancer since 1998 of 0.8 percent in men 

and 1.0 percent in women.105 Based on 

rates from 2006 through 2008, 1.45 

percent of men and women born today 

will be diagnosed with cancer of the 

pancreas at some time during their 

lifetime. A major goal of radiation 

therapy is the delivery of the desired 

dose distribution of radiation to target 

tissue while limiting the radiation dose 

to the surrounding normal tissues to an 

acceptable level. 

Patients treated with 3D conformal 

radiation therapy are often subjected to 

radiation dose levels that exceed normal 

tissue tolerance. Precise specification of 

maximum doses to be received by 

normal tissues during radiation 

treatment planning is considered a best 

practice to avoid delivering unnecessary 

radiation to patients. 

(C) Clinical Process/Oncology Care— 

Plan of Care for Pain (NQF #0383) 

This measure assesses the percentage 

of visits for patients, regardless of age, 

with a diagnosis of cancer currently 

receiving chemotherapy or radiation 

therapy, who report having pain, with a 

documented plan of care to address that 

pain. Pain is one of the most common 

symptoms associated with cancer, 

occurring in approximately one quarter 

of patients with newly diagnosed 

malignancies, one third of patients 

undergoing treatment, and three 

quarters of patients with advanced 

disease. Proper pain management is 

critical to achieving pain control. 

‘‘Unrelieved pain denies [patients] 

comfort and greatly affects their 

activities, motivation, interactions with 

family and friends, and overall quality 

of life.’’ 106 This measure aims to 

improve attention to pain management 

and requires a plan of care for cancer 

patients who report having pain to 

allow for individualized treatment 

based on clinical circumstances and 

patient wishes.107 This measure 

addresses the National Quality Strategy 

domain of Patient and Family 

Engagement. This measure is intended 

to be paired with NQF #0384 below. 

(D) Clinical Process/Oncology Care— 

Pain Intensity Quantified (NQF #0384) 

This measure assesses the percentage 

of patient visits, regardless of patient 

age, with a diagnosis of cancer currently 

receiving chemotherapy or radiation 

therapy in which pain intensity is 

quantified. As described above for 

Oncology: Plan of Care for Pain (NQF 

#0383), pain is the most common 

symptom in cancer patients and this 

measure is used in conjunction with 

NQF #0384 to encourage consistent 

assessment of pain intensity to better 

guide the care of pain.108 This measure 

addresses the National Quality Strategy 

domain of Patient and Family 

Engagement. Higher rates are indicative 

of better performance. This measure is 

intended to be paired with NQF #0383 

above. 

(E) Clinical Process/Oncology Care— 

Prostate Cancer-Avoidance of Overuse 

Measure-Bone Scan for Staging LowRisk Patients (NQF #0389) 

This measure assesses the percentage 

of patients, regardless of age, with a 

diagnosis of prostate cancer at low risk 

of recurrence receiving interstitial 

prostate brachytherapy, or external 

beam radiotherapy to the prostate, or 

radical prostatectomy, or cryotherapy, 

who did not have a bone scan 

performed at any time since diagnosis of 

prostate cancer. 

Prostate cancer is the most commonly 

diagnosed cancer and the second 

leading cause of cancer death in men 

over the age of 40 years in the United 

States. Current guidelines and best 

practices do not recommend bone scans 

for patients in the low risk stratum for 

prostate cancer bony involvement. This 

goal of this measure is to reduce the use 

of bone scans that are clinically 

unnecessary and reduce economic 

burden to the patient and payer.109 This 

measure addresses the National Quality 

Strategy domain of Clinical Efficiency. 

(F) Clinical Process/Oncology Care— 

Prostate Cancer-Adjuvant Hormonal 

Therapy for High-Risk Patients (NQF 

#0390) 

This measure assesses the percentage 

of patients, regardless of age, with a 

diagnosis of prostate cancer at high risk 

of recurrence receiving external beam 

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110NQF. Cancer Endorsement Maintenance 

2011.Candidate Review Consensus—Phase 1. 

Available at: http://www.qualityforum.org/Projects/ Cancer_Endorsement_Maintenance_2011.aspx#

t=2&s=&p=3%7C. 

radiotherapy to the prostate, who were 

prescribed adjuvant hormonal therapy 

(GnRH agonist or antagonist). Prostate 

cancer is the most commonly diagnosed 

cancer and the second leading cause of 

cancer death in men over the age of 40 

years in the United States. If patients are 

receiving external beam radiotherapy as 

primary therapy, those patients that are 

designated as high risk may be 

prescribed hormonal therapy. Adjuvant 

hormonal therapy in these patients has 

been shown to increase the effectiveness 

of the radiotherapy and may also 

prolong survival. Further, the American 

Urological Association and the National 

Comprehensive Cancer Network 

guidelines recommend adjuvant 

hormonal therapy with radiotherapy for 

high risk prostate cancer patients for 

prolonged survival. This measure 

attempts to encourage compliance with 

this guideline for this specific patient 

population.110 This measure addresses 

the National Quality Strategy domain of 

Clinical Effectiveness. 

(3) Patient Experience of Care Survey: 

HCAHPS 

To advance patient safety and quality 

improvement in cancer hospital 

settings, we are proposing that for the 

FY 2016 PCHQR Program and 

subsequent years PCHs submit data on 

the HCAHPS Survey of patient 

experience-of-care. We partnered with 

AHRQ to develop HCAHPS. The 

HCAHPS Survey is the first national, 

standardized, publicly reported survey 

of patients’ experience of hospital care. 

HCAHPS, also known as CAHPS®

Hospital Survey, is a survey instrument 

and data collection methodology for 

measuring patients’ perceptions of their 

hospital experience. 

The HCAHPS Survey asks recently 

discharged patients 32 questions about 

aspects of their hospital experience that 

they are uniquely suited to address. The 

core of the survey contains 21 items that 

ask ‘‘how often’’ or whether patients 

experienced a critical aspect of hospital 

care. The survey also includes four 

items to direct patients to relevant 

questions, five items to adjust for the 

mix of patients across hospitals, and 

two items that support Congressionallymandated reports (77 FR 53513 through 

53515). 

Ten HCAHPS measures (six summary 

measures, two individual items and two 

global items) are currently publicly 

reported on the Hospital Compare Web 

site (http:// 

www.hospitalcompare.hhs.gov/) for 

each hospital participating in the 

Hospital IQR Program. One new 

composite item, ‘‘Transition to posthospital care,’’ will be added to the 

Hospital Compare Web site for the 

Hospital IQR Program once participating 

hospitals have submitted four calendar 

quarters of data on the three Care 

Transition Measure items that were 

added to the HCAHPS Survey beginning 

with January 2013 discharges (77 FR 

53513 through 53515). 

Each of the six currently reported 

summary measures, or composites, is 

constructed from two or three survey 

questions. The six composites 

summarize how well doctors 

communicate with patients, how well 

nurses communicate with patients, how 

responsive hospital staff are to patients’ 

needs, how well hospital staff helps 

patients manage pain, how well the staff 

communicates with patients about 

medicines, and whether key information 

is provided at discharge. The two 

individual items address the cleanliness 

and quietness of patients’ rooms, while 

the two global items report patients’ 

overall rating of the hospital, and 

whether they would recommend the 

hospital to family and friends. 

The HCAHPS Survey is administered 

to a random sample of adult inpatients 

between 48 hours and 6 weeks after 

discharge. Patients admitted in the 

medical, surgical and maternity care 

service lines are eligible for the survey; 

the survey is not restricted to Medicare 

beneficiaries. PCHs may use an 

approved survey vendor, or collect their 

own HCAHPS data (if approved by CMS 

to do so). To accommodate hospitals, 

HCAHPS can be implemented using one 

of four different survey modes: mail, 

telephone, mail with telephone followup, or active interactive voice 

recognition (IVR). Regardless of the 

mode used, the PCH would be required 

to make multiple attempts to contact 

patients. 

PCHs may use the HCAHPS Survey 

alone, or include additional questions 

after the 21 core items discussed above. 

PCHs must survey patients throughout 

each month of the year, and PCHs 

participating in the PCHQR Program 

must target at least 300 completed 

surveys over four calendar quarters in 

order to attain the reliability criterion 

CMS has set for publicly reported 

HCAHPS scores. The HCAHPS Survey 

is available in official translations in 

several languages other than English: 

Spanish (mail and telephone modes); 

Chinese (mail mode); Russian (mail 

mode); and Vietnamese (mail mode). All 

official translations of the HCAHPS 

Survey instrument are available in the 

current HCAHPS Quality Assurance 

Guidelines. The survey itself and the 

protocols for sampling, data collection, 

coding and file submission can be found 

in the current HCAHPS Quality 

Assurance Guidelines manual, available 

on the HCAHPS On-Line Web site 

located at: http:// 

www.hcahpsonline.org. 

We partnered with AHRQ to develop 

and test the HCAHPS Survey. AHRQ 

carried out a rigorous and multi-faceted 

scientific process, including a public 

call for measures; literature review; 

cognitive interviews; consumer focus 

groups; stakeholder input; a three-State 

pilot test; extensive psychometric 

analyses; consumer testing; and 

numerous small-scale field tests. In 

addition, we provided three separate 

opportunities for the public to comment 

on HCAHPS, and responded to over 

1,000 comments. 

In May 2005, the HCAHPS Survey 

was NQF-endorsed and in December 

2005 OMB gave its final approval for the 

national implementation of HCAHPS for 

public reporting purposes. We 

implemented the HCAHPS Survey for 

the Hospital IQR Program in October 

2006 and the first public reporting of 

HCAHPS results under that program 

occurred in March 2008. The survey, its 

methodology and the results it produces 

are available on Hospital Compare. 

Currently, nearly 3,900 hospitals that 

participate in the Hospital IQR Program 

publicly report their HCAHPS scores on 

Hospital Compare, and about 27 percent 

of PCHs voluntarily administer the 

HCAHPs Survey. We strongly encourage 

those PCHs that are currently submitting 

the HCAHPS measure to continue their 

current data submission. 

In summary, we invite public 

comment on our proposals to adopt one 

new measure (SSI measure) beginning 

with the FY 2015 PCHQR Program and 

13 new measures (six SCIP measures, 

six Clinical Process/Oncology Care 

measures, and one HCAHPS measure) 

beginning with the FY 2016 PCHQR 

Program. We refer readers to section 

IX.B.9. of the preamble of this proposed 

rule for more detailed information about 

the form, manner, and timing of data 

collection for these proposed measures. 

The tables below list the proposed new 

measures for the PCHQR Program 

beginning with the FY 2015 and FY 

2016 respectively. 

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Topic Proposed New Measure for the PCHQR Program Beginning with the FY 2015 Program Year 

Safety and Healthcare-Associated Infection—HAI 

• (NQF #0753) Harmonized Procedure Specific Surgical Site Infection (SSI) Outcome Measure 

Topic 

Proposed New Measures for 

the PCHQR Program Beginning with the FY 2016 Program Year 

SCIP 

• (NQF #0218) Surgery Patients who Received Appropriate VTE Prophylaxis 

within 24 Hrs Prior to Surgery to 24 Hrs After Surgery End Time 

• (NQF #0453) Urinary 

Catheter Removed on 

Post-Operative Day 1 or 

Post-Operative Day 2 with 

Day of Surgery Being Day 

Zero 

• (NQF #0527) Prophylactic 

Antibiotic Received Within 

1 Hr Prior to Surgical Incision 

• (NQF #0528) Prophylactic 

Antibiotic Selection for 

Surgical Patients 

• (NQF #0529) Prophylactic 

Antibiotic Discontinued 

Within 24 Hrs After Surgery End Time 

• (NQF #0284) Surgery Patients on Beta Blocker 

Therapy Prior to Admission who Received a Beta 

Blocker During the 

Perioperative Period 

Clinical Process/Oncology Care Measures 

• (NQF #0380) Multiple 

Myeloma-Treatment with 

Bisphosphonates 

• (NQF #0382) OncologyRadiation Dose Limits to 

Normal Tissues 

• (NQF #0383) Oncology: 

Plan of Care for Pain 

• (NQF #0384) Oncology: 

Pain Intensity Quantified 

• (NQF #0390) Prostate 

Cancer-Adjuvant Hormonal Therapy for HighRisk Patients 

• (NQF #0389) Prostate 

Cancer-Avoidance of 

Overuse Measure-Bone 

Scan for Staging Low-Risk 

Patients 

Patient Engagement/Experience of Care 

• (NQF #0166) HCAHPS 

6. Possible New Quality Measure 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 PPS-exempt cancer 

hospital setting. Therefore, through 

future rulemaking, we intend to propose 

to adopt new or updated measures, such 

as measures that assess the safety and 

efficiency of diagnosis and treatment of 

cancer, measures that take into account 

novel diagnostic and treatment 

modalities, measures that assess 

symptoms and functional status, 

measures of appropriate disease 

management and care coordination, and 

measures of admissions for 

complications of cancer and treatment 

for cancer, 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. 

We welcome public comment and 

suggestions for the following measure 

domains: clinical quality of care, care 

coordination, patient safety, patient and 

caregiver experience of care, 

population/community health, and 

efficiency. These domains align with 

those of the National Quality Strategy, 

and we believe that selecting measures 

to address these domains will promote 

better cancer care while bringing the 

PCHQR Program in line with other 

established quality reporting and pay for 

performance programs such as the 

Hospital IQR Program, the Hospital VBP 

Program, and the Hospital OQR 

Program, and others within our 

purview. 

7. 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 

substantively change the nature of the 

measure. 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 the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53562), we adopted a policy 

to use a subregulatory process to make 

nonsubstantive updates to NQFendorsed measures used for the PCHQR 

Program. We also said that we expected 

to make the determination of what 

constitutes a substantive versus a 

nonsubstantive change on a case-by-case 

basis, and provided examples of the 

types of changes that would fall into 

each category. We further said that the 

policies regarding what is considered 

substantive versus nonsubstantive 

changes would apply to all PCHQR 

Program measures. 

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 HCAHPS 

On-Line Web site, http:// 

www.hcahpsonline.org. As necessary, 

HCAHPS Bulletins are issued to provide 

notice of changes and updates to 

technical specifications in HCAHPS 

data collection systems. As stated in our 

previous rulemaking (77 FR 53562), the 

specifications for the other measures are 

posted on the Specification Manual on 

the QualityNet Web site at 

www.qualitynet.org. 

The Specifications Manual contains 

links to measure specifications, data 

abstraction information, data 

submission information, and other 

information necessary for PCHs to 

participate in the PCHQR Program. We 

maintain the technical specifications for 

the quality measures by updating this 

Manual periodically as we continue to 

expand and update our PCHQR 

Program. These updates include 

detailed instructions for PCHs to use 

when collecting and submitting data on 

the required measures and are 

accompanied by notifications to PCHQR 

Program-participating users, providing 

sufficient time between the change and 

effective dates in order to allow users to 

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27716 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

incorporate changes and updates to the 

measure specifications into data 

collection systems. We also revise the 

Specifications Manual and provide links 

to reflect measure changes which are 

also posted on the QualityNet Web site 

at: https://www.QualityNet.org. 

8. Public Display Requirements 

Beginning with FY 2015 Program Year 

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 Web site. In order 

to meet these requirements, in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53562 through 56563), we finalized our 

policy to publicly display the submitted 

data on the Hospital Compare Web site 

(http://www.hospitalcompare.hhs.gov/) 

and established a preview period of 30 

days prior to making such data public. 

This year we have more information 

on the state of our systems’ capability 

and readiness, therefore, we are 

proposing to publicly display in 2014 

the data for the measures listed below: 

• Adjuvant Chemotherapy is 

considered or administered within 4 

months (120 days) of surgery to patients 

under the age of 80 with AJCC III 

(lymph node positive) colon cancer 

(NQF #0223); and 

• Combination Chemotherapy is 

considered or administered within 4 

months (120 days) of diagnosis for 

women under 70 with AJCC T1c, or 

Stage II or III hormone receptor negative 

breast cancer (NQF #0559). 

However, at this time, we are 

proposing to defer the public reporting 

of the remaining three finalized 

measures for FY 2014 PCHQR Program. 

We are in the process of testing and 

assessing data quality, including the 

reliability and validity of the measure 

rates, and do not believe that the data 

will be ready for public posting until 

sometime in the future. We will provide 

more information in future rulemaking. 

We invite public comment on these 

proposals. 

9. Form, Manner, and Timing of Data 

Submission Beginning with the FY 2015 

Program Year 

a. Background 

Section 1866(k)(2) of the Act requires 

that, beginning with FY 2014 PCHQR 

Program, each PCH must submit to the 

Secretary data on quality measures 

specified under section 1866(k)(3) of the 

Act in a form and manner, and at a time 

as specified by the Secretary. 

The complete data submission 

requirements and submission deadlines 

for FY 2014 have been posted on the 

QualityNet Web site at: https:// 

www.QualityNet.org. We also refer 

readers to the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53563 through 535567) 

for more information. 

b. Proposed Waivers from Program 

Requirements 

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). We do not wish to 

unduly increase their burden during 

these times. Therefore, we are proposing 

that, beginning with FY 2014, PCHs may 

request and we may grant waivers with 

respect to the reporting of required 

quality data when extraordinary 

circumstances beyond the control of the 

PCH warrant. When waivers are granted, 

we will notify the respective PCH. 

Under the proposed process, in the 

event of extraordinary circumstances 

not within the control of the PCH, such 

as a natural disaster, the PCH 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 to 

CMS a request form that would be made 

available on the QualityNet Web site. 

The following information should be 

noted on the form: 

• The PCH’s CCN; 

• The PCH’s name; 

• Contact information for the PCH’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); 

• The PCH’s reason for requesting an 

extension or waiver; 

• Evidence of the impact of 

extraordinary circumstances, including 

but not limited to photographs, 

newspaper and other media articles; and 

• A date when the PCH will again be 

able to submit PCHQR Program data, 

and a justification for the proposed date. 

We are proposing that the request 

form must be signed by the PCH’s CEO 

or designee, 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 

PCH personnel, notifying them that the 

PCH’s request has been received; and (2) 

provide a formal response to the CEO 

and any additional designated PCH 

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 

PCHs 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 PCH’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 PCHs in a region or locale, 

we are proposing to communicate this 

decision through routine 

communication channels to PCHs and 

vendors, by means of memoranda, 

emails, and notices on the QualityNet 

Web site, among other means. 

We invite public comment on this 

proposal. 

c. Proposed Reporting Periods and 

Submission Timelines for the Proposed 

SSI Measure 

We are proposing that PCHs report the 

proposed SSI measure beginning with 

January 1, 2014 events. We believe that 

this date will provide enough advance 

notice for PCHs to prepare to report the 

measure, and we base this belief on our 

experience gained from collecting the 

SSI measure for the Hospital IQR 

Program. 

We are proposing to calculate the SSI 

measure rate for purposes of the FY 

2015 PCHQR Program using data from 

the first quarter (Q1) of calendar year 

(CY) 2014. We recognize that using data 

from only one quarter may not provide 

a complete picture of the quality of care 

provided at a PCH. However, our intent 

is to align the PCHQR reporting timeline 

with the reporting timeline used by the 

Hospital IQR Program as well as to 

leverage current IT infrastructure to 

minimize cost and burden. 

We are proposing to calculate the SSI 

measure rate for purposes of the FY 

2016 program using data from the last 

three quarters (Q2, Q3, and Q4) of CY 

2014, and we are proposing to calculate 

the SSI measure rate for purposes of the 

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Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 27717 

111Catheter-Associated Urinary Tract Infection 

(CAUTI) Event at http://www.cdc.gov/nhsn/pdfs/ 

pscManual/7pscCAUTIcurrent.pdf. 

112Central Line-Associated Bloodstream Infection 

(CLABSI) Event at: http://www.cdc.gov/nhsn/pdfs/ 

pscmanual/4psc_clabscurrent.pdf. 

FY 2017 program using data from all 

four quarters (Q1, Q2, Q3, and Q4) of CY 

2015. The table below outlines the 

proposed reporting periods and 

submission timeframes for FY 2015, FY 

2016, and FY 2017. 

PROPOSED SSI MEASURE REPORTING PERIODS AND SUBMISSION TIMEFRAMES FOR FYS 2015, 2016 AND 2017 

Program Year (FY) Reporting Periods (CY) Data Submission 

Deadlines 

2015 ............................. Q1 2014 events (January 1, 2014–March 31, 2014) .................................................................. August 15, 2014 

2016 ............................. Q2 2014 events (April 1, 2014–June 30, 2014) .......................................................................... November 15, 2014 

Q3 2014 events (July 1, 2014–September 30, 2014) ................................................................. February 15, 2015 

Q4 2014 events (October 1, 2014–December 31, 2014) ........................................................... May 15, 2015 

2017 ............................. Q1 2015 events (January 1, 2015–March 31, 2015) .................................................................. August 15, 2015 

Q2 2015 events (April 1, 2015–June 30, 2015) .......................................................................... November 15, 2015 

Q3 2015 events (July 1, 2015–September 30, 2015) ................................................................. February 15, 2016 

Q4 2015 events (October 1, 2015–December 31, 2015) ........................................................... May 15, 2016 

We are proposing that PCHs submit 

the SSI measure data to the CDC 

through the NHSN database. This is the 

same procedural/reporting mechanism 

requirement used for the CLABSI and 

CAUTI measures we finalized in FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53563 through 53564). The data 

submission and reporting procedures 

have been set forth by CDC for NHSN 

participation in general and for 

submission of the SSI measure to 

NHSN. We refer readers to the CDC’s 

Web site (http://www.cdc.gov/nhsn/) for 

detailed data submission and reporting 

procedures. After the final submission 

deadline has passed, we will obtain the 

PCH-specific calculations that have 

been generated by the NHSN for the 

PCHQR Program. 

As noted in the table above, we are 

proposing to adopt a quarterly 

submission process for the SSI measure 

that uses a reporting mechanism that is 

the same as the one finalized for the 

Hospital IQR Program (77 FR 53539). 

We have successfully implemented this 

reporting mechanism in the Hospital 

IQR Program, and we strongly believe 

that this type of data submission is the 

most feasible option because PCHs are 

accustomed to reporting the CAUTI and 

CLABSI measures to the NHSN this 

way. 

We welcome public comment on this 

proposal. 

d. Proposed Exceptions to Reporting 

and Data Submission for HAI Measures 

(CAUTI, CLABSI, and Proposed SSI) 

Last year we finalized policies for the 

Hospital IQR Program providing 

exceptions to the reporting and data 

submission requirements for the 

CLABSI, CAUTI and SSI measures (77 

FR 53539). We implemented these 

exceptions because we realize that some 

hospitals may not have locations that 

meet the NHSN criteria for CLABSI or 

CAUTI reporting and that that some 

hospitals may perform so few 

procedures requiring surveillance under 

the SSI measure that the data may not 

be meaningful for Hospital Compare or 

sufficiently reliable to be utilized for 

payment determination. We also 

finalized last year the CLABSI and 

CAUTI measures for PCHQR Program 

starting with FY 2014 (77 FR 53557) but 

did not propose to adopt the same 

exceptions for those measures. This 

year, we are proposing to adopt the 

same exceptions to the CLABSI and 

CAUTI measures for PCHs, which are 

outlined in CDC’s specifications 

manual, because we realize that some 

hospitals may not have locations that 

meet the NHSN criteria. We refer 

readers to the CDC’s specifications 

manual for more information on 

location exceptions for the CAUTI 111

and CLABSI.112

In addition, as with the Hospital IQR 

Program, we recognize that some PCHs 

may perform so few procedures 

requiring surveillance under the 

proposed SSI measure that the data may 

not be meaningful for Hospital Compare 

or sufficiently reliable to be utilized for 

quality reporting purposes. We are 

proposing to provide an exception for 

these PCHs from the reporting 

requirement in any given year if the 

PCH performed less than a combined 

total of 10 colon and abdominal 

hysterectomy procedures in the 

calendar year prior to the reporting year. 

We are proposing to provide PCHs 

with a single HAI exception form, to be 

used for seeking an exception for any of 

the CLABSI, CAUTI, and SSI measures. 

This exception form will be available on 

QualityNet Web site. 

We invite public comment on this 

proposal. 

e. Proposed Reporting and Data 

Submission Requirements for the 

Proposed Clinical Process/Oncology 

Care Measures 

We are proposing that PCHs report the 

proposed clinical process/oncology care 

measures beginning with January 1, 

2015 discharges. We believe that this 

date will provide enough advance 

notice for PCHs to prepare to report the 

measures. We believe that this timeline 

provides PCHs with sufficient time to 

prepare to report on the new measures. 

We are proposing to calculate the 

clinical process/oncology care measure 

rates for purposes of the FY 2016 

program using data from the first quarter 

(Q1) of CY 2015, and that PCHs submit 

aggregated data for each measure for this 

quarter during a data submission 

window that will be open from July 1 

through August 15, 2015. We are 

proposing to calculate the clinical 

process/oncology care measure rates for 

purposes of the FY 2017 program using 

data from the last three quarters (Q2, 

Q3, and Q4) of CY 2015. We are 

proposing that PCHs submit aggregated 

data for each measure for each of these 

quarters during a data submission 

window that will be open from July 1 

through August 15, 2016. We are 

proposing to calculate the clinical 

process/oncology care measure rates for 

purposes of the FY 2018 program using 

data from the four quarters (Q1, Q2, Q3, 

and Q4) of CY 2016. We are proposing 

that PCHs submit aggregated data for 

each measure for each of these quarters 

during a data submission window that 

will be open from July 1 through August 

15, 2017. The table below outlines the 

proposed reporting periods and 

submission timeframes for FY 2016, FY 

2017, and FY 2018 for the proposed 

clinical process/oncology care 

measures. 

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27718 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

PROPOSED CLINICAL PROCESS/ONCOLOGY CARE MEASURES—PROPOSED REPORTING PERIODS AND SUBMISSION

TIMEFRAMES FOR FYS 2016–2018 

Program year (FY) Reporting periods (CY) Data submission deadlines 

2016 ........................ Q1 2015 discharges (January 1, 2015–March 31, 2015) ..................................... July 1, 2015–August 15, 2015 

2017 ........................ Q2 2015 discharges (April 1, 2015–June 30, 2015.

Q3 2015 discharges (July 1, 2015–September 30, 2015) .................................... July 1, 2016–August 15, 2016 

Q4 2015 discharges (October 1, 2015–December 31, 2015).

2018 ........................ Q1 2016 discharges (January 1, 2016–March 31, 2016).

Q2 2016 discharges (April 1, 2016–June 30, 2016 .............................................. July 1, 2017–August 15, 2017 

Q3 2016 discharges (July 1, 2016–September 30, 2016).

Q4 2016 discharges (October 1, 2016–December 31, 2016).

For data collection, we are proposing 

that PCHs submit aggregate-level data 

through the CMS Web-based Measures 

Tool. This proposal mirrors the 

requirements we have finalized for the 

IPFQR Program (77 FR 53655). PCHs 

would submit all the data required for 

a particular program year once annually 

during the data submission windows we 

proposed above, and would do so via 

the PCH section on the QualityNet 

secure Web site. However, the data 

input forms on the QualityNet Web site 

for such submission will require 

aggregate data for each separate quarter. 

Therefore, PCHs will need to track and 

maintain quarterly records for their 

data. We refer readers to FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53655) for 

more information on the CMS Webbased aggregated data collection tool 

used in the IPFQR Program, which we 

are now proposing to also use in the 

PCHQR Program. We believe that this 

option is less burdensome to PCHs than 

patient level reporting. 

We also recognize that aggregate level 

reporting has the potential to result in 

less accurate measure rates than patient 

level reporting; however, we have 

assessed our infrastructure readiness to 

collect these measures in the PCHQR 

Program and believe that an aggregate 

data submission approach is the most 

feasible approach at this time. 

We welcome public comment on the 

proposed reporting periods and data 

collection methods/modes for the 

clinical process/oncology care 

measures. 

f. Proposed Reporting and Data 

Submission Requirements for the 

Proposed SCIP Measures 

We are proposing that PCHs report the 

proposed SCIP measures beginning with 

January 1, 2015 discharges. We believe 

that this date will provide enough 

advance notice for PCHs to prepare to 

report the measures, and our belief is 

based on the experience gained from 

collecting the SCIP measures for the 

Hospital IQR Program. 

We are proposing to calculate the 

SCIP measure rates for purposes of the 

FY 2016 program using patient-level 

data from the first quarter (Q1) of CY 

2015. We recognize that using data from 

only one quarter may not provide a 

complete picture of the quality of care 

provided at a PCH. However, our intent 

is to align the PCHQR Program’s current 

reporting timeline with the reporting 

timeline used by the Hospital IQR 

Program, as well as to leverage the 

current IT infrastructure to minimize 

cost and burden. We are proposing to 

calculate the SCIP measure rates for 

purposes of the FY 2017 program using 

the last three quarters (Q2, Q3, and Q4) 

of CY 2015. This will allow us to 

calculate measure rates for FY 2018 

using data from all four quarters (Q1, 

Q2, Q3, and Q4) of CY 2016. The table 

below outlines the proposed reporting 

periods and submission timeframes for 

the FY 2016, FY 2017, and FY 2018 

program years. 

PROPOSED SCIP MEASURES—PROPOSED REPORTING PERIODS AND SUBMISSION TIMEFRAMES FOR FYS 2016–2018 

Program Year (FY) Reporting Periods (CY) Data Submission 

Deadlines 

2016 ............................. Q1 2015 discharges (January 1, 2015–March 31, 2015) ........................................................... August 15, 2015 

2017 ............................. Q2 2015 discharges (April 1, 2015–June 30, 2015) ................................................................... November 15, 2015 

Q3 2015 discharges (July 1, 2015–September 30, 2015) .......................................................... February 15, 2016

Q4 2015 discharges (October 1, 2015–December 31, 2015) .................................................... May 15, 2016 

2018 ............................. Q1 2016 discharges (January 1, 2016–March 31, 2016) ........................................................... August 15, 2016 

Q2 2016 discharges (April 1, 2016–June 30, 2016) ................................................................... November 15, 2016 

Q3 2016 discharges (July 1, 2016–September 30, 2016) .......................................................... February 15, 2017

Q4 2016 discharges (October 1, 2016–December 31, 2016) .................................................... May 15, 2017 

We are proposing that PCHs submit 

patient level data for each of the SCIP 

measures to CMS through the 

QualityNet infrastructure. This is the 

same procedural/reporting mechanism 

requirement used for collecting Hospital 

IQR Program SCIP process of care 

measures. We have successfully 

implemented this reporting mechanism 

in the Hospital IQR Program and intend 

to use the same reporting mechanism to 

collect data for the PCHQR Program. We 

are proposing the patient-level data 

submission approach for the SCIP 

measures so that we can compare the 

data being submitted by PCHs with that 

being submitted by hospitals under the 

Hospital IQR Program. We also believe 

that patient-level data will provide us 

with more granular information that we 

can use to better assess the quality of 

care provided at a PCH. 

We welcome public comment on the 

proposed reporting and submission 

requirements for the proposed SCIP 

measures and welcome feedback on 

using patient level versus other types of 

data submission. 

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g. Proposed HCAHPS Requirements 

The HCAHPS requirements that we 

are proposing mirror those used for the 

Hospital IQR Program (77 FR 53537 

through 53538). Similarly, we are 

proposing that PCHs 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. Like 

acute care hospitals that submit 

HCAHPS data under the Hospital IQR 

Program, we are proposing that PCHs 

will have approximately 13 weeks after 

the end of a calendar quarter to submit 

HCAHPS data for that quarter to the QIO 

Clinical Warehouse, also referred to as 

the ‘‘HCAHPS data warehouse.’’ 

In order for a PCH to participate in the 

collection of HCAHPS data, a PCH must 

either: (1) Contract with an approved 

HCAHPS survey vendor that will 

conduct the survey and submit data on 

the PCH’s behalf to the QIO Clinical 

Warehouse; or (2) self-administer the 

survey without using a vendor provided 

that the PCH 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. 

We are proposing that a PCH which 

chooses 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.) We 

would strongly encourage PCHs 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 PCHs must also provide the 

administrative data that is required for 

HCAHPS in a timely manner to their 

survey vendor. This includes the 

patient’s 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 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, 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 PCH must 

authorize the survey vendor to submit 

data via My QualityNet, the secure part 

of the QualityNet Web site, on the PCH’s 

behalf. 

We are proposing that the PCHs 

obtain and submit at least 300 

completed HCAHPS surveys in a rolling 

four-quarter period unless the PCH is 

too small to obtain 300 completed 

surveys. We are proposing that the 

absence of a sufficient number of 

HCAHPS-eligible discharges will be the 

only acceptable reason for obtaining and 

submitting fewer than 300 completed 

HCAHPS surveys in a rolling four 

quarter period. We are proposing that if 

a PCH obtains fewer than 100 completed 

surveys, the PCH’s 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 PCH performance. 

After the survey vendor submits the 

data to the QIO Clinical Warehouse, we 

strongly recommend that PCHs 

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 will 

enable a PCH 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, we are proposing that PCHs 

and survey vendors must participate in 

oversight activities, which will include 

onsite visits and/or conference calls. 

During the oversight process, the 

HCAHPS Project Team will review the 

PCH’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 followup 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. We are 

proposing that if we determine that a 

PCH is not compliant with HCAHPS 

program requirements, we may 

determine that the PCH is not 

submitting HCAHPS data that meet the 

requirements of the PCHQR Program. 

Below is a table outlining the proposed 

reporting and data submission 

requirements. 

PROPOSED HCAHPS MEASURE—PROPOSED REPORTING PERIODS AND SUBMISSION TIMEFRAMES FOR FYS 2016–2018 

Program Year (FY) Reporting Periods (CY) Data Submission 

Deadlines 

2016 ............................. Q2 2014 discharges (April 1, 2014–June 30, 2014) ................................................................... October 1, 2014 

Q3 2014 discharges (July 1, 2014–September 30, 2014) .......................................................... January 7, 2015 

Q4 2014 discharges (October 1, 2014–December 31, 2014) .................................................... April 1, 2015 

2017 ............................. Q1 2015 discharges (January 1, 2015–March 31, 2015) ........................................................... July 1, 2015 

Q2 2015 discharges (April 1, 2015–June 30, 2015) ................................................................... October 7, 2015 

Q3 2015 discharges (July 1, 2015–September 30, 2015) .......................................................... January 6, 2016 

Q4 2015 discharges (October 1, 2015–December 31, 2015) .................................................... April 6, 2016 

2018 ............................. Q1 2016 discharges (January 1, 2016–March 31, 2016) ........................................................... July 6, 2016 

Q2 2016 discharges (April 1, 2016–June 30, 2016) ................................................................... October 5, 2016 

Q3 2016 discharges (July 1, 2016–September 30, 2016) .......................................................... January 4, 2017 

Q4 2016 discharges (October 1, 2016–December 31, 2016) .................................................... April 5, 2017 

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27720 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

113Available at: http://www.qualityforum.org/

WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=

72363 

We strongly encourage those PCHs 

that are currently administering the 

HCAHPS Survey to continue to do so. 

We welcome public comment on our 

proposed HCAHPS requirements for 

PCHs. 

C. 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 the FY 2014 payment determination 

and subsequent payment 

determinations, 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 

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. 

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 the FY 2014 payment 

determination 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 

section 1886(m)(5)(D)(ii) of the Act 

applies. This contract is currently held 

by the National Quality Forum (NQF). 

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). Additional 

information regarding NQF and its 

measure review processes is available 

at: http://www.qualityforum.org/

Measuring_Performance/Measuring_

Performance.aspx. 

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. General Considerations Used for 

Selection of Quality Measures for the 

LTCHQR Program 

We seek to promote higher quality 

and more efficient health care for the 

citizens we serve. Quality reporting 

programs, as well as public reporting of 

that information, furthers such quality 

improvement efforts. Quality 

measurement remains the key tool to the 

success of these programs. Therefore, 

the selection of only the highest caliber 

of measures remains a constant priority 

for CMS. 

We seek to adopt measures for the 

LTCHQR Program that promote better, 

safer, and more efficient care. Our 

measure development and selection 

activities for the LTCHQR Program take 

into account national priorities, such as 

those established by the National 

Priorities Partnership (http://www.

nationalprioritiespartnership.org/), HHS 

Strategic Plan (http://www.hhs.gov/

secretary/about/priorities/priorities.

html), and the National Quality Strategy 

(NQS), which is described at: http://

www.healthcare.gov/center/reports/

quality03212011a.html. 

We also consider input from the 

Measure Applications Partnership 

(MAP) when selecting measures under 

the LTCHQR Program. The MAP is 

composed of multi-stakeholder groups 

convened by our contractor under 

section 1890 of the Act (currently the 

NQF). The NQF must convene these 

stakeholders and provide us with the 

stakeholders’ input on the selection of 

certain categories of quality and 

efficiency measures as part of a prerulemaking process described in section 

1890A of the Act. CMS, in turn, must 

take this input into consideration in 

selecting those categories of measures, 

The NQF provided MAP input to CMS 

in February of 2013, as required under 

section 1890A(a)(3) of the Act. This 

input appears at: http://www.quality

forum.org/Setting_Priorities/

Partnership/Measure_Applications_

Partnership.aspx. Measures proposed 

for the LTCHQR Program in this 

proposed rule were measures CMS 

included under its List of Measures 

Under Consideration (MUC List) for 

December 1, 2012,113 a list CMS must 

make public by December 1 of each 

year, as part of the pre-rulemaking 

process, as described in section 

1890A(a)(2). The list is discussed in the 

MAP Pre-Rulemaking Report available 

at: http://www.qualityforum.org/

Publications/2013/02/MAP_PreRulemaking_Report_-_February_2013.

aspx (pp. 170–176). The MAP supported 

the direction of each of the proposed 

measures described below, noting the 

measure concepts as promising for 

several of them, and requiring further 

testing and development. 

In the absence of NQF endorsement 

for measures we are proposing for the 

LTCH setting, or measures that are not 

fully supported by the MAP for the 

LTCHQR Program, we are proposing 

measures that most closely align with 

the national priorities discussed above 

and for which the MAP supports the 

measure concept. Further discussion of 

why these measures are high-priority in 

the LTCH setting is included for each 

proposed measure below. 

In addition, for measures not 

endorsed by the NQF, we have sought, 

to the extent practicable, to adopt 

measures that have been endorsed or 

adopted by a national consensus 

organization, recommended by multistakeholder organizations, and/or 

developed with the input of providers, 

purchasers/payers, and other 

stakeholders. 

3. Process for Retention of LTCHQR 

Program Measures Adopted in Previous 

Payment Determinations 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53614 through 53637), for 

the LTCHQR Program, we adopted a 

policy that once a quality measure is 

adopted, it is retained for use in 

subsequent payment determinations, 

unless otherwise stated. For the purpose 

of streamlining the rulemaking process, 

when we initially adopt a measure for 

the LTCHQR Program for a payment 

determination, this measure will be 

automatically adopted for all 

subsequent payment determinations or 

until we propose to remove, suspend, or 

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replace the measure. For further 

information on how measures are 

considered for removal, suspension, or 

replacement, we refer readers to 77 FR 

53614 and 53615. 

4. Process for Adopting Changes to 

LTCHQR Program Measures 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53615 through 53616), we 

finalized our policy that if the NQF 

updates an endorsed measure that we 

have adopted for the LTCHQR Program 

in a manner that we consider to not 

substantively change the nature of the 

measure, we will use a subregulatory 

process to incorporate those updates to 

the measure specifications that apply to 

the LTCHQR Program. Examples of such 

nonsubstantive changes could be 

updated diagnosis or procedure codes, 

medication updates for categories of 

medications, changes to exclusions to 

the patient population, or minor 

changes to definitions. Examples of 

changes that we might consider to be 

substantive would be those in which the 

changes are so significant that the 

measure is no longer the same measure, 

or when a standard of performance 

assessed by a measure becomes more 

stringent. Specific examples of what we 

might consider substantive are changes 

in acceptable timing of medication, 

procedure/process, or test 

administration, or expansion of the 

measure to a new setting. The 

subregulatory process for 

nonsubstantive changes will include 

revision of the LTCHQR Program 

Manual and posting of updates on our 

LTCH Quality Reporting Program Web 

site at: http://www.cms.gov/LTCHQuality-Reporting/. 

5. Previously Adopted Quality Measures 

for the FY 2014 and FY 2015 Payment 

Determinations and Subsequent 

Payment Determinations 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53616 through 53623), we 

retained the application of NQF #0678 

to the LTCH setting (initially adopted in 

the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51745 through 51750)) and 

adopted updated versions of NQF #0138 

and NQF #0139, for the FY 2014 and FY 

2015 payment determination and 

subsequent payment determinations as 

listed in the following table: 

QUALITY MEASURES FINALIZED IN THE FY 2013 IPPS/LTCH PPS FINAL RULE FOR THE FY 2014 AND FY 2015 PAYMENT

DETERMINATIONS AND SUBSEQUENT PAYMENT DETERMINATIONS

NQF Measure ID Measure title 

NQF #0138 ........................... National Health Safety Network (NHSN) Catheter-associated Urinary Tract Infection (CAUTI) Outcome Measure. 

NQF #0139 ........................... National Health Safety Network (NHSN) Central line-associated Blood Stream Infection (CLABSI) Outcome Measure. 

Application of NQF #0678 .... Percent of Residents with Pressure Ulcers That are New or Worsened (Short-Stay). 

We refer readers to the FY 2013 IPPS/ 

LTCH PPS final rule (77 FR 53619 

through 53623 and 53667 through 

53672) for a discussion of the data 

collection and submission methods for 

these measures for the FY 2014 payment 

determination and all subsequent 

payment determinations and for 

references to the descriptions and 

specifications of these measures. 

6. Previously Adopted Quality Measures 

for the FY 2016 Payment Determination 

and Subsequent Payment 

Determinations 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53624 through 53636), we 

adopted two additional quality 

measures for the LTCHQR Program for 

the FY 2016 payment determination and 

subsequent payment determinations, in 

addition to the three previously adopted 

measures (CAUTI measure, CLABSI 

measure, and Pressure Ulcer measure). 

Set out below are the quality 

measures, adopted in FY 2013 IPPS/ 

LTCH PPS final rule, for the FY 2016 

payment determination and subsequent 

payment determinations. 

QUALITY MEASURES FINALIZED IN THE FY 2013 IPPS/LTCH PPS FINAL RULE FOR THE FY 2016 LTCHQR PROGRAM

PAYMENT DETERMINATION AND SUBSEQUENT PAYMENT DETERMINATIONS

NQF Measure ID Measure title 

NQF #0138 ........................... National Health Safety Network (NHSN) Catheter-associated Urinary Tract Infection (CAUTI) Outcome Measure.* 

NQF #0139 ........................... National Health Safety Network (NHSN) Central line-associated Blood Stream Infection (CLABSI) Outcome Measure.* 

Application of NQF #0678 .... Percent of Residents with Pressure Ulcers That are New or Worsened (Short-Stay).* 

NQF #0680 ........................... Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal Influenza Vaccine 

(Short-Stay).** 

NQF #0431 ........................... Influenza Vaccination Coverage among Healthcare Personnel.** 

* Adopted for the FY 2014 payment determination and subsequent payment determinations. 

** Adopted for the FY 2016 payment determination and subsequent payment determinations. 

7. Proposed Revisions to Previously 

Adopted Quality Measures 

We are proposing the following 

revisions to the quality measures we 

have previously adopted for the 

LTCHQR Program. 

a. Proposed Revisions for Influenza 

Vaccination Coverage Among 

Healthcare Personnel (NQF #0431) 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53630 through 53631) we 

finalized that for Influenza Vaccination 

Coverage Among Healthcare Personnel 

(NQF #0431), LTCHs should begin to 

submit data for January 1, 2014 through 

December 31, 2014 (CY 2014) for the FY 

2016 payment determination. There is 

unique seasonality in the timing of 

influenza activity each year. The CDC, 

the steward of this measure, notes 

(http://www.cdc.gov/flu/about/season/ 

flu-season-2012–2013.htm) that while 

influenza activity most commonly peaks 

in January or February in the United 

States, it can begin as early as October 

and can continue to occur as late as 

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114The LTCH CARE Data Set Version 1.01 was 

approved on April 24, 2012 by OMB in accordance 

with the PRA. The OMB Control Number is 0938– 

1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956, published April 12, 2013, solicits 

public comment on additions and updates to the 

LTCH CARE Data Set. http://www.cms.gov/

Regulations-and-Guidance/Legislation/Paperwork

ReductionActof1995/PRA-Listing-Items/

CMS1252160.html 

May. The CDC recommends that people 

get vaccinated against influenza as long 

as influenza viruses are circulating. 

Thus, influenza vaccination season 

usually begins in early fall. 

Therefore, we are proposing that, for 

the LTCHQR Program, the Influenza 

Vaccination Coverage Among 

Healthcare Personnel measure (NQF 

#0431) have its own reporting period to 

align with the influenza vaccination 

season, which is defined by the CDC as 

October 1 (or when the vaccine becomes 

available) through March 31. Instead of 

beginning data collection and 

submission in the middle of the 2013– 

2014 influenza season, as is the case 

when reporting begins on January 1, 

2014 (as finalized in FY 2013 IPPS/ 

LTCH PPS final rule), we are proposing 

that data collection begin on October 1, 

2014, or when the influenza vaccine 

becomes available (as defined by the 

CDC) and continue through March 31, 

2015 for the 2014–2015 influenza 

season. This change will allow LTCHs 

to collect and report data on influenza 

vaccination for the entirety of the 2014– 

2015 influenza season for the FY 2016 

payment determination. This change is 

presented in the following table for the 

FY 2016 and FY 2017 payment 

determinations: 

PROPOSED TIMELINE FOR SUBMISSION OF LTCHQR PROGRAM QUALITY DATA FOR THE FY 2016 AND FY 2017 PAYMENT

DETERMINATIONS: NQF #0431 INFLUENZA VACCINATION COVERAGE AMONG HEALTHCARE PERSONNEL

Data collection timeframe Final submission 

deadlines 

Payment 

determination 

October 1, 2014 (or when the influenza vaccine becomes available)–March 31, 2015 .................................. May 15, 2015 ... FY 2016. 

October 1, 2015 (or when the influenza vaccine becomes available)–March 31, 2016 .................................. May 15, 2016 ... FY 2017. 

While LTCHs can enter information in 

CDC’s NHSN (www.cdc.gov/nhsn/) at 

any point during the influenza season 

for NQF #0431, data submission is only 

required once per year, unlike the other 

measures finalized for the LTCHQR 

Program that utilize NHSN (CAUTI 

measure NQF #0138 and CLABSI 

measure NQF #0139). For example, 

LTCHs can choose to submit influenza 

vaccination data for NQF #0431 on a 

monthly basis. However, each time an 

LTCH submits these data, it will be 

asked to provide a cumulative total of 

vaccinations for the ‘‘current’’ influenza 

season. Thus, entering this information 

at the end of the influenza season would 

yield the same total number of 

vaccinations. The NHSN system will not 

track the individual number of 

vaccinations on a monthly basis, but, 

rather, will track the cumulative total of 

vaccinations for the ‘‘current’’ influenza 

season. Also, we note that data 

collection period for this measure is not 

12 months, as with other measures, but 

is approximately 6 months (October 1 

(or when the vaccine becomes available) 

through March 31). The final deadlines 

associated with submitting data, 

approximately 45 days after the end of 

the data collection timeframe for the FY 

2016 payment determination and 

subsequent payment determinations, 

remain consistent across measures. 

We note that these proposed changes 

are applicable only to NQF #0431 

Influenza Vaccination Coverage Among 

Healthcare Personnel, and not 

applicable to any other LTCHQR 

Program measures, proposed or 

adopted, unless explicitly stated. The 

specifications for this measure can be 

found at http://www.cdc.gov/nhsn/ 

PDFs/HPS-manual/vaccination/HPSflu-vaccine-protocol.pdf. We invite 

public comments on our proposal to 

revise the data collection and reporting 

timeline for this influenza vaccination 

measure (NQF #0431) for FY 2016 and 

FY 2017 payment determination, and 

subsequent payment determinations. 

b. Proposed Revisions for Percent of 

Residents or Patients Who Were 

Assessed and Appropriately Given the 

Seasonal Influenza Vaccine (Short-Stay) 

(NQF #0680) 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53624 through 53627), we 

finalized that for NQF #0680, Percentage 

of Residents or Patients Who Were 

Assessed and Appropriately Given the 

Seasonal Influenza Vaccine (Short-Stay), 

LTCHs should begin to collect and 

submit data on January 1, 2014 through 

December 31, 2014 (CY 2014) for the FY 

2016 payment determination. This 

measure, stewarded by CMS, will be 

collected using items included in the 

LTCH CARE Data Set (Version 2.01).114

On February 1, 2013, we solicited 

public comment on this 

information collection request through 

60-day notice (78 FR 7433 through 

7434). On April 12, 2013, we published 

a 30-day notice to solicit public 

comment on this information collection 

request (78 FR 21955 through 21956). 

Later in 2013, we will release the final 

data submission specifications and 

updated LTCHQR Program Manual for 

the LTCH CARE Data Set (Version 2.01) 

containing items related to NQF #0680. 

In order to allow time and 

opportunity for LTCHs and vendors to 

participate in CMS-sponsored training 

activities pertaining to the 

implementation of the LTCH CARE Data 

Set (Version 2.01), as well as time to 

plan for and incorporate changes into 

their data collection and entry systems, 

we are proposing to revise the 

previously finalized start date of January 

1, 2014 for reporting of this measure to 

April 1, 2014. For CY 2014, data 

collection will continue through 

December 31, 2014. We are proposing 

that data for admissions and discharges 

for an LTCH during April 1, 2014 

through December 31, 2014 will be used 

for the FY 2016 payment determination. 

We are also proposing that data for 

January 1, 2015 through December 31, 

2015 (CY 2015) will be used for the FY 

2017 payment determination. 

Thereafter, data for January 1 through 

December 31 of each year will be used 

for subsequent payment determinations. 

The proposed change is illustrated in 

the table below for the FY 2016 and FY 

2017 payment determinations. 

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115The LTCH CARE Data Set Version 1.01 was 

approved on April 24, 2012 by OMB in accordance 

with the PRA. The OMB Control Number is 0938– 

1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956 published April 12, 2013 solicits 

public comment on additions and updates to the 

LTCH CARE Data Set. Available on the Web site at: 

http://www.cms.gov/Regulations-and-Guidance/

Legislation/PaperworkReductionActof1995/PRAListing-Items/CMS1252160.html. 

116National Quality Forum, Consensus Standards 

Approval Committee Wednesday, July 11, 2012. 

Transcript. Available on the Web site at: http:// 

www.qualityforum.org/WorkArea/linkit.aspx?Link

Identifier=id&ItemID=71612. 117Press Release: NQF Removes Time-Limited 

Endorsement Status for 13 Measures, Measures 

Now Have Endorsed Status. August 1, 2012. 

Available on the Web site at: http:// 

www.qualityforum.org/News_And_Resources/

Press_Releases/2012/NQF_Removes_Time-Limited_

Endorsement_for_13_Measures;_Measures_Now_

Have_Endorsed_Status.aspx 

PROPOSED TIMELINE FOR SUBMISSION OF LTCHQR PROGRAM QUALITY DATA FOR THE FY 2016 AND FY 2017 PAYMENT

DETERMINATIONS: NQF #0680 PERCENTAGE OF RESIDENTS OR PATIENTS WHO WERE ASSESSED AND APPROPRIATELY GIVE THE SEASONAL INFLUENZA VACCINE (SHORT-STAY) 

Data collection timeframes Submission deadlines Payment 

determination 

April 1, 2014–June 30, 2014 ...................................................................................... August 15, 2014 ...................................... FY 2016. 

July 1, 2014–September 30, 2014 ............................................................................. November 15, 2014. 

October 1, 2014–December 31, 2014 ........................................................................ February 15, 2015. 

January 1, 2015–March 31, 2015 .............................................................................. May 15, 2015 .......................................... FY 2017. 

April 1, 2015–June 30, 2015 ...................................................................................... August 15, 2015. 

July 1, 2015–September 30, 2015 ............................................................................. November 15, 2015. 

October 1, 2015–December 31, 2015 ........................................................................ February 15, 2016. 

Further, we are proposing that while 

an LTCH’s compliance with reporting 

quality data for NQF #0680 will be 

based on the calendar year, the measure 

calculation and public reporting of this 

measure (once public reporting is 

instated) will be based on the influenza 

vaccination season starting on October 1 

(or when vaccine becomes available) 

and ending on March 31 of the 

subsequent year. For example, while 

reporting compliance is based on April 

1, 2014 through December 31, 2014 for 

the FY 2016 payment determination, 

calculation of the measure for public 

reporting purposes (if this proposal is 

finalized) will be based on the 2014– 

2015 influenza vaccination season 

(October 1, 2014 (or when the vaccine 

becomes available)–March 31, 2015). 

Similarly for the following year, 

reporting compliance will be based on 

January 1, 2015 through December 31, 

2015 for the FY 2017 payment 

determination, with calculation of the 

measure for public reporting purposes 

(if this proposal is finalized) will be 

based on the 2015–2016 influenza 

vaccination season (October 1, 2015 (or 

when vaccine becomes available)– 

March 31, 2016). 

All LTCHs will be required to collect 

data using the LTCH CARE Data Set.115

The Quality Improvement and 

Evaluation System (QIES) Assessment 

Submission and Processing (ASAP) 

System will remain the data submission 

mechanism for the LTCH CARE Data 

Set. Further information on data 

submission of the LTCH CARE Data Set 

for the LTCHQR Program Reporting 

using the QIES ASAP system is 

available at: https://www.qtso.com/ and 

http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/

LTCHTechnicalInformation.html. 

We note that these proposed changes 

are applicable only to the Percent of 

Residents or Patients Who Were 

Assessed and Appropriately Given the 

Seasonal Influenza Vaccine (Short-Stay) 

(NQF #0680) for the LTCHQR Program, 

and not applicable to any other 

LTCHQR Program measures, proposed 

or adopted, unless explicitly stated. 

We invite public comments on our 

proposal to revise the data collection 

and reporting timeline for this influenza 

vaccination measure (NQF #0680) for 

FY 2016 and FY 2017 payment 

determinations, and subsequent 

payment determinations. 

c. Proposed Revisions for Percent of 

Residents or Patients With Pressure 

Ulcers That Are New or Worsened 

(Short-Stay) (NQF #0678) 

In the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51748 through 51750), we 

adopted an application of NQF #0678 

Percent of Residents with Pressure 

Ulcers That are New or Worsened 

(Short-Stay) for the FY 2014 payment 

determination, and retained this 

application of the measure in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53615 through 53619) for the FY 2015 

payment determination and subsequent 

payment determinations. We refer 

readers to the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51748 through 51750) 

for a discussion of the rationale, data 

collection methods, and submission 

methods finalized for this measure for 

the FY 2014 payment determination and 

subsequent payment determinations, 

and for references to the description and 

specifications of this measure. 

At the time we completed our work 

on the FY 2013 IPPS/LTCH PPS final 

rule, NQF #0678 was not yet NQFendorsed for use in the LTCH setting 

and was undergoing ad hoc review at 

the NQF for expansion to the LTCH 

setting. As a result, we were only able 

to adopt an application of the endorsed 

measure in our FY 2013 IPPS/LTCH PPS 

final rule. NQF #0678 underwent review 

for expansion to the LTCH setting by the 

NQF Consensus Standards Approval 

Committee (CSAC) on July 11, 2012 and 

was subsequently ratified by the NQF 

Board of Directors for expansion to 

LTCH setting on August 1, 2012.116 117

The title of the measure was changed to 

Percent of Residents or Patients with 

Pressure Ulcers that are New or 

Worsened (Short-Stay) to reflect this 

expansion. Updated specifications, 

reflecting the expansion are available on 

the NQF Web site at: http:// 

www.qualityforum.org/QPS/0678. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53615 through 53616), we 

stated that we would continue to use the 

rulemaking process to adopt changes to 

measures when NQF review 

substantially changes the measure. We 

stated that one example of a substantive 

change would be the change the NQF 

makes to a previously endorsed measure 

when it extends that measure to a new 

setting. Because NQF #0678 has 

received endorsement for the LTCH 

setting, we are now proposing to adopt 

the updated measure NQF #0678 

Percent of Residents or Patients with 

Pressure Ulcers that are New or 

Worsened (Short-Stay) for the FY 2015 

payment determination and subsequent 

payment determinations. 

This change would not alter the data 

collection, data submission, or burden 

finalized in the FY 2013 IPPS/LTCH 

PPS final rule since there have been no 

changes to the data elements in the 

LTCH CARE Data Set (version 1.01), 

data submission system (QIES ASAP) 

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118 Gorwitz RJ, Kruszon-Moran D, McAllister SK, 

et al. Changes in the prevalence of nasal 

colonization with Staphylococcus aureus in the 

United States, 2001–2004. J Infect Dis 2008; 197: 

1226–34. 

119 Department of Health and Human Services. 

National Action Plan to Prevent HealthcareAssociated Infections: Roadmap to Elimination. 

Available at http://www.hhs.gov/ash/initiatives/hai/ 

infection.html. 

120Centers for Disease Control and Prevention. 

State Has Implemented a MRSA Prevention 

Collaborative. Available at http://www.cdc.gov/hai/ 

stateplans/states-w-MRSA-collaborative.html 

121Centers for Disease Control and Prevention. 

People at Risk of Acquiring MRSA Infections. 

Available at http://www.cdc.gov/mrsa/riskfactors/

index.html. 

122Centers for Disease Control and Prevention. 

Management of Multidrug-Resistant Organisms in 

Healthcare Settings, 2006. Available at http://www.

cdc.gov/hicpac/pdf/guidelines/MDROGuideline

2006.pdf. 

123Furuno JP, Hebden JN, Standiford HC, et al. 

Prevalence of methicillin-resistant Staphylococcus 

aureus and Acinetobacter baumannii in a long-term 

acute care facility. Am J Infect Control 2008;36:468– 

71. 

124Centers for Medicare & Medicaid Services 

Center for Medicare & Medicaid Innovation. 

Hospital Acquired Conditions (HAC)—Report to 

Congress. Available at http://innovation.cms.gov/

Files/x/HospAcquiredConditionsRTC.pdf 

125Bernard SL, Dalton K, Lenfestey N F, Jarrett 

NM, Nguyen KH, Sorensen AV, Thaker S, West ND. 

Study to support a CMS Report to Congress: Assess 

feasibility of extending the hospital-acquired 

conditions—present on admission IPPS payment 

policy to non-IPPS payment environments. 

Prepared for the Centers for Medicare & Medicaid 

Services (CMS Contract No. HHSM–500–T00007). 

2011. 

126Centers for Disease Control and Prevention. 

Protect Yourself from MRSA. Available at http://

www.cdc.gov/features/mrsainhealthcare/. 

and technical submission specifications 

for the LTCH CARE Data Set used for 

this measure. The only difference 

between the previously finalized 

measure (NQF #0678 Percent of 

Residents with Pressure Ulcers that are 

New or Worsened (Short-Stay)) and this 

expanded measure (NQF #0678 Percent 

of Residents or Patients with Pressure 

Ulcers that are New or Worsened (ShortStay)) is the change in name and NQFendorsed expansion of this measure to 

the LTCH (and IRF) patient population 

in addition to Skilled Nursing Facility/ 

Nursing Home Short-Stay residents. 

We invite public comment on this 

proposal to adopt NQF #0678 Percent of 

Residents or Patients with Pressure 

Ulcers that are New or Worsened (ShortStay) for the LTCHQR Program. 

8. Proposed New LTCHQR Program 

Quality Measures for the FY 2017 and 

FY 2018 Payment Determinations and 

Subsequent Payment Determinations 

a. Considerations in Updating and 

Expanding Quality Measures Under the 

LTCHQR Program for the FY 2017 

Payment Determination and Subsequent 

Payment Determinations 

As noted in section IX.C.2. of the 

preamble of this proposed rule, we 

consider input from the MAP (http://

www.qualityforum.org/Setting_

Priorities/Partnership/Measure_

Applications_Partnership.aspx) in 

selecting measures for the LTCHQR 

Program. Measures proposed for the 

LTCHQR Program in this proposed rule 

were included on CMS’s List of 

Measures under Consideration for 

December 1, 2012 (MUC List) and 

discussed in the MAP Pre-Rulemaking 

Report available at: http://www.quality

forum.org/Publications/2013/02/MAP_

Pre-Rulemaking_Report_-_February_

2013.aspx (pp. 170–176). MAP 

supported the direction of each 

proposed measure. 

In the absence of any NQF-endorsed 

measures for the LTCH setting or 

measures fully supported by the MAP 

for LTCHQR Program, we are proposing 

measures that most closely align with 

the national priorities discussed in 

section IX.C.2. of the preamble of this 

proposed rule and for which there is 

MAP support for the measure concept. 

Further discussion of why a particular 

measure is high priority in the LTCH 

setting is included for each proposed 

measure below. 

In addition, to the extent practicable, 

we have for each proposed measure that 

is not endorsed by the NQF, sought to 

adopt a measure that has been endorsed 

or adopted by a national consensus 

organization, been recommended by 

multi-stakeholder organizations, and/or 

been developed with the input of 

providers, purchasers/payers, and other 

stakeholders. 

b. Proposed New LTCHQR Program 

Quality Measures for the FY 2017 

Payment Determination and Subsequent 

Payment Determinations 

We are proposing the following three 

new quality measures for the LTCHQR 

Program to affect the FY 2017 payment 

determination and subsequent payment 

determinations: 

(1) Proposed Quality Measure #1: 

National Healthcare Safety Network 

(NHSN) Facility-Wide Inpatient 

Hospital-Onset Methicillin-Resistant 

Staphylococcus aureus (MRSA) 

Bacteremia Outcome Measure (NQF 

#1716) 

NQF #1716 is a standardized infection 

ratio (SIR) of hospital-onset unique 

blood source MRSA laboratoryidentified events among all inpatients in 

the facility. It was adopted by the 

Hospital IQR Program in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51630) 

for the FY 2015 payment determination, 

with data collection having begun on 

January 1, 2013. The measure was 

developed by the CDC and is NQFendorsed. 

Methicillin-Resistant Staphylococcus 

aureus (S. aureus) (MRSA) infections 

are caused by a strain of S. aureus 

bacteria that has become resistant to 

antibiotics commonly used to treat these 

infections. Between 2003 and 2004, an 

estimated 4.1 million persons in the 

United States had nasal colonization 

with MRSA.118 In addition, in 2005 it is 

estimated that there were 94,000 

invasive MRSA infections in the United 

States associated with about 18,000 

deaths.119 Currently, there are eight 

States that have implemented a MRSA 

Prevention Collaborative.120 For 

Medicare populations, MRSA is a 

source of increased cost, lengths of stay, 

morbidity and mortality, and can be a 

consequence of poor quality of 

care.121 122

Older adults and patients in 

healthcare settings are most vulnerable 

to MRSA infections, as these patients 

have weakened immune systems. 

LTCHs are characterized by having 

highly acutely ill patients with multiple 

comorbidities and longer lengths of stay, 

thereby making LTCH patients at risk 

for acquisition of an antibiotic-resistant 

infection like MRSA infection.123

According to analysis of ICD–9 codes 

reported on Medicare claims, LTCHs 

reported 5,853 cases of MRSA in 2009. 

Present on admission indicators are not 

available on LTCH claims; therefore, we 

are unable to say whether these 

conditions are present on admission or 

acquired during the LTCH stay. 

Therefore, it was not possible to 

determine which of these infections 

occurred in the LTCH. However, we 

note that on the majority of claims, the 

primary diagnosis is the admitting 

diagnosis and is considered to be 

present on admission and therefore, the 

secondary diagnoses can be assumed to 

provide a count of conditions that could 

have been acquired in the LTCH.124

When it was assumed that a MRSA 

infection recorded in the primary 

diagnosis code was likely present on 

admission and an MRSA infection 

recorded in the secondary diagnosis 

code was acquired in the LTCH, there 

were 5,826 reported cases that may have 

been acquired in the LTCH.125 Further, 

healthcare-associated MRSA infections 

occur frequently in patients who have 

invasive devices, such as catheters or 

ventilators.126 We included the 

proposed MRSA measure in the 

December 1, 2012 MUC list. The MAP 

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127National Quality Forum. Measure 

Applications Partnership Pre-Rulemaking Report: 

2013 Recommendations of Measures Under 

Consideration by HHS: February 2013. Available at: 

http://www.qualityforum.org/WorkArea/linkit.aspx?

LinkIdentifier=id&ItemID=72738. 

128 Data from CMS–CDC correspondence on 

February 1, 2013. 

129McDonald LC, Coignard B, Dubberke E, et al. 

Recommendations for surveillance of Clostridium 

difficile–associated disease. Infect Control Hosp 

Epidemiol 2007;28:140–145. Available at: http:// 

www.jstor.org/stable/pdfplus/10.1086/ 

511798.pdf?acceptTC=true. 

130Centers for Disease Control and Prevention. 

Investigating Clostridium difficile Infections Across 

the U.S. Available at http://www.cdc.gov/hai/eip/ 

pdf/Cdiff-factsheet.pdf. 

131 Department of Health and Human Services. 

National Action Plan to Prevent HealthcareAssociated Infections: Roadmap to Elimination. 

Available at http://www.hhs.gov/ash/initiatives/hai/ 

infection.html. 

132Centers for Disease Control and Prevention. 

Making Health Care Safer: Stopping C. difficile 

Infections. Available at: http://www.cdc.gov/ 

VitalSigns/HAI/index.html. 

133Centers for Disease Control and Prevention. 

Investigating Clostridium difficile Infections Across 

the U.S. Available at: http://www.cdc.gov/hai/eip/ 

pdf/Cdiff-factsheet.pdf. 

134Centers for Disease Control and Prevention. 

QuickStats: Rates of Clostridium difficile Infection 

Among Hospitalized Patients Aged ≥65 Years,* by 

Age Group—National Hospital Discharge Survey, 

United States, 1996—2009. MMWR, 60(34); 1171. 

Available at: http://www.cdc.gov/mmwr/preview/ 

mmwrhtml/mm6034a7.htm. 

135Centers for Disease Control and Prevention. 

Making Health Care Safer: Stopping C. difficile 

Infections. Available at: http://www.cdc.gov/ 

VitalSigns/HAI/index.html. 

136 Dubberke ER, Reske KA, Olsen MA, McDonald 

LC, Fraser VJ. Short- and long-term attributable 

costs of Clostridium difficile–associated disease in 

nonsurgical inpatients. Clin Infect Dis 2008; 

46:497–504. Available at: http:// 

cid.oxfordjournals.org/content/46/4/497.long. 

137Centers for Disease Control and Prevention. 

Frequently Asked Questions about Clostridium 

difficile for Healthcare Providers. Available at: 

http://www.cdc.gov/HAI/organisms/cdiff/ 

Cdiff_faqs_HCP.html. 

138 Goldstein EJC, Polonsky J, Touzani M, Citron 

DM. C. difficile infection (CDI) in a long-term acute 

care facility (LTAC). Anaerobe 2009; 15:241–243. 

Available at: http://www.sciencedirect.com/science/ 

article/pii/S1075996409001176. 

139Centers for Medicare & Medicaid Services 

Center for Medicare & Medicaid Innovation. 

Hospital Acquired Conditions (HAC)—Report to 

Congress. Available at: http://innovation.cms.gov/ 

Files/x/HospAcquiredConditionsRTC.pdf. 

140Bernard SL, Dalton K, Lenfestey N F, Jarrett 

NM, Nguyen KH, Sorensen AV, Thaker S, West ND. 

Study to support a CMS Report to Congress: Assess 

feasibility of extending the hospital-acquired 

conditions—present on admission IPPS payment 

policy to non-IPPS payment environments. 

Prepared for the Centers for Medicare & Medicaid 

Services (CMS Contract No. HHSM–500–T00007). 

2011. 

supported the direction of this 

measure.127

We are proposing to use the CDC/ 

NHSN reporting and submission 

infrastructure for reporting of the 

proposed NHSN Facility-Wide Inpatient 

Hospital-onset MRSA Bacteremia 

Outcome Measure (NQF #1716). CDC/ 

NHSN is the data collection and 

submission framework currently used 

for reporting the CAUTI (#0138), 

CLABSI (#0139), and Influenza 

Vaccination Coverage Among 

Healthcare Personnel (#0431) measures. 

Details related to the procedures for 

using NHSN for data submission and 

information on definitions, numerator 

data, denominator data, data analyses, 

and measure specifications for the 

proposed NHSN Facility-Wide Inpatient 

Hospital-onset MRSA Bacteremia 

Outcome Measure (NQF #1716) can be 

found at: http://www.qualityforum.org/

QPS/1716 and http://www.cdc.gov/

nhsn/PDFs/pscManual/12pscMDRO_

CDADcurrent.pdf. For January 2012 

through January 2013, an estimated 42 

LTCHs reported laboratory-identified 

MRSA event data into NHSN.128 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. We refer readers to 

section IX.C.9. of the preamble to this 

proposed rule for more information on 

data collection and submission. We 

invite public comment on this proposed 

measure and data collection and 

submission for the proposed measure 

for the FY 2017 payment determination 

and subsequent payment 

determinations. (2) Proposed Quality 

Measure #2: National Healthcare Safety 

Network (NHSN) Facility-wide Inpatient 

Hospital-onset Clostridium difficile 

Infection (CDI) Outcome Measure (NQF 

#1717) 

This measure is a standardized 

infection ratio (SIR) of hospital-onset 

CDI Laboratory-identified events among 

all inpatients in the facility, and was 

adopted by the Hospital IQR Program in 

the FY 2012 IPPS/LTCH PPS final rule 

(76 FR 51630–51631 for the FY 2015 

payment determination, with data 

collection having begun on January 1, 

2013. The measure was developed by 

the CDC and is NQF-endorsed. 

Clostridium difficile (C. difficile) can 

cause a range of serious symptoms 

including diarrhea, serious intestinal 

conditions, sepsis, and death.129 In the 

United States, C. difficile is responsible 

for an estimated 337,000 infections and 

14,000 deaths annually.130 Based on the 

HHS National Action Plan to Prevent 

Healthcare-Associated Infections, C. 

difficile rates have increased in recent 

years.131 The CDC estimates that C. 

difficile infections cost more than $1 

billion in additional health care costs 

each year.132 In recent years, C. difficile 

infections have become more frequent, 

more severe and more difficult to treat. 

Mortality rates for C. difficile infections 

are highest in elderly patients.133

Between 1996 and 2009, rates of C. 

difficile infection among hospitalized 

patients aged 65 years and older 

increased 200 percent, while deaths 

related to C. difficile increased 400 

percent between 2000 and 2007, which 

is partly attributed to a stronger germ 

strain.134 135 Further, an estimated 90 

percent of the C. difficile-related deaths 

occur in patients 65 and older. C. 

difficile is a source of increased costs in 

patient care, lengths of stay, morbidity 

and mortality, and can be a consequence 

of poor quality of care for Medicare 

patients.136

Illness from C. difficile most 

commonly affects older adults in 

hospitals or in facilities with longer 

lengths of stay, where germs spread 

easily, antibiotic use is common, and 

people are especially vulnerable to 

infection.137 Considering C. difficile 

infections are increasing in LTCHs and 

that the LTCH population is highly 

vulnerable to C. difficile infection, it is 

important to measure these rates in 

LTCHs.138 According to analysis of ICD– 

9 codes reported on Medicare claims, 

LTCHs reported 12,282 cases of C. 

difficile-associated disease in 2009. 

Present on admission indicators are not 

available on LTCH claims, therefore we 

are unable to say whether these 

conditions are present on admission or 

acquired during the LTCH stay. 

Therefore, it was not possible to 

determine which of these infections 

occurred in the LTCH. However, we 

note that on the majority of claims, the 

primary diagnosis is the admitting 

diagnosis and is considered to be 

present on admission and therefore, the 

secondary diagnoses can be assumed to 

provide a count of conditions that could 

have been acquired in the LTCH.139

When it was assumed that a C. difficileassociated infection recorded in the 

primary diagnosis code was likely 

present on admission and a C. difficileassociated infection recorded in the 

secondary diagnoses code may have 

been acquired in the LTCH, there were 

11,384 reported cases that may have 

been acquired in the LTCH.140 In 

addition, there is evidence that C. 

difficile infections are preventable, and 

therefore surveillance and measuring 

infection rates is important to reducing 

infections and improving patient safety. 

Currently, there are three States that 

require hospitals to report C. difficile 

data to NHSN. Fifteen States have 

implemented a C. difficile Prevention 

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141Centers for Disease Control and Prevention. 

State Has Implemented a C. diff Prevention 

Collaborative. Available at: http://www.cdc.gov/hai/ 

stateplans/states-w-CDI-collaborative.html. 

142National Quality Forum. Measure 

Applications Partnership Pre-Rulemaking Report: 

2013 Recommendations of Measures Under 

Consideration by HHS: February 2013. Available at: 

http://www.qualityforum.org/WorkArea/ 

linkit.aspx?LinkIdentifier=id&ItemID=72738. 

143 Data from CMS–CDC correspondence on 

February 1, 2013. 

144Medicare Payment Advisory Commission, 

Report to the Congress: Medicare Payment Policy. 

Available at: http://www.medpac.gov/documents/

Mar13_EntireReport.pdf, March 2013, see Chapter 

11, Long-term care hospital services, pg. 237–257. 

145RTI analysis of 2010–2011 Medicare MedPAR 

claims data under CMS contract HHSM–500–2008– 

00021I. 

146Federal Register, Vol. 76, No. 160, Thursday, 

August 18, 2011/Rules and Regulations, IV.C.1.a. 

147 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. 

148Coleman 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. 

149Courtney 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. 

150 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. 

151 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. 

152Naylor 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. 

153Naylor 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. 

154Naylor MD, Aiken LH, Kurtzman ET, Olds 

DM, Hirschman KB.The Importance of Transitional 

Care in Achieving Health Reform. Health Affairs 

2011; 30(4):746–754. 

Collaborative.141 The goal for this 

proposed C. difficile measure is to 

provide a common mechanism (CDC/ 

NHSN) for all LTCHs to report and 

analyze these data that will inform 

infection control staff of the impact of 

targeted prevention efforts. We included 

the proposed C. difficile measure in the 

December 1, 2012 MUC list. The MAP 

supported the direction of this 

measure.142

We are proposing to use the CDC/ 

NHSN reporting and submission 

infrastructure for reporting of the 

proposed NHSN Facility-wide Inpatient 

Hospital-onset Clostridium difficile 

Outcome Measure (NQF #1717). CDC/ 

NHSN is the data collection and 

submission framework currently used 

for reporting the CAUTI, CLABSI and 

Influenza Vaccination Coverage Among 

Healthcare Personnel measures. Similar 

to the NHSN MRSA Bacteremia 

Outcome Measure we have proposed 

above, details related to the procedures 

for using NHSN for data submission and 

information on definitions, numerator 

data, denominator data, data analyses, 

and measure specifications for the 

proposed NHSN Facility-wide Inpatient 

Hospital-onset Clostridium difficile 

Outcome Measure (NQF #1717) can be 

found at: http://www.qualityforum.org/ 

QPS/1717 and http://www.cdc.gov/ 

nhsn/PDFs/pscManual/ 

12pscMDRO_CDADcurrent.pdf. For 

January 2012 through January 2013, an 

estimated 46 LTCHs reported 

laboratory-identified C. Difficile event 

data into NHSN.143 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. 

We refer readers to section IX.C.9. of 

the preamble to this proposed rule for 

more information on data collection and 

submission. We invite public comment 

on this proposed measure and data 

collection and submission for the 

proposed measure for the FY 2017 

payment determination and subsequent 

payment determinations. 

(3) Proposed Quality Measure #3: Allcause Unplanned Readmission Measure 

for 30 Days Post-Discharge From LongTerm Care Hospitals 

LTCHs treat patients who, on average, 

are hospitalized 25 days or greater with 

medically complex problems, including 

prolonged mechanical ventilation or 

multiple organ failure. In 2011, as 

reported by MedPAC, about 123,000 

Medicare beneficiaries received care for 

almost 140,000 LTCH stays in roughly 

424 LTCHs nationwide, with payments 

of $5.4 billion.144 For patients 

discharged from LTCH settings, the 

unadjusted rate of readmission to 

LTCHs and IPPS hospitals in the 30 

days after an LTCH discharge was about 

26 percent in 2010 and 2011.145 With 

such a large proportion of patients being 

readmitted to an acute level of care (that 

is, to either an LTCH or to an IPPS 

hospital), we are interested in 

monitoring the rates for each facility 

and reducing rates that are 

inappropriately high. Thus, we are 

proposing a risk-adjusted measure of 

readmission rates, the All-cause 

Unplanned Readmission Measure for 30 

days Post Discharge from Long-Term 

Care Hospitals. 

This measure will enhance efforts to 

promote patient safety, reduce 

healthcare-associated infections, 

improve coordination of care and care 

transitions, and reduce healthcare costs. 

Readmissions are costly to the Medicare 

program and have been identified as 

sensitive to improvements in 

coordination of care and discharge 

planning for patients.146 Literature on 

readmissions is mainly focused on 

discharges from short-term acute care 

hospitals. However, processes that may 

affect readmission rates, such as 

discharge planning, communications, 

and coordination, also occur at other 

inpatient facilities. 

While some readmissions are 

unavoidable, such as those resulting 

from the inevitable progression of 

disease or worsening of chronic 

conditions, readmissions may also 

result from poor quality of care or 

inadequate transitions between care 

settings. Randomized controlled trials in 

short-stay acute care hospitals 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; predischarge assessment; and coordination 

of care after discharge. Successful 

randomized trials have reduced 30-day 

readmission rates by 20 to 40 

percent 147 148 149 150 151 152 153 and a 2011 

meta-analysis of randomized clinical 

trials found evidence that interventions 

associated with discharge planning 

helped to reduce readmission rates,154

illustrating how hospitals may influence 

readmission rates through best 

practices. 

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 it is appropriate to include 

All-cause Unplanned Readmission 

Measure for 30 days Post Discharge from 

Long-Term Care Hospitals as a quality 

measure in the LTCHQR Program. 

Promoting quality improvements 

leading to successful transitions of care 

for patients moving from the LTCH 

setting to the community or another 

post-acute care setting, and reducing 

preventable facility-wide readmission 

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155QualityNet. Hospital-wide All-Cause 

Unplanned Readmission (HWR) Measure. Available 

at http://www.qualitynet.org/dcs/ContentServer?c=

Page&pagename=QnetPublic%2FPage%2FQnet

Tier4&cid=1228772504318. As obtained on March 

20, 2013. 

156National Quality Forum. Measure 

Applications Partnership Pre-Rulemaking Report: 

2013 Recommendations of Measures Under 

Consideration by HHS: February 2013. Available at: 

http://www.qualityforum.org/WorkArea/linkit.aspx?

LinkIdentifier=id&ItemID=72738. 

157Please refer to 77 FR 53377 and table on 77 

FR 53531 for current condition-specific readmission 

measures used in the Hospital IQR Program, 

available at: http://www.gpo.gov/fdsys/pkg/FR2012-08-31/pdf/2012-19079.pdf. 

158National Quality Forum. ‘‘Patient Outcomes: 

All-Cause Readmissions Expedited Review 2011’’. 

July 2012. pp12 

rates, is consistent with the NQS aims 

of safer, better coordinated care and 

lower costs. 

Our approach to developing this 

measure is consistent with NQFendorsed Hospital-Wide Risk-Adjusted 

All-Cause Unplanned Readmission 

Measure (NQF #1789) (http://www.

qualityforum.org/QPS/1789) finalized 

for the Hospital IQR Program in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53521 through 53528). We are proposing 

to use the same statistical approach, the 

same time window and a similar set of 

patient characteristics. To the extent 

appropriate, the proposed LTCH 

measure is being harmonized with this 

Hospital-Wide Readmission (HWR) 

measure 155 and other measures of 

readmission rates being developed for 

post-acute care (PAC) settings, including 

the All-cause Unplanned Readmission 

Measure for 30 days Post Discharge from 

Inpatient Rehabilitation Facilities. This 

reflects MAP recommendations to 

promote alignment across care 

settings.156

LTCH patients, on average, require 

long stays at a hospital level of care and 

need care even after discharge. The 

setting chosen for placement of the 

discharged patient, and coordination 

with caregivers after discharge, are 

important for the stability of these 

patients. The rate of readmission to an 

acute level of care (short or long-term) 

for such patients will be sensitive to 

appropriate discharge placement. The 

All-cause Unplanned Readmission 

Measure for 30 days Post Discharge from 

Long-Term Care Hospitals assesses 

return to short-stay acute care hospitals 

or LTCHs within 30 days of discharge 

from an LTCH to the community or 

another care setting of lesser intensity. 

Patient readmissions are tracked using 

Medicare FFS claims data for 30 days 

after discharge, or the date of patient 

death if the patient dies within 30 days 

of discharge. 

In the Hospital IQR Program, two 

readmission measurement approaches 

were taken: (1) Measures related to 

patients with specific medical 

conditions, such as heart failure, 

pneumonia, and acute myocardial 

infarction,157 and (2) a hospital-wide 

measure. In LTCHs, patients tend to be 

complex and not easily classified into 

specific condition or procedure types. In 

addition, LTCHs have relatively small 

numbers of patients. Even ventilator 

patients, who are reasonably definable, 

are not numerous enough to provide 

good stable indicators of quality. 

Therefore, a hospital-wide all-cause 

readmission measure reflects a broader 

assessment of the quality of care in 

LTCHs, and may consequently better 

promote quality improvement and 

inform consumers about quality care. 

In applying the All-cause Unplanned 

Readmission Measure for 30 days Post 

Discharge from Long-Term Care 

Hospitals, we will follow patients for 30 

days after the LTCH discharge date, or 

date of death if the patient dies within 

the 30 day post-discharge period, using 

Medicare FFS claims data. Because 

patients differ in morbidity and 

complexity, the measure is risk-adjusted 

for patient case-mix. The measure also 

excludes planned readmissions because 

these are not considered to be indicative 

of poor quality care on the part of the 

LTCH. 

A model developed by a CMS 

measure development contractor 

predicts admission rates while 

accounting for patient demographics, 

primary condition in the prior short 

stay, comorbidities, and a few other 

patient factors. The use of such risk 

adjusters will account for case-mix 

differences that affect patient 

readmission rates among facilities. 

While estimating the predictive power 

of the patient characteristics, the model 

also estimates a facility specific effect 

common to patients treated at that 

facility. Similar to the Hospital IQR 

Program hospital-wide readmission 

measure, the proposed LTCHQR 

Program measure is the ratio of the 

number of risk-adjusted predicted 

unplanned readmissions for each 

individual LTCH, including the 

estimated facility effect, to the average 

number of risk-adjusted predicted 

unplanned readmissions for the same 

patients treated at a facility with the 

average effect on readmissions. A ratio 

above one indicates a higher than 

expected readmission rate, or lower 

level of quality, while a ratio below one 

indicates a lower than expected 

readmission rate, or higher level of 

quality. (The construction of the 

Hospital IQR Program hospital-wide 

measure and the NQF report may be 

downloaded from: http://www.quality

forum.org/Publications/2012/07/Patient

_Outcomes_All-Cause_Readmissions_

Expedited_Review_2011.aspx.) 

The patient population for the Allcause Unplanned Readmission Measure 

for 30 days Post Discharge from LongTerm Care Hospitals includes LTCH 

patients who: 

• Were discharged alive from the 

LTCH; 

• Had 12 months of Medicare Part A, 

fee-for-service coverage prior to the 

LTCH stay; 

• Had 30 days of Medicare Part A, 

fee-for-service coverage post discharge; 

• Had an IPPS hospital stay within 

the 30 days prior to the LTCH stay; and 

• Were aged 18 years or above when 

admitted to the LTCH. 

As in the Hospital IQR Program 

hospital-wide readmission measure, 

patients whose principal diagnosis was 

cancer and whose treatment was 

nonsurgical are excluded. Studies of 

this population that were reviewed for 

the Hospital IQR Program readmission 

measure showed them to have a 

different trajectory of illness and 

mortality than other patient 

populations.158 The measure also 

excludes patients who were discharged 

against medical advice. 

Readmissions that are not included in 

the measure are: 

• Transfers from an LTCH to another 

LTCH or IPPS hospital; and 

• Readmissions within the 30 day 

window that are usually considered 

planned due to the nature of the 

procedures and principal diagnoses of 

the readmission. 

• LTCH stays that are problematic (for 

example, overlapping admission and 

discharge dates). 

The planned readmission list for the 

All-cause Unplanned Readmission 

Measure for 30 days Post Discharge from 

Long-Term Care Hospitals includes the 

planned procedures specified in the 

Hospital-Wide All-Cause Unplanned 

Readmission (HWR) Measure (NQF 

#1789) used in the Hospital IQR 

Program, plus other procedures that 

were determined in consultation with 

technical expert panel. The list of 

procedures considered planned may be 

found in the LTCH Readmissions 

Measure Specifications file which will 

be made available for download at the 

time of release of this proposed rule at: 

http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/. 

In addition to the list of planned 

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27728 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

159National Quality Forum. Measure 

Applications Partnership Pre-Rulemaking Report: 

2013 Recommendations of Measures Under 

Consideration by HHS: February 2013. Available at 

http://www.qualityforum.org/WorkArea/linkit.aspx?

LinkIdentifier=id&ItemID=72738. 

160Currie LM. Fall and injury prevention. Annu 

Rev Nurs Res. 2006;24:39–74. 

161Fuller GF. Falls in the elderly. Am Fam 

Physician. Apr 1 2000;61(7):2159–2168, 2173–2154. 

162Premier Inc. Causes of Falls. 2013. Available: 

https://www.premierinc.com/quality-safety/toolsservices/safety/topics/falls/causes_of_falls.jsp. 

163Rubenstein LZ, Josephson KR, Robbins AS. 

Falls in the nursing home. Ann Intern Med. 1994 

Sep 15; 121(6):442–51. 

164Rubenstein LZ, Powers CM, MacLean CH. 

Quality indicators for the management and 

prevention of falls and mobility problems in 

vulnerable elders (ACOVE). Ann Intern Med. 2001 

Oct 16;135(8 Pt 2):686–93. 

procedures there is a list of diagnoses 

which, if found as the principal 

diagnosis on the readmission claim, 

would indicate that the procedure 

occurred during an unplanned 

readmission. 

A patient discharged from an LTCH is 

tracked until one of the following 

occurs: (1) The 30-day period postdischarge ends; (2) the patient dies; or, 

(3) the patient is readmitted to an acute 

level of care (short or long term). If 

multiple readmissions occur, only the 

first is considered for this measure. If 

the first readmission is unplanned, it is 

counted as a readmission in the measure 

rate. The occurrence of a planned 

readmission ends the 30-day window of 

the index discharge from the LTCH. 

Readmission rates are risk-adjusted 

for patient case-mix characteristics, 

independent of quality. The risk 

adjusted model accounts for 

demographic characteristics, principal 

diagnosis, co-morbidities, length of stay 

in the prior IPPS hospital, critical care 

days in the prior IPPS hospital, number 

of IPPS hospital stays in the prior year, 

and the occurrence of various surgery 

types in the prior IPPS hospital stay. 

In modeling LTCH readmissions, all 

patients are included in a single model, 

an approach different from the fivecohort approach of the Hospital IQR 

Program HWR measure, adapted to 

account for a substantially smaller 

patient population in the LTCH setting. 

Separate models for patient types, as 

was done for the Hospital IQR Program 

measure, are not feasible. The number of 

cases is much smaller in the LTCHs 

than in the IPPS hospitals and patients 

are generally not as strongly 

characterized by one major admitting 

diagnosis or condition. Patient 

characteristics are captured by 

diagnoses and prior surgeries, with a 

marker for prolonged mechanical 

ventilation also included. 

Because there are approximately 

120,000 LTCH admissions per year, and 

approximately 110,000 of those 

admissions meet the criteria for 

inclusion, the proposed measure will 

use a model that merges two years of 

Medicare claims data. This approach is 

similar to that used by the Hospital IQR 

Program condition-specific readmission 

measures, which use three years of 

claims data (77 FR 53523). Merging 

multiple years of data produces more 

precise estimates of the effects of all the 

risk adjusters, and increases the sample 

size associated with each facility. Larger 

patient samples are better able to 

meaningfully distinguish facility 

performance. 

Under the exception authority in 

section 1886(m)(5)(D)(ii) of the Act, we 

are proposing to use this measure in the 

LTCHQR Program. 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) 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 2012, NQF endorsed two hospitalwide readmission measures, the 

National Committee for Quality 

Assurance (NCQA) measure intended 

for health plans, Plan All-Cause 

Readmissions (NQF #1768), and CMS’ 

Hospital-Wide All-Cause Unplanned 

Readmission Measure (HWR) (NQF 

#1789). NQF #1789 is the model for the 

All-cause Unplanned Readmission 

Measure for 30 days Post Discharge from 

Long-Term Care Hospital measure we 

are proposing. The most recent MAP 

Pre-Rulemaking Report noted that 

‘‘readmission measures are also 

examples of measures that MAP 

recommends be standardized across 

settings, yet customized to address the 

unique needs of the heterogeneous PostAcute Care (PAC)/LTC population. MAP 

has continually noted the need for care 

transition measures in PAC/LTC 

performance measurement programs. 

Setting-specific admission and 

readmission measures under 

consideration would address this 

need.’’ 159

We intend to seek NQF endorsement 

of the All-cause Readmission Measure 

for 30 days Post Discharge from LongTerm Care Hospital. As this is a claimsbased measure not requiring reporting of 

new data by LTCHs, this measure will 

not be used to determine LTCH 

reporting compliance for the LTCHQR 

Program. We are proposing to begin 

reporting feedback to LTCHs on 

performance of this measure in CY 

2016. The initial feedback will be based 

on FY 2013 and FY 2014 Medicare 

claims data related to LTCH 

readmissions. The readmission measure 

will be part of the LTCH public 

reporting program once public reporting 

is instated. We intend to provide details 

pertaining to public reporting, such as 

LTCH preview of performance results, 

of this measure in our future 

rulemaking. 

We invite public comment on these 

proposals. 

c. Proposed New LTCHQR Program 

Quality Measure for the FY 2018 

Payment Determination and Subsequent 

Payment Determinations 

We are proposing one new quality 

measure, Application of the Percent of 

Residents Experiencing One or More 

Falls with Major Injury (Long Stay) 

(NQF #0674), for the LTCHQR Program 

to affect the FY 2018 payment 

determination and subsequent payment 

determinations. 

This NQF-endorsed measure is an 

outcome measure that reports the 

percentage of residents (or patients if 

finalized for the LTCH setting) who 

experienced falls with major injury over 

a 12 month period. This measure was 

developed by the CMS and is NQFendorsed for the Nursing Home/Skilled 

Nursing Facility setting. 

Research indicates that fall related 

injuries are the most common cause of 

accidental death in people aged 65 and 

older, with approximately 41 percent of 

accidental deaths annually.160 Rates 

increase to 70 percent of accidental 

deaths amongst individuals ages 75 and 

older.161 In addition to death, falls can 

lead to fracture, soft tissue or head 

injury, fear of falling, anxiety and 

depression.162 Research also indicates 

that approximately 75 percent of 

nursing facility residents fall at least 

once a year; twice the rate of their 

counterparts in the community.163

Similar data are not available for the 

LTCH setting. Falls also represent a 

significant cost burden to the entire 

health care system, with injurious falls 

accounting for 6 percent of medical 

expenses among those age 65 and 

older.164

According to analysis of ICD–9 codes 

reported on Medicare claims, LTCHs 

reported 2,567 major injuries due to 

falls in 2009. Present on admission 

indicators are not available on LTCH 

claims, therefore we are unable to say 

whether these conditions are present on 

admission or acquired during the LTCH 

stay. Therefore, it was not possible to 

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165Centers for Medicare & Medicaid Services 

Center for Medicare & Medicaid Innovation. 

Hospital Acquired Conditions (HAC)—Report to 

Congress. Available at http://innovation.cms.gov/ 

Files/x/HospAcquiredConditionsRTC.pdf. 166Bernard SL, Dalton K, Lenfestey N F, Jarrett 

NM, Nguyen KH, Sorensen AV, Thaker S, West ND. 

Study to support a CMS Report to Congress: Assess 

feasibility of extending the hospital-acquired 

conditions—present on admission IPPS payment 

policy to non-IPPS payment environments. 

Prepared for the Centers for Medicare & Medicaid 

Services (CMS Contract No. HHSM–500–T00007). 

2011. 

167Morse, J. M. (2002) Enhancing the safety of 

hospitalization by reducing patient falls. Am J 

Infect Control 2002; 30(6): 376–80. 168Rothschild JM, Bates DW, Leape LL. 

Preventable medical injuries in older patients. Arch 

Intern Med. 2000 Oct 9; 160(18):2717–28. 169Morris JN, Moore T, Jones R, et al. Validation 

of long-term and post-acute care quality indicators. 

CMS Contract No: 500–95–0062/T.O. #4. 

Cambridge, MA: Abt Associates, Inc., June 2003. 170Avidan AY, Fries BE, James ML, Szafara KL, 

Wright GT, Chervin RD. Insomnia and hypnotic 

use, recorded in the minimum data set, as 

predictors of falls and hip fractures in Michigan 

nursing homes. J Am Geriatr Soc. 2005 Jun; 

53(6):955–62. 171Fonad E, Wahlin TB, Winblad B, Emami A, 

Sandmark H. Falls and fall risk among nursing 

home residents. J Clin Nurs. 2008 Jan; 17(1):126– 

34. 172Currie LM. Fall and injury prevention. Annu 

Rev Nurs Res. 2006;24:39–74. 173Ellis AA, Trent RB. Do the risks and 

consequences of hospitalized fall injuries among 

older adults in California vary by type of fall? J 

Gerontol A Biol Sci Med Sci. Nov 

2001;56(11):M686–692. 174Chen XL, Liu YH, Chan DK, Shen Q, Van 

Nguyen H. Chin Med J (Engl). Characteristics 

associated with falls among the elderly within aged 

care wards in a tertiary hospital: a retrospective. 

2010 Jul;123(13):1668–72. 175Frisina PG, Guellnitz R, Alverzo J. A time 

series analysis of falls and injury in the inpatient 

rehabilitation setting. Rehabil Nurs. 2010 JulAug;35(4):141–6, 166. 176Lee JE, Stokic DS. Risk factors for falls during 

inpatient rehabilitant Am J Phys Med Rehabil. 2008 

May;87(5):341–50; quiz 351, 422. 

177Nursing Home Quality Initiative, Quality 

Measures. December 2012. Available: http:// 

www.cms.gov/Medicare/Quality-Initiatives-PatientAssessment-Instruments/NursingHomeQualityInits/

NHQIQualityMeasures.html. 

178The LTCH CARE Data Set Version 1.01 was 

approved on April 24, 2012 by OMB in accordance 

with the PRA. The OMB Control Number is 0938– 

1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956 published April 12, 2013 solicits 

public comment on additions on updates to the 

LTCH CARE Data Set. 

determine which of these falls occurred 

in the LTCH. However, we note that on 

the majority of claims, the primary 

diagnosis is the admitting diagnosis and 

is considered to be present on 

admission and therefore, the secondary 

diagnoses can be assumed to provide a 

count of conditions that could have 

been acquired in the LTCH.165 When it 

was assumed that a fall recorded in the 

primary diagnosis code was likely 

present on admission and that a fall 

recorded in the secondary diagnosis 

code was acquired in the LTCH, there 

were 2,049 reported injuries that may 

have been acquired in the LTCH.166

According to Morse (2002), 78 percent 

of falls are anticipated physiologic falls. 

Anticipated physiological falls are falls 

amongst individuals who scored high 

on a risk assessment scale, meaning 

their risk could have been identified in 

advance of the fall.167 To date, studies 

have identified a number of risk factors 

for falls.168 169 170 171 172 173 174 175 176 The 

identification of such risk factors 

suggests the potential for health care 

facilities to reduce and prevent the 

incidence of falls for their patients. 

In light of the evidence discussed 

above, we are proposing an application 

of the measure NQF #0674 Percent of 

Residents Experiencing One or More 

Falls with Major Injury (Long Stay), for 

the LTCHQR Program for the FY 2018 

payment determination and subsequent 

payment determinations. 

We note that, while NQF #0674 is 

currently endorsed only for long stay 

nursing home residents, we believe that 

an application of this measure would be 

highly relevant for the LTCH setting. As 

stated above, many patients receiving 

care in the LTCH setting are elderly and 

are at high risk for death and other 

injuries due to falls. A technical expert 

panel convened by our measure 

development contractor discussed 

potential quality measures for the LTCH 

setting and stressed that falls with major 

injury are a major concern in LTCH 

setting. 

In section 1886(m)(5)(D)(ii) of the Act, 

the exception authority provides that 

‘‘[i]n the case of a specified area or 

medical topic determined appropriate 

by the Secretary for which a feasible and 

practical measure has not been endorsed 

by the entity with a contract under 

section 1890(a) of the Act, the Secretary 

may specify a measure that is not so 

endorsed as long as due consideration is 

given to measures that have been 

endorsed or adopted by a consensus 

organization identified by the 

Secretary.’’ We reviewed NQF’s 

consensus endorsed measures and were 

unable to identify any NQF-endorsed 

measures for falls with major injury in 

the LTCH setting. We are unaware of 

any other measures for falls with major 

injury that have been endorsed or 

adopted by another consensus 

organization for the LTCH setting. 

Therefore, we are proposing to adopt 

an application of the NQF-endorsed 

measure Percent of Nursing Home 

Residents Experiencing One or More 

Falls with Major Injury (Long Stay) 

(NQF #0674) for use in the LTCH setting 

for the LTCHQR Program under the 

Secretary’s authority to select non-NQF 

endorsed measures. In the future we 

will consider applying for NQF review 

for endorsement of this measure to the 

LTCH setting as part of the measure 

expansion process. Additional 

information regarding NQF #0674, on 

which our proposed application of the 

measure will be based, including 

measure specifications, is available at: 

http://www.qualityforum.org/QPS/0674. 

The use of different applications of the 

same quality measure across multiple 

healthcare settings 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.’’ Data on NQF #0674 

is currently collected and reported on 

Nursing Home Compare as part of the 

Nursing Home Quality Initiative.177

We are proposing that data for the 

proposed application of NQF #0674 will 

be collected through the LTCH CARE 

Data Set,178 with submission through 

the QIES ASAP System, as described in 

the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53619 through 53621). For more 

information on LTCHQR Program 

reporting using the QIES ASAP system, 

we refer readers to the Web site at: 

http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/

LTCHTechnicalInformation.html. We 

intend to revise the LTCH CARE Data 

Set to include new items which assess 

the presence of falls and falls with major 

injury, should this proposed application 

of the measure be adopted. These new 

items will be applied to all LTCH 

patients and will not distinguish 

between long stay versus short stay 

patients since this categorization is not 

applicable to the LTCH setting. 

The items used for the proposed 

application of the quality measure will 

be based on the items from the 

Minimum Data Set (MDS) 3.0, version 

1.13.0 (1/17/13) items J1800 (Any Falls 

Since Admission/Entry or Reentry or 

Prior Assessment) and J1900A, B and C 

(Number of Falls (A: with no injury, B: 

with injury (except major), C with Major 

injury)) since Admission/Entry or 

Reentry or Prior Assessment), available 

at: http://www.cms.gov/Medicare/ 

Quality-Initiatives-Patient-AssessmentInstruments/NursingHomeQualityInits/

NHQIMDS30Technical

Information.html. The calculation of the 

proposed application of the measure 

will be based on item J1900C, Number 

of Falls with major injury, since 

admission. The specifications and data 

elements for NQF #0674 are available in 

the MDS 3.0 Quality Measures User’s 

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Manual Version 6.0 available on our 

Web site at http://www.cms.gov/

Medicare/Quality-Initiatives-PatientAssessment-Instruments/

NursingHomeQualityInits/

MDS30RAIManual.html. 

By building on the existing reporting 

and submission infrastructure for 

LTCHs, (the LTCH CARE Data Set, 

which we began using for data 

collection on October 1, 2012 for the 

Pressure Ulcer measure), we intend to 

reduce the administrative burden 

related to data collection and 

submission for this measure under the 

LTCHQR Program. We refer readers to 

section IX.C.9. of the preamble to this 

proposed rule for more information on 

data collection and submission. 

We invite public comment on this 

proposed measure and data collection 

and submission for the proposed 

measure for the FY 2018 payment 

determination and subsequent payment 

determinations. 

d. LTCHQR Program Quality Measures 

and Concepts Under Consideration for 

Future Years Payment Determinations 

We are considering the measures and 

measure topics in the table below for 

future years in the LTCHQR Program. 

We invite public comment on these 

measures and measure topics, 

specifically comments regarding the 

clinical importance, feasibility of data 

collection and implementation, current 

use, and usability of data to inform 

quality improvements in the LTCH 

setting. 

FUTURE MEASURES AND MEASURE TOPICS UNDER CONSIDERATION FOR THE LTCH QUALITY REPORTING PROGRAM

National Quality Strategy Priority: Safety and Healthcare-Associated Infections HAIs. 

• Surgical Site Infection. 

• Ventilator-Associated Event. 

• Ventilator Bundle. 

National Quality Strategy Priority: Safety and Healthcare-Acquired Conditions: Avoidable Adverse Events and Serious Reportable Events. 

• Manifestations of Poor Glycemic Control. 

National Quality Strategy Priority: Effective Clinical Processes. 

• Severe Sepsis and Septic Shock: Management Bundle. 

• Application of Venous Thromboembolism Prophylaxis (NQF #0371). 

• Ventilator Weaning Rate. 

National Quality Strategy Priority: Patient Safety. 

• Application of Hospital-Based Inpatient Psychiatric Services (HBIPS)-2 Hours of Physical Restraint Use (NQF #0640). 

• Application of Percent of Residents Who Were Physically Restrained (Long-Stay) (NQF #0687). 

National Quality Strategy Priority: Patient and Caregiver-Centered Care. 

• Depression Assessment and Management. 

• Functional Change. 

• Application of HCAHPS (NQF #0166). 

• Application of Pain Management (for example, Percent of Residents Who Self-Report Moderate to Severe Pain (Short-Stay) (NQF 

#0677)). 

National Quality Strategy Priority: Communication and Coordination of Care. 

• Application of Medication Reconciliation (NQF #0097). 

• Application of Medication Reconciliation Post-Discharge (NQF #0554). 

• Reconciled Medication List Received by Discharged Patients (NQF #0646). 

• Transition Record with Specified Elements Received by Discharged Patients (NQF #0647). 

• Timely Transmission of Transition Record (NQF #0648). 

9. Form, Manner, and Timing of Quality 

Data Submission for the FY 2016 

Payment Determination and Subsequent 

Payment Determinations 

a. Background 

Section 1886(m)(5)(C) of the Act 

requires that, for the FY 2014 payment 

determination and each subsequent 

payment determination, each LTCH 

submit to the Secretary data on quality 

measures specified by the Secretary and 

that such data shall be submitted in a 

form and manner, and at a time, 

specified by the Secretary. As required 

by section 1886(m)(5)(A)(i) of the Act, 

for any LTCH that does not submit data 

in accordance with section 

1886(m)(5)(C) of the Act with respect to 

a rate year, the Secretary will reduce 

any annual update to the standard 

Federal rate for discharges for the 

hospital during the rate year by two 

percentage points. 

b. Finalized Timeline for Data 

Submission Under the LTCHQR 

Program for the FY 2016 Payment 

Determination 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53636 through 53637), we 

finalized the data submission timeline 

for measures for the FY 2016 payment 

determination. LTCHs are required to 

submit data on LTCH admissions and 

discharges occurring from January 1, 

2014 through December 31, 2014 (CY 

2014) for the FY 2016 payment 

determination. We adopted this 

timeframe because we believe this will 

provide sufficient time for LTCHs and 

CMS to put processes and procedures in 

place to meet the additional quality 

reporting requirements. We also 

finalized in this rule the quarterly 

submission deadlines for the FY 2016 

payment determination as 

approximately 45 days after the end of 

each quarter, as outlined in the table 

below. This is the date by which all data 

collected during that quarter must be 

submitted to CMS for measures using 

the LTCH CARE Data Set and to CDC for 

measures using the CDC/NHSN. 

FINALIZED TIMELINE FOR SUBMISSION

OF LTCHQR PROGRAM QUALITY

DATA FOR THE FY 2016 PAYMENT

DETERMINATION

Data collection timeframe: CY 2014 Submission deadline 

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. 

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179The LTCH CARE Data Set Version 1.01 was 

approved on April 24, 2012 by OMB in accordance 

with the PRA. The OMB Control Number is 0938– 

1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956 published April 12, 2013 solicits 

public comment on additions and updates to the 

LTCH CARE Data Set. http://www.cms.gov/ 

Regulations-and-Guidance/Legislation/ 

PaperworkReductionActof1995/PRA-Listing-Items/ 

CMS1252160.html. 

c. Proposed Timeline for Data 

Submission for the NQF #0431 

Influenza Vaccination Coverage Among 

Healthcare Personnel Measure for the 

FY 2016 Payment Determination and 

Subsequent Payment Determinations 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53630 through 53631) we 

finalized the adoption of the Influenza 

Vaccination Coverage among Healthcare 

Personnel (NQF #0431) measure for the 

FY 2016 payment determination. In the 

FY 2013 IPPS/LTCH PPS final rule (77 

FR 53636) we also finalized the data 

collection period for the FY 2016 

payment determination to be January 1, 

2014 through December 31, 2014. As 

noted in IX.C.7.a. of the preamble to this 

proposed rule, there is a unique 

seasonality in the timing of influenza 

activity each year. The CDC, the steward 

of this measure, recommends that 

people get vaccinated against influenza 

as long as influenza viruses are 

circulating. We are proposing that, for 

the LTCHQR Program, the Influenza 

Vaccination Coverage Among 

Healthcare Personnel measure (NQF 

#0431) have its own reporting period to 

align with the influenza vaccination 

season, which is defined by the CDC as 

October 1 (or when the vaccine becomes 

available) through March 31of the 

subseqeuent year for the influenza 

season. This timeline is consistent with 

how the NQF specifies this measure. 

Further details related to the procedures 

for using the CDC/NHSN for data 

submission and measure specifications 

for the Influenza Vaccination Coverage 

among Healthcare Personnel (NQF 

#0431) measure can be found at: http:// 

www.qualityforum.org/QPS/0431 and 

http://www.cdc.gov/nhsn/LTACH/hcpflu-vac/index.html. 

If our proposal in IX.C.7.a. of the 

preamble to this proposed rule is 

finalized, LTCHs would be required to 

report data on the Influenza Vaccination 

Coverage among Healthcare Personnel 

(NQF #0431) measure from October 1, 

2014 or the date on which the vaccine 

becomes available, whichever occurs 

first, through March 31, 2015 for the 

2014–2015 influenza season for FY 2016 

payment determination. We are also 

proposing that this October (or when 

vaccine becomes available) through 

March reporting period for the Influenza 

Vaccination Coverage among Healthcare 

Personnel (NQF #0431) measure would 

apply to the FY 2017 payment 

determination and subsequent payment 

determinations. 

d. Proposed Timeline for Data 

Submission for the NQF #0680 Percent 

of Residents or Patients Who Were 

Assessed and Appropriately Given the 

Seasonal Influenza Vaccine (Short Stay) 

Measure for the FY 2016 Payment 

Determination and Subsequent Payment 

Determinations 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53624 through 53627), we 

finalized the adoption of the Percent of 

Residents or Patients Who Were 

Assessed and Appropriately Given the 

Seasonal Influenza Vaccine (Short Stay) 

(NQF #0680) measure for the FY 2016 

payment determination. In the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53637) 

we also finalized the data collection 

period for the FY 2016 payment 

determination to begin January 1, 2014 

and continue through December 31, 

2014. This measure will be collected 

using the LTCH CARE Data Set. The 

LTCH CARE Data Set (version 2.01),179

proposed data collection instrument for 

this measure, is currently undergoing 

OMB review under the Paperwork 

Reduction Act. We anticipate that the 

review and approval will be completed 

by summer 2013. 

We generally allow 9–12 months for 

LTCHs to comply with and integrate the 

requisite changes to new versions of 

data sets into their existing IT 

infrastructure, and to train staff 

members. Because summer 2013 

approval of the LTCH CARE Data Set 

version 2.01 would only allow 6 months 

for LTCHs to put plans and procedures 

into place, we are proposing to move the 

start date for data collection of this 

measure to April 1, 2014 instead of the 

previously finalized start date of January 

1, 2014. Data collection and submission 

of this measure will continue through 

December 31, 2014 for the FY 2016 

payment determination. This proposed 

change would only affect CY 2014 

reporting. We are proposing that for all 

subsequent payment determinations this 

measure will be collected on a calendar 

year basis beginning on January 1 and 

continuing through December 31 of each 

year. 

TIMELINE FOR DATA COLLECTION OF

LTCHQR PROGRAM QUALITY DATA

FOR THE FY 2016 PAYMENT DETERMINATION

NQF measure 

ID Data collection timeframe 

NQF #0138 * ..... January 1, 2014–December 31, 2014. 

NQF #0139 * ..... January 1, 2014–December 31, 2014. 

NQF #0678 * ..... January 1, 2014–December 31, 2014. 

NQF #0680 ....... April 1, 2014–December 

31, 2014.** 

NQF #0431 ....... October 1, 2014 (or when 

vaccine becomes available)–March 31, 2015.** 

* The data collection period for this measure 

was finalized in the FY 2013 IPPS/LTCH PPS 

final rule. 

** This data collection timeframe for this 

measure is proposed in this proposed rule. 

TIMELINE FOR SUBMISSION OF

LTCHQR PROGRAM QUALITY DATA

FOR THE FY 2016 PAYMENT DETERMINATION AND SUBSEQUENT PAYMENT DETERMINATIONS NQF 

#0138,* NQF #0139,* NQF #0678 * 

Data collection timeframe: CY 2014 

Final submission 

deadlines for the 

LTCHQR program FY 

2016 payment 

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. 

* The data collection period for this measure 

was finalized in the FY 2013 IPPS/LTCH PPS 

final rule. 

PROPOSED TIMELINE FOR SUBMISSION

OF LTCHQR PROGRAM QUALITY

DATA FOR THE FY 2016 PAYMENT

DETERMINATION AND SUBSEQUENT

PAYMENT DETERMINATIONS: NQF 

#0680 PERCENTAGE OF RESIDENTS

OR PATIENTS WHO WERE ASSESSED

AND APPROPRIATELY GIVEN THE

SEASONAL INFLUENZA VACCINE

(SHORT STAY) 

Data collection timeframe 

Final submission 

deadlines for the 

LTCHQR program FY 

2016 payment 

determination 

April 1, 2014–December 31, 2014.February 15, 2015. 

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PROPOSED TIMELINE FOR SUBMISSION

OF LTCHQR PROGRAM QUALITY

DATA FOR THE FY 2016 PAYMENT

DETERMINATION AND SUBSEQUENT

PAYMENT DETERMINATIONS: NQF 

#0431: INFLUENZA VACCINATION

COVERAGE AMONG HEALTHCARE

PERSONNEL

Data collection timeframe 

Final submission 

deadlines for the 

LTCHQR program FY 

2016 payment 

determination 

October 1 2014 (or 

when vaccine becomes available)– 

March 31, 2015.

May 15, 2015. 

We invite public comment on these 

proposed data collection and quarterly 

submission timeframes for NQF #0680 

and NQF #0431 for the FY 2016 

payment determination. 

e. Proposed Timeline for Data 

Submission Under the LTCHQR 

Program for the FY 2017 Payment 

Determination and Subsequent Payment 

Determinations 

As previously stated, in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53636 

through 53637), we finalized the data 

submission timeline for the FY 2016 

payment determination. For the FY 

2017 payment determination, we are 

proposing to require data submission for 

the LTCHQR Program on all LTCH 

admissions and discharges occurring 

January 1, 2015 through December 31, 

2015 (CY 2015) with the exception of 

Influenza Vaccination Among 

Healthcare Personnel (NQF #0431). We 

are proposing that the data collection 

timeframe for this measure (NQF #0431) 

be in alignment with measure 

specifications per advisement of the 

CDC, the steward for this NQF-endorsed 

measure. Please refer to section IX.C.9.c. 

of the preamble to this proposed rule for 

additional information on this 

measure’s timelines. 

We note that the All-cause Unplanned 

Readmission Measure for 30 days PostDischarge from Long-Term Care 

Hospitals is a Medicare claims-based 

measure, therefore no new data need to 

be collected or reported by the facility. 

We will use CY 2013 and CY 2014 

Medicare claims data to calculate the 

All-cause Unplanned Readmission 

Measure for 30 days Post- Discharge 

from Long-Term Care Hospitals. We are 

proposing these timeframes because we 

believe this will provide sufficient time 

for CMS and LTCHs to put processes 

and procedures in place to meet the 

quality reporting requirements under 

the LTCHQR Program. The proposed 

data collection reporting periods for the 

measures applicable to the FY 2017 

payment determination are listed in the 

following table. 

PROPOSED TIMELINE FOR COLLECTION

OF LTCHQR PROGRAM QUALITY

DATA FOR THE FY 2017 PAYMENT

DETERMINATION

NQF measure 

ID Data collection timeframe 

NQF #0138 ....... January 1, 2015–December 31, 2015. 

NQF #0139 ....... January 1, 2015–December 31, 2015. 

NQF #0678 ....... January 1, 2015–December 31, 2015. 

NQF #0680 ....... January 1, 2015–December 31, 2015. 

NQF #0431 ....... October 1, 2015 (or when 

vaccine becomes available)–March 31, 2016. 

NQF #1716 ....... January 1, 2015–December 31, 2015. 

NQF #1717 ....... January 1, 2015–December 31, 2015. 

For each quarter outlined in the table 

below during which the LTCHs are 

required to collect data, we are 

proposing final submission deadlines 

occurring approximately 45 days after 

the end of any given quarter by which 

all data collected during that quarter 

must be submitted. We believe that this 

is a reasonable amount of time to allow 

LTCHs to submit data and make any 

necessary corrections. Set out below is 

the proposed timeline for submission of 

LTCHQR Program quality data for the 

FY 2017 payment determination. 

PROPOSED TIMELINE FOR SUBMISSION

OF LTCHQR PROGRAM QUALITY

DATA FOR THE FY 2017 PAYMENT

DETERMINATION: NQF #0138, NQF 

#0139, NQF #0678, NQF #0680, 

NQF #1716, NQF #1717 

Data collection timeframe: CY 2015 

Final submission 

deadlines for the 

LTCHQR program FY 

2017 payment 

determination 

Q1 (January–March 

2015).

May 15, 2015. 

Q2 (April–June 2015) August 15, 2015. 

Q3 (July–September 

2015).

November 15, 2015. 

Q4 (October–December 2015).February 15, 2016. 

PROPOSED TIMELINE FOR SUBMISSION

OF LTCHQR PROGRAM QUALITY

DATA FOR THE FY 2017 PAYMENT

DETERMINATION: NQF #0431: INFLUENZA VACCINATION COVERAGE

AMONG HEALTHCARE PERSONNEL

Data collection timeframe 

Final submission 

deadlines for the 

LTCHQR program FY 

2017 payment determination 

October 1 2015 (or 

when vaccine becomes available)– 

March 31, 2016.

May 15, 2016. 

We invite public comment on this 

proposal. 

f. Proposed Timeline for Data 

Submission Under the LTCHQR 

Program for the FY 2018 Payment 

Determination and Subsequent Payment 

Determinations 

For measures for the FY 2018 

payment determination, we are 

proposing to require data collection on 

LTCH discharges occurring from 

January 1, 2016 through December 31, 

2016 with the exception of Influenza 

Vaccination Among Healthcare 

Personnel (NQF #0431). We are 

proposing that the data collection 

timeframe for this measure (NQF #0431) 

be in alignment with measure 

specifications per advisement of the 

CDC, the steward for this NQF-endorsed 

measure. LTCHs would follow the 

proposed deadlines presented in the 

tables below to complete submission of 

data for each quarter for each proposed 

measure for the FY 2018 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 45 days after the end of 

each quarter by which all data collected 

during that quarter must be submitted. 

We believe that this is a reasonable 

amount of time to allow LTCHs to 

submit data and make any necessary 

corrections. 

PROPOSED TIMELINE FOR DATA COLLECTION OF LTCHQR PROGRAM

QUALITY DATA FOR THE FY 2018 

PAYMENT DETERMINATION

NQF measure 

ID Data collection timeframe 

NQF #0138 ....... January 1, 2016–December 31, 2016. 

NQF #0139 ....... January 1, 2016–December 31, 2016. 

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PROPOSED TIMELINE FOR DATA COLLECTION OF LTCHQR PROGRAM

QUALITY DATA FOR THE FY 2018 

PAYMENT DETERMINATION—Continued 

NQF measure 

ID Data collection timeframe 

NQF #0678 ....... January 1, 2016–December 31, 2016. 

NQF #0680 ....... January 1, 2016–December 31, 2016. 

NQF #0431 ....... October 1, 2016 (or when 

vaccine becomes available)–March 31, 2017. 

NQF #1716 ....... January 1, 2016–December 31, 2016. 

NQF #1717 ....... January 1, 2016–December 31, 2016. 

NQF #0674 ....... January 1, 2016–December 31, 2016. 

PROPOSED TIMELINE FOR SUBMISSION

OF LTCHQR PROGRAM QUALITY

DATA FOR THE FY 2018 PAYMENT

DETERMINATION AND SUBSEQUENT

PAYMENT DETERMINATIONS FOR ALL

MEASURES EXCEPT #0431: INFLUENZA VACCINATION COVERAGE

AMONG HEALTHCARE PERSONNEL

Data collection timeframe: CY 2016 

Final submission 

deadlines for the 

LTCHQR program FY 

2018 payment 

determination 

Q1 (January–March 

2016).

May 15, 2016. 

Q2 (April–June 2016) August 15, 2016. 

Q3 (July–September 

2016).

November 15, 2016. 

Q4 (October–December 2016).February 15, 2017. 

PROPOSED TIMELINE FOR SUBMISSION

OF LTCHQR PROGRAM QUALITY

DATA FOR THE FY 2018 PAYMENT

DETERMINATION AND SUBSEQUENT

PAYMENT DETERMINATIONS: NQF 

#0431: INFLUENZA VACCINATION

COVERAGE AMONG HEALTHCARE

PERSONNEL

Data collection timeframe 

Final submission 

deadlines for the 

LTCHQR program FY 

2018 payment determination 

October 1 2016 (or 

when vaccine becomes available)– 

March 31, 2017.

May 15, 2017. 

We invite public comment on this 

proposal. 

10. Public Display of Data Quality 

Measures for the LTCHQR Program 

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. 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. The statute also 

requires that the Secretary report quality 

measures that relate to services 

furnished in LTCHs on CMS’s Internet 

Web site. In the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53637) we 

received and responded to public 

comment regarding the procedures we 

could adopt for the public reporting of 

quality data under the LTCHQR 

Program. 

Currently, we are developing plans 

regarding the implementation of these 

provisions. We appreciate the need for 

transparency into the processes and 

procedures that will be implemented to 

allow for public reporting of the 

LTCHQR Program data and to afford 

LTCHs the opportunity to preview that 

data before it is made public. At this 

time, we have not established 

procedures or timelines for public 

reporting of data, but we intend to 

include related proposals in future 

rulemaking. We welcome public 

comment on what we should consider 

when developing future proposals 

related to public reporting of quality 

measures for the LTCHQR Program. 

11. Proposed LTCHQR Program 

Submission Waiver Requirements for 

the FY 2015 Payment Determination 

and Subsequent Payment 

Determinations 

Our experience with other quality 

reporting programs has shown that there 

are times when providers are unable to 

submit quality data due to extraordinary 

circumstances beyond their control (for 

example, natural or man-made 

disasters). We define a ‘‘disaster’’ as any 

natural or man-made catastrophe which 

causes damages of sufficient severity 

and magnitude to partially or 

completely destroy or delay access to 

medical records and associated 

documentation. Natural disasters could 

include events such as hurricanes, 

tornadoes, earthquakes, volcanic 

eruptions, fires, mudslides, snowstorms, 

and tsunamis. Man-made disasters 

could include such events as terrorist 

attacks, bombings, floods caused by 

man-made actions, civil disorders, and 

explosions. A disaster may be 

widespread or impact multiple 

structures or be isolated and impact a 

single site only. 

In certain instances of either natural 

or man-made disasters, an LTCH may 

have the ability to conduct a full patient 

assessment, and record and save the 

associated data either during or before 

the occurrence of an extraordinary 

event. In this case, the extraordinary 

event has not caused the facility’s data 

files to be destroyed, but it could hinder 

the LTCH’s ability to meet the quality 

reporting program’s data submission 

deadlines. In this scenario, the LTCH 

would potentially have the ability to 

report the data at a later date, after the 

emergency circumstances have 

subsided. In such cases, a temporary 

waiver of the LTCH duty to report 

quality measure data may be 

appropriate. 

In other circumstances of natural or 

man-made disaster, an LTCH may not 

have had the ability to conduct a full 

patient assessment, and record and save 

the associated data before the 

occurrence of an extraordinary event. In 

such a scenario, the facility does not 

have data to submit to CMS as a result 

of the extraordinary event. We believe 

that it is appropriate, in these situations, 

to grant a full waiver of the reporting 

requirements. 

We do not wish to penalize LTCHs in 

these circumstances or to unduly 

increase their burden during these 

times. Therefore, we are proposing a 

process, for the FY 2015 payment 

determination and subsequent payment 

determinations, for LTCHs to request 

and for CMS to grant waivers with 

respect to the reporting of required 

quality data when there are 

extraordinary circumstances beyond the 

control of the LTCHs. When a waiver is 

granted, an LTCH will not incur 

payment reduction penalties for failure 

to comply with the requirements of the 

LTCHQR Program. For LTCHQR 

Program reporting and submission of 

quality measure data for the FY 2014 

payment determination, we will be 

issuing guidance on the waiver process 

via the LTCH Quality Reporting 

Program Web site at: http://www.cms.

gov/Medicare/Quality-Initiatives-Patient

-Assessment-Instruments/LTCH-Quality

-Reporting/. 

Under the proposed process for the 

FY 2015 payment determination and 

subsequent payment determinations, an 

LTCH may request a waiver of the 

requirement to submit quality data for 

one or more quarters. We are proposing 

a process that, in the event that an 

LTCH seeks to request a waiver for 

quality reporting purposes for the FY 

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2015 payment determination and 

subsequent payment determinations, the 

LTCH may request a waiver for one or 

more quarters by submitting a written 

request to CMS. We are proposing that 

the LTCH compose a letter to CMS that 

documents the waiver request, with the 

information below, and submit the letter 

to CMS via email to the LTCH Quality 

Waiver mailbox at LTCHQRP

Reconsiderations@cms.hhs.gov. 

We note that the subject of the email 

must read ‘‘Disaster Waiver Request’’ 

and the letter must contain the 

following information: 

• LTCH CCN; 

• LTCH name; 

• CEO or CEO-designated personnel 

contact information including name, 

telephone number, email address, and 

mailing address (the address must be a 

physical address, not a post office box); 

• LTCH’s reason for requesting a 

waiver; 

• Evidence of the impact of 

extraordinary circumstances, including 

but not limited to photographs, 

newspaper and other media articles; and 

• A date when the LTCH believes it 

will be able to again submit LTCH QRP 

data and a justification for the proposed 

date. 

We are proposing that the letter 

documenting the disaster waiver request 

be signed by the LTCH’s CEO or CEO 

designated personnel, and must be 

submitted within 30 days of the date 

that the extraordinary circumstances 

occurred. Following receipt of the letter, 

we would: (1) Provide a written 

acknowledgement, using the contact 

information provided in the letter, to the 

CEO or CEO-designated contact 

notifying them that the request has been 

received; and (2) provide a formal 

response to the CEO or any CEOdesignated LTCH personnel, using the 

contact information provided in the 

letter, indicating our decision. 

This proposal does not preclude us 

from granting waivers to LTCHs that 

have not requested them when we 

determine that an extraordinary 

circumstance, such as an act of nature, 

affects an entire region or locale. If we 

make the determination to grant a 

waiver to LTCHs in a region or locale, 

we are proposing to communicate this 

decision through routine 

communication channels to LTCHs and 

vendors, including, but not limited to, 

issuing memos, emails, and notices on 

http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/

index.html. 

We invite public comment on this 

proposal. 

12. Proposed LTCHQR Program 

Reconsideration and Appeals for the FY 

2015 Payment Determination and 

Subsequent Payment Determinations 

At the conclusion of any given quality 

data reporting and submission period, 

we will review the data received from 

each LTCH during that reporting period 

to determine if the LTCH has met the 

quality data reporting requirements. 

LTCHs that are found to be 

noncompliant with the reporting 

requirements set forth for that reporting 

cycle could receive a reduction in the 

amount of 2 percentage points to their 

annual payment update for the 

upcoming fiscal year. 

We are aware that some of our other 

quality reporting programs, such as the 

Hospital IQR Program, include an 

opportunity for providers and suppliers 

to request a reconsideration of our 

initial non-compliance determination. 

We are also aware, for the purposes of 

the LTCHQR Program, that we will be 

making compliance determinations for 

the FY 2014 payment determination in 

the coming months and there is a need 

for providers to be able to request a 

reconsideration if the circumstances 

warrant. Therefore, to be consistent with 

other established quality reporting 

programs and to provide an opportunity 

for providers to seek reconsideration of 

our initial non-compliance decision, we 

are proposing a process that will allow 

LTCHs to request reconsiderations 

pertaining to their FY 2015 payment 

determination and that of subsequent 

payment determinations. 

As part of this process, LTCHs that are 

non-compliant with the reporting 

requirements during a given reporting 

cycle will be notified of that finding. 

The purpose of this notification is to put 

the LTCH on notice of the following: (1) 

That the LTCH has been identified as 

being non-compliant with the LTCHQR 

Program’s reporting requirements for the 

reporting cycle in question; (2) that the 

LTCH will be scheduled to receive a 

reduction in the amount of two 

percentage points to the annual 

payment update for the upcoming fiscal 

year; (3) that the LTCH may file a 

request for reconsideration if they 

believe that the finding of noncompliance is erroneous, or that if they 

were non-compliant, they have a valid 

and justifiable excuse for this noncompliance; and (4) that the LTCH must 

follow a defined process on how to file 

a request for reconsideration, which will 

be described in the notification. 

Upon the conclusion of our review of 

each request for reconsideration, we 

will render a decision. We may reverse 

our initial finding of noncompliance if: 

(1) The LTCH provides proof of full 

compliance with all requirements 

during the reporting period; or (2) the 

LTCH provides adequate proof of a valid 

or justifiable excuse for non-compliance 

if the LTCH was not able to comply with 

requirements during the reporting 

period. We will uphold our initial 

finding of noncompliance if the LTCH 

cannot show any justification for 

noncompliance. 

We intend to provide details 

pertaining to the reconsideration 

process, and the mechanisms related to 

provider requests for reconsiderations of 

their payment determination, such as 

filing requests, required content, 

supporting documentation, and 

mechanisms of notification and final 

determinations on the LTCHQR Program 

Web site in spring 2013 prior to any 

LTCH’s need for information on the 

CMS reconsideration process for the FY 

2014 payment determination and 

subsequent payment determinations at: 

http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/. 

We invite public comment on the 

proposed procedures for reconsideration 

and appeals for FY 2015 payment 

determination and subsequent payment 

determinations. 

D. 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 

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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 (FY) (76 FR 26435). For more 

information regarding this terminology 

change, we refer readers to section III. 

of the RY 2012 IPF PPS 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 any 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 percent for a 

fiscal year, 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 IPFQR 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 the 

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 

psychiatric 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 percent 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. In the FY 2013 

IPPS/LTCH PPS final rule (77 FR 

53678), we adopted requirements 

regarding the application of the 

payment reduction to the annual update 

of the standard Federal rate for failure 

to report data on measures selected for 

the FY 2014 payment determination and 

subsequent years and added new 

regulatory text at 42 CFR 412.424 to 

codify these requirements. 

3. Covered Entities 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53645), we established that 

the IPFQR Program’s quality reporting 

requirements cover those psychiatric 

hospitals and psychiatric units that are 

paid under Medicare’s IPF PPS (42 CFR 

412.404(b)). Generally, psychiatric 

hospitals and psychiatric units within 

acute care and critical access hospitals 

that treat Medicare patients are paid 

under the IPF PPS. For more 

information on the application of and 

exceptions to payments under the IPF 

PPS, we refer readers to section IV. of 

the November 15, 2004 IPF PPS final 

rule (69 FR 66926). As we noted in the 

FY 2013 IPPS/LTCH PPS final rule (77 

FR 53645), we use 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. 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. However, 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 services: http:// 

www.healthcare.gov/news/reports/ 

quality03212011a.html#na. 

Implementation of the IPFQR Program 

will help achieve the three-part aim by 

creating transparency around the quality 

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of care provided 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 care 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. 

As we stated in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53645 through 

53646), we will use the following 

considerations for the development and 

selection of measures: 

• Given the availability of wellvalidated 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 (NQS): clinical care; personand caregiver-centered experience and 

outcomes; safety; efficiency and cost 

reduction; care coordination; and 

community/population health. 

• 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, with an emphasis on 

measurement as close to the patientcentered outcome of interest as possible. 

• The measure sets should evolve so 

that they include a focused set of 

measures appropriate to IPFs that 

reflects the level of care and the most 

important areas of service and measures 

for IPFs as well as measures addressing 

a core set of measure concepts that align 

quality improvement objectives across 

all provider and supplier types and 

settings. 

• Measures should address gaps in 

quality of inpatient psychiatric care. 

• As part of our burden reduction 

efforts, we continuously seek to weigh 

the relevance and utility of the measures 

compared to the burden on IPFs 

submitting data under the IPFQR 

Program. As appropriate, we will align 

our measures with other Medicare and 

Medicaid quality programs and may 

consider how we can incorporate data 

reporting by means of electronic 

reporting mechanisms, so that the 

collection of performance information is 

part of care delivery. 

• To the extent practicable, measures 

used by CMS should be nationally 

endorsed by a multi-stakeholder 

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: 

• 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.healthcare.gov/ 

news/reports/ 

quality03212011a.html#na: 

•• Ensuring that each person and 

family is engaged as partners in their 

care. 

•• Promoting effective 

communication and coordination of 

care. 

•• Promoting the most effective 

prevention and treatment practices for 

the leading causes of mortality, starting 

with cardiovascular disease. 

•• Working with communities to 

promote wide use of best practices to 

enable healthy living. 

•• Making quality care more 

affordable for individuals, families, 

employers, and governments by 

developing and spreading new health 

care delivery models. 

•• Making care safer by reducing 

harm caused in the delivery of care. 

• We consider recommendations of 

the Measures 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-forreporting programs. 

• 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 missionrelated 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. 

5. Proposed Quality Measures for the FY 

2015 Payment Determination and 

Subsequent Years 

a. Background 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53646 through 53652), we 

adopted the following six chartabstracted IPF quality measures for the 

FY 2014 payment determination and 

subsequent years shown in the table 

below: 

PREVIOUSLY ADOPTED IPFQR PROGRAM QUALITY MEASURES BEGINNING WITH THE FY 2014 PAYMENT DETERMINATION

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. 

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PREVIOUSLY ADOPTED IPFQR PROGRAM QUALITY MEASURES BEGINNING WITH THE FY 2014 PAYMENT

DETERMINATION—Continued 

National quality 

strategy priority NQF No. Measure ID Measure description 

0558 HBIPS–7 Post-Discharge Continuing Care Plan Transmitted to Next Level of Care 

Provider Upon Discharge. 

We note that, at the time of the 

finalization of the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53258), providers 

were using ICD–9–CM codes, but as of 

October 1, 2014 ICD–10–CM codes will 

be in effect. We do not at this time 

anticipate that this change will have 

substantive effects on any measures. 

Measures adopted for the IPFQR 

Program will remain in the quality 

reporting program for all subsequent 

years unless specifically stated 

otherwise (for example, through 

removal or replacement). We are not 

proposing to remove or replace any of 

the previously adopted measures from 

the IPFQR Program or add any new 

measures to the IPFQR Program for the 

FY 2015 payment determination. We 

believe that keeping the same measures 

for the FY 2015 payment determination 

will allow IPFs one additional year 

during which they could ramp up 

recordkeeping and improve quality of 

care on existing measures. We discussed 

the collection requirements and 

submission timeframes for these 

measures in section VIII.F.7. of the 

preamble of the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53654 through 

53658). 

b. Proposed New Quality Measures for 

the FY 2016 Payment Determination 

and Subsequent Years 

We are proposing three new measures 

for the FY 2016 payment determination 

and subsequent years for the IPFQR 

Program. The measures are: (1) SUB–1: 

Alcohol Use Screening (Submitted for 

NQF review); (2) SUB–4: Alcohol & 

Drug Use: Assessing Status After 

Discharge (Submitted for NQF review); 

and (3) Follow-Up After Hospitalization 

for Mental Illness (FUH) (NQF #0576). 

The three proposed measures were 

included in a publicly available 

document entitled ‘‘List of Measures 

under Consideration for December 1, 

2012’’ in compliance with section 

1890A(a)(2) of the Act, and they were 

reviewed by the MAP in its ‘‘MAP PreRulemaking Report: 2013 

Recommendations on Measures Under 

Consideration by HHS,’’ which is 

available on the NQF Web site at 

http://www.qualityforum.org/Setting_

Priorities/Partnership/Measure_

Applications_Partnership.aspx. We 

considered the input and 

recommendations provided by the MAP 

in selecting measures to propose for the 

IPFQR Program at this time. The MAP 

supported the inclusion of the third 

proposed measure in the IPFQR 

Program, and supported the direction of 

the first two measures, noting that their 

recommendation is contingent on NQF 

endorsement. The first two measures 

were submitted to the NQF in 2012. 

Currently, the dates for their review 

have not been established. 

The first two of these measures have 

been developed by and are maintained 

by The Joint Commission (TJC) (the 

measure steward) and the third measure 

has been developed by and is 

maintained by the National Committee 

for Quality Assurance (NCQA) (the 

measure steward). These measures are 

appropriate for the purposes of 

assessing the quality of inpatient 

psychiatric services and align with 

National Quality Strategy goals of 

promoting effective prevention and 

treatment practices (clinical quality of 

care), and promoting effective 

communication and coordination of 

care. Technical specifications for 

measures ‘‘SUB–1: Alcohol Use 

Screening’’ and ‘‘SUB–4: Alcohol & 

Drug Use: Assessing Status After 

Discharge’’ can be found on the TJC 

Web site at: https://manual.joint

commission.org/bin/view/Manual/

WebHome. Technical specifications for 

the measure ‘‘Follow-Up After 

Hospitalization for Mental Illness’’ 

(FUH) (NQF #0576) can currently be 

found on the NCQA Web site at: 

http://www.ncqa.org/portals/0/FollowUp%20After%20Hospitaliza

tion%20for%20Mental%20Illness.pdf. 

The three proposed measures for FY 

2016 and subsequent years are 

described in more detail below. 

(1) SUB–1: Alcohol Use Screening (NQF 

Review Pending) 

Individuals with mental health 

conditions experience substance use 

disorders (SUDs) at a much higher rate 

than the general population. Individuals 

with the most serious mental illnesses 

have the highest rates of such disorders. 

Co-occurring SUDs often go 

undiagnosed and, without treatment, 

contribute to a longer persistence of 

disorders, poorer treatment outcomes, 

lower rates of medication adherence, 

and greater impairments to functioning. 

Accordingly, this proposed measure, 

and the one immediately following, are 

intended to assess efforts by IPFs to 

screen for the most common type of 

such disorder, alcohol abuse, and to 

follow up after discharge with 

individuals who screen positive for 

alcohol abuse or who received a 

diagnosis of alcohol or drug disorder 

during the inpatient stay. 

In late 2008, TJC received funding 

from the Partnership for Prevention and 

HHS’ Substance Abuse and Mental 

Health Services Administration 

(SAMHSA) to develop, specify, and test 

standardized performance measures 

addressing alcohol screening and 

cessation counseling. Four alcohol/ 

substance use performance measures 

were pilot tested in the spring/summer 

of 2010. The four alcohol/substance use 

measures (SUB measure set) were 

approved as a core measure set for use 

in TJC’s accreditation programs (http:// 

www.jointcommission.org/core_

measure_sets.aspx). The SUB measures 

can be found in the TJC’s Specification 

Manual for National Hospital Inpatient 

Quality Measures at: https://manual.

jointcommission.org/bin/view/Manual/

WebHome. 

The SUB–1: Alcohol Use Screening 

proposed measure assesses the number 

of patients 18 years of age and older 

who were screened for alcohol use using 

a validated screening questionnaire for 

unhealthy drinking during their 

inpatient stay, and is reported as a 

percentage. The numerator includes the 

number of patients who were screened 

for alcohol use using a validated 

screening questionnaire for unhealthy 

drinking. The denominator includes the 

number of hospitalized inpatients 18 

years of age or older. Higher rates on the 

measure are indicative of better 

performance. The measure excludes the 

following populations: patients younger 

than 18, cognitively impaired patients, 

and patients admitted for less than 1 

day or greater than 120 days. 

This measure is specified for 

collection through chart abstraction. We 

are proposing the form, manner, and 

timing of collection in section IX.D.9. of 

the preamble of this proposed rule. Full 

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specifications for this measure are 

available at: https://manual.joint

commission.org/bin/view/Manual/Web

Home. 

The SUB–1: Alcohol Use Screening 

proposed measure meets the measure 

selection exception requirements for the 

IPFQR Program under 1886(s)(4)(D)(ii) 

of the Act as previously discussed in 

Section 4 (Considerations in Selecting 

Quality Measures) of this rule. Although 

the proposed measure is not currently 

NQF-endorsed, we considered available 

measures that have been endorsed or 

adopted by a consensus organization 

and found no other feasible and 

practical measures on the topic of 

substance use disorder screening for the 

inpatient population. 

We invite public comment on this 

proposed measure. 

(2) SUB–4: Alcohol and Drug Use: 

Assessing Status After Discharge (NQF 

Review Pending) 

The SUB–4: Alcohol and Drug Use 

proposed measure assesses whether 

discharged patients are contacted 

between 7 and 30 days after hospital 

discharge in order to collect postdischarge follow-up information 

regarding their alcohol or drug use 

status. The measure applies to patients 

18 years of age or older who screened 

positive for alcohol abuse, or who 

received a diagnosis of alcohol or drug 

disorder during their inpatient stay. The 

numerator includes the number of 

discharged patients that are contacted 

between 7 and 30 days after hospital 

discharge and follow-up information 

regarding alcohol or drug use status is 

collected. The denominator includes the 

number of discharged patients 18 years 

of age and older who screened positive 

for alcohol abuse or who received a 

diagnosis of alcohol or drug use 

disorder during their hospital stay. 

Higher rates on the measure are 

indicative of better performance. 

The following patients are excluded 

from the measure: 

• Patients less than 18 years of age; 

• Patients who are cognitively 

impaired; 

• Patients who were not screened or 

refused to be screened for alcohol use; 

• Patients who expired; 

• Patients who have a duration of stay 

less than or equal to 1 day or greater 

than 120 days; 

• Patients who do not screen positive 

for alcohol abuse; 

• Patients discharged to another 

hospital; 

• Patients who left against medical 

advice; 

• Patients discharged to another 

health care facility; 

• Patients discharged to home or 

other health care facility for hospice 

care; 

• Patients who do not reside in the 

United States; 

• Patients who do not have a phone 

or cannot provide any contact 

information; 

• Patients discharged to a detention 

facility, jail, or prison; and 

• Patients who are readmitted within 

the follow-up timeframe. 

This measure is specified for 

collection through chart abstraction. We 

are proposing the form, manner, and 

timing of collection in section IX.D.9. of 

the preamble of this proposed rule. Full 

specifications for this measure are 

available at: https:// 

manual.jointcommission.org/bin/view/ 

Manual/WebHome. 

The SUB–4: Alcohol and Drug Use: 

Assessing Status After Discharge 

proposed measure meets the measure 

selection exception requirements for the 

IPFQR Program under section 

1886(s)(4)(D)(ii) of the Act as previously 

discussed in section IX.D.4. of the 

preamble of this proposed rule. Because 

this measure is not currently NQFendorsed, we considered other available 

measures that have been endorsed or 

adopted by a consensus organization. 

We found no other feasible and practical 

measures on the topic of post-discharge 

alcohol and drug assessment for 

inpatients who screened positive for 

substance abuse. 

We invite public comment on this 

proposed measure. 

(3) Follow-Up After Hospitalization for 

Mental Illness (FUH) (NQF #0576) 

Mental illness accounts for a very 

large disease burden and it is estimated 

that half of first-time psychiatric 

patients are readmitted within two years 

of hospital discharge. Continuity of 

treatment and appropriate follow-up 

care and management of chronic 

diseases, such as mental illnesses, are 

known to reduce the risk of repeated 

hospitalizations. Proper follow-up 

treatment for psychiatric hospitalization 

can lead to improved quality of life for 

patients, families, and society as a 

whole. 

The Follow-Up After Hospitalization 

for Mental Illness measure assesses the 

percentage of discharges for patients 6 

years of age and older who were 

hospitalized for treatment of selected 

mental health disorders, and who 

subsequently had an outpatient visit or 

an intensive outpatient encounter with 

a mental health practitioner, or received 

partial hospitalization services. The 

measure separately identifies the 

percentage of patients who received 

follow-up within 7 and 30 days of 

discharge. The detailed technical 

specifications for this measure can be 

found at: http://www.ncqa.org/portals/ 

0/FollowUp%20After%20Hospitalization

%20for%20Mental%20Illness.pdf. 

This measure is specified by the 

steward for either collection through 

chart abstraction or calculation using 

claims/administrative data. We 

considered using claims/administrative 

data for patients discharged from IPFs to 

calculate the measure, and welcome 

public feedback on this approach. 

However, we are proposing to collect 

chart-abstracted data for this measure in 

order to maintain consistency with the 

approach used for existing measures in 

the IPFQR Program, and solicit 

comment on this proposal. We also 

considered using claims/administrative 

data for patients discharged from IPFs to 

calculate the measure, and would 

welcome public feedback on this 

alternative approach. We are proposing 

the form, manner, and timing of 

collection in section IX.D.9. of the 

preamble of this proposed rule. 

The Follow-Up After Hospitalization 

for Mental Illness (FUH) proposed 

measure meets the measure selection 

criteria under section 1886(s)(4)(D)(i) of 

the Act, because it is NQF-endorsed. 

We invite public comment on this 

proposed measure. 

In summary, we are retaining all six 

of the chart-abstracted measures 

previously adopted for the FY 2014 

payment determination and subsequent 

years. Also, for the FY 2016 payment 

determinations and subsequent years, 

we are proposing the addition of three 

new chart-abstracted measures for the 

IPFQR Program: (1) SUB–1: Alcohol Use 

Screening (NQF review pending); (2) 

SUB–4: Alcohol & Drug Use: Assessing 

Status After Discharge (NQF review 

pending); and (3) Follow-Up After 

Hospitalization for Mental Illness (FUH) 

(NQF #0576). 

We are proposing the collection 

requirements for these measures in the 

‘‘form, manner, and timing’’ section 

(section IX.D.9.) of the preamble of this 

proposed rule. The table below lists the 

previously adopted measures for the FY 

2014 payment determination and 

subsequent years and the proposed 

additional measures for the FY 2016 

payment determination and subsequent 

years. 

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Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 27739 

PREVIOUSLY ADOPTED AND PROPOSED QUALITY MEASURES FOR THE IPFQR PROGRAM

National quality strategy priority NQF No. Measure ID Measure description 

Previously Adopted Measures for the FY 2014 Payment Determination and Subsequent Years 

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. 

Proposed New Measures for the FY 2016 Payment Determination and Subsequent Years 

Clinical Quality of Care ...................... Review 

Pending 

SUB–1 Alcohol Use Screening. 

Review 

Pending 

SUB–4 Alcohol & Drug Use: Assessing Status After Discharge. 

0576 FUH Follow-Up After Hospitalization for Mental Illness. 

We invite public comment on these 

proposals. 

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 IPFs 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 with 

NQF on an annual basis. NQF solicits 

information from measure stewards for 

annual reviews, and it reviews measures 

for continued endorsement in a specific 

3-year cycle. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53652), we stated that the 

NQF regularly maintains its endorsed 

measures through annual and triennial 

reviews, which may result in the NQF 

making updates to the measures. We 

believe that it is important to have in 

place a subregulatory process to 

incorporate nonsubstantive updates 

made by the NQF into the measure 

specifications we have adopted for the 

IPFQR Program so that these measures 

remain up-to-date. 

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. 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 the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53653), we adopted a policy 

to use a subregulatory process to make 

nonsubstantive updates to NQFendorsed measures used for the IPFQR 

Program. We also stated that we 

expected to make the determination of 

what constitutes a substantive versus a 

nonsubstantive change on a case-by-case 

basis, and provided examples of the 

types of changes that would fall into 

each category. 

Examples of nonsubstantive changes 

to measures might include updated 

diagnosis or procedure codes, 

medication updates for categories of 

medications, broadening of age ranges, 

and exclusions for a measure (such as 

the addition of a hospice exclusion to 

the 30-day mortality measures). We 

believe that non-substantive changes 

may include updates to NQF-endorsed 

measures based upon changes to 

guidelines upon which the measures are 

based. As stated in the FY 2013 IPPS/ 

LTCH PPS final rule, we will 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 will post 

the updates on the QualityNet Web site 

at https://www.QualityNet.org. We will 

provide sufficient lead time for facilities 

to implement the changes where 

changes to the data collection systems 

would be necessary. 

We will continue to use rulemaking to 

adopt substantive updates made by the 

NQF to the endorsed measures we have 

adopted for the IPFQR Program. 

Examples of changes that we might 

consider to be substantive would be 

those in which the changes are so 

significant that the measure is no longer 

the same measure, or when a standard 

of performance assessed by a measure 

becomes more stringent (for example: 

Changes in acceptable timing of 

medication, procedure/process, or test 

administration). Another example of a 

substantive change would be where the 

NQF has extended its endorsement of a 

previously endorsed measure to a new 

setting, such as extending a measure 

from the inpatient setting to hospice. 

We believe that the policy finalized in 

the FY 2013 IPPS/LTCH PPS final rule 

adequately balances our need to 

incorporate non-substantive NQF 

updates to NQF-endorsed IPFQR 

Program measures in the most 

expeditious manner possible, while 

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27740 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

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 

also note that the NQF process 

incorporates an opportunity for public 

comment and engagement in the 

measure maintenance process. These 

policies regarding what is considered 

substantive versus non-substantive 

apply to all measures in the IPFQR 

Program. 

6. Proposed Request for Voluntary 

Information—IPF Assessment of Patient 

Experience of Care 

As indicated previously, we strive to 

address each of the six priorities of the 

HHS National Quality Strategy in our 

quality reporting programs. One priority 

area currently unaddressed in the 

IPFQR Program is that of patient and 

family engagement and experience of 

care. We included on our ‘‘List of 

Measures under Consideration for 

December 1, 2012,’’ the measure 

‘‘Inpatient Consumer Survey of 

Inpatient Behavioral Healthcare 

Services’’ (NQF #0726). The MAP 

provided input on this measure 

supporting its inclusion in the IPFQR 

Program. 

We believe that while the specific 

survey instrument incorporated in that 

measure addressed an important area of 

quality care, we are not proposing to 

adopt the measure at this time because 

of several issues. These issues include 

potential reporting and information 

collection burdens in a new program, 

and compatibility with the content and 

format of other similar CMS beneficiary 

surveys. We intend to pursue the 

adoption of a standardized measure of 

patient experience of care for the IPFQR 

Program in the near future. 

In an effort to proceed cautiously with 

the selection of an assessment 

instrument and collection protocol, we 

are instead proposing at this time to 

collect information from IPFs 

participating in the IPFQR Program 

regarding whether the IPF assesses 

patient experience of inpatient 

behavioral health services using a 

standardized instrument (Yes/No). We 

will also ask those IPFs that answer 

‘‘Yes’’ to indicate the name of the survey 

that they administer. Submission of this 

information is completely voluntary and 

would not in any way affect an IPF’s FY 

2016 payment determination. 

We will use information we collect 

from this request for voluntary 

information to assess readiness of IPFs 

to report patient experience of care 

measure data in the IPFQR Program. We 

intend to propose to make this request 

for voluntary information a mandatory 

measure in future rulemaking. 

Section IX.D.9. of the preamble of this 

proposed rule, which covers the form, 

manner, and timing of data submissions, 

includes our proposal for collection 

requirements that would apply to any 

information IPFs voluntarily submit. 

Section X.D.9. also includes more 

information about the request for 

voluntary information. 

We welcome comments on this 

approach as well as recommendations 

concerning future measurement of this 

domain, including recommendations of 

specific instruments for surveying 

patient and family engagement and 

experience of care in inpatient 

psychiatric settings. 

7. Request for Recommendations for 

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. 

We plan to continue developing a 

comprehensive set of quality measures 

to be available for widespread use for 

informed decision-making and quality 

improvement in IPFs. Accordingly, we 

are soliciting recommendations 

concerning future measures to assess the 

domains that arise from the six NQS 

priorities: Clinical care; person- and 

caregiver-centered experience and 

outcomes; safety; efficiency and cost 

reduction; care coordination; and 

community/population health. This 

approach will enhance better 

psychiatric care while bringing the 

IPFQR Program in line with other 

established quality reporting and 

performance improvement programs 

who also aim to align with the NQS 

priorities such as the Hospital Inpatient 

Quality Reporting (IQR) Program, the 

Hospital Outpatient Quality Reporting 

(OQR) Program, the Hospital ValueBased Purchasing (VBP) Program, the 

End-Stage Renal Disease Quality 

Incentive Program (ESRD QIP), and 

other CMS quality programs. 

Recommendations for consideration of 

individual measures should address the 

importance of the measure, its scientific 

evidence, its relevance for quality 

improvement, and the feasibility of 

collection and reporting. 

We welcome all recommendations 

related to any of the identified domains. 

However, we are particularly interested 

in measure and domain 

recommendations concerning: (1) 

Inpatient psychiatric treatment and 

quality of care of geriatric patients and 

other adults, adolescents, and children; 

(2) quality of prescribing for 

antipsychotics and antidepressants; (3) 

readmissions; (4) access to care; (5) 

screening for suicide and violence; and 

(6) screening and treatment for 

nonpsychiatric, comorbid conditions for 

which patients with mental or substance 

use disorders are at higher risk. In 

addition, we seek recommendations on 

any other measures related to patient 

experience of care and overall quality of 

care for IPFs. 

We welcome public comment on 

considerations of additional measure 

topics for the IPFQR Program in future 

rulemaking. 

8. Proposed 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 IPF 

prior to such data being made public. In 

the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53653 through 53654), we 

finalized our procedures for the FY 2014 

payment determination and subsequent 

years regarding public display. We 

previously finalized that the data 

collected under the IPFQR program 

would be displayed on a CMS Web site 

and that public display would begin in 

the first quarter of the calendar year 

following the respective payment 

determination year (77 FR 53654). Last 

year, we also finalized a 30-day preview 

period that would allow IPFs to review 

their data before it became public. The 

previously finalized preview period is 

September 20 through October 19 of the 

respective payment determination year 

(77 FR 53654). 

We are proposing to change our 

finalized policies, however, in an 

attempt to align the IPF preview and 

display periods with that of the Hospital 

IQR Program. We are proposing that for 

the FY 2014 payment determination and 

subsequent years, we will publicly 

display the submitted data on a CMS 

Web site in April of each calendar year 

following the start of the respective 

payment determination year. In other 

words, the public display period for the 

FY 2014 payment determination would 

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be April 2014; the public display 

periods for the FY 2015 and FY 2016 

payment determinations would be April 

2015 and April 2016 respectively, and 

so forth. 

Accordingly, we also propose that the 

preview period for the FY 2014 payment 

determination and subsequent years be 

modified to 30 days approximately 

twelve weeks prior to the public display 

of the data. This is to align with the 

Hospital IQR Program’s preview and 

display periods and, as a result, reduce 

burden to facilities. Below, please find 

a table that displays the new proposed 

public display timeline. Although we 

have listed the public display timeline 

only for the FYs 2014 through 2016 

payment determinations, this policy 

applies to the FY 2014 payment 

determination and subsequent years. 

PROPOSED PUBLIC DISPLAY TIMELINE FOR THE FY 2014 PAYMENT DETERMINATION AND SUBSEQUENT YEARS

Payment 

determination year 

(fiscal year) 

Reporting period (calendar year) Public display (calendar year) 

FY 2014 ................ Q4 2012 (October 1, 2012–December 31, 2012) .............................................................

Q1 2013 (January 1, 2013–March 31, 2013) 

April 2014. 

FY 2015 ................ Q2 2013 (April 1, 2013–June 30, 2013) ............................................................................

Q3 2013 (July 1, 2013–September 30, 2013) 

Q4 2013 (October 1, 2013–December 31, 2013) 

April 2015. 

FY 2016 ................ Q1 2014 (January 1, 2014–March 31, 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) 

April 2016. 

We welcome public comment on 

these proposals. 

9. 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, is 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. In 

the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53654 through 53658), we 

required 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/). 

b. Procedural Requirements 

In order to participate in the IPFQR 

Program, in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53654 through 

53655), we required IPFs to comply 

with certain procedural requirements. 

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. Under 

these adopted policies, IPFs must— 

• Register with QualityNet before the 

IPF begins reporting, regardless of the 

method used for submitting the data. 

• Identify a QualityNet Administrator 

who follows the registration process 

located on the QualityNet Web site 

(http://www.qualitynet.org/). 

• Complete a Notice of Participation 

(NOP). IPFs that wish to participate in 

the IPFQR Program must complete an 

online NOP. Submission of a 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. For example, for the 

FY 2015 payment determination year, 

the timeframe for completing the NOP is 

between January 1, 2014 and August 15, 

2014. 

• Any IPF that receives a new CMS 

Certification Number (CCN) on or after 

the beginning of the respective payment 

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. 

• 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. For example, under 

current policies, the withdrawal period 

for the FY 2015 payment determination 

year is between January 1, 2014 and 

August 15, 2014. 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 Program participant until such 

time as the IPF submits a withdrawal 

form to CMS. 

• We 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. 

• IPFs must submit the aggregated 

numerator and denominator data for all 

age groups, for all measures, to avoid 

the 2.0 percentage point reduction. 

c. Proposed Submission Requirements 

for the FY 2016 Payment Determination 

and Subsequent Years 

Currently, IPFs choosing to 

participate in the IPFQR Program must 

meet the specific data collection and 

submission requirements as described 

on the QualityNet Web site at http:// 

www.qualitynet.org/ and by TJC, the 

HBIPS measure steward (77 FR 53655). 

As we indicated in the FY 2013 IPPS/ 

LTCH PPS final rule, the specifications 

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for the HBIPS measures can be found on 

the TJC Web site at: https:// 

manual.jointcommission.org/bin/view/ 

Manual/WebHome. 

For the FY 2016 payment 

determination, we are proposing that, 

for the proposed chart-abstracted 

measures listed in the preamble of this 

proposed rule, participating IPFs meet 

the same specific data collection and 

submission requirements when 

reporting quality measure data. The 

specifications for the SUB–1 and SUB– 

4 measures can be found on the TJC 

Web site at: http:// 

www.jointcommission.org/

specifications_manual_for_national_

hospital_inpatient_

quality_measures.aspx. The 

specifications for the FUH measure are 

posted on the NCQA Web site at: http:// 

www.ncqa.org/portals/0/FollowUp%20After%20Hospitalization%20

for%20Mental%20Illness.pdf. 

We finalized a policy in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53655 

through 53656) requiring that IPFs 

submit aggregate data on measures on 

an annual basis via the Web-Based 

Measures Tool found in the IPF section 

on the QualityNet Web site. While this 

policy applies on an annual basis 

beginning in FY 2014, it is listed under 

a sub-heading labeled ‘‘Reporting and 

Submission Requirements for the FY 

2014 Payment Determination’’ (77 FR 

53655). To avoid reader confusion, we 

clarify that these reporting and 

submission requirements finalized in 

the FY 2013 IPPS/LTCH PPS final rule 

apply to all subsequent years unless we 

change our policy through future 

rulemaking. It is our intent to require 

that IPFs submit aggregate data on 

measures on an annual basis via the 

Web-Based Measures Tool found in the 

IPF section on the QualityNet Web site 

for the FY 2014 payment determination 

and subsequent years. 

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. 

With respect to the NCQA’s FUH 

measure, we are proposing all-payer 

Web-based collection to maintain 

consistency throughout the measures we 

have selected for the IPFQR Program. 

However, we welcome comments for 

alternative forms of data submission. 

As noted earlier, NQF #0726 

‘‘Inpatient Consumer Survey of 

Inpatient Behavioral Healthcare 

Services’’ is a patient experience 

measure covering information not 

measured by existing program measures. 

While we are not adopting NQF #0726 

at this time, we are proposing to request 

voluntary information about survey 

administration asking whether the IPF 

assesses patient experience of inpatient 

behavioral health services using a 

standardized instrument. IPFs would 

only have to provide a ‘‘yes’’ or ‘‘no’’ 

response. We will also ask those IPFs 

that answer ‘‘yes’’ to indicate which 

survey they administer. We are 

proposing that this information be 

collected through a Web-based 

collection tool. 

We invite public comment on the 

proposed submission requirements. 

d. Reporting Requirements for the FY 

2016 Payment Determination and 

Subsequent Years 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53655 through 53657), we 

established reporting periods and 

submission timeframes for the FY 2014, 

FY 2015, and FY 2016 payment 

determinations, but we did not require 

any data validation approach. However, 

we encouraged the IPFs to use a 

validation method and conduct their 

own analysis. Our recommendations 

remain the same in this proposal. In 

future years, should we modify the 

program to require patient-level data, 

we will consider proposals for an 

appropriate validation method using 

rulemaking. 

Although in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53655 through 

53657) we adopted policies for the FY 

2014 payment determination and 

subsequent years, we only listed quality 

reporting periods and submission 

timeframes for the FY 2014, FY 2015, 

and FY 2016 payment determinations. 

We explained that the reporting periods 

for the FY 2014 and FY 2015 payment 

determinations were 6 and 9 months, 

respectively, to allow us to achieve a 12 

month (calendar year) reporting period 

for the FY 2016 payment determination. 

We also indicated that the submission 

timeframe is between July 1 and August 

15 within the same calendar year that 

marks the beginning of the appropriate 

payment determination year. We have 

included this information in the table 

below. 

QUALITY REPORTING PERIODS AND SUBMISSION TIMEFRAMES FOR THE FY 2014 PAYMENT DETERMINATION AND

SUBSEQUENT YEARS

Payment 

determination 

(fiscal year) 

Reporting period for services provided (calendar year) Data submission timeframe 

FY 2014 ................ Q4 2012 (October 1, 2012–December 31, 2012) .............................................................

Q1 2013 (January 1, 2013–March 31, 2013) 

July 1, 2013–August 15, 2013. 

FY 2015 ................ Q2 2013 (April 1, 2013–June 30, 2013) ............................................................................

Q3 2013 (July 1, 2013–September 30, 2013) 

Q4 2013 (October 1, 2013–December 31, 2013) 

July 1, 2014–August 15, 2014. 

FY 2016 ................ Q1 2014 (January 1, 2014–March 31, 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) 

July 1, 2015–August 15, 2015. 

To avoid reader confusion, we are 

reiterating that the policy we adopted 

for the FY 2016 payment determination 

also applies to the FY 2017 payment 

determination and subsequent years, 

unless we change it through future 

rulemaking. 

e. Proposed Population, Sampling, and 

Minimum Case Threshold for the FY 

2016 Payment Determination and 

Subsequent Years 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53657 through 53658), for 

the FY 2014 payment determination and 

subsequent years, we finalized our 

policy that participating IPFs must meet 

specific population, sample size, and 

minimum reporting case threshold 

requirements as specified in TJC’s 

Specifications Manual. We also 

indicated that the Specifications Manual 

for the measures is updated at least 

twice a year (and may be updated more 

often as necessary), and IPFs must 

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follow the requirements in the most 

recent manual, which can be found on 

the TJC Web site at: https://manual.joint

commission.org/bin/view/Manual/

WebHome. 

We also finalized our policy that the 

target population for the quality 

measures includes all patients, not 

solely Medicare beneficiaries, to 

improve quality of care. 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. In addition, we need this scope 

of data in order to be able to assess the 

quality of care being provided to 

Medicare beneficiaries. 

We also finalized our policy that 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 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 will clearly note that the affected 

measure rates were calculated based on 

low caseloads that may affect the result. 

For the HBIPS measures, which we 

finalized in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53657 through 

53658), we will continue to apply our 

finalized policies for population, 

sampling, and minimum case threshold 

outlined above. For the measures we 

have proposed for the FY 2016 payment 

determination and subsequent years, we 

are proposing that IPFs follow the 

sampling and population requirements 

as specified by the appropriate measure 

steward as outlined below. 

The most recent version of the 

Specifications Manual, including the 

sampling and population information 

for the SUB measures, can be found on 

the TJC Web site at: http://www.joint

commission.org/specifications_manual_

for_national_hospital_inpatient_quality

_measures.aspx. We note that IPFs are 

required to report data only for inpatient 

discharges treated by the IPF, not for 

acute care hospital discharges that are 

not treated and billed by the IPFs. 

We are proposing that there will be no 

sampling required for the FUH 

measure—IPFs are expected to submit 

all data. We are proposing that IPFs 

follow the population requirements 

outlined at: http://www.ncqa.org/

portals/0/Follow-Up%20After%20

Hospitalization%20for%20Mental%20I

llness.pdf. 

We invite public comment on this 

proposal. 

f. Data Accuracy and Completeness 

Acknowledgement (DACA) 

Requirements 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53658), we finalized our 

DACA policy for the FY 2014 payment 

determination and subsequent years. We 

stated that IPFs must acknowledge their 

data accuracy and completeness once 

annually using a form provided on the 

QualityNet Web site. To affirm that the 

data provided to meet the IPFQR 

Program data submission requirements 

are accurate and complete to the best of 

an IPF’s knowledge, an IPF is required 

to submit the DACA form. We will 

provide a link to this form once IPFs 

have completed entry of all aggregated 

measure data. Data submission is not 

complete until the IPF submits the 

DACA form. In the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53658), we listed 

the DACA deadlines for the FY 2014, FY 

2015, and FY 2016 payment 

determinations only, even though our 

finalized policy was for the FY 2014 

payment determination and subsequent 

years. Set out in the table below are the 

DACA deadlines we listed in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53658). 

DATA ACCURACY AND COMPLETENESS ACKNOWLEDGMENT (DACA) DEADLINES FOR THE FY 2014 PAYMENT

DETERMINATIONS AND SUBSEQUENT YEARS

Payment determination (fiscal 

year) 

Reporting period for services provided (calendar year) 

Data accuracy and completeness acknowledgement deadline 

FY 2014 ................ Q4 2012 (October 1, 2012–December 31, 2012) ......................................................................

Q1 2013 (January 1, 2013–March 31, 2013) 

August 15, 2013. 

FY 2015 ................ Q2 2013 (April 1, 2013–June 30, 2013) .....................................................................................

Q3 2013 (July 1, 2013–September 30, 2013) 

Q4 2013 (October 1, 2013–December 31, 2013) 

August 15, 2014. 

FY 2016 ................ Q1 2014 (January 1, 2014–March 31, 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) 

August 15, 2015. 

To avoid reader confusion, we are 

reiterating that the DACA finalized 

policies listed above will continue to 

apply for the FY 2014 payment 

determination and subsequent years 

unless and until we change such 

policies through our rulemaking 

process. Thus, we will continue with 

our adopted policy that the deadline for 

submission of both measure data and 

the DACA form is no later than August 

15 prior to the applicable IPFQR 

Program payment determination year. 

We have summarized the pertinent 

IPFQR dates in the table below with 

regard to data reporting periods, 

submission deadlines, DACA deadlines, 

and public display periods. 

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DATA ACCURACY AND COMPLETENESS ACKNOWLEDGMENT (DACA) DEADLINES FOR THE FY 2014 PAYMENT

DETERMINATIONS AND SUBSEQUENT YEARS

Payment 

determination 

(fiscal year) 

Reporting period for services provided (calendar year) Submission timeframe DACA 

Deadline 

Public 

display 

FY 2014 ......... Q4 2012 (October 1, 2012–December 31, 2012) ...............

Q1 2013 (January 1, 2013–March 31, 2013) 

July 1, 2013–August 15, 

2013.

August 15, 

2013.

April 2014. 

FY 2015 ......... Q2 2013 (April 1, 2013–June 30, 2013) ..............................

Q3 2013 (July 1, 2013–September 30, 2013) 

Q4 2013 (October 1, 2013–December 31, 2013) 

July 1, 2014–August 15, 

2014.

August 15, 

2014.

April 2015. 

FY 2016 ......... Q1 2014 (January 1, 2014–March 31, 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) 

July 1, 2015–August 15, 

2015.

August 15, 

2015.

April 2016. 

Again, we have listed information 

until FY 2016, but these deadlines apply 

to the FY 2014 payment determination 

and subsequent years. 

10. Reconsideration and Appeals 

Procedures for the FY 2014 Payment 

Determination and Subsequent Years 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53658 through 53659), we 

adopted a reconsideration process 

whereby IPFs can request a 

reconsideration of their payment update 

reduction in the event an IPF believes 

that its annual payment update has been 

incorrectly reduced for failure to report 

quality data under the IPFQR Program. 

We codified the reconsideration 

procedures that IPFs must follow at 42 

CFR 412.434. We instituted an annual 

reconsideration process similar to the 

Hospital IQR Program (74 FR 43892). 

We do not utilize reconsideration 

policies and procedures related to the 

Hospital IQR Program validation 

requirement because the IPFQR Program 

does not currently include an annual 

validation requirement for IPFs. 

11. 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 

participants 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, in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53659 through 53660), we adopted a 

policy that, for the FY 2014 payment 

determination 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 IPF 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 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 IPFs would 

submit a request form to CMS available 

on the QualityNet Web site at: http://

www.qualitynet.org/dcs/ContentServer?

c=Page&pagename=QnetPublic%2F

Page%2FQnetTier3&cid=122877

2379030. 

This process 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 an IPF’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 will 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. 

12. Electronic Health Records (EHRs) 

Under the current and proposed 

chart-abstracted quality measures, IPFs 

cannot use EHRs (also referred to as 

electronic medical records) for data 

collection because the current and 

proposed measures will be submitted as 

aggregate data. However, we encourage 

IPFs to take steps towards adoption of 

EHRs 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 recommend that IPFs 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. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53660), we responded to 

public comments on the adoption of 

EHRs for the IPFQR Program in the 

future and we again invite public 

comment on this issue. 

E. Electronic Health Record (EHR) 

Incentive Program and Meaningful Use 

(MU) 

1. Background 

The HITECH Act (Title IV of Division 

B of the ARRA, together with Title XIII 

of Division A of the ARRA) authorizes 

incentive payments under Medicare and 

Medicaid for the adoption and 

meaningful use of certified EHR 

technology (CEHRT). Eligible hospitals 

and critical access hospitals (CAHs) may 

qualify for these incentive payments 

under Medicare (as authorized under 

sections 1886(n) and 1814(l) of the Act, 

respectively) if they successfully 

demonstrate meaningful use of CEHRT, 

which includes reporting on clinical 

quality measures (CQMs) using CEHRT. 

The set of CQMs from which eligible 

hospitals and CAHs will report under 

the EHR Incentive Program beginning in 

FY 2014 is listed in Table 10 of the EHR 

Incentive Program Stage 2 final rule (77 

FR 54083 through 54087). The subset of 

CQMs that we are proposing for 

voluntary electronic reporting in the 

Hospital IQR Program in section IX.A.7. 

of the preamble to this proposed rule is 

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included in Table 10 of the EHR 

Incentive Program Stage 2 final rule. 

We continue to believe there are 

important synergies with respect to the 

two programs. We believe the financial 

incentives under the EHR Incentive 

Program for the adoption and 

meaningful use of CEHRT by eligible 

hospitals and CAHs will encourage the 

adoption and use of CEHRT for the 

anticipated electronic reporting of 

CQMs under the Hospital IQR Program. 

We expect that the electronic 

submission of quality data from EHRs 

under the EHR Incentive Program will 

provide a foundation for establishing 

the capacity of hospitals to send, and for 

CMS to receive, CQMs via CEHRT for 

certain Hospital IQR Program measures. 

2. Proposed Expanded Electronic 

Submission Period for CQMs 

Section 1886(n)(3)(B)(iii) of the Act 

requires that, in selecting CQMs for and 

establishing the form and manner of 

reporting for the EHR Incentive 

Program, the Secretary shall seek to 

avoid redundant or duplicative 

reporting with reporting otherwise 

required. To the extent that CQMs are 

included in both the Hospital IQR 

Program and the EHR Incentive 

Program, we expect that the Hospital 

IQR Program would transition to using 

CEHRT rather than manual chart 

abstraction. The beginning of this 

transition is described in section IX.A.7. 

of the preamble to this proposed rule 

with the proposed voluntary electronic 

reporting of up to 16 CQMs in the 

Hospital IQR Program, which are also 

included in the set of CQMs from which 

hospitals will report for the EHR 

Incentive Program beginning in FY 2014 

(77 FR 54083 through 54087). By using 

voluntary electronic reporting in FY 

2014 for all 16 of the CQMs proposed 

under the Hospital IQR Program, 

hospitals can submit once and fulfill the 

CQM component of MU as well as the 

reporting requirement for those 16 

CQMs in the Hospital IQR Program. 

In the EHR Incentive Program Stage 2 

final rule (77 FR 54049–54051), for 

CQM data that is submitted 

electronically beginning in 2014, we 

established the submission period as the 

two months immediately following the 

end of the FY (October 1–November 30 

for eligible hospitals and CAHs). In 

response to feedback we have received 

through various forums, we are 

proposing to open the submission 

period for electronically submitted files 

on January 2. This will allow for better 

alignment with the Hospital IQR 

Program. The proposed expanded 

submission period would allow more 

flexibility for eligible hospitals and 

CAHs to start submitting earlier and 

more frequently, as patients who fit the 

denominator criteria of the CQMs that 

the hospitals will submit are discharged. 

As established in the EHR Incentive 

Program Stage 2 final rule, the 

submission period would end on 

November 30, and eligible hospitals that 

are demonstrating MU for the first time 

in the year immediately preceding any 

payment adjustment year must submit 

by July 1. This proposal would not 

change the reporting periods for CQMs 

established in the EHR Incentive 

Program Stage 2 final rule (77 FR 

54051). 

We also are proposing, beginning in 

FY 2014, to allow eligible hospitals and 

CAHs that are demonstrating 

meaningful use for the first time to 

report CQMs by attestation or through 

the electronic reporting methods that we 

establish for the EHR Incentive Program. 

In the EHR Incentive Program Stage 2 

final rule (77 FR 54049 through 54051), 

we finalized a policy that first-time 

meaningful EHR users would be 

required to report CQMs through 

attestation. This proposal would change 

that policy to allow more flexibility for 

eligible hospitals and CAHs to choose 

between reporting by attestation or 

electronically in their first year of MU. 

For further explanation of reporting 

CQMs by attestation or electronically 

under the EHR Incentive Program, we 

refer readers to the discussion of 

reporting methods in the EHR Incentive 

Program Stage 2 final rule (77 FR 54087 

through 54089). Regardless of the 

reporting method selected, however, the 

July 1 deadline for avoiding the 

Medicare payment adjustments will 

remain the same, as established in the 

EHR Incentive Program Stage 2 final 

rule (77 FR 54049 through 54051). We 

emphasize that to avoid a payment 

adjustment under Medicare, eligible 

hospitals demonstrating MU for the first 

time in the year immediately preceding 

any payment adjustment year must 

complete their submission of CQM data 

by July 1. 

We note although reporting CQM data 

by attestation would still be an option 

for first-time meaningful users under the 

EHR Incentive Program, it would not 

fulfill any Hospital IQR Program 

requirements. We welcome public 

comment on this proposal. 

3. Quality Reporting Data Architecture 

Category III (QRDA–III) Option in 2014 

In the EHR Incentive Program Stage 2 

final rule (77 FR 54088), we finalized 

two options for eligible hospitals and 

CAHs to electronically submit CQMs 

beginning in FY 2014 under the 

Medicare EHR Incentive Program. 

Option 1 was to electronically submit 

aggregate-level CQM data using QRDA– 

III. Option 2 was to electronically 

submit using a method similar to the 

Hospital IQR Program electronic 

reporting pilot, which uses QRDA–I 

(patient-level data). We also stated that, 

consistent with section 1886(n)(3)(B)(ii) 

of the Act, in the event the Secretary 

does not have the capacity to receive 

CQM data electronically, eligible 

hospitals and CAHs that are beyond 

their first year of meaningful use may 

continue to report aggregate CQM 

results through attestation. 

We have determined that the 

electronic submission of aggregate-level 

data using QRDA–III will not be feasible 

in 2014 for eligible hospitals and CAHs 

under the Medicare EHR Incentive 

Program. Thus, for the 2014 reporting 

period under the Medicare EHR 

Incentive Programs, eligible hospitals 

and CAHs would have the option to 

continue to report aggregate CQM 

results through attestation. We will 

reassess this policy for the 2015 and 

future reporting periods. We note that 

submissions of aggregate CQM data via 

attestation would not satisfy the 

reporting requirements for the Hospital 

IQR Program. We also note that this 

proposed policy does not apply to the 

Medicaid EHR Incentive Program. 

Therefore, the States may still require 

the submission of QRDA–III files to 

fulfill the CQM reporting requirements 

for hospitals that participate in the 

Medicaid EHR Incentive Program. 

As described in section IX.A.9.d. of 

the preamble of this proposed rule, the 

Hospital IQR Program intends to 

continue its policy to accept patientlevel data as it transitions to electronic 

reporting. In order to remain aligned 

with the Hospital IQR Program, and 

because over 82 percent of hospitals that 

participate in the Hospital IQR Program 

are already meaningful users, we 

strongly recommend that hospitals that 

are eligible to participate in both 

programs electronically submit the 16 

CQMs identified by the Hospital IQR 

Program in section IX.A.7. of the 

preamble of this proposed rule. We 

believe that keeping the two programs 

aligned will ultimately reduce reporting 

burden for hospitals. We believe that the 

proposed extension of the submission 

period that we are proposing in section 

IX.E.2. of the preamble of this proposed 

rule will also help the electronic 

submission process for hospitals. We 

welcome public comment on this 

proposal. 

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4. Case Number Threshold Exemption— 

Proposed Requirements Regarding Data 

Submission 

In the EHR Incentive Program Stage 2 

final rule (77 FR 54080), we established 

a case number threshold exemption 

policy for eligible hospitals and CAHs 

that experience a low volume of cases 

addressed by certain CQMs, and stated 

that hospitals seeking an exemption 

under the policy must submit aggregate 

population and sample size data in the 

same manner as required in the Hospital 

IQR Program. Our intent was to reduce 

the burden on hospitals and CAHs that 

participate in both programs so they 

would only need to submit this 

information once. However, we have 

determined that this information could 

be captured in QualityNet for both the 

EHR Incentive Program and the Hospital 

IQR Program during the process of 

electronically submitting CQMs. We are 

proposing to require that the aggregate 

population data be entered into 

QualityNet (for EHR-based reporting) 

during the process of electronically 

submitting CQMs. We note that sample 

size data are not required for 

electronically submitted CQMs. 

We note that, in general, the 

submission deadline for the aggregate 

population data is the same as the 

submission deadline for CQMs 

(November 30). For eligible hospitals in 

their first year of demonstrating MU, the 

aggregate population data would need to 

be submitted no later than July 1 for 

hospitals that seek to invoke the case 

number threshold exemption, as this 

data would be needed to determine 

whether the eligible hospital met the 

CQM reporting requirements for MU. 

X. Proposed Change to the Medicare 

Hospital Conditions of Participation 

(CoPs) Relating to the Administration of 

Pneumococcal Vaccines 

Among the regulations at 42 CFR Part 

482 governing the Conditions of 

Participation (CoPs) for hospitals to 

participate in the Medicare program, we 

have established a condition for Nursing 

Services under § 482.23. Included in the 

standards for the nursing services 

condition is a standard for the 

preparation and administration of drugs. 

Section § 482.23(c)(3) contains the 

following provision: ‘‘With the 

exception of influenza and 

pneumococcal polysaccharide 

[emphasis added] vaccines, which may 

be administered per physician-approved 

hospital policy after an assessment of 

contraindications, orders for drugs and 

biologicals must be documented and 

signed by a practitioner who is 

authorized to write orders in accordance 

with State law and hospital policy, and 

who is responsible for the care of the 

patient as specified under § 482.12(c).’’ 

At the time that this CoP standard was 

originally promulgated (October 2, 

2002), and for several years thereafter, 

the pneumococcal polysaccharide 

vaccine (PPSV or Pneumovax 23®, 

Merck) was the only pneumococcal 

vaccine approved for adult use. In 

developing the original standard, it was 

not the Agency’s intention to specify a 

particular type or brand of 

pneumococcal vaccine. Instead, the 

Agency wanted to allow hospitals the 

flexibility to have a policy where nurses 

could administer influenza and 

pneumococcal vaccines without a prior 

practitioner order and only after 

assessing patients for any 

contraindications to the vaccines being 

administered. 

However, we recently became aware 

of another pneumococcal vaccine 

(pneumococcal conjugate vaccine (PCV) 

or Prevnar 13®, Pfizer), which received 

FDA approval for adult use in December 

2011. We believe that the availability of 

another FDA-approved pneumococcal 

vaccine may have the potential for 

causing confusion in the hospital 

community at large by our use of the 

term ‘‘polysaccharide’’ as a 

distinguisher for the pneumococcal 

vaccine in the hospital CoP standard. 

Indeed, it has come to our attention that 

some hospitals may be using only the 

polysaccharide type of pneumococcal 

vaccine because they believe they are 

not permitted under the CoPs to stock 

and use any other type of pneumococcal 

vaccine. We believe the proposed 

change would allow for the inclusion of 

all pneumococcal vaccines approved for 

use now and in the future. With two 

types of pneumococcal vacccines 

currently approved for use with adults, 

we also believe that patient access to the 

pneumococcal vaccine would 

potentially improve because hospitals 

would now possess the freedom and 

flexibility to choose which type of 

pneumococcal vaccine(s) it will now 

stock and use. 

Therefore, in this proposed rule, we 

are proposing to amend the regulatory 

language at § 482.23(c)(3) to delete the 

term ‘‘polysaccharide’’. This proposed 

deletion would allow a hospital to 

include any type of pneumococcal 

vaccine as part of its physicianapproved policy for administration by 

nurses without a prior practitioner 

order, provided the vaccine has been 

approved by the FDA for the patient 

population to which the hospital 

intends to administer it. In addition, 

this proposed change would give 

hospitals the added flexibility to 

include the administration of any 

pneumococcal vaccines that are 

approved in the future by the FDA for 

administration under this CoP standard. 

XI. MedPAC Recommendations 

Under section 1886(e)(4)(B) of the 

Act, the Secretary must consider 

MedPAC’s recommendations regarding 

hospital inpatient payments. Under 

section 1886(e)(5) of the Act, the 

Secretary must publish in the annual 

proposed and final IPPS rules the 

Secretary’s recommendations regarding 

MedPAC’s recommendations. We have 

reviewed MedPAC’s March 2013 

‘‘Report to the Congress: Medicare 

Payment Policy’’ and have given the 

recommendations in the report 

consideration in conjunction with the 

proposed policies set forth in this 

proposed rule. MedPAC 

recommendations for the IPPS for FY 

2014 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. 

XII. Other Required Information 

A. Requests for Data From the Public 

In order to respond promptly to 

public requests for data related to the 

prospective payment system, we have 

established a process under which 

commenters can gain access to raw data 

on an expedited basis. Generally, the 

data are now available on compact disc 

(CD) format. However, many of the files 

are available on the Internet at: http:// 

www.cms.hhs.gov/Medicare/MedicareFee-for-Service-Payment/AcuteInpatient

PPS/index.html. Data files and the cost 

for each file, if applicable, are listed 

below. Anyone wishing to purchase 

data tapes, cartridges, or diskettes 

should submit a written request, along 

with a company check or money order 

(payable to CMS–PUF) to cover the cost 

of the data files requested, to the 

following address: Centers for Medicare 

& Medicaid Services, Public Use Files, 

Accounting Division, P.O. Box 7520, 

Baltimore, MD 21207–0520, (410) 786– 

3691. Files on the Internet may be 

downloaded without charge. 

1. CMS Wage Data Public Use File 

This file contains the hospital hours 

and salaries from Worksheet S–3, Parts 

II and III from FY 2010 Medicare cost 

reports used to create the proposed FY 

2014 prospective payment system wage 

index. Multiple versions of this file are 

created each year. For a complete 

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schedule on the release of different 

versions of this file, we refer readers to 

the wage index schedule in section III.J. 

of the preamble of this proposed rule. 

Processing 

year 

Wage data 

year 

PPS fiscal 

year 

2013 2010 2014 

2012 2009 2013 

2011 2008 2012 

2010 2007 2011 

2009 2006 2010 

2008 2005 2009 

2007 2004 2008 

2006 2003 2007 

2005 2002 2006 

2004 2001 2005 

Media: Internet at: http://www.cms.

hhs.gov/AcuteInpatientPPS/WIFN/list.

asp#TopOfPage. 

Periods Available: FY 2005 through 

FY 2014 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.J. of the preamble 

of this proposed rule. 

Media: Internet at: http:// 

www.cms.hhs.gov/AcuteInpatientPPS/ 

WIFN/list.asp#TopOfPage. 

Period Available: FY 2014 IPPS 

Update. 

3. Provider Occupational Mix 

Adjustment Factors for Each 

Occupational Category Public Use File 

This file contains each hospital’s 

occupational mix adjustment factors by 

occupational category. Two versions of 

these files are created each year. They 

support the following: 

• Notice of proposed rulemaking 

published in the Federal Register. 

• Final rule published in the Federal 

Register. 

Media: Internet at: http:// 

www.cms.hhs.gov/AcuteInpatientPPS/ 

WIFN/list.asp#TopOfPage. 

Period Available: FY 2014 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 2014 IPPS Update. 

5. FY 2014 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 2014 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 casemix index by provider number as 

published in each year’s update of the 

Medicare hospital inpatient prospective 

payment system. The case-mix index is 

a measure of the costliness of cases 

treated by a hospital relative to the cost 

of the national average of all Medicare 

hospital cases, using DRG/MS–DRG 

weights as a measure of relative 

costliness of cases. Two versions of this 

file are created each year. They support 

the following: 

• Notice of proposed rulemaking 

published in the Federal Register. 

• Final rule published in the Federal 

Register. 

Media: Internet at: http:// 

www.cms.hhs.gov/AcuteInpatientPPS/ 

FFD/list.asp#TopOfPage 

Periods Available: FY 1985 through 

FY 2014. 

9. MS–DRG Relative Weights (Also 

Table 5—MS–DRGs) 

This file contains a listing of MS– 

DRGs, MS–DRG narrative descriptions, 

relative weights, and geometric and 

arithmetic mean lengths of stay as 

published in the Federal Register. There 

are two versions of this file as published 

in the Federal Register. 

• Notice of proposed rulemaking. 

• Final rule. 

Media: Internet at: http:// 

www.cms.hhs.gov/AcuteInpatientPPS/ 

FFD/list.asp#TopOfPage 

Periods Available: FY 2005 through 

FY 2014 IPPS Update. 

10. IPPS Payment Impact File 

This file contains data used to 

estimate payments under Medicare’s 

hospital inpatient prospective payment 

systems for operating and capital-related 

costs. The data are taken from various 

sources, including the Provider-Specific 

File, HCRIS Cost Report Data, Minimum 

Data Sets, and prior impact files. The 

data set is abstracted from an internal 

file used for the impact analysis of the 

changes to the prospective payment 

systems published in the Federal 

Register. Two versions of this file are 

created each year. They support the 

following: 

• Notice of proposed rulemaking 

published in the Federal Register. 

• Final rule published in the Federal 

Register. 

Media: Internet at: http://www.cms.

hhs.gov/AcuteInpatientPPS/HIF/list.asp

#TopOfPage. 

Periods Available: FY 1994 through 

FY 2014 IPPS Update. 

11. AOR/BOR Tables 

This file contains data used to 

develop the MS–DRG relative weights. It 

contains mean, maximum, minimum, 

standard deviation, and coefficient of 

variation statistics by MS–DRG for 

length of stay and standardized charges. 

The BOR tables are ‘‘Before Outliers 

Removed’’ and the AOR is ‘‘After 

Outliers Removed.’’ (Outliers refer to 

statistical outliers, not payment 

outliers.) 

Two versions of this file are created 

each year. They support the following: 

• Notice of proposed rulemaking 

published in the Federal Register. 

• Final rule published in the Federal 

Register. 

Media: Internet at: http://www.cms.

hhs.gov/AcuteInpatientPPS/FFD/list.

asp#TopOfPage. 

Periods Available: FY 2005 through 

FY 2014 IPPS Update. 

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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 Corebased Statistical Area (CBSA). The file 

supports the following: 

• Notice of proposed rulemaking 

published in the Federal Register. 

• Final rule published in the Federal 

Register. 

Media: Internet at: http://www.cms.

hhs.gov/AcuteInpatientPPS/FFD/list.asp

#TopOfPage. 

Period Available: FY 2014 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: 

• Notice of proposed rulemaking 

published in the Federal Register. 

• Final rule published in the Federal 

Register. 

Media: Internet at: http://www.cms.

hhs.gov/AcuteInpatientPPS/FFD/list.asp

#TopOfPage. 

Period Available: FY 2014 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: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

In this proposed rule, we are 

soliciting public comment on each of 

these issues for the following sections of 

this document that contain information 

collection requirements (ICRs). 

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 2015 must submit a 

formal request. A formal request 

includes a full description of the 

clinical applications of the medical 

service or technology and the results of 

any clinical evaluations demonstrating 

that the new medical service or 

technology represents a substantial 

clinical improvement. In addition, the 

request must contain a significant 

sample of the data to demonstrate that 

the medical service or technology meets 

the high-cost threshold. 

We believe the burden associated 

with this requirement is exempt from 

the PRA under 5 CFR 1320.3(c), which 

defines the agency collection of 

information subject to the requirements 

of the PRA as information collection 

imposed on 10 or more persons within 

any 12-month period. This information 

collection does not impact 10 or more 

entities in a 12-month period. In FYs 

2008, 2009, 2010, 2011, 2012, 2013, and 

FY 2014, we received 1, 4, 5, 3, 3, 5, and 

5 applications, respectively. 

3. ICRs for the Proposed Occupational 

Mix Adjustment to the Proposed FY 

2014 Index (Hospital Wage Index 

Occupational Mix Survey) 

Section III.F. of the preamble of this 

proposed rule discusses the 

occupational mix adjustment to the 

proposed FY 2014 wage index. While 

the preamble does not contain any new 

ICRs, we 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; it is currently 

approved under OCN 0938–0907. 

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 OCN 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 rulemaking. 

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 V.J.3. of this preamble, are not 

subject to the Paperwork Reduction Act, 

as stated in section 5506 of the 

Affordable Care Act. 

6. ICRs for the Hospital Inpatient 

Quality Reporting (IQR) Program 

The Hospital IQR Program (formerly 

referred to as the Reporting Hospital 

Quality Data for Annual Payment 

(RHQDAPU) Program) was originally 

established to implement section 501(b) 

of the MMA, Public Law 108–173. This 

program expanded our voluntary 

Hospital Quality Initiative. The Hospital 

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IQR Program originally consisted of a 

‘‘starter set’’ of 10 quality measures. The 

collection of information associated 

with the original starter set of quality 

measures was previously approved 

under OMB control number 0938–0918. 

All of the information collection 

requirements previously approved 

under OMB control number 0938–0918 

have been combined with the 

information collection request 

previously approved under OMB 

control number 0938–1022. We will no 

longer be using the OMB control 

number 0938–0918. 

We added additional quality measures 

to the Hospital IQR Program and 

submitted the information collection 

request to OMB for approval. This 

expansion of the Hospital IQR measures 

was part of our implementation of 

section 5001(a) of the DRA. Section 

1886(b)(3)(B)(viii)(III) of the Act, added 

by section 5001(a) of the DRA, requires 

that the Secretary expand the ‘‘starter 

set’’ of 10 quality measures that were 

established by the Secretary as of 

November 1, 2003, to include measures 

‘‘that the Secretary determines to be 

appropriate for the measurement of the 

quality of care furnished by hospitals in 

inpatient settings.’’ The burden 

associated with these reporting 

requirements was previously approved 

under OMB control number 0938–1022. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53666), we stated that, for 

the FY 2016 payment determinations 

and subsequent years updates, we are 

seeking OMB approval for a revised 

information collection request using the 

same OMB control number (0938–1022). 

In the revised request we will add the 

5 proposed claims-based measures, if 

finalized: (1) 30-day risk standardized 

COPD Readmission; (2) 30-day risk 

standardized COPD Mortality; (3) 30- 

day risk standardized Stroke 

Readmission; (4) 30-day risk 

standardized Stroke Mortality; and (5) 

AMI payment per Episode of Care. In 

addition, we are proposing to remove 

three chart-abstracted measures: (1) PN– 

3b: Blood Culture Performed in the 

Emergency Department Prior to First 

Antibiotic Received in the Hospital; (2) 

HF 1: Discharge Instructions; and (3) 

IMM–1: Immunization for Pneumonia. 

We are also proposing to remove seven 

chart-abstracted measures: (1) PN 3b: 

Blood Culture Performed in the 

Emergency Department Prior to First 

Antibiotic Received in the Hospital; (2) 

HF 1: Discharge Instructions; and (3) 

IMM 1: Immunization for Pneumonia; 

(4) AMI–2: Aspirin Prescribed at 

Discharge; (5) AMI–10: Statin Prescribed 

at Discharge; (6) HF–3: ACEI or ARB for 

LVSD; (7) SCIP-Inf–10: Surgery Patients 

with Perioperative Temperature 

Management and one structural 

measure, Systematic Clinical Database 

Registry for Stroke Care. 

Because claims-based measures can 

be calculated based on data that are 

already reported to the Medicare 

program for payment purposes, we 

believe no additional information 

collection will be required from the 

hospitals. However, we do believe there 

will be a reduction in the burden 

associated with the removal of seven 

chart-abstracted measures and one 

structural measure. We estimate a 

reduction in burden associated with 

data collection for chart-abstracted 

measures and associated forms. For the 

FY 2015 payment determination, we 

estimated that the burden for chart 

abstracted measures and associated 

forms for each hospital is 1,900 hours 

annually. For the FY 2016 payment 

determination, we estimate the burden 

to be 1,775 hours annually per hospital. 

We estimate the total burden for chart 

abstraction and structural measures for 

the approximately 3,300 Hospital IQR 

Program-participating hospitals to be 

5.86 million hours. 

To support the proposed validation of 

two additional HAI measures, we also 

are proposing to add two new HAI 

Validation Templates for a total of four 

Validation Templates to be completed 

by hospitals selected for annual 

validation. To add these new Templates 

without increasing burden for the FY 

2016 payment determination and future 

years, we are proposing to randomly 

assign one-half of the hospitals to 

submit templates for CLABSI and 

CAUTI validation and one-half of the 

hospitals to submit templates for MRSA 

and CDI validation. We believe this 

proposal would limit hospital burden 

because, of the 600 potential, total 

hospitals selected for annual validation, 

only up to 300 hospitals would be 

required to submit for MRSA and CDI 

validation and up to 300 hospitals 

would be required to submit for CLABSI 

and CAUTI validation. We estimate 

completion of the CLABSI and CAUTI 

validation templates will take 

approximately 20 hours each quarter. 

We estimate completion of the MRSA 

and CDI validation templates will take 

approximately 16 hours each quarter. 

Our proposed validation for the FY 2016 

payment determination is for 3 quarters. 

Therefore, we estimate the total burden 

for HAI validation to be 60 hours for 

hospitals validated for CLABSI and 

CAUTI and 48 hours for hospitals 

validated for MRSA and CDI. We 

estimate the total burden for validation 

templates for the 600 IQR participating 

hospitals selected for validation to be 

32,000 hours. 

Utilizing the estimates above, we 

estimate an overall reduction in burden 

from the FY 2015 estimate of 6.3 million 

hours annually to 5.9 million hours 

annually for the FY 2016 payment 

determination year. This burden 

estimate includes both newly added 

measures and measure sets and those for 

which we are requesting renewal. It 

excludes burden associated with the 

NHSN and HCAHPS measures, both of 

which are submitted under separate 

OMB numbers. 

Previously, we required hospitals to 

provide 12 patient charts per quarter per 

hospital for HAI validation and 15 

patient charts per quarter per hospital 

for validation of clinical process of care 

measures, for a total of 27 charts per 

quarter per hospital and 108 charts per 

year per hospital. For the FY 2016 

payment determination and subsequent 

years, we are proposing to reduce this 

requirement by 12 charts per hospital 

per year. 

In addition, we are proposing that the 

requirement to submit patient charts for 

validation of Hospital IQR Program data 

may be met by employing either of the 

following options each quarter: (1) A 

hospital may submit paper medical 

records, which is the form in which we 

have historically requested them; or (2) 

a hospital may securely transmit 

electronic versions of medical 

information for the FY 2016 payment 

determination and subsequent years. 

The intent of this proposal is to offer an 

additional mode through which 

hospitals may meet the requirement to 

submit patient charts. To support this 

proposal, which has the potential to 

reduce burden, cost, and environmental 

impact, we also are proposing for the FY 

2016 payment determination and 

subsequent years to reimburse hospitals 

for submission of electronic versions of 

medical information. 

We are proposing a reimbursement 

rate of $3.00 per chart taking into 

account the following considerations: 

• Cost estimates are for retrieval of 

records and not for the maintenance of 

electronic health records systems, 

which are supported by CMS by other 

means. 

• The activities associated with 

submitting an electronic version of a 

patient medical record include 

downloading, verifying, and copying 

records, which must be done for every 

record separately, and packaging and 

encrypting CDs or DVDs which must be 

done only once per DVD or CD sent. 

• We assume that an average patient 

record will be 412 pages in length, that 

the average capacity of a DVD of 45,000 

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pages, and that all 27 records submitted 

in a quarter will fit on one DVD most 

of the time. 

• Based on time and motion studies 

conducted by our contractor, we 

estimate that for records of average 

lengths, the minimum labor time is 

between 1 and 2 minutes per record. 

• To acknowledge that some records 

may be so large that they require their 

own DVD, and that some systems may 

be slower than others, we also estimated 

a maximum labor of about 12 minutes 

per record. 

• Averaging these two estimates, we 

achieve an average of less than 7 

minutes of labor per record. 

• The labor performed can be 

accomplished by a combination of staff 

equivalent to a GS–5 administrative 

secretary and a GS–5 information 

technologist, earning within the middle 

range for this grade, which in 2013 was 

$38,616 per year. Assuming, 2,080 

hours in a work year, we achieve an 

hourly rate of $18.57 per hour. 

• Applying OMB Circular A–76, we 

assumed overhead of 36.25 percent, for 

a fully burdened labor rate of $25.30 per 

hour. 

• The labor cost associated with each 

record is $2.95. 

• Supply costs are limited to DVDs 

and packaging. DVDs cost $20 per 100, 

or 20 cents per DVD. A protective 

shipping container also costs 20 cents 

each. 

• If a hospital submits all records on 

the same DVD, supply costs will equal 

approximately 1.4 cents per DVD. If a 

hospital submits one DVD per record, 

supply costs will equal approximately 

40 cents per record. Averaging these 

costs results in 21 cents per record. 

• Adding supplies to labor yields a 

total cost of $3.16 per record. 

• Rounding to the nearest whole 

dollar yields $3.00 per record. 

For the FY 2016 payment 

determination, we also are encouraging 

hospitals to voluntarily submit 16 

measures electronically for the Hospital 

IQR Program in a manner that would 

permit eligible hospitals to align 

Hospital IQR Program requirements 

with some requirements under the 

Medicare EHR Incentive Program. We 

estimate that the total burden associated 

with the electronic quality measure 

reporting option will be similar to the 

burden outlined for hospitals in the 

EHR Incentive Program Stage 2 final 

rule (77 FR 53968 through 54162). As 

established in that final rule, beginning 

in FY 2014, hospitals that are beyond 

their first year of meaningful use must 

electronically report a total of 16 

clinical quality measures covering at 

least three domains using CEHRT that 

has been certified to the 2014 Edition 

certification criteria. 

In accordance with the estimates in 

the Medicare EHR Incentive Program 

Stage 2 final rule, we believe it will take 

a hospital approximately 2 hours and 40 

minutes to select, prepare, and 

electronically submit the 16 quality 

measures using CEHRT. In addition, in 

accordance with the Medicare EHR 

Incentive Program Stage 2 final rule, we 

believe an individual with 

commensurate skills will submit 

electronic clinical quality measures on 

behalf of the hospital at a rate of 

approximately $59.00 per hour. 

Therefore, we believe it will cost a 

hospital approximately $156.94 ($59.00 

x 2.66 hours) to report 16 clinical 

quality measures electronically in CY 

2014 (77 FR 54133). Additional 

information about the chart abstraction 

burden is detailed in section XI.B.6. of 

the preamble to this proposed rule. 

7. ICRs for PPS-Exempt Cancer Hospital 

Quality Reporting (PCHQR) Program 

As discussed in section IX.B. of the 

preamble of this proposed rule, section 

1866(k) of the Act requires, for purposes 

of FY 2014 and each subsequent fiscal 

year, that a hospital described in section 

1886(d)(1)(B)(v) of the Act (a PPSexempt cancer hospital, or a PCH) 

submit data in accordance with section 

1866(k)(2) of the Act with respect to 

such fiscal year. In the FY 2013 IPPS/ 

LTCH PPS final rule, we implemented 

the PCHQR Program to comply with the 

statutory mandate, and in an effort to 

improve the quality of care for inpatient 

cancer patients. It is our aim and goal 

to encourage PCHs to furnish high 

quality care in a manner that is effective 

and meaningful, while remaining 

mindful of the reporting burden created 

by the implementation of this new 

program. Therefore, we intend to reduce 

and avoid duplicative reporting efforts, 

whenever possible, by leveraging 

existing infrastructure. 

In the FY 2013 IPPS/LTCH PPS final 

rule, for the FY 2014 program year, we 

adopted five NQF-endorsed quality 

measures, two of which were developed 

by the CDC and three of which were 

developed by the American College of 

Surgeons’ Commission on Cancer 

(ACoS/CoC) and discussed the 

information collection requirements for 

these measures. 

Topic Quality measures 

Cancer-Specific Treatments ........... 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 #0223). 

Combination Chemotherapy is considered or administered within 4 months (120 days) of diagnosis for 

women under 70 with AJCC T1c, or Stage II or III hormone receptor negative Breast Cancer (NQF 

#0559). 

Adjuvant Hormonal Therapy (NQF #0220) 

Healthcare Acquired Infections 

(HAIs) 

National Healthcare Safety Network (NHSN) Central Line-Associated Bloodstream Infection (CLABSI) Outcome Measure (NQF #0139). 

National Healthcare Safety Network (NHSN)Catheter-Associated Urinary Tract Infection (CAUTI) Outcome 

Measure (NQF #0138). 

In this proposed rule, we are 

proposing that PCHs submit data on 1 

additional measure beginning with FY 

2015 and 13 additional measures 

beginning with FY 2016 (as listed 

below), for a total of 19 measures (5 

previously adopted plus 14 new 

measures). 

PROPOSED NEW MEASURE BEGINNING WITH FY 2015 

Measure domain 

NQF 

Endorsement 

number 

Measure name 

Patient Safety ............................................................... 0753 Harmonized Procedure Specific Surgical. 

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PROPOSED NEW MEASURES BEGINNING WITH FY 2016 

Measure domain 

NQF 

Endorsement 

number 

Measure name 

Surgical Care Improvement Project (SCIP) ................. 0218 Surgery Patients Who Received Appropriate VTE Prophylaxis within 24 

Hrs Prior to Surgery to 24 Hrs After Surgery End Time. 

0284 Surgery Patients on Beta Blocker Therapy Prior to Admission Who Received a Beta Blocker during the Perioperative Period. 

0453 Urinary Catheter Removed on Post-Operative Day 1 or Post-Operative 

Day 2 with Day Surgery Being Day Zero. 

0527 Prophylactic Antibiotic Received Within 1 Hr Prior to Surgical Incision. 

0528 Prophylactic Antibiotic Selection for Surgical Patients. 

0529 Prophylactic Antibiotic Discontinued Within 24 Hrs After Surgery End 

Time. 

Clinical Process/Oncology Care ................................... 0380 Multiple Myeloma—Treatment with Bisphosphonates. 

0382 Oncology—Radiation Dose Limits to Normal Tissues. 

0383 Oncology: Plan of Care for Pain. 

0384 Oncology: Pain Intensity. 

0390 Prostate Cancer—Adjuvant Hormonal Therapy for High-Risk Patients. 

0389 Prostate Cancer—Avoidance of Overuse Measure-Bone Scan for Staging Low-Risk Patients. 

Patient Engagement/Patient Experience of Care ........ 0166 HCAHPS Patient Experience of Care Survey. 

We believe that our proposal to 

require PCHs to submit data on these 

additional proposed measures will not 

prove burdensome. PCHs have 

familiarity with and experience 

reporting quality data to CMS during the 

initial year of the PCHQR program. 

Therefore, we believe that because a 

majority of PCHs have demonstrated the 

ability to report these measures, the 

reporting requirements we are 

proposing will not significantly impact 

PCHs. 

The anticipated burden on these PCHs 

consists of the following: training of 

appropriate staff members on how to 

use the NHSN for the reporting of the 

proposed SSI measure, CMS 

(QualityNet) for the reporting of the 

proposed SCIP measures, and the CMS 

Web Measures Tool for the reporting of 

the proposed clinical process/oncology 

care measures; the time required for 

collection and aggregation of data; and 

the time required for reporting of the 

data by the PCH’s representative; and 

the time required to participate and 

collect HCAHPS data. We have taken 

into account all these elements in our 

burden calculation. 

We estimate that 11 PCHs will submit 

data on approximately 63,468 cancer 

cases annually. It will require, on 

average, 9.5 hours for a PCH to abstract 

the information from medical records 

and submit such information for each 

case. The time required to administer 

the HCAHPS is likely to be lower than 

the time for chart abstraction. However, 

the same method was used to ensure a 

high-end estimate so that facilities will 

not experience a higher burden than 

estimated. In addition, sampling was 

not considered for this reason. 

Therefore, this burden represents the 

‘‘worst-case scenario’’ of what would be 

required of each facility. Based on these 

assumptions, we estimate that the 

annual hourly burden on each PCH for 

the collection, submission, and training 

of personnel for submitting all quality 

measure data would be approximately 

54,822 hours. 

8. ICRs for the Hospital Value-Based 

Purchasing (VBP) Program 

In section V.H. of the preamble of this 

proposed rule, we discuss proposed 

requirements for the Hospital VBP 

Program. Specifically, in this proposed 

rule, we are proposing to adopt three 

new measures for the FY 2016 Hospital 

VBP Program, including IMM–2: 

Influenza Immunization and CAUTI, 

and the Surgical Site Infection (SSI) 

measure, stratified as SSI-Colon and 

SSI-Abdominal Hysterectomy. We also 

are proposing to adopt CLABSI, a 

measure that we finalized for FY 2015 

but did not readopt at that time. 

In addition, we are proposing to adopt 

the three 30-day mortality measures and 

the AHRQ PSI composite measure for 

FYs 2017 through 2019 program 

determinations. 

All of these additional measures are 

required for the Hospital IQR Program; 

therefore, their inclusion in the Hospital 

VBP Program does not result in any 

additional burden because the Hospital 

VBP Program uses data that are required 

for the Hospital IQR Program. 

9. ICRs for the Long-Term Care Hospital 

Quality Reporting (LTCHQR) Program 

In section IX.C. of the preamble of the 

proposed rule, we discuss the 

requirements for the LTCHQR Program, 

established by section 1886(m)(5) of the 

Act, which was added by section 3004 

of the Affordable Care Act. 

In the FY 2013 IPPS/LTCH PPS final 

rule, we finalized the adoption of five 

quality measures for use in the LTCHQR 

Program for the FY 2016 payment 

update determination and subsequent 

payment determinations. These 

measures are: (1) NHSN CatheterAssociated Urinary Tract Infection 

(CAUTI) Outcome Measure (NQF 

#0138); (2) NHSN Central LineAssociated Blood Stream Infection 

(CLABSI) Outcome Measure (NQF 

#0139); (3) Application of Percent of 

Residents with Pressure Ulcers that are 

New or Worsened (Short Stay) (NQF 

#0678); (4) Percent of Residents or 

Patients Who Were Assessed and 

Appropriately Given the Seasonal 

Influenza Vaccine (Short-Stay) (NQF 

#0680); and (5) Influenza Vaccination 

Coverage Among Healthcare Personnel 

(NQF #0431). 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53630 through 53631) we 

finalized that for Influenza Vaccination 

Coverage Among Healthcare Personnel 

(NQF #0431), LTCHs should begin to 

submit data from January 1, 2014 

through December 31, 2014 (CY 2014) 

for the FY 2016 payment determination. 

However, there is unique seasonality in 

the timing of influenza activity each 

year. To account for this, we are 

proposing that, for the LTCHQR 

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27752 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

180The LTCH CARE Data Set Version 1.01 was 

approved on April 24, 2012 by OMB in accordance 

with the PRA. The OMB Control Number is 0938– 

1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956, published April 12, 2013, solicits 

public comment on additions and updates to the 

LTCH CARE Data Set. http://www.cms.gov/

Regulations-and-Guidance/Legislation/Paperwork

ReductionActof1995/PRA-Listing-Items/CMS12521

60.html. 

181National Quality Forum, Consensus Standards 

Approval Committee Wednesday, July 11, 2012. 

Transcript. Available on the Web site at: http://

www.qualityforum.org/WorkArea/linkit.aspx?Link

Identifier=id&ItemID=71612. 

182Press Release: NQF Removes Time-Limited 

Endorsement Status for 13 Measures, Measures 

Now Have Endorsed Status. August 1, 2012. 

Available on the Web site at: http://www.quality

forum.org/News_And_Resources/Press_Releases/

2012/NQF_Removes_Time-Limited_Endorsement_

for_13_Measures;_Measures_Now_Have_Endorsed_

Status.aspx. 

183The LTCH CARE Data Set Version 1.01 was 

approved on April 24, 2012 by OMB in accordance 

with the PRA. The OMB Control Number is 0938– 

1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956, published April 12, 2013, solicits 

public comment on additions and updates to the 

LTCH CARE Data Set. http://www.cms.gov/ 

Regulations-and-Guidance/Legislation/ 

PaperworkReductionActof1995/PRA-Listing-Items/ 

CMS1252160.html. 

Program, this measure only (NQF #0431) 

have its own reporting period to align 

with the influenza vaccination season, 

which is defined by the CDC as October 

1st (or when the vaccine becomes 

available) through March 31st. This 

proposed change would allow LTCHs to 

collect and report data on influenza 

vaccination for the entirety of the 2014– 

2015 influenza season for the FY 2016 

payment determination. Similarly, this 

change would allow LTCHs to collect 

and report data on influenza vaccination 

for the entirety of future influenza 

seasons for subseqeuent payment 

determinations. 

While LTCHs can enter information in 

NHSN at any point during the influenza 

season for NQF #0431, data submission 

is only required once per year, unlike 

the other measures finalized for the 

LTCHQR Program that utilize CDC/ 

NHSN (CAUTI measure NQF #0138 and 

CLABSI measure NQF #0139). LTCHs 

can choose to submit influenza 

vaccination data on an incremental 

basis (for example, on a monthly basis), 

or just once a year. The final deadlines 

associated with submitting data, 

approximately 45 days after the end of 

the data collection timeframe for the FY 

2016 payment determination, remain 

consistent across measures. 

In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53624 through 53627), we 

finalized that for NQF #0680, Percentage 

of Residents or Patients Who Were 

Assessed and Appropriately Give the 

Seasonal Influenza Vaccine (Short-Stay), 

LTCHs should begin to collect and 

submit data on January 1, 2014 through 

December 31, 2014 (CY 2014) for the FY 

2016 payment determination. This 

measure, stewarded by CMS, will be 

collected using items included in the 

LTCH Continuity Assessment Record 

and Evaluation (CARE) Data Set 

(Version 2.01).180 On February 1, 2013, 

we solicited public comment on this 

information collection request (78 FR 

7433 through 7434). On April 12, 2013, 

we published a 30-day notice to solicit 

public comment on this information 

collection request (78 FR 21955 through 

21956). Later in 2013, we will release 

the final data submission specifications 

and updated LTCHQR Program Manual 

for the LTCH CARE Data Set (Version 

2.01) containing items related to NQF 

#0680. 

In order to allow time and 

opportunity for LTCHs and vendors to 

participate in CMS-sponsored training 

activities pertaining to the 

implementation of the LTCH CARE Data 

Set (Version 2.01), as well as time to 

plan for and incorporate changes into 

their data collection and entry systems, 

we are proposing to revise the 

previously finalized start date of January 

1, 2014 for reporting of this measure to 

April 1, 2014. For CY 2014, data 

collection will continue through 

December 31, 2014. We are proposing 

that data for admissions and discharges 

for an LTCH during April 1, 2014 

through December 31, 2014 will be used 

for the FY 2016 payment determination. 

We are also proposing that data for 

January 1, 2015 through December 31, 

2015 (CY 2015) will be used for the FY 

2017 payment determination. 

Thereafter, data for January 1 through 

December 31 of each year will be used 

for subsequent payment determinations. 

In the FY 2012 IPPS/LTCH PPS final 

rule (76 FR 51748 through 51750), we 

adopted an application of NQF #0678 

Percent of Residents with Pressure 

Ulcers That are New or Worsened 

(Short-Stay) for the FY 2014 payment 

determination, and retained this 

application of the measure in the FY 

2013 IPPS/LTCH PPS final rule (77 FR 

53615 through 53619) for the FY 2015 

payment determination and subsequent 

payment determinations. We refer 

readers to the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51748 through 51750) 

for a discussion of the rationale, data 

collection methods, and submission 

methods finalized for this measure for 

the FY 2014 payment determination and 

subsequent payment determinations, 

and for references to the description and 

specifications of this measure. 

At the time we completed our work 

on the FY 2013 IPPS/LTCH PPS final 

rule, we were only able to adopt an 

application of the endorsed measure in 

our final version of the FY 2013 rule. 

NQF #0678 was subsequently ratified by 

the NQF Board of Directors for 

expansion to the LTCH setting on 

August 1, 2012.181, 182 Because NQF 

#0678 has received endorsement for the 

LTCH setting, we are now proposing to 

adopt the updated measure NQF #0678 

Percent of Residents or Patients with 

Pressure Ulcers that are New or 

Worsened (Short-Stay) for the FY 2015 

payment determination and subsequent 

payment determinations. This measure 

will continue to be collected using items 

included in the LTCH Continuity 

Assessment Record and Evaluation 

(CARE) Data Set (Version 1.01) for CY 

2013 and first quarter of CY 2014. 

Further, starting April 1, 2014, this 

measure is proposed to be collected 

using items included in the LTCH CARE 

Data Set Version 2.01.183

The changes we have described to the 

reporting periods for two measures 

(NQF #0431 and NQF #0680) and the 

updated NQF-endorsed pressure ulcer 

measure (NQF #0678) are not new 

measures. We do not believe that these 

changes will result in any additional 

reporting burden on LTCHs. 

In section IX.C.8.b. of the preamble of 

this proposed rule, we are proposing 

three additional measures for use in the 

LTCHQR Program for the FY 2017 

payment determination and subsequent 

payment determinations. These 

proposed measures are: (1) National 

Healthcare Safety Network (NHSN) 

Facility-Wide Inpatient Hospital-Onset 

Methicillin-Resistant Staphylococcus 

Aureus (MRSA) Bacteremia Outcome 

Measure (NQF #1716); (2) National 

Healthcare Safety Network (NHSN) 

Facility-Wide Inpatient Hospital-onset 

Clostridium Difficile Infection (CDI) 

Outcome Measure (NQF #1717); and (3) 

All-Cause Unplanned Readmission 

Measure for 30-Days Post Discharge 

from Long-Term Care Hospitals. 

For the FY 2017 payment 

determination, in addition to the 

CAUTI, CLABSI, and Influenza 

Vaccination Coverage among Healthcare 

Personnel measures, we are proposing 

that LTCHs would report quality data 

related to the MRSA and CDI measures 

to the CDC’s NHSN data submission 

system (http://www.cdc.gov/nhsn/). The 

NHSN is a secure, Internet-based 

surveillance system that is maintained 

and managed by CDC. 

There are currently approximately 

440 LTCHs in operation in the United 

States and, according to the CDC, over 

413 of these LTCHs already submit HAI 

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184Nursing Time—24 hours @ $41.59 per hour = 

$998.16; $998.16 × 440 LTCHs = approximately 

$439,140; Administrative Time—36 hours @ $20.57 

per hour = $740.52; $740.52 × 440 LTCHs = 

approximately $325,829; TOTAL = $439,140 + 

$325,829 = $765,019. 

185Nursing Time—24 hours @ $41.59 per hour = 

$998.16; $998.16 × 440 LTCHs = approximately 

$439,140; Administrative Time—36 hours @ $20.57 

per hour = $740.52; $740.52 × 440 LTCHs = 

approximately $325,829; TOTAL = $439,140 + 

$325,829 = $765,019. 

186The LTCH CARE Data Set Version 1.01 was 

approved on April 24, 2012 by OMB in accordance 

with the PRA. The OMB Control Number is 0938– 

1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956, published April 12, 2013, solicits 

public comment on additions and updates to the 

LTCH CARE Data Set. http://www.cms.gov/ 

Regulations-and-Guidance/Legislation/ 

PaperworkReductionActof1995/PRA-Listing-Items/ 

CMS1252160.html. 

data to NHSN. We believe that any 

burden increase related to complying 

with the LTCHQR Program 

requirements for submission of the 

MRSA and CDI measures will be 

minimal for those LTCHs that are 

already familiar with the NHSN 

submission process, for several reasons. 

First, these LTCHs will have already 

completed initial setup and become 

familiar with reporting data in the 

NHSN system due to the requirement to 

report CAUTI and CLABSI measures 

beginning on October 1, 2012 for the FY 

2014 payment determination and 

continuing reporting for CY 2013 for the 

FY 2015 payment determination. 

Second, as of January 2013, there are 

approximately 42 LTCHs reporting 

MRSA measure data and approximately 

46 facilities reporting Clostridium 

Difficile measure data into NHSN. 

Third, there has been no change in the 

registration and training requirements 

for providers that are already acquainted 

with the NHSN. Therefore, we believe 

that most LTCH providers should be 

very comfortable using the NHSN for 

continuing with the reporting of data for 

CAUTI and CLABSI measures for CY 

2014 for FY 2016 payment update 

determination. Further, we believe that 

by the time (October 1, 2014 or when 

vaccine becomes available) reporting for 

NQF #0431 begins for the FY 2016 

payment determination, a vast majority 

of LTCH providers should be very 

comfortable using the NHSN. 

The most significant burden 

associated with the quality measures is 

the time and effort associated with 

collecting and submitting the data on 

the CAUTI, CLABSI, Influenza 

Vaccination Coverage among Healthcare 

Personnel, MRSA, and Clostridium 

Difficile measures to NHSN for LTCHs 

that are not currently reporting any 

measures data. 

There are currently approximately 

440 LTCHs in the United States paid 

under the CMS LTCH PPS. We estimate 

that each LTCH will execute 

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 

63,360 submissions of HAI data to 

NHSN from all LTCHs per year. We 

estimate that each NHSN assessment 

will take approximately 25 minutes to 

complete. This time estimate consists of 

10 minutes of clinical time (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 will expend 300 

minutes (5 hours) per month and 60 

hours per year reporting to NHSN. 

Therefore, the total estimated annual 

hourly burden on all LTCHs in the 

United States for reporting to NHSN is 

26,400 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 will be $1,739 and the total yearly 

cost to all LTCHs for the submission of 

CAUTI and CLABSI data to NHSN will 

be $765,019.184 While these 

requirements are subject to the 

Paperwork Reduction Act, we believe 

the associated burden hours are 

accounted for in the information 

collection request currently approved 

under OMB control number 0920–0666. 

We estimate that each LTCH will 

execute only one NHSN submission per 

year (total number of vaccinations) as 

required by the CDC for the NHSNreported Influenza Vaccination 

Coverage Among Healthcare Personnel 

measure (NQF #0431). This equates to a 

total of approximately 440 submissions 

of vaccination data to NHSN from all 

LTCHs per year. We estimate that each 

NHSN submission will take 

approximately 15 minutes to complete. 

This time estimate consists of 15 

minutes of clerical time necessary to 

enter the data into the NHSN database. 

Based on this estimate, we expect each 

LTCH will expend 15 minutes per year 

reporting to NHSN. Therefore, the total 

estimated annual burden on all LTCHs 

in the United States for reporting this 

measure to NHSN is 110 hours. The 

estimated cost per submission is 

estimated at $3.90. The cost is estimated 

using an hourly wage for a medical 

billing clerk/data entry person of $15.59 

(U.S. Bureau of Labor and Statistics 

data). We estimate the annual cost per 

each LTCH will be $3.90 and the total 

yearly cost to all LTCHs for the 

submission of the Influenza Coverage 

Among Healthcare Personnel measure 

(NQF #0431) will be $1,715. 

Similar to the submission of CAUTI 

and CLABSI data, we estimate that each 

LTCH will execute approximately 12 

NHSN submissions (6 MRSA events and 

6 C. Difficile 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 

will take approximately 25 minutes to 

complete. This time estimate consists of 

10 minutes of clinical time (for example, 

nursing time) needed to collect the 

clinical data and 15 minutes of clerical 

time necessary to enter the data into the 

NHSN. Based on this estimate, we 

expect each LTCH will expend 300 

minutes (5 hours) per month and 60 

hours per year reporting to NHSN. 

Therefore, the total estimated annual 

hourly burden on all LTCHs in the 

United States for reporting to NHSN is 

26,400 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 will be $1,739 and the total yearly 

cost to all LTCHs for the submission of 

CAUTI and CLABSI data to NHSN will 

be $765,019.185

We estimate that the total annual cost 

to all LTCHs for submission of NHSN 

data will be $1,531,753 or $3,481 per 

LTCH annually. 

We are proposing to adopt the 

updated measure NQF #0678 Percent of 

Residents or Patients with Pressure 

Ulcers that are New or Worsened (ShortStay) for the FY 2015 payment 

determination and subsequent payment 

determinations. This change would not 

alter the data collection, data 

submission, or burden finalized in the 

FY 2013 IPPS/LTCH PPS final rule and 

PRA package for LTCH CARE Data Set 

(Version 1.01) 186 since there have been 

no changes to the data elements, data 

submission system (QIES ASAP) and 

technical submission specifications for 

the LTCH CARE Data Set used for this 

measure for CY 2013 and first quarter of 

CY 2014. The only difference between 

the previously finalized measure and 

the proposed measure is the change in 

name and NQF-endorsed expansion of 

this measure to the LTCH (and IRF) 

patient populations in addition to 

Skilled Nursing Facility/Nursing Home 

Short-Stay residents. Therefore, the 

burden on providers for reporting of 

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27754 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

187The LTCH CARE Data Set Version 1.01 was 

approved on April 24, 2012 by OMB in accordance 

with the PRA. The OMB Control Number is 0938– 

1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956, published April 12, 2013, solicits 

public comment on additions and updates to the 

LTCH CARE Data Set. http://www.cms.gov/ 

Regulations-and-Guidance/Legislation/ 

PaperworkReductionActof1995/PRA-Listing-Items/ 

CMS1252160.html. 

188The LTCH CARE Data Set Version 1.01 was 

approved on April 24, 2012 by OMB in accordance 

with the PRA. The OMB Control Number is 0938– 

1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956 published April 12, 2013 solicits 

public comment on additions and updates to the 

LTCH CARE Data Set. http://www.cms.gov/

Regulations-and-Guidance/Legislation/Paperwork

ReductionActof1995/PRA-Listing-Items/

CMS1252160.html. 

189MedPAC Report to Congress, March 2012, 

page 261. Available at: http://www.medpac.gov/ 

documents/Mar12_EntireReport.pdf. 

190This time estimate includes the time required 

to complete both the required and voluntary 

questions on the LTCH CARE Data Set. 

191 32 minutes/form × 38 forms per LTCH per 

month = 1,216 minutes per LTCH per month; 1,216 

minutes/60 minutes per hour = 20.27 hours per 

LTCH per month; 20.27 hours per LTCH per month 

× 12 months/year = 243 hours per each LTCH/year; 

243 hours/each LTCH per year × 440 LTCHs in U.S. 

= 106,920 hrs/all LTCHs/year. 

192The mean hourly wage of $15.59 per hour for 

a Medical Secretary was obtained from the U.S. 

Bureau of Labor Statistics. We refer readers to: 

http://www.bls.gov/oes/current/oes436013.htm. 

data for NQF #0678 remains 

unchanged.187

In order to allow time and 

opportunity for LTCHs and vendors to 

participate in CMS-sponsored training 

activities pertaining to the 

implementation of the LTCH CARE Data 

Set (Version 2.01), as well as time to 

plan for and incorporate changes into 

their data collection and entry systems, 

we are proposing to revise the 

previously finalized start date for 

Percent of Residents or Patients Who 

Were Assessed and Appropriately Given 

the Seasonal Influenza Vaccine (ShortStay) (NQF #0680) of January 1, 2014 to 

April 1, 2014. For CY 2014, data 

collection will continue through 

December 31, 2014. We are proposing 

that data for admissions and discharges 

for an LTCH during April 1, 2014 

through December 31, 2014 will be used 

for the FY 2016 payment determination. 

Three items will be included on the 

LTCH CARE Data Set Version 2.01 for 

this measure. We have also removed 

several items from the administrative, 

functional status, and skin conditions 

sections of the LTCH CARE Data Set 

Version 1.01 to create the LTCH CARE 

Data Set Version 2.01,188 so we 

anticipate that increase in burden due to 

the addition of items for NQF #0680 

will be minimal. Later in 2013, we will 

release the final data submission 

specifications and updated LTCHQR 

Program Manual for the LTCH CARE 

Data Set (Version 2.01) containing items 

related to NQF #0680. 

As previously mentioned, there are 

currently approximately 440 LTCHs in 

the United States paid under the LTCH 

PPS. We estimate that the total number 

of LTCH discharges per year is 

202,050 189 (134,700 Medicare 

beneficiaries and 67,350 non-Medicare 

beneficiaries). Therefore, the total 

number of discharges estimated for each 

LTCH is 457 annually and 38 monthly. 

We estimate that the total number of 

LTCH CARE Data Sets (LCDS) submitted 

by all LTCHs per year is 404,100 which 

equates to a total of 914 total LCDS 

submissions for each LTCH on an 

annual basis. The average number of 

LCDS submitted by each LTCH on a 

monthly basis is 76. 

We estimate that the total time 

required to complete an LCDS per 

patient to be approximately 32 

minutes,190 which includes 11 minutes 

for the admission assessment, 11 

minutes for the discharge assessment 

and 10 minutes for data entry. 

Therefore, each LTCH will spend 

approximately 1,216 minutes per 

month, or approximately 20.27 hours 

per month submitting the LCDS. We 

expect each LTCH to spend 

approximately 243 hours per year 

engaged in data collection and 

submission of the LCDS. Therefore, the 

total estimated burden to all LTCHs for 

reporting the LCDS is 106,920 hours per 

year.191

We estimate that the total annual cost 

to each LTCH will be approximately 

$6,751 to submit the LCDS. That 

estimate is based on the hourly wage for 

a registered nurse to complete the LCDS 

at $33.23 per hour and for an 

administrative assistant to transmit the 

LCDS at $15.59.192 As previously stated, 

we estimate a total of 457 annual 

discharges (914 LCDS submissions) for 

each LTCH on an annual basis and that 

it will take 22 minutes total (11 minutes 

each) to complete the admissions and 

discharge assessments per patient. That 

is, 10,054 minutes of time, or 167.57 

hours, that a registered nurse in each 

LTCH will spend completing the LCDS 

annually. For a registered nurse to 

spend 167.57 hours per year completing 

the LCSDs at a rate of $33.23 per hour, 

the associated cost for each LTCH will 

be approximately $5,568 and, for 

approximately 440 LTCHs, a total of 

$2,449,920 nursing wages per year. 

Similarly, we previously estimated 

that it will take approximately 10 

minutes per patient for data entry by an 

administrative assistant, resulting in 

approximately 4,570 minutes that each 

LTCH will spend transmitting the LCDS 

per year, or 76 administrative hours per 

year. At a rate of $15.59, that equates to 

approximately $1,185 for each LTCH 

and $521,330 for all LTCHs per year. 

Therefore, we estimate that the total 

annualized cost to each LTCH will be 

approximately $6,751 and $2,971,250 to 

all LTCHs. 

While these requirements are subject 

to the Paperwork Reduction Act, we 

believe the associated burden hours are 

accounted for in the information 

collection request currently under 

consideration for approval under OMB 

control number 0920–0666. 

We also are proposing the All-Cause 

Unplanned Readmission Measure for 30 

days Post Discharge from Long-Term 

Care Hospitals which we do not believe 

would increase LTCH provider burden 

because it is a Medicare FFS claimsbased measure and does not require 

reporting of data other than submission 

of Medicare FFS claims data (LTCHs 

submit these data to CMS for payment 

purposes). 

In section IX.C.8.c. of the preamble of 

this proposed rule, we are proposing 

one additional quality measure for use 

in the LTCHQR Program for the FY 2018 

payment determination and subsequent 

payment determinations. We are 

proposing that LTCHs report data for an 

application of the Percent of Residents 

Experiencing One or More Falls with 

Major Injury (Long Stay) (NQF #0674) 

measure beginning January 1, 2016. It is 

our intent to foster alignment between 

measures by expanding preexisting data 

collection and submission methods to 

reduce the administrative burden 

related to data collection and 

submission. This measure will be 

collected using the LTCH CARE Data 

Set. The items used for the proposed 

application of the NQF #0674 will be 

based on the items from the Minimum 

Data Set (MDS) 3.0, version 1.13.0 (1/ 

17/13) items J1800 (Any Falls Since 

Admission/Entry or Reentry or Prior 

Assessment) and J1900A, B and C 

(Number of Falls (A: with no injury, B: 

with injury (except major), C with Major 

injury)) since Admission/Entry or 

Reentry or Prior Assessment), available 

at: http://www.cms.gov/Medicare/ 

Quality-Initiatives-Patient-AssessmentInstruments/NursingHomeQualityInits/ 

NHQIMDS30Technical

Information.html. The calculation of the 

proposed application of the measure 

will be based on item J1900C, Number 

of Falls with major injury, since 

admission/entry or reentry or prior 

assessment. The specifications and data 

elements for NQF #0674 are available in 

the MDS 3.0 Quality Measures User’s 

Manual Version 6.0 available on our 

Web site at: http://www.cms.gov/

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Medicare/Quality-Initiatives-PatientAssessment-Instruments/ 

NursingHomeQualityInits/ 

MDS30RAIManual.html. 

We believe that the initial registration 

for use of the LTCH CARE Data Set, 

along with any necessary training, 

occurred for most LTCHs prior to the 

reporting of the Pressure Ulcer measure 

which began on October 1, 2012. 

Therefore, we believe the burden will be 

minimal related to the addition of this 

proposed quality measure into the 

LTCH CARE Data Set. 

Therefore, we do not expect the 

addition of the NQF #0674 Percent of 

Residents Experiencing One or More 

Falls with Major Injury (Long Stay) 

measure to increase the burden 

substantially. Further, LTCHs will have 

been reporting data for the LTCHQR 

Program using the LTCH CARE Data Set 

for more than 2 years by the time the 

data collection begins for this measure. 

At this time, we have not completed 

the revision of the information 

collection instrument (LTCH CARE Data 

Set) that LTCHs would be required to 

submit to report the proposed measure 

(NQF #0674) for the FY 2018 payment 

determination and subsequent payment 

determinations. Because the forms are 

still under development, we cannot 

make a complete burden estimate at this 

time for the inclusion of the Percent of 

Residents Experiencing One or More 

Falls with Major Injury (Long Stay) 

measure in the LTCH CARE Data Set. 

Once the forms are available, we will 

prepare and submit the required 

information collection request, which 

will fully set forth the anticipated 

burden to LTCHs as a result of the new 

data items that need to be added to the 

LTCH CARE Data Set. 

10. ICRs for the Inpatient Psychiatric 

Facilities Quality Reporting (IPFQR) 

Program 

In section VIII.F. of the preamble of 

the FY 2013 IPPS/LTCH PPS final rule, 

we discussed the implementation of the 

Inpatient Psychiatric Facilities Quality 

Reporting (IPFQR) Program pursuant to 

the Secretary’s authority under section 

1886(s)(4) of the Act. We previously 

adopted six measures for the FY 2014 

IPFQR Program payment determination 

and subsequent years. In section IX.D. of 

the preamble of this proposed rule, we 

are proposing that, for the FY 2016 

payment determination and subsequent 

years, IPFs must submit aggregate data 

on three additional measures, for a total 

of nine measures. In addition, we are 

proposing a request for voluntary 

information. 

To reduce the burden on IPFs, we are 

not proposing to make changes to the 

administrative, reporting or submission 

requirements for the existing six 

measures previously finalized in last 

year’s rule (77 FR 53654 through 53657). 

However, there will be new reporting 

and submission requirements associated 

with the three proposed additional 

measures and the proposed request for 

voluntary information for the FY 2016 

payment determination and subsequent 

years. 

We believe that the proposed 

measures will help improve the quality 

of care provided by IPFs as we work to 

make quality data more transparent to 

the public. As required by the Act, we 

will share the information collected 

under the IPFQR Program with the 

public. These data will be displayed on 

the CMS Web site. 

We have estimated the burden 

associated with IPFs complying with the 

requirements of the IPFQR Program. In 

our burden estimate calculation, we 

have included the time that would be 

spent for: (1) The submission of 

voluntary information; (2) chart 

abstraction; and (3) training personnel 

on the collection of chart-abstracted 

data, aggregation of the data, and for 

protocols to submit the aggregate-level 

data through QualityNet. We estimate 

that the annual hourly burden on each 

IPF for the collection, submission, and 

training of personnel for submitting all 

quality measures, including 30 minutes 

needed for the voluntary submission, is 

approximately 1,030 hours in a year for 

each IPF. Therefore, the average hourly 

burden on each IPF is approximately 86 

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 aggregate 

impact. 

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–1599–P; Fax: (202) 395–6974; or 

Email: OIRA_submission@omb.eop.gov 

C. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 

List of Subjects 

42 CFR Part 412 

Administrative practice and 

procedure, Health facilities, Medicare, 

Puerto Rico, Reporting and 

recordkeeping requirements. 

42 CFR Part 482 

Grant program—health, Hospitals, 

Medicaid, Medicare, Reporting and 

recordkeeping requirements. 

42 CFR Part 485 

Grant programs—health, Health 

facilities, Medicaid, Medicare, 

Reporting and recordkeeping 

requirements. 

42 CFR Part 489 

Health facilities, Medicare, Reporting 

and recordkeeping requirements. 

For the reasons stated in the preamble 

of this proposed rule, the Centers for 

Medicare & Medicaid Services is 

proposing to amend 42 CFR chapter IV 

as follows: 

PART 412—PROSPECTIVE PAYMENT 

SYSTEMS FOR INPATIENT HOSPITAL 

SERVICES 

■ 1. The authority citation for part 412 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh), and sec. 124 of Pub. L. 106–113 

(113 Stat. 1501A–332). 

■ 2. Section 412.3 is added to read as 

follows: 

§ 412.3 Admissions. 

(a) For purposes of payment under 

Medicare Part A, an individual is 

considered an inpatient of a hospital, 

including a critical access hospital, if 

formally admitted as an inpatient 

pursuant to an order for inpatient 

admission by a physician or other 

qualified practitioner in accordance 

with paragraph (b) of this section and 

§§ 482.24(c), 482.12(c), and 

485.638(a)(4)(iii) of this chapter for a 

critical access hospital. 

(b) The order must be furnished by a 

qualified and licensed practitioner who 

has admitting privileges at the hospital 

as permitted by State law, and who is 

responsible for the inpatient care of the 

patient at the hospital. The practitioner 

may not delegate the decision (order) to 

another individual who is not 

responsible for the care of that patient, 

is not authorized by the State to admit 

patients, or has not been granted 

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admitting privileges applicable to that 

patient by the hospital’s medical staff. 

(c) Except as specified in paragraph 

(c)(2) of this section— 

(1) When a patient enters a hospital 

for a surgical procedure not specified by 

Medicare as inpatient only under 

§ 419.22(n) of this chapter, a diagnostic 

test, or any other treatment, and the 

physician expects to keep the patient in 

the hospital for only a limited period of 

time that does not cross 2 midnights, the 

services are generally inappropriate for 

inpatient payment under Medicare Part 

A, regardless of the hour that the patient 

came to the hospital or whether the 

patient used a bed. Surgical procedures, 

diagnostic tests, and other treatment are 

generally appropriate for inpatient 

hospital payment under Medicare Part 

A when the physician expects the 

patient to require a stay that crosses at 

least 2 midnights. The expectation of 

the physician should be based on such 

complex medical factors as patient 

history and comorbidities, the severity 

of signs and symptoms, current medical 

needs, and the risk of an adverse event. 

The factors that lead to a particular 

clinical expectation must be 

documented in the medical record in 

order to be granted consideration. 

(2) If an unforeseen circumstance, 

such as a beneficiary’s death or transfer, 

result in a shorter beneficiary stay than 

the physician’s expectation of at least 2 

midnights, the patient may be 

considered to be appropriately treated 

on an inpatient basis, and hospital 

inpatient payment may be made under 

Medicare Part A. 

■ 3. Section 412.46 is revised to read as 

follows: 

§ 412.46 Medical review requirements. 

(a) Physician acknowledgement. (1) 

Basis. Because payment under the 

prospective payment system is based in 

part on each patient’s principal and 

secondary diagnoses and major 

procedures performed, as evidenced by 

the physician’s entries in the patient’s 

medical record, physicians must 

complete an acknowledgement 

statement to this effect. 

(2) Content of physician 

acknowledgement statement. When a 

claim is submitted, the hospital must 

have on file a signed and dated 

acknowledgement from the attending 

physician that the physician has 

received the following notice: Notice to 

Physicians: Medicare payment to 

hospitals is based in part on each 

patient’s principal and secondary 

diagnoses and the major procedures 

performed on the patient, as attested to 

by the patient’s attending physician by 

virtue of his or her signature in the 

medical record. Anyone who 

misrepresents, falsifies, or conceals 

essential information required for 

payment of Federal funds, may be 

subject to fine, imprisonment, or civil 

penalty under applicable Federal laws. 

(3) Completion of acknowledgement. 

The acknowledgement must be 

completed by the physician at the time 

that the physician is granted admitting 

privileges at the hospital, or before or at 

the time the physician admits his or her 

first patient. Existing acknowledgements 

signed by physicians already on staff 

remain in effect as long as the physician 

has admitting privileges at the hospital. 

(b) Physician’s order and certification 

regarding medical necessity. No 

presumptive weight shall be assigned to 

the physician’s order under § 412.3 or 

the physician’s certification under 

subpart B of part 424 of the chapter in 

determining the medical necessity of 

inpatient hospital services under section 

1862(a)(1) of the Act. A physician’s 

order or certification will be evaluated 

in the context of the evidence in the 

medical record. 

■ 4. Section 412.64 is amended— 

■ a. By adding paragraph (d)(1)(v). 

■ b. In paragraph (h)(4) introductory 

text, by removing the date ‘‘October 1, 

2013’’ and adding in its place the date 

‘‘October 1, 2014’’. 

■ c. In paragraph (h)(4)(vi), by removing 

the date ‘‘October 1, 2013’’ and adding 

in its place the date ‘‘October 1, 2014’’. 

The addition reads as follows: 

§ 412.64 Federal rates for inpatient 

operating costs for Federal fiscal year 2005 

and subsequent fiscal years. 

* * * * * 

(d) * * * 

(1) * * * 

(v) For fiscal year 2014, the 

percentage increase in the market basket 

index less a multifactor productivity 

adjustment (as determined by CMS) and 

less 0.3 percentage point for prospective 

payment hospitals (as defined in 

§ 413.40(a) of this chapter) for hospitals 

in all areas. 

* * * * * 

§ 412.101 [Amended] 

■ 5. Section 412.101 is amended— 

■ a. In paragraph (b)(2)(i), by removing 

the term ‘‘FY 2013’’ and adding in its 

place the term ‘‘FY 2014.’’ 

■ b. In paragraph (b)(2)(ii), by removing 

the phrase ‘‘For FY 2011 and FY 2012,’’ 

and adding in its place the phrase ‘‘For 

FY 2011, FY 2012, and FY 2013,’’. 

■ c. In paragraph (c)(1), by removing the 

term ‘‘FY 2013’’ and adding in its place 

the term ‘‘FY 2014.’’ 

■ d. In paragraph (c)(2) introductory 

text, by removing the phrase ‘‘For FY 

2011 and FY 2012,’’ and adding in its 

place the phrase ‘‘For FY 2011, FY 2012, 

and FY 2013,’’. 

■ e. In paragraph (d), by removing the 

term ‘‘FY 2013’’ and adding in its place 

the term ‘‘FY 2014.’’ 

■ 6. Section 412.106 is amended by 

adding paragraphs (f), (g), and (h) to 

read as follows: 

§ 412.106 Special treatment: Hospitals that 

serve a disproportionate share of lowincome patients. 

* * * * * 

(f) Empirically justified Medicare DSH 

payments. Effective for discharges on or 

after October 1, 2013, the amounts 

otherwise payable to a hospital under 

paragraph (d) of this section are reduced 

by 75 percent. 

(g) Additional payment for 

uncompensated care. (1) Payment rules. 

Hospitals that qualify for payments 

under this section for fiscal year 2014 

and each subsequent year, will receive 

an additional amount equal to the 

product of the following three factors: 

(i) Factor 1. For FY 2014 and each 

subsequent fiscal year, a factor equal to 

the difference between: 

(A) The most recently available 

estimates, as calculated by CMS’ Office 

of the Actuary, of the aggregate amount 

of payments that would be made to such 

hospitals under paragraphs (a) through 

(e) of this section if paragraph (f) of this 

section did not apply for the fiscal year; 

and 

(B) The most recently available 

estimates, as calculated by CMS’ Office 

of the Actuary, of the aggregate amount 

of payments that are made to such 

hospitals pursuant to paragraph (f) of 

this section for the fiscal year. 

(ii) Factor 2. For each of fiscal years 

2014, 2015, 2016, and 2017, a factor 

equal to 1 minus the percent change in 

the percent of individuals under the age 

of 65 who are uninsured (and 

subtracting from the factor 0.1 

percentage point for fiscal year 2014 and 

0.2 percentage point for each of fiscal 

years 2015, 2016, and 2017), as 

determined by comparing: 

(A) 18 percent, the percent of such 

individuals who are uninsured in 2013, 

based on the March 20, 2010 estimate of 

the ‘‘Insured Share of the Nonelderly 

Population Including All Residents’’ by 

the Congressional Budget Office; and 

(B) The percent of such individuals 

who are uninsured in the applicable 

fiscal year, based on the most recent 

estimate of the ‘‘Insured Share of the 

Nonelderly Population Including All 

Residents’’ by the Congressional Budget 

Office available at the time of 

development of the annual final rule for 

the hospital inpatient prospective 

payment system. 

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(iii) Factor 3. A factor equal to the 

percent, for each inpatient prospective 

payment system hospital, that 

represents the quotient of: 

(A) The amount of uncompensated 

care for such hospital as estimated by 

CMS. 

(B) The aggregate amount of 

uncompensated care as estimated by 

CMS for all hospitals that are estimated 

to receive a payment under this section. 

(C) Beginning with fiscal year 2014, 

CMS will base its estimates of the 

amount of hospital uncompensated care 

on the most recent available data on 

utilization for Medicaid and Medicare 

SSI patients, as determined by CMS in 

accordance with paragraphs (b)(2)(i) and 

(b)(4) of this section. 

(iv) The final values for each of the 

three factors are determined for each 

fiscal year at the time of development of 

the annual final rule for the hospital 

inpatient prospective payment system, 

and these values are used for both 

interim and final payment 

determinations. 

(2) Preclusion of administrative and 

judicial review. There is no 

administrative or judicial review under 

sections 1869 or 1878 of the Act, or 

otherwise, of the following: 

(i) Any estimate of the Secretary for 

the purpose of determining the factors 

in section paragraph (g)(1) of this 

section; and 

(ii) Any period selected by the 

Secretary for such purposes. 

(h) Manner and timing of payments. 

(1) Interim payments are made on a 

periodic basis during the payment year 

to each hospital that is estimated to be 

eligible for payments under this section 

at the time of the annual final rule for 

the hospital inpatient prospective 

payment system, subject to the final 

determination of eligibility at the time 

of cost report settlement for each 

hospital. 

(2) Final payment determinations are 

made at the time of cost report 

settlement, based on the final 

determination of each hospital’s 

eligibility for payment under this 

section. 

§ 412.108 [Amended] 

■ 7. Section 412.108 is amended— 

■ a. In paragraph (a)(1) introductory 

text, by removing the phrase ‘‘before 

October 1, 2012’’ and adding in its place 

the phrase ‘‘before October 1, 2013’’. 

■ b. In paragraph (c)(2)(iii) introductory 

text, by removing the phrase ‘‘before 

October 1, 2012’’ and adding in its place 

the phrase ‘‘before October 1, 2013’’. 

■ 8. Section 412.140 is amended by 

revising the section heading and 

paragraphs (a)(3) introductory text and 

(b) and adding paragraph (f) to read as 

follows: 

§ 412.140 Participation, data submission, 

and validation requirements under the 

Hospital Inpatient Quality Reporting (IQR) 

Program. 

(a) * * * 

(3) Submit a completed Notice of 

Participation Form to CMS if the 

hospital is participating in the program 

for the first time, has previously 

withdrawn from the program and would 

like to participate again, or has received 

a new CMS Certification Number (CCN). 

* * * * * 

(b) Withdrawal from the Hospital IQR 

Program. CMS will accept Hospital IQR 

Program withdrawal forms from 

hospitals on or before— 

(1) Prior to the FY 2016 payment 

determination, August 15 of the fiscal 

year preceding the fiscal year for which 

a Hospital IQR determination will be 

made. 

(2) Beginning with the FY 2016 

payment determination, May 15 of the 

fiscal year preceding the fiscal year for 

which a Hospital IQR payment 

determination will be made. 

* * * * * 

(f) Patient experience of care data 

(HCAHPS survey). HCAHPS is the 

Hospital Consumer Assessment of 

Healthcare Providers and Systems 

survey that measures patient experience 

of care after a recent hospital stay. 

(1) Approved HCAHPS survey 

vendors and self-administering 

hospitals must fully comply with all 

HCAHPS oversight activities, including 

allowing CMS and its HCAHPS Project 

Team to perform site visits at the 

hospitals’ and survey vendors’ company 

locations. 

(2) CMS approves an application for 

an entity to administer the HCAHPS 

survey as an approved HCAHPS survey 

vendor on behalf of one or more 

hospitals when an applicant has met the 

Minimum Survey Requirements and 

Rules of Participation listed in the most 

recently available version of the 

HCAHPS Quality Assurance Guidelines, 

available on the official HCAHPS OnLine Web site, and agree to comply with 

the survey administration protocols 

contained in the most recently available 

version of the HCAHPS Quality 

Assurance Guidelines and as updated 

through HCAHPS Bulletins and 

announcements on the official HCAHPS 

On-Line Web site. An entity must be an 

approved HCAHPS survey vendor in 

order to administer and submit 

HCAHPS data to CMS on behalf of one 

or more hospitals. 

■ 9. Section 412.150 is amended by 

adding paragraph (c) to read as follows: 

§ 412.150 Basis and scope of subpart. 

* * * * * 

(c) Section 1886(p) of the Act requires 

the Secretary to establish an adjustment 

to hospital payments for hospitalacquired conditions, or a HospitalAcquired Condition Reduction Program, 

under which payments to applicable 

hospitals are adjusted to provide an 

incentive to reduce hospital-acquired 

conditions, effective for discharges 

beginning on October 1, 2014. The rules 

for determining the payment adjustment 

under the Hospital-Acquired Condition 

Reduction Program are specified in 

§§ 412.170 and 412.172. 

■ 10. Section 412.152 is amended by 

revising the definition of ‘‘Base 

operating DRG payment amount’’ to 

read as follows: 

§ 412.152 Definitions for 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 § 412.162. 

This amount does not include any 

additional payments for indirect 

medical education under § 412.105, the 

treatment of a disproportionate share of 

low-income patients under § 412.106, 

outliers under subpart F of this part, and 

a low volume of discharges under 

§ 412.101. With respect to a sole 

community hospital that receives 

payments under § 412.92(d) or a 

Medicare-dependent, small rural 

hospital that receives payments under 

§ 412.108(c) for FY 2013, 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. 

With respect to a hospital that is paid 

under section 1814(b)(3) of the Act, this 

amount is an amount equal to the wage 

adjusted DRG payment amount plus 

new technology payments that would be 

paid to such hospitals, absent the 

provisions of section 1814(b)(3) of the 

Act. 

* * * * * 

■ 11. Section 412.154 is amended by 

revising paragraph (d)(2) to read as 

follows: 

§ 412.154 Payment adjustments under the 

Hospital Readmissions Reduction Program. 

* * * * * 

(d) * * * 

(2)(i) Maryland’s annual report to the 

Secretary and request for exemption 

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from the Hospital Readmissions 

Reduction Program must be resubmitted 

and reconsidered annually. 

(ii) Beginning with the FY 2015 

program year— 

(A) The State must submit a 

preliminary report to CMS no later than 

January 15 of each year for the Secretary 

to consider, through the annual 

proposed rule, its exemption from the 

Hospital Readmissions Reduction 

Program for the upcoming Federal fiscal 

year. 

(B) The State must submit a final 

report to CMS no later than June 1 of 

each year for the Secretary to consider, 

through the annual final rule, its 

exemption from the Hospital 

Readmissions Reduction Program in the 

upcoming Federal fiscal year. 

(C) The reports required under 

paragraphs (d)(2)(ii)(A) and (B) of this 

section must include information as 

specified by CMS. 

* * * * * 

■ 12. Section 412.160 is amended by 

revising the definitions of 

‘‘Achievement threshold’’ and 

‘‘Benchmark’’ to read as follows: 

§ 412.160 Definitions for the Hospital 

Value-Based Purchasing (VBP) Program. 

* * * * * 

Achievement threshold (or 

achievement performance standard) 

means the median (50th percentile) of 

hospital performance on a measure 

during a baseline period with respect to 

a fiscal year, for Hospital VBP Program 

measures other than the Medicare 

Spending per Beneficiary measure, and 

the (50th percentile) of hospital 

performance on a measure during the 

performance period with respect to a 

fiscal year, for the Medicare Spending 

per Beneficiary measure. 

* * * * * 

Benchmark means the arithmetic 

mean of the top decile of hospital 

performance on a measure during the 

baseline period with respect to a fiscal 

year, for Hospital VBP Program 

measures other than the Medicare 

Spending per Beneficiary measure, and 

the arithmetic mean of the top decile of 

hospital performance on a measure 

during the performance period with 

respect to a fiscal year, for the Medicare 

Spending per Beneficiary measure. 

* * * * * 

■ 13. An undesignated center heading 

and §§ 412.170 and 412.172 are added 

to subpart I to read as follows: 

Payment Adjustments under the 

Hospital-Acquired Condition Reduction 

Program 

§ 412.170 Definitions for the HospitalAcquired Condition Reduction Program. 

As used in this section and § 412.172, 

the following definitions apply: 

Applicable hospital is a hospital 

described in section 1886(d)(1)(B) of the 

Act (including a hospital in Maryland 

that is paid under the waiver under 

section 1814(b)(3) of the Act and that, 

absent the waiver specified by section 

1814(b)(3) of the Act, would have been 

paid under the hospital inpatient 

prospective payment system) as long as 

the hospital meets the criteria specified 

under § 412.172(e). 

Applicable period is, with respect to 

a fiscal year, the 2-year period (specified 

by the Secretary) from which data are 

collected in order to calculate the total 

hospital-acquired condition score under 

the Hospital-Acquired Condition 

Reduction Program. 

Hospital-acquired condition is a 

condition as described in section 

1886(d)(4)(D)(iv) of the Act and any 

other condition determined appropriate 

by the Secretary that an individual 

acquires during a stay in an applicable 

hospital, as determined by the 

Secretary. 

§ 412.172 Payment adjustments under the 

Hospital-Acquired Condition Reduction 

Program. 

(a) Scope. This section sets forth the 

requirements for determining the 

payment adjustments under the 

Hospital-Acquired Condition Reduction 

Program for hospitals that meet the 

criteria described under paragraph (e) of 

this section. 

(b) Payment adjustment. With respect 

to all discharges from an applicable 

hospital occurring during FY 2015 or a 

subsequent year, the amount of payment 

under this section, or section 1814(b)(3) 

of the Act as applicable, for such 

discharges during the fiscal year will be 

equal to 99 percent of the amount of 

payment that would otherwise apply to 

these discharges under this section or 

section 1814(b)(3) of the Act 

(determined after the application of the 

payment adjustment under the Hospital 

Readmissions Reduction Program under 

§ 412.154 and the adjustment made 

under the Hospital Value-Based 

Purchasing Program under § 412.162 

and section 1814(l)(4) of the Act but 

without regard to section 1886(p) of the 

Act). 

(c) Hospitals paid under section 

1814(b)(3) of the Act (certain Maryland 

hospitals). CMS will determine whether 

to exempt Maryland hospitals that are 

paid under section 1814(b)(3) of the Act 

and not under the hospital inpatient 

prospective payment system from the 

application of the payment adjustments 

under this section. The State must 

submit an annual report to CMS that 

describes how a similar program to 

reduce hospital-acquired conditions in 

that State achieves or surpasses the 

measured results in terms of health 

outcomes and cost savings for the 

Hospital-Acquired Conditions 

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 determine whether the State will be 

exempted from the application of the 

payment adjustments under this section 

for a given fiscal year. 

(2) Maryland’s annual report and 

request for exemption from the 

Hospital-Acquired Condition Reduction 

Program must be resubmitted and 

reconsidered annually. 

(d) Risk adjustment. In carrying out 

the provisions of paragraph (e) of this 

section, CMS will establish and apply 

an appropriate risk-adjustment 

methodology. 

(e) Criteria for applicable hospitals. 

(1) General. With respect to a subsection 

(d) hospital, CMS will identify the top 

quartile of all subsection (d) hospitals 

with respect to hospital-acquired 

conditions as measured during the 

applicable period. 

(2) Use of total hospital-acquired 

condition scores. CMS will use total 

hospital-acquired condition scores to 

identify applicable hospitals. CMs will 

identify the 25 percent of hospitals with 

the highest total scores. 

(3) Methodology for calculating total 

hospital-acquired condition scores. CMS 

will calculate the total hospital-acquired 

condition scores by weighing the 

selected measures according to the 

established methodology. 

(f) Reporting of hospital-specific 

information. CMS will make 

information available to the public 

regarding hospital-acquired condition 

rates of all hospitals under the HospitalAcquired Reduction Program. 

(1) CMS will provide each hospital 

with confidential hospital-specific 

reports and discharge level information 

used in the calculation of its total 

hospital-acquired condition score. 

(2) Hospitals will have a period of 30 

days after the receipt of the information 

provided under paragraph (f)(1) of this 

section to review and submit corrections 

for the hospital-acquired condition 

domain score for each condition that is 

used to calculate the score for the fiscal 

year. 

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Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 27759 

(3) The administrative claims data 

used to calculate a hospital’s total 

hospital-acquired condition score for 

the condition for a fiscal year are not 

subject to review and correction under 

paragraph (f)(2) of this section. 

(4) CMS will post the total hospitalacquired condition score for the 

applicable conditions for a fiscal year 

for each hospital on an appropriate Web 

site. 

(g) Limitations on review. There is no 

administrative or judicial review under 

§ 412.170 and this section for the 

following: 

(1) The criteria describing applicable 

hospitals. 

(2) The applicable period. 

(3) The specification of hospitalacquired conditions. 

(4) The provision of reports to 

hospitals and the information made 

available to the public. 

■ 14. Section 412.523 is amended by— 

■ a. Revising paragraph (c)(3) 

introductory text. 

■ b. Adding paragraph (c)(3)(x). 

■ c. Redesignating paragraph (c)(4) as 

paragraph (c)(5). 

■ d. Adding a new paragraph (c)(4). 

The additions read as follows: 

§ 412.523 Methodology for calculating the 

Federal prospective payment rates. 

* * * * * 

(c) * * * 

(3) Computation of the standard 

Federal rate. Subject to the provisions of 

paragraph (c)(4) of this section, the 

standard Federal rate is computed as 

follows: 

* * * * * 

(x) For long-term care hospital 

prospective payment system fiscal year 

beginning October 1, 2013, and ending 

September 30, 2014. The standard 

Federal rate for the long-term care 

hospital prospective payment system 

beginning October 1, 2013, and ending 

September 30, 2014, is the standard 

Federal rate for the previous long-term 

care hospital prospective payment 

system fiscal year updated by 1.8 

percent, and further adjusted, as 

appropriate, as described in paragraph 

(d) of this section. 

(4) For fiscal year 2014 and 

subsequent fiscal years—(i) In the case 

of a long-term care hospital that does 

not submit quality reporting data to 

CMS in the form and manner and at a 

time specified by the Secretary, the 

annual update to the standard Federal 

rate specified in paragraph (c)(3) of this 

section is further reduced by 2.0 

percentage points. 

(ii) Any reduction of the annual 

update to the standard Federal rate 

under paragraph (c)(4)(i) of this section 

will apply only to the fiscal year 

involved and will not be taken into 

account in computing the annual update 

to the standard Federal rate for a 

subsequent fiscal year. 

* * * * * 

PART 482—CONDITIONS OF 

PARTICIPATION FOR HOSPITALS 

■ 15. The authority citation for Part 482 

continues to read as follows: 

Authority: Secs. 1102, 1871, and 1881 of 

the Social Security Act (42 U.S.C. 1302, 

1395hh, and 1395rr), unless otherwise noted. 

■ 16. Section 482.23 is amended by 

revising paragraph (c)(3) introductory 

text to read as follows: 

§ 482.23 Condition of participation: 

Nursing services. 

* * * * * 

(c) * * * 

(3) With the exception of influenza 

and pneumococcal vaccines, which may 

be administered per physician-approved 

hospital policy after an assessment of 

contraindications, orders for drugs and 

biologicals must be documented and 

signed by a practitioner who is 

authorized to write orders in accordance 

with State law and hospital policy, and 

who is responsible for the care of the 

patient as specified under § 482.12(c). 

* * * * * 

PART 485—CONDITIONS OF 

PARTICIPATION: SPECIALIZED 

PROVIDERS 

■ 17. The authority citation for Part 485 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395(hh)). 

■ 18. Section 485.620 is amended by 

revising paragraph (a) to read as follows: 

§ 485.620 Condition of participation: 

Number of beds and length of stay. 

(a) Standard: Number of beds. Except 

as permitted for CAHs having distinct 

part units under § 485.647, the CAH 

maintains no more than 25 inpatient 

beds. Inpatient beds may be used for 

either inpatient or swing-bed services. 

* * * * * 

■ 19. Section 485.635 is amended by 

revising paragraphs (a)(3)(vii), (b)(1), 

and (c)(1) to read as follows: 

§ 485.635 Condition of participation: 

Provision of services. 

(a) * * * 

(3) * * * 

(vii) Procedures that ensure that the 

nutritional needs of inpatients are met 

in accordance with recognized dietary 

practices and the orders of the 

practitioner responsible for the care of 

the patients, and that the requirement of 

§ 483.25(i) of this chapter is met with 

respect to inpatients receiving 

posthospital SNF care. 

* * * * * 

(b) * * * 

(1) General: (i) The CAH provides 

those diagnostic and therapeutic 

services and supplies that are 

commonly furnished in a physician’s 

office or at another entry point into the 

health care delivery system, such as a 

low intensity hospital outpatient 

department or emergency department. 

These CAH services include medical 

history, physical examination, specimen 

collection, assessment of health status, 

and treatment for a variety of medical 

conditions. 

(ii) The CAH furnishes acute care 

inpatient services. 

* * * * * 

(c) * * * 

(1) The CAH has agreements or 

arrangements (as appropriate) with one 

or more providers or suppliers 

participating under Medicare to furnish 

other services to its patients, 

including— 

(i) Services of doctors of medicine or 

osteopathy; 

(ii) Additional or specialized 

diagnostic and clinical laboratory 

services that are not available at the 

CAH; and 

(iii) Food and other services to meet 

inpatients’ nutritional needs to the 

extent these services are not provided 

directly by the CAH. 

* * * * * 

PART 489—PROVIDER AGREEMENTS 

AND SUPPLIER APPROVAL 

■ 20. The authority citation for Part 489 

continues to read as follows: 

Authority: Secs. 1102 1819, 1820(E), 1861, 

1864(M), 1866, 1869, and 1871 of the Social 

Security Act (42 U.S.C. 1302, 1395i–3, 1395x, 

1395aa(m), 1395cc, 1395ff, and 1395(hh)). 

■ 21. In § 489.24, the paragraph (f) 

heading is revised to read as follows: 

§ 489.24 Special responsibilities of 

Medicare hospitals in emergency cases. 

* * * * * 

(f) Recipient hospital responsibilities. 

* * * 

* * * * * 

(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) 

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27760 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

Dated: April 24, 2013. 

Marilyn Tavenner, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Dated: April 25, 2013. 

Kathleen Sebelius, 

Secretary. 

Note: The following addendum and 

appendices 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, 2013 and Payment 

Rates for LTCHs Effective for 

Discharges Occurring on or After 

October 1, 2013 

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 2014 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 

2014. We note that, because certain hospitals 

excluded from the IPPS are paid on a 

reasonable cost basis subject to a rate-ofincrease 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-ofincrease 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, 

2013. 

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 2014. 

In general, except for SCHs and hospitals 

located in Puerto Rico, for FY 2014, 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 hospitalspecific rate based on FY 2006 costs per 

discharge. 

We note that section 606 of the American 

Taxpayer Relief Act of 2012 (ATRA) 

extended the MDH program from the end of 

FY 2012 (that is, for discharges occurring 

before October 1, 2012) to the end of FY 2013 

(that is, for discharges occurring before 

October 1, 2013). Under prior law, the MDH 

program was to be in effect through the end 

of FY 2012 only. Absent additional 

legislation further extending the MDH 

program, the MDH program will expire for 

discharges beginning in FY 2014. Therefore, 

due to the expiration of the MDH program 

beginning with FY 2014, we are not 

including hospitals that are currently MDHs 

(until October 1, 2013) in our update of the 

hospital-specific rates for FY 2014. 

For hospitals located in Puerto Rico, the 

payment per discharge is based on the sum 

of 25 percent of an updated Puerto Ricospecific 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 2014. In section III. of this 

Addendum, we discuss our proposed policy 

changes for determining the prospective 

payment rates for Medicare inpatient capitalrelated costs for FY 2014. In section IV. of 

this Addendum, we are setting forth our 

proposed changes for determining the rate-ofincrease limits for certain hospitals excluded 

from the IPPS for FY 2014. In section V. of 

this Addendum, we are proposing to make 

changes in the determination of the standard 

Federal rate for LTCHs paid under the LTCH 

PPS for FY 2014. 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 2014 

The basic methodology for determining 

prospective payment rates for hospital 

inpatient operating costs for acute care 

hospitals for FY 2005 and subsequent fiscal 

years is set forth under § 412.64. The basic 

methodology for determining the prospective 

payment rates for hospital inpatient 

operating costs for hospitals located in Puerto 

Rico for FY 2005 and subsequent fiscal years 

is set forth under §§ 412.211 and 412.212. 

Below we discuss the factors we are using for 

determining the proposed prospective 

payment rates for FY 2014. 

In summary, the standardized amounts set 

forth in Tables 1A, 1B, and 1C that are listed 

and published in section VI. of this 

Addendum (and available via the Internet) 

reflect— 

• Equalization of the standardized 

amounts for urban and other areas at the 

level computed for large urban hospitals 

during FY 2004 and onward, as provided for 

under section 1886(d)(3)(A)(iv)(II) of the Act. 

• The labor-related share that is applied to 

the standardized amounts and Puerto Ricospecific 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. 

• A proposed update of 1.8 percent for all 

areas (that is, the FY 2014 estimate of the 

market basket rate-of-increase of 2.5 percent 

less an adjustment of 0.4 percentage point for 

MFP and less 0.3 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 –0.2 percent (that is, the 

FY 2014 estimate of the market basket rateof-increase of 2.5 percent, less 2.0 percentage 

points for failure to submit data under the 

Hospital IQR Program, less an adjustment of 

0.4 percentage point for MFP, and less 0.3 

percentage point). 

• A proposed update of 1.8 percent to the 

Puerto Rico-specific standardized amount 

(that is, the FY 2014 estimate of the market 

basket rate-of-increase of 2.5 percent less an 

adjustment of 0.4 percentage point for MFP 

and less 0.3 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 

under section 1886(b)(3)(B)(i) of the Act. 

• An adjustment to the standardized 

amount to ensure budget neutrality for DRG 

recalibration and reclassification, as provided 

for under section 1886(d)(4)(C)(iii) of the Act. 

• An adjustment to ensure the wage index 

changes are budget neutral, as provided for 

under section 1886(d)(3)(E)(i) of the Act. We 

note that section 1886(d)(3)(E)(i) of the Act 

requires that when we compute such budget 

neutrality, we assume that the provisions of 

section 1886(d)(3)(E)(ii) of the Act (requiring 

a 62 percent labor-related share in certain 

circumstances) had not been enacted. 

• An adjustment to ensure the effects of 

geographic reclassification are budget 

neutral, as provided for under section 

1886(d)(8)(D) of the Act, by removing the FY 

2013 budget neutrality factor and applying a 

revised factor. 

• An adjustment to ensure the effects of 

the rural community hospital demonstration 

program 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 program 

for an additional 5 years, are budget neutral 

as required under section 410A(c)(2) of 

Public Law 108–173. 

• An adjustment to remove the FY 2013 

outlier offset and apply an offset for FY 2014, 

as provided for under section 1886(d)(3)(B) of 

the Act. 

• As discussed below and in section II.D. 

of the preamble of this proposed rule, a 

proposed recoupment to meet the 

requirements of section 631 of ATRA to 

adjust the standardized amount to offset the 

estimated amount of the increase in aggregate 

payments as a result of not completing the 

prospective adjustment authorized under 

section 7(b)(1)(A) of Public Law 110–90 until 

FY 2013. 

• As discussed below and in section V.N. 

of the preamble of this proposed rule, a 

proposed adjustment to offset the cost of the 

policy proposal on admission and medical 

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review criteria for hospital inpatient services 

under Medicare Part A. 

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 

2013, for FY 2014, consistent with current 

law, we are proposing to continue to apply 

the rural floor budget neutrality adjustment 

to hospital wage indices rather than the 

standardized amount. Also, consistent with 

section 3141 of the Affordable Care Act, 

instead of applying a State level rural floor 

budget neutrality adjustment to the wage 

index, we are proposing to apply a uniform, 

national budget neutrality adjustment to the 

proposed FY 2014 wage index for the rural 

floor. We note that, in section III.G.2.b. of the 

preamble to this proposed rule, we are 

proposing to extend the imputed floor policy 

(both the original methodology and 

alternative methodology) for one additional 

year, through September 30, 2014. 

Therefore, for this proposed rule, we are 

proposing to continue to include the imputed 

floor (calculated under the original and 

alternative methodologies) in calculating the 

uniform, national rural floor budget 

neutrality adjustment, which will be 

reflected in the proposed FY 2014 wage 

index. 

A. Calculation of the Proposed Adjusted 

Standardized Amount 

1. Standardization of Base-Year Costs or 

Target Amounts 

In general, the national standardized 

amount is based on per discharge averages of 

adjusted hospital costs from a base period 

(section 1886(d)(2)(A) of the Act), updated 

and otherwise adjusted in accordance with 

the provisions of section 1886(d) of the Act. 

For Puerto Rico hospitals, the Puerto Ricospecific 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 lowincome patients. 

In accordance with section 1886(d)(3)(E) of 

the Act, the Secretary estimates, from timeto-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 nonlaborrelated 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 2014, we are proposing to rebase 

and revise the national and Puerto Ricospecific labor-related and nonlabor-related 

shares from the percentages established for 

FY 2013. Specifically, under section 

1886(d)(3)(E) of the Act, the Secretary 

estimates from time to time the proportion of 

payments that are labor-related: ‘‘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 proportion of hospitals’ costs that are 

attributable to wages and wage-related costs 

as the ‘‘labor-related share.’’ For FY 2014, as 

discussed in section IV.B.4. of the preamble 

of this proposed rule, we are proposing a 

labor-related share of 69.6 percent for the 

national standardized amounts and 63.2 

percent for the Puerto Rico-specific 

standardized amount. Consistent with 

section 1886(d)(3)(E) of the Act, we are 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 69.6 percent of the national standardized 

amount. For FY 2014, all Puerto Rico 

hospitals have a proposed wage index less 

than 1.0 because the proposed average hourly 

rate of every hospital in Puerto Rico divided 

by the proposed national average hourly rate 

(the sum of all salaries and hours for all 

hospitals in the 50 United States and Puerto 

Rico) results in a proposed wage index below 

1.0000. Therefore, the national labor-related 

share would be 62 percent because the 

proposed wage index for all Puerto Rico 

hospitals is less than 1.0. 

When we divide the proposed average 

hourly rate of every hospital in Puerto Rico 

by the proposed Puerto Rico-Specific 

national average hourly rate (the sum of all 

salaries and hours for all hospitals only in 

Puerto Rico), we determine a proposed 

Puerto Rico Specific wage index above or 

below 1.0000, depending on the hospital. For 

hospitals located in Puerto Rico, we are 

proposing to apply a labor-related share of 

63.2 percent if its Puerto Rico-specific wage 

index is greater than 1.0000. For hospitals 

located in Puerto Rico whose Puerto Ricospecific wage index values are less than or 

equal to 1.0000, we are proposing to apply 

a labor share of 62 percent. 

The proposed standardized amounts for 

operating costs appear in Tables 1A, 1B, and 

1C that are listed and published in section 

VI. of the Addendum to this proposed rule 

and are available via the Internet. 

2. Computing the 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 proposed FY 2014 

national standardized amount and Puerto 

Rico-specific rate irrespective of whether a 

hospital is located in an urban or rural 

location. 

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. We 

note that, in compliance with section 404 of 

the MMA, in this proposed rule, we are 

proposing to replace the FY 2006-based IPPS 

operating and capital market baskets with the 

revised and rebased FY 2010-based IPPS 

operating and capital market baskets for FY 

2014. As discussed in section V.A. 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 2014 applicable 

percentage increase (which is based on the 

first quarter 2013 forecast of the FY 2010- 

based IPPS market basket) by the proposed 

MFP adjustment (the 10-year moving average 

of MFP for the period ending FY 2014) of 0.4 

percent, which is calculated based on IHS 

Global Insight, Inc.’s (IGI’s) first quarter 2013 

forecast. 

In addition, in accordance with section 

1886(b)(3)(B)(i) of the Act, as amended by 

sections 3401(a) and 10319(a) of the 

Affordable Care Act, we are proposing to 

further update the standardized amount for 

FY 2014 by the estimated market basket 

percentage increase less 0.3 percentage point 

for hospitals in all areas. Sections 

1886(b)(3)(B)(xi) and (xii) of Act, as added 

and amended by sections 3401(a) and 

10319(a) of the Affordable Care Act, further 

state that these adjustments may result in the 

applicable percentage increase being less 

than zero. The percentage increase in the 

market basket reflects the average change in 

the price of goods and services comprising 

routine, ancillary, and special care unit 

hospital inpatient services. Based on IGI’s 

2013 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 2014 is 2.5 percent. Thus, for 

FY 2014, the proposed update to the average 

standardized amount is 1.8 percent for 

hospitals in all areas (that is, the FY 2014 

estimate of the market basket rate-of-increase 

of 2.5 percent less a proposed adjustment of 

0.4 percentage point for MFP and less 0.3 

percentage point). For hospitals that do not 

submit quality data pursuant to section 

1886(b)(3)(B)(viii) of the Act, the estimated 

update to the proposed operating 

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27762 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

standardized amount is ¥0.2 percent (that is, 

the FY 2014 estimate of the market basket 

rate-of-increase of 2.5 percent, less 2.0 

percentage points for failure to submit data 

under the Hospital IQR Program, less a 

proposed adjustment of 0.4 percentage point 

for MFP, and less 0.3 percentage point). The 

proposed standardized amounts in Tables 1A 

through 1C that are published in section VI. 

of this Addendum and that are available via 

the Internet reflect these differential 

amounts. 

Section 401(c) of 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 

under section 1886(b)(3)(B)(i) of the Act, as 

amended by sections 3401(a) and 10319(a) of 

the Affordable Care Act (that is, the same 

update factor as for all other hospitals subject 

to the IPPS). Accordingly, we are proposing 

an applicable percentage increase to the 

Puerto Rico-specific standardized amount of 

1.8 percent. 

Although the update factors for FY 2014 

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 2014 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 2014 standardized amount to remove 

the effects of the FY 2013 geographic 

reclassifications and outlier payments before 

applying the proposed FY 2014 updates. We 

then apply budget neutrality offsets for 

outliers and geographic reclassifications to 

the standardized amount based on proposed 

FY 2014 payment policies. 

We do not remove the prior year’s budget 

neutrality adjustments for reclassification 

and recalibration of the DRG relative weights 

and for updated wage data because, in 

accordance with sections 1886(d)(4)(C)(iii) 

and 1886(d)(3)(E) of the Act, estimated 

aggregate payments after updates in the DRG 

relative weights and wage index should equal 

estimated aggregate payments prior to the 

changes. If we removed the prior year’s 

adjustment, we would not satisfy these 

conditions. 

Budget neutrality is determined by 

comparing aggregate IPPS payments before 

and after making changes that are required to 

be budget neutral (for example, changes to 

MS–DRG classifications, recalibration of the 

MS–DRG relative weights, updates to the 

wage index, and different geographic 

reclassifications). We include outlier 

payments in the simulations because they 

may be affected by changes in these 

parameters. 

In order to appropriately estimate aggregate 

payments in our modeling, we make several 

inclusions and exclusions so that the 

appropriate universe of claims and charges 

are included. We discuss IME Medicare 

Advantage payment amounts, fee-for-service 

only claims, and charges for anti-hemophilic 

blood factor and organ acquisition below. 

First, consistent with our methodology 

established in the FY 2011 IPPS/LTCH PPS 

final rule (75 FR 50422 through 50433), 

because IME Medicare Advantage payments 

are made to IPPS hospitals under section 

1886(d) of the Act, we believe these 

payments must be part of these budget 

neutrality calculations. However, we note 

that it is not necessary to include Medicare 

Advantage IME payments in the outlier 

threshold calculation or the outlier offset to 

the standardized amount because the statute 

requires that outlier payments be not less 

than 5 percent nor more than 6 percent of 

total ‘‘operating DRG payments,’’ which does 

not include IME and DSH payments. We refer 

readers to the FY 2011 IPPS/LTCH PPS final 

rule for a complete discussion on our 

methodology of identifying and adding the 

total Medicare Advantage IME payment 

amount to the budget neutrality adjustments. 

Second, consistent with the methodology 

in the FY 2012 IPPS/LTCH PPS final rule, in 

order to ensure that we capture only fee-forservice claims, we are only including claims 

with a ‘‘Claim Type’’ of 60 (which is a field 

on the MedPAR file that indicates a claim is 

a fee-for-service claim). 

Third, consistent with our methodology 

established in the FY 2011 IPPS/LTCH PPS 

final rule (75 FR 50422 through 50423), we 

examined the MedPAR file and removed 

pharmacy charges for anti-hemophilic blood 

factor (which are paid separately under the 

IPPS) with an indicator of ‘‘3’’ for blood 

clotting with a revenue code of ‘‘0636’’ from 

the covered charge field for the budget 

neutrality adjustments. We also removed 

organ acquisition charges from the covered 

charge field for the budget neutrality 

adjustments because organ acquisition is a 

pass-through payment not paid under the 

IPPS. 

The Bundled Payments for Care 

Improvement (BPCI) initiative, developed 

under the authority of section 3021 of the 

Affordable Care Act (codified at section 

1115A of the Act), is comprised of four 

broadly defined models of care, which link 

payments for multiple services beneficiaries 

receive during an episode of care. Under the 

BPCI initiative, organizations enter into 

payment arrangements that include financial 

and performance accountability for episodes 

of care. On January 31, 2013, CMS 

announced the health care organizations 

selected to participate in the BPCI initiative. 

For additional information on the BPCI 

initiative, we refer readers to the CMS Center 

for Medicare and Medicaid Innovation’s Web 

site at: http://innovation.cms.gov/initiatives/ 

Bundled-Payments/index.html. 

In the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53341 through 53343), for FY 2013 

and subsequent fiscal years, we finalized a 

methodology to treat hospitals that 

participate in the BPCI initiative the same as 

prior fiscal years for the IPPS payment 

modeling and rate setting process (which 

includes recalibration of the MS–DRG 

relative weights, ratesetting, calculation of 

the budget neutrality factors, and the impact 

analysis) without regard to a hospital’s 

participation within these bundled payment 

models (that is, as if they are not 

participating in those models under the BPCI 

initiative). Therefore, for FY 2014, we are 

continuing to include all applicable data 

from subsection (d) hospitals participating in 

BPCI Models 1, 2, and 4 in our IPPS payment 

modeling and ratesetting calculations. We 

refer the reader to the FY 2013 IPPS/LTCH 

PPS final rule for a complete discussion on 

our final policy for the treatment of hospitals 

in the BPCI initiative in our rate setting 

process. 

The Affordable Care Act established the 

Hospital Readmissions Reduction Program 

and the Hospital VBP Program which adjust 

payments to certain IPPS hospitals beginning 

with discharges on or after October 1, 2012. 

Because the adjustments made under these 

programs affect the estimation of aggregate 

IPPS payments, in this proposed rule, 

consistent with our methodology established 

in the FY 2013 IPPS/LTCH PPS final rule (77 

FR 53687 through 53688), we believe it is 

appropriate to include adjustments for these 

programs within our budget neutrality 

calculations. We discuss the treatment of 

these two programs in the context of budget 

neutrality adjustments below. 

Section 1886(q) of the Act establishes the 

‘‘Hospital Readmissions Reduction Program’’ 

effective for discharges from an ‘‘applicable 

hospital’’ beginning on or after October 1, 

2012, under which payments to those 

hospitals under section 1886(d) of the Act are 

reduced to account for certain excess 

readmissions. Under the Hospital 

Readmissions Reduction Program, for 

discharges beginning on October 1, 2012 

discharges from an ‘‘applicable hospital’’ are 

paid at an amount equal to the product of the 

‘‘base operating DRG payment amount’’ and 

an ‘‘adjustment factor’’ that accounts for 

excess readmissions for the hospital for the 

fiscal year plus any applicable add-on 

payments. We refer readers to section V.G. of 

the preamble of this proposed rule for full 

details of our implementation of the Hospital 

Readmissions Reduction Program. We also 

note that the Hospital Readmissions 

Reduction Program provided for under 

section 1886(q) of the Act is not budget 

neutral. 

Section 1886(o) of the Act requires the 

Secretary to establish a Hospital VBP 

Program under which, for discharges 

beginning on October 1, 2012, value-based 

incentive payments are made in a fiscal year 

to eligible subsection (d) hospitals that meet 

performance standards established for a 

performance period for that fiscal year. As 

specified under section 1886(o)(7)(B)(i) of the 

Act, these value-based incentive payments 

are funded by a reduction applied to each 

eligible hospital’s base-operating DRG 

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payment amount, for each discharge 

occurring in the fiscal year. As required by 

section 1886(o)(7)(A) of the Act, the total 

amount of allocated funds available for 

value-based incentive payments with respect 

to a fiscal year is equal to the total amount 

of base-operating DRG payment reductions, 

as estimated by the Secretary. In a given 

fiscal year, hospitals may earn a value-based 

incentive payment amount for a fiscal year 

that is greater than, equal to, or less than the 

reduction amount, based on their 

performance on quality measures under the 

Hospital VBP Program. Thus, the Hospital 

VBP Program is estimated to have no net 

effect on overall payments. We refer readers 

to section V.H. of the preamble of this 

proposed rule for full details regarding the 

Hospital VBP Program. 

Both the hospital readmissions payment 

adjustment (reduction) and the hospital VBP 

payment adjustment (redistribution) are 

applied on a claim-by-claim basis by 

adjusting, as applicable, the base-operating 

DRG payment amount for individual 

subsection (d) hospitals, which affects the 

overall sum of aggregate payments on each 

side of the comparison within the budget 

neutrality calculations. For example, when 

we calculate the budget neutrality factor for 

MS–DRG reclassification and recalibration of 

the relative weights, we compare aggregate 

payments estimated using the prior year’s 

GROUPER and relative weights to estimated 

payments using the new GROUPER and 

relative weights. (We refer readers to section 

II.4.a. of this Addendum for full details.) 

Other factors, such as the DSH and IME 

payment adjustments, are the same on both 

sides of the comparison because we are only 

seeking to ensure that aggregate payments do 

not increase or decrease as a result of the 

changes of MS–DRG reclassification and 

recalibration. 

In order to properly determine aggregate 

payments on each side of the comparison, for 

FY 2014 and subsequent years, we are 

proposing to continue to apply the hospital 

readmissions payment adjustment and the 

hospital VBP payment adjustment on each 

side of the comparison consistent with the 

methodology we adopted in the FY 2013 

IPPS/LTCH PPS final rule (77 FR 53687 

through 53688). That is, we are proposing to 

apply the readmissions payment adjustment 

factor and the hospital VBP payment 

adjustment factor on both sides of our 

comparison of aggregate payments when 

determining all budget neutrality factors 

described in section II.A.4. of this 

Addendum. 

For the purpose of calculating the 

proposed FY 2014 readmissions payment 

adjustment factors, we are proposing to use 

excess readmission ratios and aggregate 

payments for excess readmissions based on 

admissions from the prior fiscal year’s 

applicable period because hospitals have had 

the opportunity to review and correct these 

data before the data were made public under 

the policy we adopted regarding the 

reporting of hospital-specific readmission 

rates, consistent with section 1886(q)(6) of 

the Act. The data from the proposed 

applicable period for FY 2014 have not yet 

been through the review and correction 

process required by section 1886(q)(6) of the 

Act. For the final rule, we intend to calculate 

the readmissions payment adjustment factors 

using excess readmission ratios and aggregate 

payments for excess readmissions based on 

admissions from the finalized applicable 

period for FY 2014 as hospitals will have had 

the opportunity to review and correct these 

data before the data are made public under 

our policy regarding the reporting of 

hospital-specific readmission rates consistent 

with section 1886(q)(6) of the Act. We 

discuss our proposed policy regarding the 

reporting of hospital-specific readmission 

rates for FY 2014 in section V.G.3.f. of the 

preamble of this proposed rule. (For 

additional information on our general policy 

for the reporting of hospital-specific 

readmission rates, consistent with section 

1886(q)(6) of the Act, we refer readers to the 

FY 2013 IPPS/LTCH PPS final rule (77 FR 

53399 through 53400).) 

In addition, for this proposed rule, for the 

purpose of modeling aggregate payments 

when determining all budget neutrality 

factors, we are proposing to use proposed 

hospital VBP payment adjustment factors for 

FY 2014 that are based on data from a 

historical period because hospitals have not 

yet had an opportunity to review and submit 

corrections for their data from the FY 2014 

performance period. (For additional 

information on our policy regarding the 

review and correction of hospital-specific 

measure rates under the Hospital VBP 

Program, consistent with section 

1886(o)(10)(A)(ii) of the Act, we refer readers 

to the FY 2013 IPPS/LTCH PPS final rule (77 

FR 53578 through 53581), the CY 2012 

OPPS/ASC final rule with comment period 

(76 FR 74544 through 74547), and the 

Hospital Inpatient VBP final rule (76 FR 

26534 through 26536).) 

The Affordable Care Act also establishes a 

new section 1886(r) of the Act that modified 

the methodology for computing the Medicare 

DSH payment adjustment beginning in FY 

2014. Beginning in FY 2014, IPPS hospitals 

receiving DSH adjustments will receive 25 

percent of the amount they previously would 

have received under the current statutory 

formula for Medicare DSH payments. In 

accordance with section 1886(r)(2) of the Act, 

the remaining amount, equal to an estimate 

of 75 percent of what otherwise would have 

been paid as Medicare DSH payments, 

reduced to reflect changes in the percentage 

of individuals under age 65 who are 

uninsured, will be available to make 

additional payments to Medicare DSH 

hospitals based on their share of the total 

amount of uncompensated care reported by 

Medicare DSH hospitals for a given time 

period. In order to properly determine 

aggregate payments on each side of the 

comparison for budget neutrality, prior to 

FY2014, we included estimated Medicare 

DSH payments on both sides of our 

comparison of aggregate payments when 

determining all budget neutrality factors 

described in section II.A.4. of this 

Addendum. 

To do this for FY 2014 and subsequent 

years, we are proposing to include estimated 

DSH payments that will be paid in 

accordance with section 1886(r)(1) of the Act 

and also to include estimates of the 

additional payments made to hospitals 

receiving Medicare DSH as described by 

section 1886(r)(2) of the Act. That is, we are 

proposing to include estimated Medicare 

DSH payments at 25 percent of what would 

otherwise be paid and also the estimated 

additional payments for hospitals receiving 

Medicare DSH on both sides of our 

comparison of aggregate payments when 

determining all budget neutrality factors 

described in section II.A.4. of this 

Addendum. 

a. Proposed Recalibration of MS–DRG 

Relative Weights and Updated Wage Index— 

Budget Neutrality Adjustment 

Section 1886(d)(4)(C)(iii) of the Act 

specifies that, beginning in FY 1991, the 

annual DRG reclassification and recalibration 

of the relative weights must be made in a 

manner that ensures that aggregate payments 

to hospitals are not affected. As discussed in 

section II.H. of the preamble of this proposed 

rule, we normalized the recalibrated MS– 

DRG relative weights by an adjustment factor 

so that the average case relative weight after 

recalibration is equal to the average case 

relative weight prior to recalibration. 

However, equating the average case relative 

weight after recalibration to the average case 

relative weight before recalibration does not 

necessarily achieve budget neutrality with 

respect to aggregate payments to hospitals 

because payments to hospitals are affected by 

factors other than average case relative 

weight. Therefore, as we have done in past 

years, we are proposing to make a budget 

neutrality adjustment to ensure that the 

requirement of section 1886(d)(4)(C)(iii) of 

the Act is met. 

Section 1886(d)(3)(E)(i) of the Act requires 

us to update the hospital wage index on an 

annual basis beginning October 1, 1993. This 

provision also requires us to make any 

updates or adjustments to the wage index in 

a manner that ensures that aggregate 

payments to hospitals are not affected by the 

change in the wage index. Section 

1886(d)(3)(E)(i) of the Act requires that we 

implement the wage index adjustment in a 

budget neutral manner. However, section 

1886(d)(3)(E)(ii) of the Act sets the laborrelated 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 wage 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 2014, we are proposing to adjust 100 

percent of the wage index factor for 

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occupational mix. We describe the 

occupational mix adjustment in section III.F. 

of the preamble of this proposed rule. 

For FY 2014, to comply with the 

requirement that MS–DRG reclassification 

and recalibration of the relative weights be 

budget neutral for the Puerto Rico 

standardized amount and the hospitalspecific rates, we used FY 2012 discharge 

data to simulate payments and compared 

aggregate payments using the FY 2013 laborrelated share percentages, the FY 2013 

relative weights, and the FY 2013 prereclassified wage data and applied the 

proposed FY 2014 hospital readmissions 

payment adjustments and estimated FY 2014 

hospital VBP payment adjustments to 

aggregate payments using the FY 2013 laborrelated share percentages, the proposed FY 

2014 relative weights, and the FY 2013 prereclassified wage data and applied the same 

hospital readmissions payment adjustments 

and estimated hospital VBP payment 

adjustments. Based on this comparison, we 

computed a proposed budget neutrality 

adjustment factor equal to 0.997583. As 

discussed in section IV. of this Addendum, 

we also are proposing to apply the proposed 

MS–DRG reclassification and recalibration 

budget neutrality factor of 0.997583 to the 

hospital-specific rates that are effective for 

cost reporting periods beginning on or after 

October 1, 2013. 

In order to meet the statutory requirements 

that we do not take into account the laborrelated share of 62 percent when computing 

wage index budget neutrality, it was 

necessary to use a three-step process to 

comply with the requirements that MS–DRG 

reclassification and recalibration of the 

relative weights and the updated wage index 

and labor-related share have no effect on 

aggregate payments for IPPS hospitals. We 

first determined a proposed MS–DRG 

reclassification and recalibration budget 

neutrality factor of 0.997583 (by using the 

same methodology described above to 

determine the proposed MS–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 2012 

discharge data to simulate payments and 

compared aggregate payments using the 

proposed FY 2014 relative weights and the 

FY 2013 pre-reclassified wage indices, 

applied the FY 2013 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 proposed FY 

2014 hospital readmissions payment 

adjustment and the FY 2014 estimated 

hospital VBP payment adjustment when 

estimating aggregate payments using the 

proposed FY 2014 relative weights and the 

proposed FY 2014 pre-reclassified wage 

indices, applied the proposed labor-related 

share for FY 2014 of 69.6 percent to all 

hospitals (regardless of whether the 

hospital’s wage index was above or below 

1.0), and applied the same proposed FY 2014 

hospital readmissions payment adjustments 

and estimated FY 2014 hospital VBP 

payment adjustments. In addition, we 

applied the proposed MS–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 2013 to FY 2014. By applying this 

methodology, we determined a proposed 

budget neutrality factor of 0.999766 for 

changes to the wage index. Finally, we 

multiplied the proposed MS–DRG 

reclassification and recalibration budget 

neutrality factor of 0.997583 (derived in the 

first step) by the proposed budget neutrality 

factor of 0.999766 for changes to the wage 

index (derived in the second step) to 

determine the proposed MS–DRG 

reclassification and recalibration and 

updated wage index budget neutrality factor 

of 0.99735. 

b. Reclassified Hospitals—Budget Neutrality 

Adjustment 

Section 1886(d)(8)(B) of the Act provides 

that certain rural hospitals are deemed urban. 

In addition, section 1886(d)(10) of the Act 

provides for the reclassification of hospitals 

based on determinations by the MGCRB. 

Under section 1886(d)(10) of the Act, a 

hospital may be reclassified for purposes of 

the wage index. 

Under section 1886(d)(8)(D) of the Act, the 

Secretary is required to adjust the 

standardized amount to ensure that aggregate 

payments under the IPPS after 

implementation of the provisions of sections 

1886(d)(8)(B) and (C) and 1886(d)(10) of the 

Act are equal to the aggregate prospective 

payments that would have been made absent 

these provisions. We note that the wage 

index adjustments provided for under section 

1886(d)(13) of the Act are not budget neutral. 

Section 1886(d)(13)(H) of the Act provides 

that any increase in a wage index under 

section 1886(d)(13) shall not be taken into 

account in ‘‘applying any budget neutrality 

adjustment with respect to such index’’ 

under section 1886(d)(8)(D) of the Act. To 

calculate the proposed budget neutrality 

factor for FY 2014, we used FY 2012 

discharge data to simulate payments and 

compared total IPPS payments with proposed 

FY 2014 relative weights, proposed FY 2014 

labor-related share percentages, and 

proposed FY 2014 wage data prior to any 

reclassifications under sections 1886(d)(8)(B) 

and (C) and 1886(d)(10) of the Act and 

applied the proposed FY 2014 hospital 

readmissions payment adjustments and the 

estimated FY 2014 hospital VBP payment 

adjustments to total IPPS payments with 

proposed FY 2014 relative weights, proposed 

FY 2014 labor-related share percentages, and 

proposed FY 2014 wage data after such 

reclassifications and applied the same 

hospital readmissions payment adjustments 

and the estimated hospital VBP payment 

adjustments. Based on these simulations, we 

calculated a proposed adjustment factor of 

0.990971 to ensure that the effects of these 

provisions are budget neutral, consistent 

with the statute. 

The proposed FY 2014 budget neutrality 

adjustment factor is applied to the 

standardized amount after removing the 

effects of the FY 2013 budget neutrality 

adjustment factor. We note that the proposed 

FY 2014 budget neutrality adjustment reflects 

proposed FY 2014 wage index 

reclassifications approved by the MGCRB or 

the Administrator. 

c. Proposed Rural 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 IPPS/LTCH PPS final 

rule, we extended the imputed floor 

calculated under the original methodology 

through FY 2013 (76 FR 51594). In the FY 

2013 IPPS/LTCH PPS final rule, we 

established an alternative methodology for 

calculating the imputed floor and established 

a policy that the minimum wage index value 

for an all-urban state would be the higher of 

the value determined under the original 

methodology or the value computed using 

the alternative methodology (77 FR 53368 

through 53369). 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 § 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 to extend the imputed 

floor using the higher of the value 

determined under the original methodology 

or the alternative methodology for FY 2014. 

Consistent with the methodology for treating 

the imputed floor, similar to the methodology 

we used in the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53368 through 53369), we 

included this alternative methodology for 

computing the imputed floor index in the 

calculation of the uniform, national rural 

floor budget neutrality adjustment for FY 

2014. Also, consistent with section 3141 of 

the Affordable Care Act and as discussed in 

section III.G. 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 has been one hospital 

in rural Puerto Rico. Therefore, similar to our 

calculation in the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51593 and 51788) and the 

FY 2013 IPPS/LTCH PPS final rule (77 FR 

53689), for FY 2014, 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 located 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 located 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 regarding the 

computation of the rural Puerto Rico wage 

index can be found in the FY 2012 IPPS/ 

LTCH PPS final rule (76 FR 51594). 

To calculate the proposed national rural 

floor and imputed floor budget neutrality 

adjustment factor and the proposed Puerto 

Rico-specific rural floor budget neutrality 

adjustment factor, we used FY 2012 

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discharge data and proposed FY 2014 postreclassified 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 the national and Puerto Rico-specific 

simulated payments with the national rural 

floor and imputed floor and Puerto Ricospecific rural floor applied to determine the 

proposed national rural budget neutrality 

adjustment factor of 0.990189 and the 

proposed Puerto Rico-specific budget 

neutrality adjustment factor of 0.990877. The 

national adjustment is applied to the national 

wage indices to produce a national rural floor 

budget neutral wage index and the Puerto 

Rico-specific adjustment is 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 

recoupment adjustment to the FY 2014 

payment rates, as required by section 631 of 

ATRA, to account for the increase in 

aggregate payments as a result of not 

completing the prospective adjustment 

authorized under section 7(b)(1)(A) of Public 

Law 110–90 until FY 2013. We refer readers 

to section II.D. of the preamble of this 

proposed rule for a complete discussion 

regarding our proposals and previously 

finalized policies (including our historical 

adjustments to the payment rates) relating to 

the effect of changes in documentation and 

coding that do not reflect real changes in 

case-mix. We note that section II.D. of the 

preamble of this proposed rule also includes 

a discussion on documentation and coding 

effects that occurred through FY 2010, 

including a request for public comments as 

to whether any portion of the proposed ¥0.8 

percent recoupment adjustment discussed 

below should be reduced and instead applied 

as a prospective adjustment for the 

cumulative MS–DRG documentation and 

coding effect through FY 2010. 

(1) Recoupment or Repayment Adjustment 

Authorized by Section 631 of the American 

Taxpayer Relief Act of 2012 (ATRA) to the 

National Standardized Amount 

Section 631 of the ATRA amended section 

7(b)(1)(B) of Public Law 110–90 to require the 

Secretary to make a recoupment adjustment 

totaling $11 billion by FY 2017. Our actuaries 

estimate that if CMS were to fully account for 

the $11 billion recoupment required by 

section 631 of ATRA in FY 2014, a one time 

¥9.3 percent adjustment to the standardized 

amount would be necessary. It is often our 

practice to delay or phase in 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, we 

are proposing a ¥0.8 percent adjustment to 

the standardized amount in FY 2014. We 

note that, as section 631 of the ATRA 

instructs CMS to make a recoupment 

adjustment only to the standardized amount, 

this proposed adjustment would not apply to 

the Puerto Rico-specific rate. 

e. Proposed Adjustment To Offset the Cost of 

the Policy Proposal on Admission and 

Medical Review Criteria for Hospital 

Inpatient Services Under Medicare Part A 

In the Medicare Part B Inpatient Billing in 

Hospitals proposed rule that went on display 

at the Office of the Federal Register on March 

13, 2013, and that appeared in the Federal 

Register on March 18, 2013 (78 FR 16632), 

we proposed to revise our Part B inpatient 

billing policy to allow payment of all 

hospital services that were furnished and 

would have been reasonable and necessary if 

the beneficiary had been treated as an 

outpatient, rather than admitted to the 

hospital as an inpatient, except for those 

services specifically requiring an outpatient 

status. This policy would apply when CMS 

or a Medicare review contractor determines 

that the hospital admission was not 

reasonable and necessary or when a hospital 

determines after a beneficiary has been 

discharged that the beneficiary should have 

received hospital outpatient services rather 

than hospital inpatient services. We also 

proposed to continue applying the timely 

filing restriction to the billing of all Part B 

inpatient services, under which claims for 

Part B services must be filed within 1 year 

from the date of service. As we discuss in 

section V.N. of the preamble to this proposed 

rule, in addition to evaluating our policy 

related to Part B inpatient billing following 

denials of Part A inpatient claims on the 

basis that the inpatient admission was not 

reasonable and necessary or following selfaudit, we also believe it is important to 

consider whether we can provide more 

clarity regarding the relationship between 

inpatient admission decisions and Medicare 

payment. Toward that end, in section V.N.3. 

of the preamble of this proposed rule, we 

present a proposal that would clarify that a 

beneficiary becomes a hospital inpatient 

when formally admitted following the 

physician order for hospital inpatient 

admission, and would also clarify when we 

believe hospital inpatient admissions are 

reasonable and necessary based on how long 

beneficiaries have spent, or are reasonable 

expected to spend, in the hospital as 

inpatients. Under this proposal, Medicare’s 

external review contractors would presume 

that hospital inpatient admissions are 

reasonable and necessary for beneficiaries 

who require more than one Medicare 

utilization day (defined by encounters 

crossing 2 ‘‘midnights’’) in the hospital 

receiving medically necessary services. 

Similarly, we would presume that generally 

services spanning less than 2 midnights 

should have been provided on an outpatient 

basis, unless there is clear physician 

documentation in the medical record 

supporting the physician’s order and 

expectation that the beneficiary required an 

inpatient level of care. (For a complete 

discussion on our proposed inpatient 

admission guidelines, including our 

proposed time-based presumption of medical 

necessity for hospital inpatient services 

based on the beneficiary’s length of stay as 

part of our medical review criteria for 

payment of hospital inpatient services under 

Medicare Part A, we refer readers to section 

V.N.3 of this proposed rule.) 

Our actuaries project a net increase in IPPS 

expenditures as a result of the proposed 

policy that medical review of inpatient 

admissions will include a presumption that 

hospital inpatient admissions are reasonable 

and necessary for beneficiaries who require 

more than 1 Medicare utilization day 

(defined by encounters crossing 2 

‘‘midnights’’) in the hospital receiving 

medically necessary services, discussed in 

section V.N.3. of the preamble of this 

proposed rule (as summarized above). These 

additional expenditures result from an 

expected net increase in hospital inpatient 

encounters due to some encounters spanning 

more than 2 midnights moving to the IPPS 

from the OPPS, and some encounters of less 

than 2 midnights moving from the IPPS to 

the OPPS. In making this projection, the 

actuaries analyzed Medicare claims data for 

extended hospital outpatient encounters and 

shorter stay hospital inpatient encounters, 

and estimated the number of encounters that 

are expected to shift from outpatient to 

inpatient and vice versa (that is, the number 

that are expected to shift from inpatient to 

outpatient). In section V.N.5. of the preamble 

of this proposed rule, we discuss that our 

actuaries estimate that this projected net 

increase in inpatient encounters would 

increase IPPS expenditures by approximately 

$220 million. In light of the widespread 

impact on the IPPS of the proposed policy 

and the systemic nature of the issue, we 

believe it is appropriate to use our exceptions 

and adjustments authority under section 

1886(d)(5)(I)(i) of the Act to offset the 

estimated $220 million in additional IPPS 

expenditures associated with this proposed 

policy by proposing to reduce the national 

standardized amount, the Puerto Ricospecific standardized amount, and hospitalspecific rates by 0.2 percent (or 0.998 

adjustment). We refer readers to section 

V.N.4. of the preamble of this proposed rule 

for a complete discussion on this proposed 

adjustment to offset the estimated cost of the 

proposed time-based presumption of medical 

necessity for hospital inpatient services 

based on the beneficiary’s length of stay as 

part of our medical review criteria for 

hospital inpatient services under Medicare 

Part A. 

f. Proposed Rural Community Hospital 

Demonstration Program Adjustment 

As discussed in section V.K. of the 

preamble to this proposed rule, section 410A 

of Public Law 108–173 originally required 

the Secretary to establish a demonstration 

program that modifies reimbursement for 

inpatient services for up to 15 small rural 

hospitals. Section 410A(c)(2) of Public Law 

108–173 requires that ‘‘[i]n conducting the 

demonstration program under this section, 

the Secretary shall ensure that the aggregate 

payments made by the Secretary do not 

exceed the amount which the Secretary 

would have paid if the demonstration 

program under this section was not 

implemented.’’ 

Sections 3123 and 10313 of the Affordable 

Care Act extended the demonstration 

program for an additional 5-year period, and 

allowed up to 30 hospitals to participate in 

20 States with low population densities 

determined by the Secretary. (In determining 

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which States to include in the expansion, the 

Secretary is required to use the same criteria 

and data that the Secretary used to determine 

the States for purposes of the initial 5-year 

period.) In the FY 2013 IPPS/LTCH PPS final 

rule (77 FR 53449 through 53453), in order 

to achieve budget neutrality, we adjusted the 

national IPPS rates by an amount sufficient 

to account for the added costs of this 

demonstration program 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 program, 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 2014, for the 23 hospitals 

participating in the demonstration program, 

we are proposing to adjust the national IPPS 

payment rates according to the same 

methodology that we used for FY 2013, as set 

forth in section V.K. of the preamble of this 

proposed rule. For this proposed rule, the 

estimated amount for the proposed 

adjustment to the national IPPS payment 

rates for FY 2014 is $46,515,865. (The 

estimated amount for the adjustment to the 

national IPPS payment rates for FY 2013 was 

$34,288,129.) Accordingly, to account for the 

estimated costs of the demonstration 

program, for FY 2014, we computed a factor 

of 0.999834 for the rural community hospital 

demonstration program budget neutrality 

adjustment that would be applied to the IPPS 

standard Federal payment rate. 

We note that if updated data became 

available prior to the publication of the FY 

2014 IPPS/LTCH PPS final rule, we are 

proposing to use that data, to the extent 

appropriate, to estimate the costs of the 

demonstration program in FY 2014. 

Therefore, this estimated budget neutrality 

offset amount may change in the final rule to 

reflect the 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 made available prior to the 

FY 2014 IPPS/LTCH PPS final rule, we are 

proposing to incorporate into the FY 2014 

budget neutrality offset amount any 

additional amounts by which the final settled 

costs of the demonstration in any of these 

years (as described previously) exceeded the 

budget neutrality offset amount applicable to 

such year as finalized in the respective year’s 

IPPS final rule. 

g. Proposed Outlier Payments 

Section 1886(d)(5)(A) of the Act provides 

for payments in addition to the basic 

prospective payments for ‘‘outlier’’ cases 

involving extraordinarily high costs. To 

qualify for outlier payments, a case must 

have costs greater than the sum of the 

prospective payment rate for the DRG, any 

IME and DSH payments, any new technology 

add-on payments, and the ‘‘outlier 

threshold’’ or ‘‘fixed-loss’’ amount (a dollar 

amount by which the costs of a case must 

exceed payments in order to qualify for an 

outlier payment). We refer to the sum of the 

prospective payment rate for the DRG, any 

IME and DSH payments, any new technology 

add-on payments, and the outlier threshold 

as the outlier ‘‘fixed-loss cost threshold.’’ To 

determine whether the costs of a case exceed 

the fixed-loss cost threshold, a hospital’s CCR 

is applied to the total covered charges for the 

case to convert the charges to estimated costs. 

Payments for eligible cases are then made 

based on a marginal cost factor, which is a 

percentage of the estimated costs above the 

fixed-loss cost threshold. The marginal cost 

factor for FY 2014 is 80 percent, the same 

marginal cost factor we have used since FY 

1995 (59 FR 45367). 

In accordance with section 

1886(d)(5)(A)(iv) of the Act, outlier payments 

for any year are projected to be not less than 

5 percent nor more than 6 percent of total 

operating DRG payments (which does not 

include IME and DSH payments) plus outlier 

payments. When setting the outlier 

threshold, we compute the 5.1 percent target 

by dividing the total operating outlier 

payments by the total operating DRG 

payments plus outlier payments. We do not 

include any other payments such as IME and 

DSH within the outlier target amount. 

Therefore, it is not necessary to include 

Medicare Advantage IME payments in the 

outlier threshold calculation. Section 

1886(d)(3)(B) of the Act requires the 

Secretary to reduce the average standardized 

amount by a factor to account for the 

estimated proportion of total DRG payments 

made to outlier cases. Similarly, section 

1886(d)(9)(B)(iv) of the Act requires the 

Secretary to reduce the average standardized 

amount applicable to hospitals located in 

Puerto Rico to account for the estimated 

proportion of total DRG payments made to 

outlier cases. More information on outlier 

payments may be found on the CMS Web site 

at: http://www.cms.gov/Medicare/MedicareFee-for-Service-Payment/AcuteInpatientPPS/ 

outlier.html. 

(1) Proposed FY 2014 Outlier Fixed-Loss Cost 

Threshold 

In the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53691 through 53696), we received 

comments from the public concerning our 

methodology for calculating the outlier 

threshold. Specifically, many commenters 

expressed concern that CMS is still not 

reaching the 5.1 percent target for outlier 

payments and believed there is still room for 

improvement. The commenters made various 

suggestions to improve the current 

methodology used to calculate the outlier 

threshold. In that final rule we responded 

that we appreciate the commenters providing 

multiple alternative methodologies to adjust 

the CCRs used in our outlier fixed-loss cost 

threshold. Due to the many options the 

commenters presented, we stated that the 

most prudent approach was to study the 

merits of each methodology and, if 

appropriate, make a proposal in the FY 2014 

IPPS/LTCH PPS proposed rule if we believe 

making a change to our current methodology 

would improve our methodology for 

projecting the outlier fixed-loss cost 

threshold. Since publication of the FY 2013 

IPPS/LTCH PPS final rule, we have studied 

the merits of the commenters’ suggestions to 

improve the outlier threshold methodology. 

Below we discuss our proposed outlier 

methodology for FY 2014 with revisions from 

the prior fiscal year. 

As we have done in the past, to calculate 

the proposed FY 2014 outlier threshold, we 

simulated payments by applying proposed 

FY 2014 payment rates and policies using 

cases from the FY 2012 MedPAR file. 

Therefore, in order to determine the 

proposed FY 2014 outlier threshold, we 

inflated the charges on the MedPAR claims 

by 2 years, from FY 2012 to FY 2014. Since 

FY 2005, we have used the same 

methodology to inflate charges. For FY 2014 

and subsequent years, we are proposing to 

further refine our current methodology which 

uses more recent data that reflect the rate-ofchange in hospital charges under the new 

outlier policy. In the FY 2005 IPPS final rule 

(69 FR 49277), to compute the 1-year average 

annualized rate-of-change in charges per 

case, we stated that we were taking the 

unprecedented step of comparing the average 

charge per case from the most recent 6 month 

period of charge data available to the average 

charge per case from the same 6 month 

period from the prior year rather than using 

a full year of charge data. At that time, we 

noted that we adopted this methodology to 

calculate the outlier threshold for FY 2005 as 

a result of the special circumstances 

surrounding the revisions to the outlier 

payment methodology; specifically the 

exceptionally high rate of hospital charge 

inflation that was reflected in the data for 

FYs 2001, 2002, and 2003. We also noted that 

we would continue to consider other 

methodologies for determining charge 

inflation when calculating the outlier 

threshold in the future. We refer the reader 

to the FY 2005 IPPS final rule for a complete 

discussion on this methodology. 

For FY 2014, if we were to propose to 

continue to use our current methodology that 

we adopted in FY 2005, we would have 

computed the 1-year average annualized rateof-change in charges per case by comparing 

the last quarter of FY 2011 in combination 

with the first quarter of FY 2012 (July 1, 

2011, through December 31, 2011) to the last 

quarter of FY 2012 in combination with the 

first quarter of FY 2013 (July 1, 2012, through 

December 31, 2012). This rate-of-change was 

4.7 percent (1.046908) or 9.6 percent 

(1.096016) over 2 years. After nine years of 

using the same methodology, the special 

circumstances of the exceptionally high rate 

of hospital charge inflation that was reflected 

in the data for FYs 2001, 2002, and 2003 may 

not be as applicable. We believe the policies 

that we implemented in the FY 2003 Outlier 

final rule (outlier reconciliation and no 

longer assigning the statewide average CCR 

for those hospitals that fall below a CCR 

floor) have helped control inflation of 

hospital charges. 

Therefore, instead of comparing periods of 

the most recent 6 months of charge data, we 

are proposing to adopt a new methodology to 

inflate charges that use periods of 1-year of 

the most recent charge data. We believe a 

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methodology that is based on 1-year of charge 

data will provide a more stable measure to 

project the average charge per case since a 6 

month measure inherently uses fewer claims 

than a 1-year measure, which makes it more 

susceptible to fluctuations in the average 

charge per case as a result of any significant 

charge increases or decreases by hospitals. 

Under this new proposed methodology, to 

compute the 1-year average annualized rateof-change in charges per case for FY 2014, we 

are proposing to compare the second quarter 

of FY 2011 through the first quarter of FY 

2012 (January 1, 2011, through December 31, 

2011) to the second quarter of FY 2012 

through the first quarter of FY 2013 (January 

1, 2012, through December 31, 2012). This 

rate-of-change was 4.8 percent (1.048458) or 

9.9 percent (1.099264) over 2 years. 

As we have done in the past, we are 

proposing to establish the proposed FY 2014 

outlier threshold using hospital CCRs from 

the December 2012 update to the ProviderSpecific File (PSF)—the most recent available 

data at the time of this proposed rule. For FY 

2014, we are also proposing to continue to 

apply an adjustment factor to the CCRs to 

account for cost and charge inflation (as 

explained below). In the FY 2007 IPPS final 

rule (71 FR 48150), we worked with the 

Office of Actuary to develop the current 

methodology used to adjust the CCRs. We 

have used this same methodology to adjust 

the CCRs from FY 2007 through FY 2013. 

Over the years, many commenters have 

stated that our current methodology is 

unnecessary complicated. In addition, as 

mentioned above, in the FY 2013 IPPS/LTCH 

PPS final rule, commenters made various 

suggestions to improve the current 

methodology used to calculate the outlier 

threshold and we stated that we would study 

the merits of each methodology and, if 

appropriate, make a proposal in the FY 2014 

IPPS/LTCH PPSproposed rule if we believe 

making a change to our current methodology 

would improve our projection of the outlier 

fixed-loss cost threshold. In that same final 

rule, some commenters suggested the use of 

historical CCR data from the PSF to compute 

a rate-of-change in CCRs. Under this 

approach, the commenters compared the 

national average case-weighted operating and 

capital CCR from the most recent update of 

the PSF to the national average case-weighted 

operating and capital CCR from the same 

period of the prior year. The commenters 

stated that although this adjustment would 

be based on 1 year’s data, the commenters 

believed that the use of historical data to 

adjust the CCRs is consistent with CMS’ 

estimation of charge inflation. After 

reviewing the commenters’ suggestion, we 

agree that the use of historical data to adjust 

the CCRs is simpler and is consistent with 

CMS’ estimation of charge inflation. 

Therefore, for FY 2014, we are proposing 

to adjust the CCRs from the December 2012 

update of the PSF by comparing the 

percentage change in the national average 

case-weighted operating CCR and capital 

CCR from the December 2011 update of the 

PSF to the national average case-weighted 

operating CCR and capital CCR from the 

December 2012 update of the PSF. We note 

that we used total transfer-adjusted cases 

from FY 2012 to determine the national 

average case-weighted CCRs for both sides of 

the comparison. We believe it is appropriate 

to use the same case count on both sides of 

the comparison as this will produce the true 

percentage change in the average caseweighted operating and capital CCR from one 

year to the next without any effect from a 

change in case count on different sides of the 

comparison. 

Using the proposed methodology above, 

we calculated a December 2011 operating 

national average case-weighted CCR of 

0.303178 and a December 2012 operating 

national average case-weighted CCR of 

0.295049. We then calculate the percentage 

change between the two national operating 

case-weighted CCRs by subtracting the 

December 2011 operating national average 

case-weighted CCR from the December 2012 

operating national average case-weighted 

CCR and then dividing by the December 2011 

national operating average case-weighted 

CCR. This resulted in a national operating 

CCR adjustment factor of 0.973187. 

We used the same methodology proposed 

above to also adjust the capital CCRs. 

Specifically, we calculated a December 2011 

capital national average case-weighted CCR 

of 0.025994 and a December 2012 capital 

national average case-weighted CCR of 

0.0249373. We then calculated the 

percentage change between the two national 

capital case-weighted CCRs by subtracting 

the December 2011 capital national average 

case-weighted CCR from the December 2012 

capital national average case-weighted CCR 

and then dividing by the December 2011 

capital national average case-weighted CCR. 

This resulted in a national capital CCR 

adjustment factor of 0.959337. 

Consistent with our methodology in the 

past and 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. 

As stated above, for FY 2014, we applied 

the proposed FY 2014 rates and policies 

using cases from the FY 2012 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 2014, 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 2014. If we 

did not take into account this provision, our 

estimate of total FY 2014 payments would be 

too low, and, as a result, our proposed outlier 

threshold would be too high, such that 

estimated outlier payments would be less 

than our projected 5.1 percent of total 

payments. 

As we did in establishing the FY 2009 

outlier threshold (73 FR 57891), in our 

projection of FY 2014 outlier payments, we 

are not proposing to make any adjustments 

for the possibility that hospitals’ CCRs and 

outlier payments may be reconciled upon 

cost report settlement. We continue to 

believe that, due to the policy implemented 

in the June 9, 2003 Outlier final rule (68 FR 

34494), CCRs will no longer fluctuate 

significantly and, therefore, few hospitals 

will actually have these ratios reconciled 

upon cost report settlement. In addition, it is 

difficult to predict the specific hospitals that 

will have CCRs and outlier payments 

reconciled in any given year. We also noted 

that reconciliation occurs because hospitals’ 

actual CCRs for the cost reporting period are 

different than the interim CCRs used to 

calculate outlier payments when a bill is 

processed. Our simulations assume that CCRs 

accurately measure hospital costs based on 

information available to us at the time we set 

the outlier threshold. For these reasons, we 

are proposing not to make any assumptions 

about the effects of reconciliation on the 

outlier threshold calculation. 

As described in sections V.G. and V.H., 

respectively, of the preamble of this proposed 

rule, sections 1886(q) and 1886(o) of the Act 

establish the Hospital Readmissions 

Reduction Program and the Hospital VBP 

Program, respectively. We do not believe it 

is appropriate to include the hospital VBP 

payment adjustments and the hospital 

readmissions payment adjustments in the 

outlier threshold calculation or the outlier 

offset to the standardized amount. 

Specifically, consistent with our definition of 

the base operating DRG payment amount for 

the Hospital Readmissions Reduction 

Program under § 412.152 and the Hospital 

VBP Program under § 412.160, outlier 

payments under section 1886(d)(5)(A) of the 

Act are not affected by these payment 

adjustments. Therefore, outlier payments 

would continue to be calculated based on the 

unadjusted base DRG payment amount (as 

opposed to using the base-operating DRG 

payment amount adjusted by the hospital 

readmissions payment adjustment and the 

hospital VBP payment adjustment). 

Consequently, we are proposing to exclude 

the hospital VBP payment adjustments and 

the hospital readmissions payment 

adjustments from the calculation of the 

outlier fixed-loss cost threshold. 

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Using this proposed methodology, we are 

proposing an outlier fixed-loss cost threshold 

for FY 2014 equal to the prospective payment 

rate for the DRG, plus any IME and DSH 

payments, and any add-on payments for new 

technology, plus $24,140. 

We note that the proposed FY 2014 

threshold is higher than the FY 2013 final 

outlier threshold of $21,821. We believe that 

the decrease in DSH payments due to the 

implementation of section 1886(r)(1) of the 

Act contributed to a higher proposed fixedloss outlier threshold for FY 2014. We note 

that the additional payments based on 

uncompensated care made to hospitals 

receiving Medicare DSH under section 

1886(r)(2) of the Act are not taken into 

consideration when determining outlier 

payments because we did not propose to 

make this payment on a per discharge basis. 

However, when computing a claim by claim 

outlier threshold, we calculate DSH 

payments under section 1886(d)(5)(f) of the 

Act with the reduction under section 

1886(r)(1) (the original DSH amount 

multiplied by 0.25). Therefore, we believe 

that, decreasing DSH payments decreases 

total funds to typical cases, which is used to 

compute the claim by claim outlier threshold 

thus leading to an increase in outlier 

payments. This requires that we raise the 

outlier threshold to decrease the amount of 

outlier dollars expended in order to reach the 

5.1 percent target. 

(2) Other Proposed Changes Concerning 

Outliers 

As stated in the FY 1994 IPPS final rule (58 

FR 46348), we establish an outlier threshold 

that is applicable to both hospital inpatient 

operating costs and hospital inpatient 

capital-related costs. When we modeled the 

combined operating and capital outlier 

payments, we found that using a common 

threshold resulted in a lower percentage of 

outlier payments for capital-related costs 

than for operating costs. We project that the 

thresholds for FY 2014 will result in outlier 

payments that will equal 5.1 percent of 

operating DRG payments and 5.49 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 

2014 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 FY 2014 outlier threshold are as 

follows: 

Operating 

standardized 

amounts 

Capital 

Federal 

rate 

National ......... 0.948997 0.945149 

Puerto Rico ... 0.952600 0.944392 

We are proposing to apply the outlier 

adjustment factors to the proposed FY 2014 

rates after removing the effects of the FY 

2013 outlier adjustment factors on the 

standardized amount. 

To determine whether a case qualifies for 

outlier payments, we apply hospital-specific 

CCRs to the total covered charges for the 

case. Estimated operating and capital costs 

for the case are calculated separately by 

applying separate operating and capital 

CCRs. These costs are then combined and 

compared with the outlier fixed-loss cost 

threshold. 

Under our current policy at § 412.84, we 

calculate operating and capital CCR ceilings 

and assign a statewide average CCR for 

hospitals whose CCRs exceed 3.0 standard 

deviations from the mean of the log 

distribution of CCRs for all hospitals. Based 

on this calculation, for hospitals for which 

the fiscal intermediary or MAC computes 

operating CCRs greater than 1.152 or capital 

CCRs greater than 0.166, or hospitals for 

which the fiscal intermediary or MAC is 

unable to calculate a CCR (as described under 

§ 412.84(i)(3) of our regulations), statewide 

average CCRs are used to determine whether 

a hospital qualifies for outlier payments. 

Table 8A listed in 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, 2013, these statewide 

average ratios would replace the ratios posted 

on our Web site at http://www.cms.gov/ 

Medicare/Medicare-Fee-for-Service-Payment/ 

AcuteInpatientPPS/FY-2013-IPPS-Final-RuleHome-Page-Items/FY2013-Final-RuleTables.html. Table 8B listed in section VI. of 

this Addendum (and available via the 

Internet) contains the proposed comparable 

statewide average capital CCRs. Again, the 

CCRs in Tables 8A and 8B would be used 

during FY 2014 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. In addition, as mentioned above, 

we published an additional manual update 

(Change Request 7192) to our outlier policy 

on December 3, 2010, which also updated 

Chapter 3, Section 20.1.2 of the Medicare 

Claims Processing Manual. The manual 

update outlines the outlier reconciliation 

process for hospitals and Medicare 

contractors. To download and view the 

manual instructions on outlier reconciliation, 

we refer readers to the CMS Web site: http:// 

www.cms.hhs.gov/manuals/downloads/ 

clm104c03.pdf. 

(3) FY 2012 and FY 2013 Outlier Payments 

In the FY 2013 IPPS final rule (77 FR 

53697 through 53698), we stated that, based 

on available data, we estimated that actual 

FY 2012 outlier payments would be 

approximately 5.0 percent of actual total MS– 

DRG payments. This estimate was computed 

based on simulations using the FY 2011 

MedPAR file (discharge data for FY 2011 

claims). That is, the estimate of actual outlier 

payments did not reflect actual FY 2012 

claims, but instead reflected the application 

of FY 2012 payment rates and policies to 

available FY 2011 claims. 

Our current estimate, using available FY 

2012 claims data, is that actual outlier 

payments for FY 2012 were approximately 

5.47 percent of actual total MS–DRG 

payments. Thus, the data indicate that, for 

FY 2012, the percentage of actual outlier 

payments relative to actual total payments is 

higher than we projected for FY 2012. 

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 2012 are equal to 5.1 

percent of total MS–DRG payments. 

We currently estimate that, using the latest 

CCRs from the March 2013 update of the 

PSF, actual outlier payments for FY 2013 will 

be approximately 5.17 percent of actual total 

MS–DRG payments, approximately 0.1 

percentage point higher than the 5.1 percent 

we projected when setting the outlier policies 

for FY 2013. This estimate of 5.17 percent is 

based on simulations using the FY 2012 

MedPAR file (discharge data for FY 2012 

claims). 

5. Proposed FY 2014 Standardized Amount 

The adjusted standardized amount is 

divided into labor-related and nonlaborrelated 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 2014. The proposed Puerto Rico-specific 

amounts are shown in Table 1C listed and 

published in section VI. of this Addendum 

(and available via the Internet). The proposed 

amounts shown in Tables 1A and 1B differ 

only in that the labor-related share applied to 

the standardized amounts in Table 1A is the 

labor-related share of 69.6 percent, and Table 

1B is 62 percent. In accordance with sections 

1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act, 

we are 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 whose wage indices 

are less than or equal to 1.0000. 

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In addition, Tables 1A and 1B include the 

proposed standardized amounts reflecting 

the applicable percentage increase of 1.8 

percent for FY 2014, and a proposed update 

of ¥0.2 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 dischargeweighted 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 2014 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 proposed labor-related share applied to 

the Puerto Rico-specific standardized amount 

is the labor-related share of 63.2 percent, or 

62 percent, depending on which provides 

higher payments to the hospital. (Section 

1886(d)(9)(C)(iv) of the Act, as amended by 

section 403(b) of 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 2013 national 

standardized amount. The second column 

shows the proposed changes from the FY 

2013 standardized amounts for hospitals that 

satisfy the quality data submission 

requirement and, therefore, receive the full 

proposed update of 1.8 percent. The third 

column shows the proposed changes for 

hospitals receiving the proposed reduced 

update of ¥0.2 percent. The first row of the 

table shows the proposed updated (through 

FY 2013) average standardized amount after 

restoring the FY 2013 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 

MS–DRG reclassification and recalibration 

wage index budget neutrality factors are 

cumulative. Therefore, those FY 2013 factors 

are not removed from this table. 

COMPARISON OF FY 2013 STANDARDIZED AMOUNTS TO THE PROPOSED FY 2014 STANDARDIZED AMOUNT WITH FULL

AND REDUCED UPDATE

Full update (1.8 percent); wage index is 

greater than 1.0000; 

labor/non-labor share 

percentage 

Full update (1.8 percent); wage index is 

less than or equal to 

1.0000; labor/non-labor 

share percentage 

Reduced update (¥0.2 

percent); wage index is 

greater than 1.0000; 

labor/non-labor share 

percentage 

Reduced update (¥0.2 

percent); wage index is 

less than or equal to 

1.0000; labor/non-labor 

share percentage 

(69.6/30.4) (62/38) (69.6/30.4) (62/38) 

FY 2013 Base Rate after removing: 

1. FY 2013 Geographic Reclassification Budget Neutrality 

(0.991276) 

2. FY 2013 Rural Community 

Hospital Demonstration Program Budget Neutrality 

(0.999677) 

3. Cumulative FY 2008, FY 

2009, FY 2012, FY 2013 Documentation and Coding Adjustment as Required under 

Sections 7(b)(1)(A) and 

7(b)(1)(B) of Public Law 110– 

90 (0.9478) 

Labor: $4,176.63 ...........

Nonlabor: $1,824.27 

Labor: $3,720.56 ...........

Nonlabor: $2,280.34 

Labor: $4,176.63 ...........

Nonlabor: $1,824.27 

Labor: $3,720.56. 

Nonlabor: $2,280.34. 

4. FY 2013 Operating Outlier 

Offset (0.948999) 

Proposed FY 2014 Update Factor .... 1.018 ............................. 1.018 ............................. 0.998 ............................. 0.998. 

Proposed FY 2014 MS–DRG Recalibration and Wage Index Budget 

Neutrality Factor.

0.997350 ....................... 0.997350 ....................... 0.997350 ....................... 0.997350. 

Proposed FY 2014 Reclassification 

Budget Neutrality Factor.

0.990971 ....................... 0.990971 ....................... 0.990971 ....................... 0.990971. 

Proposed FY 2014 Rural Community 

Demonstration Program Budget 

Neutrality Factor.

0.999834 ....................... 0.999834 ....................... 0.999834 ....................... 0.999834. 

Proposed FY 2014 Operating Outlier 

Factor.

0.948997 ....................... 0.948997 ....................... 0.948997 ....................... 0.948997. 

Proposed Adjustment to Offset the 

Cost of the Policy Proposal on Admission and Medical Review Criteria for Hospital Inpatient Services 

under Medicare Part A.

0.998 ............................. 0.998 ............................. 0.998 ............................. 0.998. 

Cumulative Factor: FY 2008, FY 

2009, FY 2012, and FY 2013 Documentation and Coding Adjustment 

as Required under Sections 

7(b)(1)(A) and 7(b)(1)(B) of Public 

Law 110–90 and Proposed Documentation and Coding 

Recoupment Adjustment as required under Section 631 of the 

American Taxpayer Relief Act of 

2012.

0.9403 ........................... 0.9403 ........................... 0.9403 ........................... 0.9403. 

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COMPARISON OF FY 2013 STANDARDIZED AMOUNTS TO THE PROPOSED FY 2014 STANDARDIZED AMOUNT WITH FULL

AND REDUCED UPDATE—Continued 

Full update (1.8 percent); wage index is 

greater than 1.0000; 

labor/non-labor share 

percentage 

Full update (1.8 percent); wage index is 

less than or equal to 

1.0000; labor/non-labor 

share percentage 

Reduced update (¥0.2 

percent); wage index is 

greater than 1.0000; 

labor/non-labor share 

percentage 

Reduced update (¥0.2 

percent); wage index is 

less than or equal to 

1.0000; labor/non-labor 

share percentage 

(69.6/30.4) (62/38) (69.6/30.4) (62/38) 

Proposed National Standardized 

Amount for FY 2014.

Labor: $3,741.72 ...........

Nonlabor: $1,634.32 

Labor: $3,333.14 ...........

Nonlabor: $2,042.90 

Labor: $3,668.21 ...........

Nonlabor: $1,602.21 

Labor: $3,267.66. 

Nonlabor: $2,002.76. 

The following table illustrates the 

proposed changes from the FY 2013 Puerto 

Rico-specific payment rate for hospitals 

located in Puerto Rico. The second column 

shows the proposed changes from the FY 

2013 Puerto Rico specific payment rate for 

hospitals with a Puerto Rico-specific wage 

index greater than 1.0000. The third column 

shows the proposed changes from the FY 

2013 Puerto Rico specific payment rate for 

hospitals with a Puerto Rico-specific wage 

index less than 1.0000. The first row of the 

table shows the proposed updated (through 

FY 2013) Puerto Rico-specific payment rate 

after restoring the FY 2013 offsets for Puerto 

Rico-specific outlier payments, rural 

community hospital demonstration program 

budget neutrality, and the geographic 

reclassification budget neutrality. The MS– 

DRG recalibration budget neutrality factor is 

cumulative and is not removed from this 

table. 

COMPARISON OF FY 2013 PUERTO RICO-SPECIFIC PAYMENT RATE TO THE PROPOSED FY 2014 PUERTO RICO-SPECIFIC

PAYMENT RATE

Update (1.8 percent); wage index 

is greater than 1.0000; labor/nonlabor share percentage 

Update (1.8 percent); wage index 

is less than or equal to 1.0000; 

labor/non-labor share percentage 

(63.2/36.8) (62/38) 

FY 2013 Puerto Rico Base Rate, after removing: 

1. FY 2013 Geographic Reclassification Budget Neutrality 

(0.991276) 

2. FY 2013 Rural Community Hospital Demonstration Program 

Budget Neutrality (0.999677) 

3. FY 2013 Puerto Rico Operating Outlier Offset (0.944760) Labor: $1,700.33 ...........................

Nonlabor: $990.07. 

Labor: $1,668.05. 

Nonlabor: $1,022.35. 

Proposed FY 2014 Update Factor .......................................................... 1.018 .............................................. 1.018. 

Proposed FY 2014 MS–DRG Recalibration Budget Neutrality Factor ... 0.997583 ........................................ 0.997583. 

Proposed FY 2014 Reclassification Budget Neutrality Factor ................ 0.990971 ........................................ 0.990971. 

Proposed FY 2014 Rural Community Hospital Demonstration Program 

Budget Neutrality Factor.

0.999834 ........................................ 0.999834. 

Proposed FY 2014 Puerto Rico Operating Outlier Factor ...................... 0.952600 ........................................ 0.952600. 

Proposed Adjustment to Offset the Cost of the Policy Proposal on Admission and Medical Review Criteria for Hospital Inpatient Services 

under Medicare Part A.

0.998 .............................................. 0.998. 

Proposed Puerto Rico-Specific Payment Rate for FY 2014 ................... Labor: $1,626.53 ...........................

Nonlabor: $947.09. 

Labor: $1,595.64. 

Nonlabor: $977.98. 

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 laborrelated 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 2014. 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 2014 wage index. 

2. Proposed Adjustment for Cost-of-Living in 

Alaska and Hawaii 

Section 1886(d)(5)(H) of the Act provides 

discretionary authority to the Secretary to 

make ‘‘such adjustments . . . as the Secretary 

deems appropriate to take into account the 

unique circumstances of hospitals located in 

Alaska and Hawaii.’’ Higher labor-related 

costs for these two States are taken into 

account in the adjustment for area wages 

described above. To account for higher 

nonlabor-related costs for these two States, 

we multiply the nonlabor-related portion of 

the standardized amount for hospitals 

located in Alaska and Hawaii by an 

adjustment factor. For FY 2011 and in prior 

fiscal years, we used the most recent cost-ofliving 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. 

In the FY 2013 IPPS/LTCH PPS proposed 

and final rules (77 FR 28145 through 28146 

and 77 FR 53700 through 53701, 

respectively), we explained that statutory 

changes transitioned the Alaska and Hawaii 

COLAs to locality pay. We further explained 

that, beginning in FY 2012, as OPM 

transitioned away from COLAs, we 

continued to use the same ‘‘frozen’’ COLA 

factors that were used to adjust payments in 

FY 2011 (based on OPM’s 2009 COLA 

factors) to adjust the nonlabor-related portion 

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of the standardized amount for hospitals 

located in Alaska and Hawaii while we 

explored alternatives for updating the COLA 

factors in the future. In the FY 2013 IPPS/ 

LTCH PPS final rule, for FY 2013, we 

continued to use the same COLA factors used 

to adjust payments in FY 2012 (which are 

based on OPM’s 2009 COLA factors). We also 

established a methodology to update the 

COLA factors for Alaska and Hawaii that 

were published by OPM every 4 years (at the 

same time as the update to the labor-related 

share of the IPPS market basket), beginning 

in FY 2014. We refer readers to the FY 2013 

IPPS/LTCH PPS proposed and final rules for 

additional background and a detailed 

description of this methodology (77 FR 28145 

through 28146 and 77 FR 53700 through 

53701, respectively). 

For FY 2014, we are proposing to update 

the COLA factors published by OPM for 2009 

(as these are the last COLA factors OPM 

published prior to transitioning from COLAs 

to locality pay) using the methodology that 

we finalized in the FY 2013 IPPS/LTCH PPS 

final rule. Specifically, under our 

methodology, we are using a comparison of 

the growth in the Consumer Price Indices 

(CPIs) in Anchorage and Honolulu relative to 

the growth in the overall CPI as published by 

the Bureau of Labor Statistics (BLS) to update 

the COLA adjustment factors for all areas in 

Alaska and Hawaii, respectively. As 

discussed in the FY 2013 IPPS/LTCH PPS 

proposed rule (77 FR 28145 through 28146), 

because BLS publishes CPI data for only 

Anchorage, Alaska and Honolulu, Hawaii, 

our methodology for updating the COLA 

factors uses a comparison of the growth in 

the CPIs for those cities relative to the growth 

in the overall CPI 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 (as measured by the 

CPIs mentioned above) are generally 

appropriate proxies for the relative price 

differences between the ‘‘other areas’’ of 

Alaska and Hawaii and the United States. 

The CPIs for ‘‘All Items’’ that BLS 

publishes for Anchorage, Alaska, Honolulu, 

Hawaii, and for the average U.S. city are 

based on a different mix of commodities and 

services than is reflected in the nonlabor 

related share of the IPPS market basket. As 

such, under the methodology we established 

to update the COLA factors, we calculated a 

‘‘reweighted CPI’’ using the CPI for 

commodities and the CPI for services for each 

of the geographic areas to mirror the 

composition of the IPPS market basket 

nonlabor-related share. The current 

composition of BLS’ CPI for ‘‘All Items’’ for 

all of the respective areas is approximately 40 

percent commodities and 60 percent services. 

However, the nonlabor-related share of the 

proposed IPPS market basket is comprised of 

approximately 60 percent commodities and 

40 percent services. We note that, if finalized, 

we do not anticipate that the proposals in 

section IV. of the preamble of this proposed 

rule (proposing to revise and rebase the IPPS 

market basket for FY 2014) would alter the 

commodities/services weights of the 

nonlabor-related share of the IPPS market 

basket. Therefore, under the methodology we 

established in the FY 2013 IPPS/LTCH PPS 

final rule, we have created reweighted 

indexes for Anchorage, Alaska, Honolulu, 

Hawaii, and the average U.S. city using the 

respective CPI commodities index and CPI 

services index and applying the approximate 

60/40 weights from the proposed IPPS 

market basket. We believe that this 

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. 

Under the COLA factor update 

methodology we established in the FY 2013 

IPPS/LTCH PPS final rule, we further 

exercised our discretionary authority to 

adjust payments made to hospitals located in 

Alaska and Hawaii by incorporating a 25- 

percent cap on the CPI-updated COLA factors 

used to adjust the nonlabor-related portion of 

the standardized amounts, which is 

consistent with a statutorily mandated 25- 

percent cap that was applied to OPM’s 

published COLA factors. We believe that this 

is appropriate because our proposed CPIupdated COLA factors for FY 2014 use the 

2009 OPM COLA factors as a basis. In 

addition, we are proposing to continue to 

establish COLA factors that are rounded to 2 

decimal places, which is consistent with the 

number of decimal places in the 2009 OPM 

COLA factors that are used as the basis for 

calculating the proposed FY 2014 COLA 

factors. This policy also would maintain 

consistency with the rounding used for the 

25-percent cap on the COLA factors (that is, 

a COLA factor of no more than 1.25). 

Applying this methodology, we are 

proposing to establish the COLA factors for 

FY 2014 that would adjust the nonlaborrelated portion of the standardized amount 

for hospitals located in Alaska and Hawaii as 

shown in the table below. 

PROPOSED FY 2014 COST-OF-LIVING ADJUSTMENT FACTORS: ALASKA AND HAWAII HOSPITALS

Area 

Proposed cost of 

living adjustment 

factor 

Alaska: 

City of Anchorage and 80-kilometer (50-mile) radius by road ................................................................................................. 1.23 

City of Fairbanks and 80-kilometer (50-mile) radius by road .................................................................................................. 1.23 

City of Juneau and 80-kilometer (50-mile) radius by road ...................................................................................................... 1.23 

Rest of Alaska .......................................................................................................................................................................... 1.25 

Hawaii: 

City and County of Honolulu .................................................................................................................................................... 1.25 

County of Hawaii ...................................................................................................................................................................... 1.19 

County of Kauai ........................................................................................................................................................................ 1.25 

County of Maui and County of Kalawao .................................................................................................................................. 1.25 

Each of the COLA factors was calculated 

using data through 2012 as these are the 

latest historical CPI data published by the 

BLS. The reweighted CPI for Honolulu, 

Hawaii grew faster than the reweighted CPI 

for average U.S. city over the time period 

from 2009 to 2012, with a growth rate of 8.9 

percent and 8.3 percent, respectively. As a 

result, for FY 2014, we calculated proposed 

COLA factors for the City and County of 

Honolulu, the County of Kauai, the County 

of Maui, and the County of Kalawao to be 

1.26 compared to the FY 2013 COLA factor 

of 1.25. However, as stated above, our COLA 

factor update methodology caps COLA 

factors at 1.25. In addition, the proposed 

COLA factor calculated for the County of 

Hawaii for FY 2014 is 1.19 compared to the 

FY 2013 COLA factor of 1.18. 

The reweighted CPI for Anchorage, Alaska 

grew slower than the reweighted CPI for 

average U.S. city over the time period from 

2009 to 2012, with a growth rate of 8.0 

percent and 8.3 percent, respectively. 

However, applying this slower relative 

growth rate to the FY 2009 COLA factors for 

each of the Alaska areas results in no 

proposed change to the COLA factors for the 

Alaska areas for FY 2014 (1.25 for ‘‘All other’’ 

areas of Alaska and 1.23 for the three 

specified urban areas of Alaska (Anchorage, 

Fairbanks and Juneau)) as compared to the 

FY 2013 COLA factors. 

C. Calculation of the Proposed Prospective 

Payment Rates 

General Formula for Calculation of the 

Prospective Payment Rates for FY 2014 

In general, the operating prospective 

payment rate for all hospitals paid under the 

IPPS located outside of Puerto Rico, except 

SCHs, for FY 2014 equals the Federal rate. 

(As noted above, due to the expiration of the 

MDH program, beginning with FY 2014, we 

are not including MDHs in our discussion of 

the update of the hospital-specific rates for 

FY 2014.) 

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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 hospitalspecific rate based on FY 2006 costs per 

discharge to determine the rate that yields 

the greatest aggregate payment. 

The prospective payment rate for SCHs for 

FY 2014 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 2014 equals 25 percent of the Puerto Ricospecific payment 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 V.C. 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 payment 

adjustment as described under sections 

1886(q) and 1886(o) of the Act, respectively. 

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 

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 readers to the FY 1984 IPPS interim 

final rule (48 FR 39772); the April 20, 1990 

final rule with comment period (55 FR 

15150); the FY 1991 IPPS final rule (55 FR 

35994); and the FY 2001 IPPS final rule (65 

FR 47082). 

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 1.8 percent (that 

is, the FY 2014 estimate of the market basket 

rate-of-increase of 2.5 percent less a proposed 

adjustment of 0.4 percentage point for MFP 

and less 0.3 percentage point) for hospitals 

that submit quality data or ¥0.2 percent (that 

is, the FY 2014 estimate of the market basket 

rate-of-increase of 2.5 percent, less 2.0 

percentage points for failure to submit data 

under the Hospital IQR Program, less a 

proposed adjustment of 0.4 percentage point 

for MFP, and less 0.3 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 V.A. 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 MS–DRG 

classifications and the recalibration of the 

MS–DRG relative weights are made in a 

manner so that aggregate IPPS payments are 

unaffected. Therefore, a SCH’s hospitalspecific rate is adjusted by the proposed MS– 

DRG reclassification and recalibration budget 

neutrality factor of 0.997583, as discussed in 

section III. of this Addendum. The resulting 

rate is used in determining the payment rate 

an SCH will receive for its discharges 

beginning on or after October 1, 2013. We 

note that, in this proposed rule, for FY 2014, 

we are not proposing to make a 

documentation and coding adjustment to the 

hospital-specific rate. We refer readers to 

section II.D. of the preamble of this proposed 

rule for a complete discussion regarding our 

proposals and previously finalized policies 

(including our historical adjustments to the 

payment rates) relating to the effect of 

changes in documentation and coding that do 

not reflect real changes in case-mix. We note 

that section II.D. of the preamble of this 

proposed rule also includes a discussion on 

documentation and coding effects that 

occurred through FY 2010, including a 

request for public comments as to whether 

any portion of the proposed ¥0.8 percent 

recoupment adjustment discussed in section 

II.D.6. of the preamble of this proposed rule 

should be reduced and instead applied as a 

prospective adjustment for the cumulative 

MS–DRG documentation and coding effect 

through FY 2010. 

c. Proposed Adjustment To Offset the Cost of 

the Admission and Medical Review Criteria 

for Hospital Inpatient Services Under 

Medicare Part A Proposal and Clarification 

As discussed previously, in section V.N.5. 

of the preamble of this proposed rule, our 

actuaries project additional IPPS 

expenditures would result from our proposed 

policy that medical review of inpatient 

admissions will include a presumption that 

hospital inpatient admissions are reasonable 

and necessary for beneficiaries who require 

more than 1 Medicare utilization day 

(defined by encounters crossing 2 

‘‘midnights’’) in the hospital receiving 

medically necessary services (which is 

presented in section V.N.3. of the preamble 

of this proposed rule). We believe it is 

appropriate to use our exceptions and 

adjustments authority under section 

1886(d)(5)(I)(i) of the Act to propose 

reductions of 0.2 percent (or 0.998 

adjustment) to the IPPS rates, including the 

proposed FY 2014 hospital-specific rate for 

SCHs, to offset our estimate of the increase 

in IPPS payments. We refer readers to section 

V.N. of the preamble of this proposed rule for 

a complete discussion of our policy proposal 

on admission and medical review criteria for 

hospital inpatient services under Medicare 

Part A. 

3. General Formula for Calculation of 

Prospective Payment Rates for Hospitals 

Located in Puerto Rico Beginning on or After 

October 1, 2013, and Before October 1, 2014 

Section 1886(d)(9)(E)(iv) of the Act 

provides that, effective for discharges 

occurring on or after October 1, 2004, 

hospitals located in Puerto Rico are paid 

based on a blend of 75 percent of the national 

prospective payment rate and 25 percent of 

the Puerto Rico-specific rate. 

a. Puerto Rico-Specific Rate 

The Puerto Rico-specific prospective 

payment rate is determined as follows: 

Step 1—Select the applicable average 

standardized amount considering the 

applicable wage index (obtained from Table 

1C published in section VI. of this 

Addendum and available via the Internet). 

Step 2—Multiply the labor-related portion 

of the standardized amount by the applicable 

Puerto Rico-specific wage index. 

Step 3—Add the amount from Step 2 and 

the nonlabor-related portion of the 

standardized amount. 

Step 4—Multiply the amount from Step 3 

by the applicable MS–DRG relative weight 

(obtained from Table 5 listed in section VI. 

of this Addendum and available via the 

Internet). 

Step 5—Multiply the result in Step 4 by 25 

percent. 

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b. National Prospective Payment 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 

(obtained from Table 5 listed in section VI. 

of this Addendum and available via the 

Internet). 

Step 5—Multiply the result in Step 4 by 75 

percent. 

The sum of the Puerto Rico-specific rate 

and the national prospective payment 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. 

c. Proposed Adjustment To Offset the Cost of 

the Admission and Medical Review Criteria 

for Hospital Inpatient Services Under 

Medicare Part A Proposal and Clarification 

As discussed previously, in section V.N.5. 

of the preamble of this proposed rule, our 

actuaries project additional IPPS 

expenditures would result from our proposed 

policy that medical review of inpatient 

admissions will include a presumption that 

hospital inpatient admissions are reasonable 

and necessary for beneficiaries who require 

more than 1 Medicare utilization day 

(defined by encounters crossing 2 

‘‘midnights’’) in the hospital receiving 

medically necessary services (which is 

presented in section V.N.3. of the preamble 

of this proposed rule). We believe it is 

appropriate to use our exceptions and 

adjustments authority under section 

1886(d)(5)(I)(i) of the Act to propose 

reductions of 0.2 percent (or 0.998 

adjustment) to the IPPS rates, including the 

FY 2014 national standardized amount and 

the Puerto Rico standardized amount, to 

offset our estimate of the increase in IPPS 

payments. We refer readers to section V.N. of 

the preamble of this proposed rule for a 

complete discussion of our policy proposal 

on admission and medical review criteria for 

hospital inpatient services under Medicare 

Part A. 

III. Proposed Changes to Payment Rates for 

Acute Care Hospital Inpatient CapitalRelated Costs for FY 2014 

The PPS for acute care hospital inpatient 

capital-related costs was implemented for 

cost reporting periods beginning on or after 

October 1, 1991. Effective with that cost 

reporting period, over a 10-year transition 

period (which extended through FY 2001) 

the payment methodology for Medicare acute 

care hospital inpatient capital-related costs 

changed from a reasonable cost-based 

methodology to a prospective methodology 

(based fully on the Federal rate). 

The basic methodology for determining 

Federal capital prospective rates is set forth 

in the regulations at 42 CFR 412.308 through 

412.352. Below we discuss the factors that 

we used to determine the proposed capital 

Federal rate for FY 2014, which would be 

effective for discharges occurring on or after 

October 1, 2013. 

The 10-year transition period ended with 

hospital cost reporting periods beginning on 

or after October 1, 2001 (FY 2002). Therefore, 

for cost reporting periods beginning in FY 

2002, all hospitals (except ‘‘new’’ hospitals 

under § 412.304(c)(2)) are paid based on the 

capital Federal rate. For FY 1992, we 

computed the standard Federal payment rate 

for capital-related costs under the IPPS by 

updating the FY 1989 Medicare inpatient 

capital cost per case by an actuarial estimate 

of the increase in Medicare inpatient capital 

costs per case. Each year after FY 1992, we 

update the capital standard Federal rate, as 

provided at § 412.308(c)(1), to account for 

capital input price increases and other 

factors. The regulations at § 412.308(c)(2) also 

provide that the capital Federal rate be 

adjusted annually by a factor equal to the 

estimated proportion of outlier payments 

under the capital Federal rate to total capital 

payments under the capital Federal rate. In 

addition, § 412.308(c)(3) requires that the 

capital Federal rate be reduced by an 

adjustment factor equal to the estimated 

proportion of payments for exceptions under 

§ 412.348. (We note that, as discussed in the 

FY 2013 IPPS/LTCH PPS final rule (77 FR 

53705), there is generally no longer a need for 

an exceptions payment adjustment factor.) 

However, in limited circumstances, an 

additional payment exception for 

extraordinary circumstances is provided for 

under § 412.348(f) for qualifying hospitals. 

Therefore, in accordance with 

§ 412.308(c)(3), an exceptions payment 

adjustment factor may need to be applied if 

such payments are made. Section 

412.308(c)(4)(ii) requires that the capital 

standard Federal rate be adjusted so that the 

effects of the annual DRG reclassification and 

the recalibration of DRG weights and changes 

in the geographic adjustment factor (GAF) are 

budget neutral. 

Section 412.374 provides for blended 

payments to hospitals located in Puerto Rico 

under the IPPS for acute care hospital 

inpatient capital-related costs. Accordingly, 

under the capital PPS, we compute a separate 

payment rate specific to hospitals located in 

Puerto Rico using the same methodology 

used to compute the national Federal rate for 

capital-related costs. In accordance with 

section 1886(d)(9)(A) of the Act, under the 

IPPS for acute care hospital operating costs, 

hospitals located in Puerto Rico are paid for 

operating costs under a special payment 

formula. Effective October 1, 2004, in 

accordance with section 504 of Public Law 

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 made to 

hospitals located in Puerto Rico to be based 

on a blend of 25 percent of the Puerto Rico 

capital rate and 75 percent of the national 

capital Federal rate (69 FR 49185). 

A. Determination of the Proposed Federal 

Hospital Inpatient Capital-Related 

Prospective Payment Rate Update 

In the discussion that follows, we explain 

the factors that we are proposing to use to 

determine the capital Federal rate for FY 

2014. In particular, we explain why the 

proposed FY 2014 capital Federal rate would 

increase approximately 1.5 percent, 

compared to the FY 2013 capital Federal rate. 

As discussed in the impact analysis in 

Appendix A to this proposed rule, we 

estimate that capital payments per discharge 

would increase 1.1 percent during that same 

period. Because capital payments constitute 

about 10 percent of hospital payments, a 

percent change in the capital Federal rate 

yields only about a 0.1 percent change in 

actual payments to hospitals. 

1. Projected Capital Standard Federal Rate 

Update 

a. Description of the Update Framework 

Under § 412.308(c)(1), the capital standard 

Federal rate is updated on the basis of an 

analytical framework that takes into account 

changes in a capital input price index (CIPI) 

and several other policy adjustment factors. 

Specifically, we adjust the projected CIPI 

rate-of-increase as appropriate each year for 

case-mix index-related changes, for intensity, 

and for errors in previous CIPI forecasts. The 

proposed update factor for FY 2014 under 

that framework is 0.9 percent based on the 

best data available at this time. The proposed 

update factor under that framework is based 

on a projected 1.2 percent increase in the 

proposed revised and rebased FY 2010-based 

CIPI (discussed in more detail in section 

IV.D. of the preamble of this proposed rule), 

a 0.0 percentage point adjustment for 

intensity, a 0.0 percentage point adjustment 

for case-mix, a 0.0 percentage point 

adjustment for the FY 2012 DRG 

reclassification and recalibration, and a 

forecast error correction of ¥0.3 percentage 

point. As discussed below in section III.C. of 

this Addendum, we continue to believe that 

the CIPI is the most appropriate input price 

index for capital costs to measure capital 

price changes in a given year. We also 

explain the basis for the FY 2014 CIPI 

projection in that same section of this 

Addendum. Below we describe the policy 

adjustments that we are proposing to apply 

in the update framework for FY 2014. 

The case-mix index is the measure of the 

average DRG weight for cases paid under the 

IPPS. Because the DRG weight determines 

the prospective payment for each case, any 

percentage increase in the case-mix index 

corresponds to an equal percentage increase 

in hospital payments. 

The case-mix index can change for any of 

several reasons: 

• The average resource use of Medicare 

patients changes (‘‘real’’ case-mix change); 

• Changes in hospital documentation and 

coding of patient records result in higherweighted DRG assignments (‘‘coding 

effects’’); and 

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• 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 to the FY 2006 IPPS 

final rule (70 FR 47707).) 

For FY 2014, 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 2014. The 

proposed net adjustment for change in casemix 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 2014 is 0.0 percentage point. 

The capital update framework also 

contains an adjustment for the effects of DRG 

reclassification and recalibration. This 

adjustment is intended to remove the effect 

on total payments of prior year’s changes to 

the DRG classifications and relative weights, 

in order to retain budget neutrality for all 

case-mix index-related changes other than 

those due to patient severity of illness. Due 

to the lag time in the availability of data, 

there is a 2-year lag in data used to determine 

the adjustment for the effects of DRG 

reclassification and recalibration. For 

example, we have data available to evaluate 

the effects of the FY 2012 DRG 

reclassification and recalibration as part of 

our update for FY 2014. We estimate that FY 

2012 DRG reclassification and recalibration 

resulted in no change in the case-mix when 

compared with the case-mix index that 

would have resulted if we had not made the 

reclassification and recalibration changes to 

the DRGs. Therefore, we are proposing to 

make a 0.0 percentage point adjustment for 

reclassification and recalibration in the 

update framework for FY 2014. 

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 ¥0.3 

percentage point was calculated for the 

proposed FY 2014 update. That is, current 

historical data indicate that the forecasted FY 

2012 rate-of-increase of the FY 2006-based 

CIPI (1.5 percent) used in calculating the FY 

2012 update factor slightly overstated the 

actual realized FY 2012 price increases of the 

FY 2006-based CIPI (1.2 percent) by 0.3 

percentage point because the prices 

associated with both the depreciation and 

interest cost categories grew more slowly 

than anticipated. Historically, when forecast 

error of the CIPI is greater than 0.25 

percentage point in absolute terms, it is 

reflected in the update recommended under 

this framework. Therefore, we are proposing 

to make a ¥0.3 percentage point adjustment 

for forecast error in the update for FY 2014. 

Under the capital IPPS update framework, 

we also make an adjustment for changes in 

intensity. Historically, we calculated this 

adjustment using the same methodology and 

data that were used in the past under the 

framework for operating IPPS. The intensity 

factor for the operating update framework 

reflected how hospital services are utilized to 

produce the final product, that is, the 

discharge. This component accounts for 

changes in the use of quality-enhancing 

services, for changes within DRG severity, 

and for expected modification of practice 

patterns to remove noncost-effective services. 

Our intensity measure is based on a 5-year 

average. 

We calculate case-mix constant intensity as 

the change in total cost per discharge, 

adjusted for price level changes (the CIPI for 

hospital and related services) and changes in 

real case-mix. Without reliable estimates of 

the proportions of the overall annual 

intensity increases that are due, respectively, 

to ineffective practice patterns and the 

combination of quality-enhancing new 

technologies and complexity within the DRG 

system, we assume that one-half of the 

annual increase is due to each of these 

factors. The capital update framework thus 

provides an add-on to the input price index 

rate of increase of one-half of the estimated 

annual increase in intensity, to allow for 

increases within DRG severity and the 

adoption of quality-enhancing technology. 

In this proposed rule, we are proposing to 

continue to use a Medicare-specific intensity 

measure that is based on a 5-year adjusted 

average of cost per discharge for FY 2014 (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 2014, 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 2006 and 

extending through FY 2011. Based on these 

data, we estimated that case-mix constant 

intensity declined during FYs 2006 through 

2011. In the past, when we found intensity 

to be declining, we believed a zero (rather 

than a negative) intensity adjustment was 

appropriate. Consistent with this approach, 

because we estimate that intensity declined 

during that 5-year period, we believe it is 

appropriate to propose to continue to apply 

a zero intensity adjustment for FY 2014. 

Therefore, we are proposing to make a 0.0 

percentage point adjustment for intensity in 

the update for FY 2014. 

Above, we described the basis of the 

components used to develop the proposed 

0.9 percent capital update factor under the 

capital update framework for FY 2014 as 

shown in the table below. 

PROPOSED CMS FY 2014 UPDATE

FACTOR TO THE CAPITAL FEDERAL

RATE

Capital Input Price Index * ............ 1.2 

Intensity ........................................ 0.0 

Case-Mix Adjustment Factors: 

Real Across DRG Change ........ ¥0.5 

Projected Case-Mix Change ..... 0.5 

Subtotal ..................................... 1.2 

Effect of FY 2012 Reclassification 

and Recalibration ...................... 0.0 

Forecast Error Correction ............. ¥0.3 

Total Update .......................... 0.9 

* The capital input price index is based on 

the proposed revised and rebased FY 2010- 

based CIPI discussed in section IV.D. of the 

preamble of this proposed rule. 

b. Comparison of CMS and MedPAC Update 

Recommendation 

In its March 2013 Report to Congress, 

MedPAC did not make a specific update 

recommendation for capital IPPS payments 

for FY 2014. (We refer readers to MedPAC’s 

Report to the Congress: Medicare Payment 

Policy, March 2013, 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 capitalrelated 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 2013, we estimated that outlier 

payments for capital will equal 6.38 percent 

of inpatient capital-related payments based 

on the capital Federal rate in FY 2013. Based 

on the proposed thresholds as set forth in 

section II.A. of this Addendum, we estimate 

that outlier payments for capital-related costs 

would equal 5.49 percent for inpatient 

capital-related payments based on the 

proposed capital Federal rate in FY 2014. 

Therefore, we are proposing to apply an 

outlier adjustment factor of 0.9451 in 

determining the proposed capital Federal rate 

for FY 2014. Thus, we estimate that the 

percentage of capital outlier payments to 

total capital Federal rate payments for FY 

2014 will be somewhat lower than the 

percentage for FY 2013. 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. 

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That is, because the outlier threshold used to 

identify outlier cases would be higher, cases 

would receive lower outlier payments and 

fewer cases would qualify for outlier 

payments. 

The outlier reduction factors are not built 

permanently into the capital rates; that is, 

they are not applied cumulatively in 

determining the capital Federal rate. The 

proposed FY 2014 outlier adjustment of 

0.9451 is a 0.95 percent change from the FY 

2013 outlier adjustment of 0.9362. Therefore, 

the proposed net change in the outlier 

adjustment to the capital Federal rate for FY 

2014 is 1.0095 (0.9451/0.9362). Thus, the 

proposed outlier adjustment would increase 

the FY 2014 capital Federal rate by 0.95 

percent compared to the FY 2013 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. 

To determine the proposed factors for FY 

2014, we compared (separately for the 

national capital rate and the Puerto Rico 

capital rate) estimated aggregate capital 

Federal rate payments based on the FY 2013 

MS–DRG classifications and relative weights 

and the FY 2013 GAF to estimated aggregate 

capital Federal rate payments based on the 

FY 2013 MS–DRG classifications and relative 

weights and the proposed FY 2014 GAFs. To 

achieve budget neutrality for the changes in 

the national GAFs, based on calculations 

using updated data, we are proposing to 

apply an incremental budget neutrality 

adjustment factor of 0.9998 for FY 2014 to 

the previous cumulative FY 2013 adjustment 

factor of 0.9904, yielding an adjustment 

factor of 0.9902 through FY 2014. For the 

Puerto Rico GAFs, we are proposing to apply 

an incremental budget neutrality adjustment 

factor of 0.9990 for FY 2014 to the previous 

cumulative FY 2013 adjustment factor of 

1.0095, yielding a cumulative adjustment 

factor of 1.0084 through FY 2014. 

We then compared estimated aggregate 

capital Federal rate payments based on the 

FY 2013 MS–DRG relative weights and the 

proposed FY 2014 GAFs to estimated 

aggregate capital Federal rate payments based 

on the cumulative effects of the proposed FY 

2014 MS–DRG classifications and relative 

weights and the proposed FY 2014 GAFs. 

The proposed incremental adjustment factor 

for DRG classifications and changes in 

relative weights is 0.9990 both nationally and 

for Puerto Rico. The proposed cumulative 

adjustment factors for MS–DRG 

classifications and proposed changes in 

relative weights and for proposed changes in 

the GAFs through FY 2014 are 0.9892 

nationally and 1.0074for Puerto Rico. (We 

note that all the values are calculated with 

unrounded numbers.) The GAF/DRG budget 

neutrality adjustment factors are built 

permanently into the capital rates; that is, 

they are applied cumulatively in determining 

the capital Federal rate. This follows the 

requirement under § 412.308(c)(4)(ii) that 

estimated aggregate payments each year be 

no more or less than they would have been 

in the absence of the annual DRG 

reclassification and recalibration and changes 

in the GAFs. 

The methodology used to determine the 

recalibration and geographic adjustment 

factor (GAF/DRG) budget neutrality 

adjustment is similar to the methodology 

used in establishing budget neutrality 

adjustments under the IPPS for operating 

costs. One difference is that, under the 

operating IPPS, the budget neutrality 

adjustments for the effect of geographic 

reclassifications are determined separately 

from the effects of other changes in the 

hospital wage index and the MS–DRG 

relative weights. Under the capital IPPS, 

there is a single GAF/DRG budget neutrality 

adjustment factor (the national capital rate 

and the Puerto Rico capital rate are 

determined separately) for changes in the 

GAF (including geographic reclassification) 

and the MS–DRG relative weights. In 

addition, there is no adjustment for the 

effects that geographic reclassification has on 

the other payment parameters, such as the 

payments for DSH or IME. 

The proposed cumulative adjustment 

factor accounts for the proposed MS–DRG 

reclassifications and recalibration and for 

proposed changes in the GAFs. It also 

incorporates the effects on the proposed 

GAFs of FY 2014 geographic reclassification 

decisions made by the MGCRB compared to 

FY 2013 decisions. However, it does not 

account for changes in payments due to 

changes in the DSH and IME adjustment 

factors. 

4. Proposed Capital Federal Rate for 

FY 2014 

For FY 2013, we established a capital 

Federal rate of $425.49 (77 FR 53706). We are 

proposing to establish an update of 0.9 

percent in determining the FY 2014 capital 

Federal rate for all hospitals. In addition, as 

discussed in greater detail in section IV.C. of 

the preamble of this proposed rule, we are 

proposing to make a reduction of 0.2 percent 

to the capital IPPS rates, to offset the 

estimated additional IPPS expenditures that 

are projected to result from our policy 

proposal on admission and medical review 

criteria for hospital inpatient services under 

Medicare Part A. 

As a result of the proposed 0.9 percent 

update, the proposed budget neutrality 

factors, and the proposed 0.2 percent 

reduction to offset the estimated additional 

IPPS expenditures projected to result from 

our policy proposal on admission and 

medical review criteria for hospital inpatient 

services discussed above, we are proposing to 

establish a national capital Federal rate of 

$432.03 for FY 2014. The proposed national 

capital Federal rate for FY 2014 was 

calculated as follows: 

• The proposed FY 2014 update factor is 

1.009, that is, the proposed update is 0.9 

percent. 

• The proposed FY 2014 budget neutrality 

adjustment factor that is applied to the 

proposed capital Federal rate for proposed 

changes in the MS–DRG classifications and 

relative weights and proposed changes in the 

GAFs is 0.9988. 

• The proposed FY 2014 outlier 

adjustment factor is 0.9451. 

• A proposed adjustment factor of 0.9980 

(that is, a reduction of 0.2 percent) to offset 

the estimated additional IPPS expenditures 

that are projected to result from our policy 

proposal on admission and medical review 

criteria for hospital inpatient services under 

Medicare Part A. 

(We note, in section VI.D. of the preamble 

of this proposed rule, we discuss the MS– 

DRG documentation and coding adjustment, 

including our proposed ¥0.8 percent 

recoupment adjustment to the operating IPPS 

standardized amount in FY 2014 under the 

provisions of section 631 of the ATRA, as 

well as additional prospective adjustments 

for the MS–DRG documentation and coding 

effect through FY 2010 authorized under 

section 1886(d)(3)(A)(vi) of the Act. Although 

we are not proposing an additional 

prospective adjustment in FY 2014 for the 

cumulative MS–DRG documentation and 

coding effects through FY 2010, we are 

soliciting public comments as to whether any 

portion of the proposed ¥0.8 percent 

recoupment adjustment to the operating IPPS 

standardized amount should be reduced and 

instead applied as a prospective adjustment 

to the operating IPPS standardized amount 

(and hospital-specific rates) for the 

cumulative MS–DRG documentation and 

coding effect through FY 2010. We discuss in 

that same section that if we were to attribute 

a portion of the proposed ¥0.8 percent 

recoupment adjustment to the operating IPPS 

standardized amount for FY 2014 as a 

prospective adjustment, under the Secretary’s 

broad authority under section 1886(g) of the 

Act, we also would make an appropriate 

adjustment to the national capital IPPS 

Federal rate (and note that the capital IPPS 

Puerto Rico rate would not be affected.) 

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 

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 noted 

previously in this section, there is no need 

for an exceptions payment adjustment budget 

neutrality factor in determining the FY 2014 

capital Federal rate.) 

We are providing the following chart that 

shows how each of the proposed factors and 

proposed adjustments for FY 2014 affects the 

computation of the proposed FY 2014 

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27776 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

national capital Federal rate in comparison to 

the FY 2013 national capital Federal rate. 

The proposed FY 2014 update factor has the 

effect of increasing the capital Federal rate by 

0.9 percent compared to the FY 2013 capital 

Federal rate. The proposed GAF/DRG budget 

neutrality adjustment factor has the effect of 

decreasing the capital Federal rate by 0.12 

percent. The proposed FY 2014 outlier 

adjustment factor has the effect of increasing 

the capital Federal rate by 0.95 percent 

compared to the FY 2013 capital Federal rate. 

The proposed adjustment to account for the 

estimated additional IPPS expenditures that 

are projected to result from our policy 

proposal on admission and medical review 

criteria for hospital inpatient services under 

Medicare Part A has the effect of decreasing 

the capital Federal rate by 0.2 percent 

compared to the FY 2013 capital Federal rate. 

The combined effect of all the proposed 

changes would increase the national capital 

Federal rate by 1.54 percent compared to the 

FY 2013 national capital Federal rate. 

COMPARISON OF FACTORS AND ADJUSTMENTS: FY 2013 CAPITAL FEDERAL RATE AND PROPOSED FY 2014 CAPITAL

FEDERAL RATE

FY 2013 Proposed 

FY 2014 Change Percent change 

Update Factor 1 ................................................................................................ 1.0120 1.0090 1.0090 0.90 

GAF/DRG Adjustment Factor 1 ........................................................................ 0.9998 0.9988 0.9988 ¥0.12 

Outlier Adjustment Factor 2 .............................................................................. 0.9362 0.9451 1.0095 0.95 

Adjustment for admission and medical review criteria 3 .................................. N/A 0.9980 0.9980 ¥0.20 

Capital Federal Rate ........................................................................................ $425.49 $432.03 1.0154 1.54 

1The update factor and the GAF/DRG budget neutrality adjustment factors are built permanently into the capital Federal rates. Thus, for example, the incremental change from FY 2013 to FY 2014 resulting from the application of the proposed 0.9988 GAF/DRG budget neutrality adjustment factor for FY 2014 is a net change of 0.9988 (or ¥0.12 percent). 2The outlier reduction factor is not built permanently into the capital Federal rate; that is, the factor is not applied cumulatively in determining 

the capital Federal rate. Thus, for example, the net change resulting from the application of the proposed FY 2014 outlier adjustment factor is 

0.9451/0.9362, or 1.0095 (or 0.95 percent). 3The proposed adjustment to account for the estimated additional IPPS expenditures that are projected to result from our policy proposal on 

admission and medical review criteria for hospital inpatient services under Medicare Part A (discussed in section VI.C. of the preamble of this 

proposed rule). 

6. Proposed Special Capital Rate for Puerto 

Rico Hospitals 

Section 412.374 provides for the use of a 

blended payment system for payments made 

to hospitals located in Puerto Rico under the 

PPS for acute care hospital inpatient capitalrelated costs. Accordingly, under the capital 

PPS, we compute a separate payment rate 

specific to hospitals located in Puerto Rico 

using the same methodology used to compute 

the national Federal rate for capital-related 

costs. Under the broad authority of section 

1886(g) of the Act, beginning with discharges 

occurring on or after October 1, 2004, capital 

payments made to hospitals located in Puerto 

Rico are based on a blend of 25 percent of 

the Puerto Rico capital rate and 75 percent 

of the capital Federal rate. The Puerto Rico 

capital rate is derived from the costs of 

Puerto Rico hospitals only, while the capital 

Federal rate is derived from the costs of all 

acute care hospitals participating in the IPPS 

(including Puerto Rico). 

To adjust hospitals’ capital payments for 

geographic variations in capital costs, we 

apply a GAF to both portions of the blended 

capital rate. The GAF is calculated using the 

operating IPPS wage index, and varies 

depending on the labor market area or rural 

area in which the hospital is located. We use 

the Puerto Rico wage index to determine the 

GAF for the Puerto Rico part of the capitalblended rate and the national wage index to 

determine the GAF for the national part of 

the blended capital rate. 

Because we implemented a separate GAF 

for Puerto Rico in FY 1998, we also apply 

separate budget neutrality adjustment factors 

for the national GAF and for the Puerto Rico 

GAF. However, we apply the same budget 

neutrality adjustment factor for MS–DRG 

reclassifications and recalibration nationally 

and for Puerto Rico. The proposed budget 

neutrality adjustment factors for the 

proposed national GAF and for the proposed 

Puerto Rico GAF, and the proposed budget 

neutrality factor for 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 2013, the special capital rate for 

hospitals located in Puerto Rico was $207.25 

(77 FR 53707). With the changes we are 

proposing to make to the other factors used 

to determine the capital Federal rate 

(including the proposed adjustment to 

account for the estimated additional IPPS 

expenditures that are projected to result from 

our policy proposal on admission and 

medical review criteria for hospital inpatient 

services under Medicare Part A (discussed in 

section V.N. of the preamble of this proposed 

rule), the proposed FY 2014 special capital 

rate for hospitals in Puerto Rico is $212.50. 

B. Calculation of the Proposed Inpatient 

Capital-Related Prospective Payments for FY 

2014 

For purposes of calculating payments for 

each discharge during FY 2014, the capital 

Federal rate is adjusted as follows: (Standard 

Federal Rate) × (DRG weight) × (GAF) × 

(COLA for hospitals located in Alaska and 

Hawaii) × (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 2014 are in section 

II.A. of this Addendum. For FY 2014, 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 $24,140. 

Currently, as provided under 

§ 412.304(c)(2), we pay a new hospital 85 

percent of its reasonable costs during the first 

2 years of operation unless it elects to receive 

payment based on 100 percent of the capital 

Federal rate. Effective with the third year of 

operation, we pay the hospital based on 100 

percent of the capital Federal rate (that is, the 

same methodology used to pay all other 

hospitals subject to the capital PPS). 

C. Capital Input Price Index 

1. Background 

Like the operating input price index, the 

capital input price index (CIPI) is a fixedweight 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 

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to reflect the changing composition of inputs 

for operating and capital expenses. In this 

proposed rule, we are proposing to rebase 

and revise the CIPI to a FY 2010 base year 

to reflect the more current structure of capital 

costs in hospitals. A complete discussion of 

this rebasing is provided in section IV.D. of 

the preamble of this proposed rule. The CIPI 

was last rebased to FY 2006 in the FY 2010 

IPPS/RY 2010 LTCH PPS final rule (74 FR 

44021). 

2. Forecast of the CIPI for FY 2014 

Based on the latest forecast by IHS Global 

Insight, Inc. (first quarter of 2013), we are 

forecasting the proposed FY 2010-based CIPI 

to increase 1.2 percent in FY 2014. This 

reflects a projected 1.8 percent increase in 

vintage-weighted depreciation prices 

(building and fixed equipment, and movable 

equipment), and a projected 2.8 percent 

increase in other capital expense prices in FY 

2014, partially offset by a projected 2.3 

percent decline in vintage-weighted interest 

expenses in FY 2014. The weighted average 

of these three factors produces the forecasted 

1.2 percent increase for the proposed FY 

2010-based CIPI as a whole in FY 2014. 

IV. Proposed Changes to Payment Rates for 

Excluded Hospitals: Rate-of-Increase 

Percentages for FY 2014 

Historically, certain 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-ofincrease ceiling. An annual per discharge 

limit (the target amount as defined in 

§ 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 § 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 certain 

categories of excluded providers, which 

included rehabilitation hospitals and units 

(now referred to as IRFs), psychiatric 

hospitals and units (now referred to as IPFs), 

LTCHs, children’s hospitals, and cancer 

hospitals. 

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 § 403.752(a), RNHCIs are also subject to 

the rate-of-increase limits established under 

§ 413.40 of the regulations.) 

We are proposing that the FY 2014 rate-ofincrease percentage for updating the target 

amounts for the 11 cancer hospitals, 

children’s hospitals, and RNHCIs would be 

the estimated percentage increase in the FY 

2014 IPPS operating market basket, in 

accordance with applicable regulations at 

§ 413.40. As described in section IV. of the 

preamble of this proposed rule, we are 

proposing to revise and rebase the IPPS 

operating market basket to a FY 2010 base 

year. Therefore, we are proposing to use the 

percentage increase in the FY 2010-based 

IPPS operating market basket to update the 

target amounts for children’s hospitals, 11 

cancer hospitals, and RNHCIs for FY 2014 

and subsequent fiscal years. Accordingly, the 

FY 2014 rate-of-increase percentage to be 

applied to the target amount for these cancer 

hospitals, children’s hospitals, and RNHCIs 

would be the FY 2014 percentage increase in 

the FY 2010-based IPPS operating market 

basket. Based on IHS Global Insight, Inc.’s 

2013 first quarter forecast, we estimate that 

the FY 2010-based IPPS operating market 

basket update for FY 2014 is 2.5 percent (that 

is, the estimate of the market basket rate-ofincrease). 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 

2014. 

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 was based on costbased reimbursement rules under 42 CFR 

Part 413 (certain providers do not receive a 

transition 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 VIII. of 

the preamble of this proposed rule and 

section V. of the Addendum to this proposed 

rule for the update changes to the Federal 

payment rates for LTCHs under the LTCH 

PPS for FY 2014. The annual updates for the 

IRF PPS and the IPF PPS are issued by the 

agency in separate Federal Register 

documents. 

V. Proposed Updates to the Payment Rates 

for the LTCH PPS for FY 2014 

A. Proposed LTCH PPS Standard Federal 

Rate for FY 2014 

1. Background 

In section VIII. of the preamble of this 

proposed rule, we discuss our proposed 

updates to the payment rates, factors, and 

specific policies under the LTCH PPS for FY 

2014. 

Under § 412.523(c)(3)(ii) of the regulations, 

for LTCH PPS rate years beginning RY 2004 

through RY 2006, we updated the standard 

Federal rate annually by a factor to adjust for 

the most recent estimate of the increases in 

prices of an appropriate market basket of 

goods and services for LTCHs. We 

established this policy of annually updating 

the standard Federal rate because, at that 

time, we believed that was the most 

appropriate method for updating the LTCH 

PPS standard Federal rate for years after the 

initial implementation of the LTCH PPS in 

FY 2003. Thus, under § 412.523(c)(3)(ii), for 

RYs 2004 through 2006, the annual update to 

the LTCH PPS standard Federal rate was 

equal to the previous rate year’s Federal rate 

updated by the most recent estimate of 

increases in the appropriate market basket of 

goods and services included in covered 

inpatient LTCH services. 

In determining the annual update to the 

standard Federal rate for RY 2007, based on 

our ongoing monitoring activity, we believed 

that, rather than solely using the most recent 

estimate of the LTCH PPS market basket 

update as the basis of the annual update 

factor, it was appropriate to adjust the 

standard Federal rate to account for the effect 

of documentation and coding in a prior 

period that was unrelated to patients’ 

severity of illness (71 FR 27818). 

Accordingly, we established under 

§ 412.523(c)(3)(iii) that the annual update to 

the standard Federal rate for RY 2007 was 

zero percent based on the most recent 

estimate of the LTCH PPS market basket at 

that time, offset by an adjustment to account 

for changes in case-mix in prior periods due 

to the effect of documentation and coding 

that were unrelated to patients’ severity of 

illness. For RY 2008 through FY 2011, we 

also made an adjustment for the effect of 

documentation and coding that was 

unrelated to patients’ severity of illness in 

establishing the annual update to the 

standard Federal rate as set forth in the 

regulations at §§ 412.523(c)(3)(iv) through 

(c)(3)(vii). For FYs 2012 and 2013, we 

updated the standard Federal rate by the 

most recent estimate of the LTCH PPS market 

basket at that time, including additional 

statutory adjustments required by section 

1886(m)(3)(A) of the Act as set forth in the 

regulations at §§ 412.523(c)(3)(viii) through 

(c)(3)(ix). 

Section 1886(m)(3)(A) of the Act, as added 

by section 3401(c) of the Affordable Care Act, 

specifies that, for rate year 2010 and each 

subsequent rate year, any annual update to 

the standard Federal rate shall be reduced: 

• For rate year 2010 through 2019, by the 

other adjustment specified in section 

1886(m)(3)(A)(ii) and (m)(4) of the Act; and 

• For rate year 2012 and each subsequent 

year, by the productivity adjustment 

described in section 1886(b)(3)(B)(xi)(II) of 

the Act (which we refer to as ‘‘the multifactor 

productivity (MFP) adjustment’’) as 

discussed in section VIII.C.2.b. 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 VIII.C.2.b. 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 2013, consistent with our historical 

practice, we established an update to the 

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LTCH PPS standard Federal rate based on the 

full estimated LTCH PPS market basket 

increase of 2.6 percent and the 0.8 percentage 

point reductions required by sections 

1886(m)(3)(A)(i) and 1886(m)(3)(A)(ii) with 

1886(m)(4)(C) of the Act. Accordingly, at 

§ 412.523(c)(3)(ix) of the regulations, we 

established an annual update of 1.8 percent 

to the standard Federal rate for FY 2013 (77 

FR 53708 through 53711 and 53481). 

For FY 2014, as discussed in greater detail 

in section VIII.C.2.e. of the preamble of this 

proposed rule, we are proposing to establish 

an annual update to the LTCH PPS standard 

Federal rate based on the full estimated 

increase in the LTCH PPS market basket, less 

the MFP adjustment consistent with section 

1886(m)(3)(A)(i) of the Act and less the 0.3 

percentage point required by sections 

1886(m)(3)(A)(ii) and (m)(4)(D) of the Act. In 

addition, as discussed in greater detail in 

section VIII.C.2.c., beginning in FY 2014, the 

proposed annual update will be further 

reduced by 2.0 percentage points for LTCHs 

that fail to submit quality reporting data in 

accordance with the LTCHQR Program under 

section 1886(m)(5) of the Act. 

Specifically, in this proposed rule, based 

on the best available data, we are proposing 

to establish an annual update to the standard 

Federal rate of 1.8 percent provided the 

LTCH submits quality reporting data for FY 

2014 in accordance with the LTCHQR 

Program under section 1886(m)(5) of the Act, 

which is based on the full estimated increase 

in the LTCH PPS market basket of 2.5 

percent, less the proposed MFP adjustment of 

0.4 percentage point consistent with section 

1886(m)(3)(A)(i) of the Act and less the 0.3 

percentage point required by sections 

1886(m)(3)(A)(ii) and (m)(4)(D) of the Act. As 

discussed in greater detail in section 

VIII.C.2.c., for LTCHs that fail to submit 

quality reporting data for FY 2014 in 

accordance with the LTCHQR Program, the 

proposed annual update will be further 

reduced by 2.0 percentage points as required 

by section 1886(m)(5) of the Act. 

Accordingly, we are proposing an annual 

update to the LTCH PPS standard Federal 

rate of ¥0.2 percent for LTCHs that fail to 

submit quality reporting data for FY 2014. 

This is calculated based on the full estimated 

increase in the LTCH PPS market basket of 

2.5 percent, less a proposed MFP adjustment 

of 0.4 percentage point, less an additional 

adjustment of 0.3 percentage point required 

by the statute, and less 2.0 percentage points 

for failure to submit quality reporting data as 

required by section 1886(m)(5) of the Act. 

2. Development of the Proposed FY 2014 

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, for FY 2014, we applied the annual 

update to the LTCH PPS standard Federal 

rate from the previous year. In determining 

the proposed standard Federal rate for FY 

2014, we also are proposing to make certain 

regulatory adjustments. Specifically, we are 

proposing to apply an adjustment factor 

under the second year of the 3-year phase-in 

of the one-time prospective adjustment to the 

standard Federal rate under § 412.523(d)(3), 

as discussed in greater detail in section 

VIII.C.3. of the preamble of this proposed 

rule. In addition, in determining the 

proposed FY 2014 standard Federal rate, we 

are proposing to apply a budget neutrality 

adjustment factor for the changes related to 

the area wage adjustment (that is, changes to 

the wage data and labor-related share) in 

accordance with § 412.523(d)(4). 

In the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53708 through 53710 and 53481), we 

established an annual update to the LTCH 

PPS standard Federal rate of 1.8 percent for 

FY 2013 based on the full estimated LTCH 

PPS market basket increase of 2.6 percent, 

less the MFP adjustment of 0.7 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 § 412.523(c)(3)(ix), we 

established an annual update to the standard 

Federal rate for FY 2013 of 1.8 percent. That 

is, we applied an update factor of 1.018 to 

the FY 2012 Federal rate of $40,222.05 to 

determine the FY 2013 standard Federal rate. 

Effective December 29, 2012, we also 

adjusted the standard Federal rate for FY 

2013 by the one-time prospective adjustment 

factor for FY 2013 of 0.98734 under 

§ 412.523(d)(3)(ii) (this adjustment was not 

applied to payments for discharges occurring 

before December 29, 2012, consistent with 

the statute). Furthermore, for FY 2013, we 

applied an area wage level budget neutrality 

factor of 0.999265 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 laborrelated 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 

2013 of $40,397.96 (calculated as $40,222.05 

× 1.018 × 0.98734 × 0.999265). Furthermore, 

consistent with the statute, the one-time 

prospective adjustment factor of 0.98734 

applied to the standard Federal rate for FY 

2013 is not applied to payments for 

discharges occurring before December 29, 

2012. Thus, payment for discharges occurring 

on or after October 1, 2012, and on or before 

December 28, 2012, does not reflect that 

adjustment and instead are paid based on a 

standard Federal rate of $40,915.95 

(calculated as $40,397.96 divided by 

0.98734). 

In this proposed rule, we are proposing to 

establish an annual update to the LTCH PPS 

standard Federal rate of 1.8 percent (that is, 

an update factor of 1.018) for FY 2014, based 

on the full estimated increase in the LTCH 

PPS market basket of 2.5 percent less the 

proposed MFP adjustment of 0.4 percentage 

point, consistent with section 

1886(m)(3)(A)(i) of the Act, and less the 0.3 

percentage point required by sections 

1886(m)(3)(A)(ii) and(m)(4)(D) of the Act, 

provided the LTCH submits quality data in 

accordance with the LTCHQR Program under 

section 1886(m)(5) of the Act. Therefore, 

under proposed § 412.523(c)(3)(x), we are 

proposing to apply a factor of 1.018 to the FY 

2013 standard Federal rate of $40,397.96 (as 

established in the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53710)) to determine the 

proposed FY 2014 standard Federal rate. For 

LTCHs that fail to submit quality reporting 

data for FY 2014 under the LTCHQR 

Program, under proposed § 412.523(c)(3)(x) 

in conjunction with proposed § 412.523(c)(4), 

we are proposing to reduce the annual 

update to the LTCH PPS standard Federal 

rate by an additional 2.0 percentage points 

consistent with section 1886(m)(5) of the Act. 

Therefore, we are proposing to establish an 

annual update to the LTCH PPS standard 

Federal rate of ¥0.2 percent (that is, 1.8 

percent minus 2.0 percentage points = ¥0.2 

percent or an update factor of 0.9980) for FY 

2014 for LTCHs that fail to submit quality 

reporting data for FY 2014 under the 

LTCHQR Program. We also are proposing to 

establish that the standard Federal rate for FY 

2014 would be further adjusted by a 

proposed adjustment factor of 0.98734 for FY 

2014 under the second year of the 3-year 

phase-in of the one-time prospective 

adjustment at § 412.523(d)(3)(ii). In addition, 

for FY 2014, we are proposing to apply an 

area wage level budget neutrality factor of 

1.000433 to the standard Federal rate to 

ensure that any proposed changes to the area 

wage level adjustment (that is, the proposed 

annual update of the wage index values and 

labor-related share) would not result in any 

change (increase or decrease) in estimated 

aggregate LTCH PPS payments. Accordingly, 

we are proposing to establish a standard 

Federal rate for FY 2014 of $40,622.06 

(calculated as $40,397.96 × 1.018 × 0.98734 

× 1.000433) for discharges occurring on or 

after October 1, 2013, and on or before 

September 30, 2014, provided the LTCH 

submits quality reporting data for FY 2014 in 

accordance with the LTCHQR Program under 

section 1886(m)(5) of the Act. For LTCHs that 

fail to submit quality reporting data for FY 

2014 in accordance with the LTCHQR 

Program under section 1886(m)(5) of the Act, 

we are proposing to establish a standard 

Federal rate for FY 2014 of $39,823.99 

(calculated as $40,397.96 × 0.998 × 0.98734 

× 1.000433) for discharges occurring on or 

after October 1, 2013, and on or before 

September 30, 2014. 

B. Proposed Adjustment for Area Wage 

Levels Under the LTCH PPS for FY 2014 

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 

§ 412.525(c). The labor-related share of the 

LTCH PPS standard Federal rate is adjusted 

to account for geographic differences in area 

wage levels by applying the applicable LTCH 

PPS wage index. The applicable LTCH PPS 

wage index is computed using wage data 

from inpatient acute care hospitals without 

regard to reclassification under section 

1886(d)(8) or section 1886(d)(10) of the Act. 

When we implemented the LTCH PPS, we 

established a 5-year transition to the full area 

wage index level adjustment. The area wage 

level adjustment was completely phased-in 

for cost reporting periods beginning in FY 

2007. Therefore, for cost reporting periods 

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beginning on or after October 1, 2006, the 

applicable LTCH wage index values are the 

full LTCH PPS wage index values calculated 

based on acute care hospital inpatient wage 

index data without taking into account 

geographic reclassification under section 

1886(d)(8) and section 1886(d)(10) of the Act. 

For additional information on the phase-in of 

the area wage level adjustment under the 

LTCH PPS, we refer readers to the August 30, 

2002 LTCH PPS final rule (67 FR 56015 

through 56019) and the RY 2008 LTCH PPS 

final rule (72 FR 26891). 

2. Proposed Geographic Classifications/Labor 

Market Area Definitions 

As discussed in the August 30, 2002 LTCH 

PPS final rule, which implemented the LTCH 

PPS (67 FR 56015 through 56019), in 

establishing an adjustment for area wage 

levels, the labor-related portion of a LTCH’s 

Federal prospective payment is adjusted by 

using an appropriate wage index based on 

the labor market area in which the LTCH is 

located. Specifically, the application of the 

LTCH PPS area wage level adjustment at 

existing § 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 § 412.503. 

Currently under the LTCH PPS at § 412.503, 

an ‘‘urban area’’ is defined as a Metropolitan 

Statistical Area (which would include a 

metropolitan division, where applicable) as 

defined by the Executive OMB and a ‘‘rural 

area’’ is defined as any area outside of an 

urban area. 

In the RY 2006 LTCH PPS final rule (70 FR 

24184 through 24185), in regulations at 

§ 412.525(c), we revised the labor market area 

definitions used under the LTCH PPS 

effective for discharges occurring on or after 

July 1, 2005, based on the Executive OMB’s 

CBSA designations, which are based on 2000 

Census data. We made this revision because 

we believe that the CBSA-based labor market 

area definitions will ensure that the LTCH 

PPS wage index adjustment most 

appropriately accounts for and reflects the 

relative hospital wage levels in the 

geographic area of the hospital as compared 

to the national average hospital wage level. 

We note that these are the same CBSA-based 

designations implemented for acute care 

hospitals under the IPPS at § 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).) We have 

generally updated the LTCH PPS CBSAbased labor market area definitions annually 

since they were adopted for RY 2006 when 

updates from OMB were available (73 FR 

26812 through 26814, 74 FR 44023 through 

44204, and 75 FR 50444 through 50445). 

In OMB Bulletin No. 10–2, issued on 

December 1, 2009, OMB announced that the 

CBSA changes in that bulletin would be the 

final update prior to the 2010 Census of 

Population and Housing. We adopted those 

changes under the LTCH PPS in the FY 2011 

IPPS/LTCH PPS final rule (75 FR 50444 

through 50445), effective beginning October 

1, 2010, and adopted their continued use for 

FY 2012 and FY 2013 (76 FR 51808 and 77 

FR 53710, respectively). In the FY 2013 IPPS/ 

LTCH PPS final rule, we explained that in 

2013 OMB planned to announce new area 

delineations based on its 2010 standards and 

the 2010 Census data and, therefore, for the 

FY 2013 LTCH area wage level adjustment, 

we would continue to use the same labor 

market areas that we adopted for FY 2012 (77 

FR 53710). In fact, on February 28, 2013, 

OMB issued OMB Bulletin No. 13–01, 

announcing revisions to the delineation of 

Metropolitan Statistical Areas, Micropolitian 

Statistical Areas, and Combined Statistical 

Areas, and guidance on uses of the 

delineation of these areas. A copy of this 

bulletin may be obtained at http:// 

www.whitehouse.gov/sites/default/files/omb/ 

bulletins/2013/b-13-01.pdf. According to 

OMB, this bulletin provides the delineations 

of all Metropolitan Statistical Areas, 

Metropolitan Divisions, Micropolitan 

Statistical Areas, Combined Statistical Areas, 

and New England City and Town Areas in 

the United States and Puerto Rico based on 

the standards published in the Federal 

Register on June 28, 2010 (75 FR 37246 

through 37252) and Census Bureau data. 

In order to implement these changes for the 

LTCH PPS (as in the case of the IPPS, as 

discussed in section III.B. of the preamble of 

this proposed rule), it is necessary to identify 

the new area designations for each county 

and hospital in the country. While the 

revisions OMB published on February 28, 

2013, are not as sweeping as the changes 

OMB announced in 2003, the February 28, 

2013 bulletin does contain a number of 

significant changes. For example, there are 

new CBSAs, urban counties that have 

become rural, rural counties that have 

become urban, and existing CBSAs that have 

been split apart. 

Because the update was not issued until 

February 28, 2013, and the changes made by 

the update and their ramifications must be 

extensively reviewed and verified, we were 

unable to undertake such a lengthy process 

before publication of this FY 2014 proposed 

rule. By the time the update was issued, the 

FY 2014 IPPS/LTCH PPS proposed rule was 

in the advanced stages of development. We 

had already developed the FY 2014 proposed 

LTCH PPS wage indexes based on the 

previous OMB definitions that are currently 

used under the LTCH PPS. We note that CMS 

was faced with a similar situation 10 years 

ago, when OMB announced changes resulting 

from the 2000 Census in June 2003. At that 

time, CMS proposed and implemented the 

changes under the IPPS for FY 2005, 

followed by the adoption under the LTCH 

PPS in RY 2006 (as noted previously). 

Similarly, to allow for sufficient time to 

assess the new changes and their 

ramifications, consistent with the proposal 

under the IPPS discussed in section III.B. of 

the preamble of this proposed rule, we intend 

to propose the adoption of the newest CBSA 

designations and the corresponding changes 

to the wage index based on those CBSA 

changes under the LTCH PPS for FY 2015 

through notice and comment rulemaking. We 

refer readers to the RY 2006 LTCH PPS final 

rule (70 FR 24182 through 24191) for further 

information on the CBSA-based labor market 

area definitions currently used under the 

LTCH PPS. In addition, we refer readers to 

the FY 2005 IPPS final rule (69 FR 49026 

through 49032) for those interested in 

learning about the issues that may need to be 

addressed in developing a proposal to 

implement the latest OMB update to the 

CBSA designations for FY 2015, and some of 

the policy decisions that may need to be 

taken into consideration in the development 

of such a proposal. 

For FY 2014, we are proposing to continue 

to use the same labor market areas that were 

used under the LTCH PPS for FY 2013 (77 

FR 53710) as we assess the new changes to 

the CBSA designations and their effect on 

LTCH PPS payments. This is consistent with 

the proposed approach being taken under the 

IPPS, and as noted previously, the LTCH PPS 

currently uses the same CBSA-based 

designations implemented for acute care 

hospitals under the IPPS. 

3. Proposed LTCH PPS Labor-Related Share 

Under the adjustment for differences in 

area wage levels at § 412.525(c), the laborrelated share of a LTCH’s PPS Federal 

prospective payment is adjusted by the 

applicable wage index for the labor market 

area in which the LTCH is located. The LTCH 

PPS labor-related share currently represents 

the sum of the labor-related portion of 

operating costs (Wages and Salaries, 

Employee Benefits, Professional Fees: LaborRelated, Administrative and Business 

Support Services, and All-Other: LaborRelated Services) and a labor-related portion 

of capital costs using the applicable LTCH 

PPS market basket. (Additional background 

information on the historical development of 

the labor-related share under the LTCH PPS 

and the development of the RPL market 

basket can be found in the RY 2007 LTCH 

PPS final rule (71 FR 27810 through 27817 

and 27829 through 27830) and the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51766 

through 51769 and 51808).) 

For FY 2013, we revised and rebased the 

market basket used under the LTCH PPS by 

adopting the newly created FY 2009-based 

LTCH-specific market basket. In addition, we 

determined the labor-related share for FY 

2013 as the sum of the FY 2013 relative 

importance of each labor-related cost 

category of the FY 2009-based LTCH-specific 

market basket. Specifically, we determined 

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 LTCH-specific 

market basket based on FY 2009 data, as we 

believed these were the best data available to 

reflect the cost structure of LTCHs. In the FY 

2013 IPPS/LTCH PPS final rule (77 FR 53477 

through 53479 and 53710 through 53711), we 

established a labor-related share under the 

LTCH PPS for FY 2013 of 63.096 percent 

based on IGI’s second quarter 2012 forecast 

of the FY 2009-based LTCH-specific market 

basket for FY 2013, as these were the most 

recent available data at that time that 

reflected the cost structure of LTCHs. (For 

additional details on the development of the 

LTCH PPS labor-related share for FY 2013, 

we refer readers to section VII.C.3.f. of the 

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preamble of the FY 2013 IPPS/LTCH PPS 

final rule.) 

Consistent with our historical practice, we 

are proposing to determine the LTCH PPS 

labor-related share for FY 2014 based on the 

proposed FY 2014 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 2014. For this proposed 

rule, we are proposing to determine the 

LTCH PPS labor-related share for FY 2014 

based on IGI’s first quarter 2013 forecast of 

the FY 2009-based LTCH-specific market 

basket as this is currently the best available 

data. In addition, consistent with our 

proposal to update the labor-related share 

with the most recent available data, we are 

proposing that if more recent data become 

available, we would use those data in 

determining the labor-related share under the 

LTCH PPS for FY 2014 in the final rule. 

The table below shows the proposed FY 

2014 labor-related share relative importance 

using IGI’s first quarter 2013 forecast of the 

FY 2009-based LTCH-specific market basket. 

The sum of the proposed relative importance 

for FY 2014 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 58.495 

percent. We are proposing that the portion of 

capital-related costs that is influenced by the 

local labor market continue to be estimated 

to be 46 percent. Because the relative 

importance for capital-related costs would be 

9.179 percent of the proposed FY 2009-based 

LTCH-specific market basket in FY 2014, we 

are proposing to take 46 percent of 9.179 

percent to determine the proposed laborrelated share of capital-related costs for FY 

2014, which would result in 4.222 percent 

(0.46 × 9.179). We would then add that 

proposed 4.222 for the capital-related cost 

amount to the proposed 58.495percent for the 

operating cost amount to determine the total 

proposed labor-related share for FY 2014. 

Thus, 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 a laborrelated share under the LTCH PPS in FY 

2014 of 62.717 percent. This proposed laborrelated share is determined using the same 

methodology as employed in calculating all 

previous LTCH labor-related shares. 

PROPOSED FY 2014 LABOR-RELATED

SHARE RELATIVE IMPORTANCE

BASED ON THE FY 2009-BASED

LTCH-SPECIFIC MARKET BASKET

Proposed 

FY 2014 

labor-related 

share relative 

importance 

Wages and Salaries ............. 45.130 

Employee Benefits ................ 8.134 

Professional Fees: Labor-Related .................................. 2.214 

Administrative and Business 

Support Services ............... 0.502 

PROPOSED FY 2014 LABOR-RELATED

SHARE RELATIVE IMPORTANCE

BASED ON THE FY 2009-BASED

LTCH-SPECIFIC MARKET BASKET— 

Continued 

Proposed 

FY 2014 

labor-related 

share relative 

importance 

All Other: Labor-Related 

Services ............................ 2.515 

Subtotal ............................. 58.495 

Labor-Related Portion of 

Capital Costs (46%) .......... 4.222 

Total Labor-Related Share 62.717 

4. Proposed LTCH PPS Wage Index for FY 

2014 

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 2013 LTCH PPS final rule (77 FR 

53711 through 53712), we calculated the FY 

2013 LTCH PPS wage index values using the 

same data used for the FY 2013 acute care 

hospital IPPS (that is, data from 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, as these were the most 

recent complete data available at that time. 

In that same final rule, we indicated that we 

computed the FY 2013 LTCH PPS wage 

index values consistent with the urban and 

rural geographic classifications (labor market 

areas) and consistent with the prereclassified IPPS wage index policy (that is, 

our historical policy of not taking into 

account IPPS geographic reclassifications in 

determining payments under the LTCH PPS). 

As with the IPPS wage index, wage data for 

multicampus hospitals with campuses 

located in different labor market areas 

(CBSAs) are apportioned to each CBSA 

where the campus (or campuses) are located. 

We also continued to use our existing policy 

for determining 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 2014, under the broad authority conferred 

upon the Secretary by section 123 of the 

BBRA, as amended by section 307(b) of the 

BIPA, to determine appropriate 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 2010, 

without taking into account geographic 

reclassification under sections 1886(d)(8) and 

1886(d)(10) of the Act. We are proposing to 

use FY 2010 data because these data are the 

most recent complete data available. These 

are the same data used to compute the 

proposed FY 2014 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 2014 LTCH PPS wage 

index values were 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 prereclassified 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.G. of the preamble 

of this proposed rule). Furthermore, in 

determining the proposed FY 2014 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. 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 2014. (We refer readers 

to the RY 2009 LTCH PPS final rule (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 2014. 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 2010 IPPS wage data that 

we used to determine the proposed FY 2014 

LTCH PPS wage index values in this 

proposed rule, there are no IPPS wage data 

for the urban area Hinesville-Fort Stewart, 

GA (CBSA 25980). Consistent with the 

methodology discussed above, we calculated 

the proposed FY 2014 wage index value for 

CBSA 25980 as the average of the wage index 

values for all of the other urban areas within 

the State of Georgia (that is, CBSAs 10500, 

12020, 12060, 12260, 15260, 16860, 17980, 

19140, 23580, 31420, 40660, 42340, 46660 

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and 47580), as shown in Table 12A, which 

is listed in section VI. of the Addendum to 

this proposed rule and available via the 

Internet on the CMS Web site). We note that, 

as IPPS wage data are dynamic, it is possible 

that urban areas without IPPS wage data will 

vary in the future. 

Based on FY 2010 IPPS wage data that we 

are using to determine the proposed FY 2014 

LTCH PPS wage index values in this 

proposed rule, there are no rural areas 

without IPPS hospital wage data. Therefore, 

it is not necessary to use our established 

methodology to calculate a LTCH PPS wage 

index value for rural areas with no IPPS wage 

data for FY 2014. We note that, as IPPS wage 

data are dynamic, it is possible that rural 

areas without IPPS wage data will vary in the 

future. 

The proposed FY 2014 LTCH wage index 

values that would be applicable for LTCH 

discharges occurring on or after October 1, 

2013, through September 30, 2014, 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. Under 

§ 412.525(c)(2), any changes to the wage 

index values or labor-related share are 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 § 412.523(d)(4), we apply an area wage 

level adjustment budget neutrality factor in 

determining the standard Federal rate, and 

we also established a methodology for 

calculating an area wage level adjustment 

budget neutrality factor. (For additional 

information on the establishment of our 

budget neutrality policy for changes to the 

area wage level adjustment, we refer readers 

to the FY 2012 IPPS/LTCH PPS final rule (76 

FR 51771 through 51773 and 51809).) 

As we did for FY 2013, in accordance with 

§ 412.523(d)(4), for FY 2014, 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 the proposed adjustments 

or updates to the area wage level adjustment 

under § 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 an area wage 

level adjustment budget neutrality factor that 

would be applied to the standard Federal rate 

under § 412.523(d)(4) for FY 2014 using the 

following methodology: 

Step 1—We simulated estimated aggregate 

LTCH PPS payments using the FY 2013 wage 

index values (as established in Tables 12A 

and 12B listed in the Addendum to the FY 

2013 IPPS/LTCH PPS final rule and available 

via the Internet on the CMS Web site) and the 

FY 2013 labor-related share of 63.096 percent 

(as established in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53477 through 53479 

and 53710 through 53711). 

Step 2—We simulated estimated aggregate 

LTCH PPS payments using the proposed FY 

2014 wage index values (as shown in Tables 

12A and 12B listed in the Addendum to this 

proposed rule and available via the Internet 

on the CMS Web site) and the proposed FY 

2014 labor-related share of 62.717 percent 

(based on the latest available data as 

discussed previously in section V.B.3. of this 

Addendum). 

Step 3—We calculated the ratio of these 

estimated total LTCH PPS payments by 

dividing the estimated total LTCH PPS 

payments using the FY 2013 area wage level 

adjustments (calculated in Step 1) by the 

estimated total LTCH PPS payments using 

the proposed FY 2014 area wage level 

adjustments (calculated in Step 2) to 

determine the proposed area wage level 

adjustment budget neutrality factor for FY 

2014. 

Step 4—We then applied the proposed FY 

2014 area wage level adjustment budget 

neutrality factor from Step 3 to determine the 

proposed FY 2014 LTCH PPS standard 

Federal rate after the application of the 

proposed FY 2014 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 2014 

area wage level adjustment budget neutrality 

factor of 1.000433. Accordingly, in section 

V.A.2. of the Addendum to this proposed 

rule, to determine the proposed FY 2014 

LTCH PPS standard Federal rate, we are 

proposing to apply a proposed area wage 

level adjustment budget neutrality factor of 

1.000433, in accordance with § 412.523(d)(4). 

The proposed FY 2014 LTCH PPS standard 

Federal rate shown in Table 1E of the 

Addendum to this proposed rule reflects this 

adjustment factor. 

C. Proposed LTCH PPS Cost-of-Living 

Adjustment for LTCHs Located in Alaska and 

Hawaii 

Under § 412.525(b), a cost-of-living 

adjustment (COLA) is provided for LTCHs 

located in Alaska and Hawaii to account for 

the higher costs incurred in those States. 

Specifically, we apply a COLA to payments 

to LTCHs located in Alaska and Hawaii by 

multiplying the nonlabor-related portion of 

the standard Federal payment rate by the 

applicable COLA factors established annually 

by CMS. Higher labor-related costs for LTCHs 

located in Alaska and Hawaii are taken into 

account in the adjustment for area wage 

levels described above. 

As discussed in the FY 2013 IPPS/LTCH 

PPS final rule (77 FR 53481 through 53482 

and 53712 through 53713), historically, we 

used the most recent updated COLA factors 

obtained from the U.S. Office of Personnel 

Management (OPM) Web site at http:// 

www.opm.gov/oca/cola/rates.asp to adjust 

the LTCH PPS payments for LTCHs located 

in Alaska and Hawaii. Statutory changes 

have transitioned the Alaska and Hawaii 

COLAs to locality pay (phased in over a 3- 

year period beginning in January 2010, with 

COLA rates being frozen as of October 28, 

2009, and then proportionately reduced to 

reflect the phase-in of locality pay). We 

explained that we did not believe it was 

appropriate to use either the 2010 or 2011 

reduced COLA factors to adjust the nonlaborrelated portion of the standard Federal rate 

for LTCHs located in Alaska and Hawaii for 

Medicare payment purposes. In addition, we 

believe that it was appropriate to use 

‘‘frozen’’ COLA factors to adjust payments, 

while we explored alternatives for updating 

the COLA factors in the future. 

In the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53712 through 53713), we continued 

to use the same ‘‘frozen’’ COLA factors used 

in FY 2012 to adjust the nonlabor-related 

portion of the standard Federal rate for 

LTCHs located in Alaska and Hawaii in FY 

2013 under § 412.525(b). In that same final 

rule, we also established a methodology to 

update the COLA factors for Alaska and 

Hawaii, every 4 years (at the same time as the 

update to the labor-related share of the IPPS 

market basket), beginning in FY 2014. The 

methodology we established to update the 

COLA factors is based on a comparison of the 

growth in the CPIs for Anchorage, Alaska and 

Honolulu, Hawaii relative to the growth in 

the CPI for the average U.S. city as published 

by the Bureau of Labor Statistics (BLS). As 

also explained in that same final rule, we 

believe that using these updated COLA 

factors will appropriately adjust the 

nonlabor-related portion of the standard 

Federal rate for LTCHs located in Alaska and 

Hawaii. (For additional details on the 

methodology we established in the FY 2013 

IPPS/LTCH PPS final rule to update the 

COLA factors for Alaska and Hawaii 

beginning in FY 2014, we refer readers to 

section VII.D.3. of the preamble of that final 

rule (77 FR 53481 through 53482).) 

In this proposed rule, for FY 2014, under 

the broad authority conferred upon the 

Secretary by section 123 of the BBRA, as 

amended by section 307(b) of the BIPA, to 

determine appropriate adjustments under the 

LTCH PPS, we are proposing to update the 

COLA factors published by OPM for 2009 (as 

these are the last COLA factors OPM 

published prior to transitioning from COLAs 

to locality pay) using the methodology that 

we finalized in the FY 2013 IPPS/LTCH PPS 

final rule for purposes of making a COLA for 

LTCHs located in Alaska and Hawaii under 

§ 412.525(b). Specifically, the methodology 

uses 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 BLS. As 

discussed in that same final rule (77 FR 

53481 through 53482), because BLS 

publishes CPI data for only Anchorage, 

Alaska and Honolulu, Hawaii, our 

methodology uses a comparison of the 

growth in the Consumer Price Indices (CPIs) 

for those cities relative to the growth in the 

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overall CPI to update the COLA factors for all 

areas located in Alaska and Hawaii, 

respectively. We believe that the relative 

price differences between these cities and the 

United States (as measured by the CPIs 

mentioned above) are generally appropriate 

and necessary proxies for the relative price 

differences between the ‘‘other areas’’ of 

Alaska and Hawaii and the United States. 

The ‘‘CPI for All Items’’ that BLS publishes 

for Anchorage, Honolulu, and for the average 

U.S. city are based on a different mix of 

commodities and services than is reflected in 

the nonlabor-related share of the IPPS market 

basket. We note that the mix of commodities 

and services for the nonlabor-related share 

based on the LTCH market basket is similar 

to that of the nonlabor-related share of the 

IPPS market basket. As such, under the 

methodology we established to update the 

COLA factors, we calculated a ‘‘reweighted 

CPI’’ using the CPI for commodities and the 

CPI for services for each of the geographic 

areas to mirror the composition of the IPPS 

market basket nonlabor-related share. 

Furthermore, we note that, if finalized, we do 

not anticipate that the proposals in section 

IV. of this preamble to revise and rebase the 

IPPS market basket for FY 2014 would alter 

the commodity/services weights for the 

nonlabor-related share of the IPPS market 

basket. 

The current composition of BLS’ CPI for 

All Items for all of the respective areas is 

approximately 40 percent commodities and 

60 percent services. However, the nonlaborrelated share of the proposed IPPS market 

basket is comprised of approximately 60 

percent commodities and 40 percent services. 

Therefore, under the methodology we 

established in the FY 2013 IPPS/LTCH PPS 

final rule we have created reweighted 

indexes for Anchorage, Alaska and Honolulu, 

Hawaii, and the average U.S. city using the 

respective CPI commodities index and CPI 

services index and applying the approximate 

60/40 weights from the proposed IPPS 

market basket. We believe that this method 

of reweighting is appropriate because we 

would continue to make a COLA for LTCHs 

located in Alaska and Hawaii by multiplying 

the nonlabor-related portion of the LTCH PPS 

standard Federal rate by a COLA factor. 

Under the COLA factor update 

methodology we established in the FY 2013 

IPPS/LTCH PPS final rule, we further 

exercised our discretionary authority to 

adjust payments made to LTCHs located in 

Alaska and Hawaii by incorporating a 25- 

percent cap on the CPI-updated COLA factors 

used to adjust the nonlabor-related portion of 

the LTCH PPS standard Federal rate, which 

is consistent with a statutorily mandated 25- 

percent cap that was applied to OPM’s 

published COLA factors. We believe that this 

is appropriate because our proposed CPIupdated COLA factors for FY 2014 uses the 

2009 OPM COLA factors as a basis. In 

addition, we are proposing to continue to 

establish COLA factors that are rounded to 2 

decimal places, which is consistent with the 

number of decimal places in the 2009 OPM 

COLA factors that are used as the basis for 

calculating the proposed FY 2014 COLA 

factors. This policy would also maintain 

consistency with the rounding used for the 

25-percent cap on the COLA factors (that is, 

a COLA factor of no more than 1.25). 

Applying this methodology, we are 

proposing to establish the COLA factors for 

FY 2014 that would adjust the nonlaborrelated portion of the standard Federal rate 

for LTCHs located in Alaska and Hawaii as 

shown in the table below. 

PROPOSED COST-OF-LIVING ADJUSTMENT FACTORS FOR ALASKA AND HAWAII HOSPITALS FOR THE LTCH PPS FOR FY 

2014 

Alaska: 

City of Anchorage and 80-kilometer (50-mile) radius by road ..................................................................................................... 1.23 

City of Fairbanks and 80-kilometer (50-mile) radius by road ...................................................................................................... 1.23 

City of Juneau and 80-kilometer (50-mile) radius by road .......................................................................................................... 1.23 

All other areas of Alaska .............................................................................................................................................................. 1.25 

Hawaii: 

City and County of Honolulu ........................................................................................................................................................ 1.25 

County of Hawaii .......................................................................................................................................................................... 1.19 

County of Kauai ............................................................................................................................................................................ 1.25 

County of Maui and County of Kalawao ...................................................................................................................................... 1.25 

Each of the COLA factors were calculated 

using data through 2012, as these are the 

latest historical CPI data published by the 

BLS. The reweighted CPI for Honolulu, 

Hawaii grew faster than the reweighted CPI 

for the average U.S. city over the time period 

from 2009 to 2012, with a growth rate of 8.9 

percent and 8.3 percent, respectively. As a 

result, for FY 2014, we calculated proposed 

COLA factors for the City and County of 

Honolulu, the County of Kauai, the County 

of Maui, and the County of Kalawao to be 

1.26 compared to the FY 2013 COLA factor 

of 1.25. However, as stated above, our COLA 

factor update methodology caps the COLA 

factors at 1.25. In addition, the proposed 

COLA factor calculated for the County of 

Hawaii for FY 2014 is 1.19 compared to the 

FY 2013 COLA factor of 1.18. 

The reweighted CPI for Anchorage, Alaska 

grew slower than the reweighted CPI for the 

average U.S. city over the time period from 

2009 to 2012, with a growth rate of 8.0 

percent and 8.3 percent, respectively. 

However, applying this slower relative 

growth rate to the FY 2009 COLA factors for 

each of the Alaska areas results in no 

proposed change to the COLA factors for the 

Alaska areas for FY 2014 (1.25 for ‘‘All other 

areas of Alaska’’ and 1.23 for the three 

specified urban areas of Alaska (Anchorage, 

Fairbanks, and Juneau) as compared to the 

FY 2013 COLA factors. 

D. Proposed Adjustment for LTCH PPS HighCost Outlier (HCO) Cases 

1. Background 

Under the broad authority conferred upon 

the Secretary by section 123 of the BBRA as 

amended by section 307(b) of the BIPA, in 

the regulations at § 412.525(a), we 

established an adjustment for additional 

payments for outlier cases that have 

extraordinarily high costs relative to the costs 

of most discharges. We refer to these cases as 

high cost outliers (HCOs). Providing 

additional payments for outliers strongly 

improves the accuracy of the LTCH PPS in 

determining resource costs at the patient and 

hospital level. These additional payments 

reduce the financial losses that would 

otherwise be incurred when treating patients 

who require more costly care and, therefore, 

reduce the incentives to underserve these 

patients. We set the outlier threshold before 

the beginning of the applicable rate year so 

that total estimated outlier payments are 

projected to equal 8 percent of total estimated 

payments under the LTCH PPS. 

Under § 412.525(a) in the regulations (in 

conjunction with § 412.503), we make outlier 

payments for any discharges if the estimated 

cost of a case exceeds the adjusted LTCH PPS 

payment for the MS–LTC–DRG plus a fixedloss amount. Specifically, in accordance with 

§ 412.525(a)(3) (in conjunction with 

§ 412.503), we make an additional payment 

for an HCO case that is equal to 80 percent 

of the difference between the estimated cost 

of the patient case and the outlier threshold, 

which is the sum of the adjusted Federal 

prospective payment for the MS–LTC–DRG 

and the fixed-loss amount. The fixed-loss 

amount is the amount used to limit the loss 

that a hospital will incur under the outlier 

policy for a case with unusually high costs. 

This results in Medicare and the LTCH 

sharing financial risk in the treatment of 

extraordinarily costly cases. Under the LTCH 

PPS HCO policy, the LTCH’s loss is limited 

to the fixed-loss amount and a fixed 

percentage of costs above the outlier 

threshold (adjusted MS–LTC–DRG payment 

plus the fixed-loss amount). The fixed 

percentage of costs is called the marginal cost 

factor. We calculate the estimated cost of a 

case by multiplying the Medicare allowable 

covered charge by the hospital’s overall 

hospital cost-to-charge ratio (CCR). 

Under the LTCH PPS HCO policy at 

§ 412.525(a), we determine a fixed-loss 

amount, that is, the maximum loss that a 

LTCH can incur under the LTCH PPS for a 

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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 

§ 412.525(a) and § 412.529, respectively. 

Although this section is specific to HCO 

cases, because CCRs and the policies and 

methodologies pertaining to them are used in 

determining payments for both HCO and SSO 

cases (to determine the estimated cost of the 

case at § 412.529(d)(2)), we are discussing the 

determination of CCRs under the LTCH PPS 

for both of these types of cases 

simultaneously. 

In determining both HCO payments (at 

§ 412.525(a)) and SSO payments (at 

§ 412.529), we calculate the estimated cost of 

the case by multiplying the LTCH’s overall 

CCR by the Medicare allowable charges for 

the case. In general, we use the LTCH’s 

overall CCR, which is computed based on 

either the most recently settled cost report or 

the most recent tentatively settled cost report, 

whichever is from the latest cost reporting 

period, in accordance with 

§ 412.525(a)(4)(iv)(B) and § 412.529(f)(4)(ii) 

for HCOs and SSOs, respectively. (We note 

that, in some instances, we use an alternative 

CCR, such as the statewide average CCR in 

accordance with the regulations at 

§ 412.525(a)(4)(iv)(C) and § 412.529(f)(4)(iii), 

or a CCR that is specified by CMS or that is 

requested by the hospital under the 

provisions of the regulations at 

§ 412.525(a)(4)(iv)(A) and § 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 § 412.525(a)(4)(iv)(C)(2) 

for HCOs and § 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 2012 

update of the PSF, we are proposing to 

establish a total CCR ceiling of 1.259 under 

the LTCH PPS that would be effective for 

discharges occurring on or after October 1, 

2013 through September 30, 2014. 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 2014 in the final rule. 

c. LTCH Statewide Average CCRs 

Our general methodology established for 

determining the statewide average CCRs used 

under the LTCH PPS is similar to our 

established methodology for determining the 

LTCH total CCR ceiling (described above) 

because it is based on ‘‘total’’ IPPS CCR data. 

Under the LTCH PPS HCO policy at 

§ 412.525(a)(4)(iv)(C) and the SSO policy at 

§ 412.529(f)(4)(iii), the 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 § 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, in this proposed 

rule, using our established methodology for 

determining the LTCH statewide average 

CCRs, based on the most recent complete 

IPPS ‘‘total CCR’’ data from the December 

2012 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, 2013 through 

September 20, 2014, in Table 8C listed in 

section VI. of the Addendum to this proposed 

rule (and available via the Internet). 

Furthermore, consistent with our historical 

practice of using the best available data, we 

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 2014 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, although Connecticut 

has areas that are designated as rural, there 

are no short-term, acute care IPPS hospitals 

or LTCHs located in those areas as of March 

2013. Therefore, consistent with our existing 

methodology, we are proposing to use the 

national average total CCR for rural IPPS 

hospitals for rural Connecticut in Table 8C 

listed in section VI. of the Addendum to this 

proposed rule (and available via the Internet). 

In addition, consistent with our existing 

methodology, in determining the urban and 

rural statewide average total CCRs for 

Maryland LTCHs paid under the LTCH PPS, 

we are proposing to continue to use, as a 

proxy, the national average total CCR for 

urban IPPS hospitals and the national 

average total CCR for rural IPPS hospitals, 

respectively. We are proposing to use this 

proxy because we believe that the CCR data 

in the PSF for Maryland hospitals may not 

be entirely accurate (as discussed in greater 

detail in the FY 2007 IPPS final rule (71 FR 

48120)). 

d. Reconciliation of LTCH HCO and SSO 

Payments 

We note that under the LTCH PPS HCO 

policy at § 412.525(a)(4)(iv)(D) and the LTCH 

PPS SSO policy at § 412.529(f)(4)(iv), the 

payments for HCO and SSO cases, 

respectively, are subject to reconciliation. 

Specifically, any reconciliation of outlier 

payments is based on the CCR that is 

calculated based on a ratio of cost-to-charge 

data computed from the relevant cost report 

determined at the time the cost report 

coinciding with the discharge is settled. For 

additional information, we refer readers to 

sections 150.26 through 150.28 of the 

Medicare Claims Processing Manual (Pub. 

100–4) as added by Change Request 7192 

(Transmittal 2111; December 3, 2010) and the 

RY 2009 LTCH PPS final rule (73 FR 26820 

through 26821). 

3. Establishment of the Proposed LTCH PPS 

Fixed-Loss Amount for FY 2014 

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 

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the fixed-loss amount, we estimate outlier 

payments and total LTCH PPS payments for 

each case using claims data from the 

MedPAR files. Specifically, to determine the 

outlier payment for each case, we estimate 

the cost of the case by multiplying the 

Medicare covered charges from the claim by 

the LTCH’s CCR. Under § 412.525(a)(3) (in 

conjunction with § 412.503), if the estimated 

cost of the case exceeds the outlier threshold, 

we make an outlier payment equal to 80 

percent of the difference between the 

estimated cost of the case and the outlier 

threshold (that is, the sum of the adjusted 

Federal prospective payment for the MS– 

LTC–DRG and the fixed-loss amount). 

In the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53715), we presented our policies 

regarding the methodology and data we 

would use to establish the fixed-loss amount 

of $15,408 for FY 2013. In general, for FY 

2014, we are proposing to continue to use our 

existing methodology to calculate a fixed-loss 

amount for FY 2014 using the best available 

data that would maintain estimated HCO 

payments at the projected 8 percent of total 

estimated LTCH PPS payments (based on the 

rates and policies presented in that proposed 

rule). (For additional detail on the rationale 

for setting the HCO payment ‘‘target’’ at 8 

percent of total estimated LTCH PPS 

payments, we refer readers to the FY 2003 

LTCH PPS final rule (67 FR 56022 through 

56024).) Using our existing methodology, we 

are proposing a fixed-loss amount of $14,139 

for FY 2014. 

In this proposed rule, we are proposing to 

continue to use our existing methodology to 

calculate the fixed-loss amount for FY 2014 

(based on the data and the 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. Consistent with our historical 

practice of using the best data available, in 

determining the fixed-loss amount for FY 

2014, we are proposing to use the most recent 

available LTCH claims data and CCR data at 

this time. Specifically, for this proposed rule, 

we are proposing to use LTCH claims data 

from the December 2012 update of the FY 

2012 MedPAR file and CCRs from the 

December 2012 update of the PSF to 

determine a fixed-loss amount that would 

result in estimated outlier payments 

projected to be equal to 8 percent of total 

estimated payments in FY 2014 because 

these data are the most recent complete 

LTCH data available at this time. 

Under the broad authority of section 

123(a)(1) of the BBRA and section 307(b)(1) 

of BIPA, we are proposing to establish a 

fixed-loss amount of $14,139 for FY 2014. 

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 outlier 

threshold (the sum of the adjusted Federal 

LTCH payment for the MS–LTC–DRG and the 

fixed-loss amount of $14,139). We also note 

that the proposed fixed-loss amount of 

$14,139 for FY 2014 is lower than the FY 

2013 fixed-loss amount of $15,408. Based on 

our payment simulations using the most 

recent available data at this time, the 

decrease in the proposed fixed-loss amount 

for FY 2014 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, 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 lowering the fixed-loss amount is 

appropriate and necessary to maintain that 

estimated outlier payments would equal 8 

percent of estimated total LTCH PPS 

payments as required under § 412.525(a). 

4. Application of 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 § 412.529 in conjunction with 

§ 412.503) and also as an HCO case. In this 

scenario, a patient could be hospitalized for 

less than five-sixths of the geometric average 

length of stay for the specific MS–LTC–DRG, 

and yet incur extraordinarily high 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 2014, 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 $14,139 and 

the amount paid under the SSO policy as 

specified in § 412.529). 

E. Computing the Proposed Adjusted LTCH 

PPS Federal Prospective Payments for FY 

2014 

Section 412.525 sets forth the adjustments 

to the LTCH PPS standard Federal rate. 

Under § 412.525(c), the standard Federal rate 

is adjusted to account for differences in area 

wages by multiplying the labor-related share 

of the standard Federal rate by the applicable 

LTCH PPS wage index (proposed FY 2014 

values are shown in Tables 12A and 12B 

listed in section VI. of the Addendum of this 

proposed rule and are available via the 

Internet). The standard Federal rate is also 

adjusted to account for the higher costs of 

LTCHs located in Alaska and Hawaii by the 

applicable COLA factors (the proposed FY 

2014 factors are shown in the chart in section 

V.C. of this Addendum) in accordance with 

§ 412.525(b). In this proposed rule, we are 

proposing to establish a standard Federal rate 

for FY 2014 of $40,622.06 (provided the 

LTCH submits quality reporting data for FY 

2014 in accordance with the LTCHQR 

Program under section 1886(m)(5) of the 

Act), as discussed above in section V.A.2. of 

the Addendum to this proposed rule. We 

illustrate the methodology to adjust the 

proposed LTCH PPS Federal standard rate for 

FY 2014 in the following example: 

Example: During FY 2014, a Medicare 

patient is in a LTCH located in Chicago, 

Illinois (CBSA 16974) and discharged on 

January 1, 2014. The proposed FY 2014 

LTCH PPS wage index value for CBSA 16974 

is 1.0446 (obtained from Table 12A listed in 

section VI. of the Addendum of this proposed 

rule and available via the Internet on the 

CMS Web site). The Medicare patient is 

classified into MS–LTC–DRG 28 (Spinal 

Procedures with MCC), which has a relative 

weight for FY 2014 of 1.6023 (obtained from 

Table 11 listed in section VI. of the 

Addendum of this proposed rule and 

available via the Internet on the CMS Web 

site). The LTCH submitted quality reporting 

data for FY 2014 in accordance with the 

LTCHQR Program under section 1886(m)(5) 

of the Act. 

To calculate the LTCH’s total adjusted 

Federal prospective payment for this 

Medicare patient in FY 2014, we compute the 

wage-adjusted proposed Federal prospective 

payment amount by multiplying the 

unadjusted proposed FY 2014 standard 

Federal rate ($40,622.06, for LTCHs that 

submit quality reporting data for FY 2014 in 

accordance with the LTCHQR Program under 

section 1886(m)(5) of the Act) by the 

proposed labor-related share (62.717 percent) 

and the proposed wage index value (1.0446). 

This wage-adjusted amount is then added to 

the proposed nonlabor-related portion of the 

unadjusted proposed standard Federal rate 

(37.283 percent; adjusted for cost of living, if 

applicable) to determine the adjusted 

proposed Federal rate, which is then 

multiplied by the proposed MS–LTC–DRG 

relative weight (1.6023) to calculate the total 

adjusted proposed Federal LTCH PPS 

prospective payment for FY 2014 

($66,909.36). The table below illustrates the 

components of the calculations in this 

example. 

Unadjusted Proposed Standard Federal Prospective Payment Rate (provided the LTCH submits quality data in accordance 

with the LTCHQR Program under section 1886(m)(5) of the Act) .............................................................................................. $40,622.06 

Proposed Labor-Related Share ....................................................................................................................................................... × 0.62717 

Labor-Related Portion of the Proposed Federal Rate .................................................................................................................... = $25,476.94 

Proposed Wage Index (CBSA 16974) ............................................................................................................................................ × 1.0446 

Proposed Wage-Adjusted Labor Share of Federal Rate ................................................................................................................ = $26,613.21 

Proposed Nonlabor-Related Portion of the Federal Rate ($40,622.06 × 0.37283) ........................................................................ + $15,145.12 

Adjusted Proposed Federal Rate Amount ....................................................................................................................................... = $41,758.33 

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Proposed MS–LTC–DRG 28 Relative Weight ................................................................................................................................ × 1.6023 

Total Adjusted Proposed Federal Prospective Payment ................................................................................................................ = $66,909.37 

VI. Tables Referenced in This Proposed Rule 

and Available Only Through the Internet on 

the CMS Web Site 

This section lists the tables referred to 

throughout the preamble of this proposed 

rule and in this Addendum. In the past, a 

majority of these tables were published in the 

Federal Register as part of the annual 

proposed and final rules. However, similar to 

FYs 2012 and 2013, for the FY 2014 

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, Supplement to 5, 6G, 6H, 6I, 6J, 6K, 7A, 

7B, 8A, 8B, 9A, 9C, 10, 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. and 11. of the preamble of this 

proposed rule, Tables 6A through 6F will not 

be issued with this FY 2014 proposed rule 

because there are no changes to the ICD–9– 

CM codes. As discussed in section V.C. of the 

preamble of this proposed rule, effective FY 

2014 and forward, the low-volume hospital 

definition and payment adjustment 

methodology under section 1886(d)(12) of the 

Act returns to the pre-Affordable Care Act 

definition and payment adjustment 

methodology (we refer readers to section V.C. 

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 Michael Treitel at (410) 786–4552. 

The following IPPS tables for this FY 2014 

proposed rule are available only through the 

Internet on the CMS Web site at: http:// 

www.cms.gov/Medicare/Medicare-Fee-forService-Payment/AcuteInpatientPPS/ 

index.html. Click on the link on the left side 

of the screen titled, ‘‘FY 2014 IPPS Proposed 

Rule Home Page’’ or ‘‘Acute Inpatient—Files 

for Download’’. 

Table 2.—Proposed Acute Care Hospitals 

Case-Mix Indexes for Discharges Occurring in 

Federal Fiscal Year 2012; Proposed Hospital 

Wage Indexes for Federal Fiscal Year 2014; 

Hospital Average Hourly Wages for Federal 

Fiscal Years 2012 (2008 Wage Data), 2013 

(2009 Wage Data), and 2014 (2010 Wage 

Data); and 3-Year Average of Hospital 

Average Hourly Wages 

Table 3A.—Proposed FY 2014 and 3-Year* 

Average Hourly Wage for Acute Care 

Hospitals in Urban Areas by CBSA 

Table 3B.—Proposed FY 2014 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 2014 

Table 4B.—Proposed Wage Index and 

Capital Geographic Adjustment Factor (GAF) 

for Acute Care Hospitals in Rural Areas by 

CBSA and by State—FY 2014 

Table 4C.—Proposed Wage Index and 

Capital Geographic Adjustment Factor (GAF) 

for Acute Care Hospitals That Are 

Reclassified by CBSA and by State—FY 2014 

Table 4D.—States Designated as Frontier, 

with Acute Care Hospitals Receiving at a 

Minimum the Frontier State Floor Wage 

Index; Urban Areas with Acute Care 

Hospitals Receiving the Proposed Statewide 

Rural Floor or Imputed Floor Wage Index— 

FY 2014 

Table 4E.—Urban CBSAs and Constituent 

Counties for Acute Care Hospitals—FY 2014 

Table 4F.—Proposed Puerto Rico Wage 

Index and Capital Geographic Adjustment 

Factor (GAF) for Acute Care Hospitals by 

CBSA—FY 2014 

Table 4J.—Proposed Out-Migration 

Adjustment for Acute Care Hospitals—FY 

2014 

Table 5.—List of Proposed Medicare 

Severity Diagnosis-Related Groups (MS– 

DRGs), Relative Weighting Factors, and 

Geometric and Arithmetic Mean Length of 

Stay—FY 2014 

Supplement to Table 5—List of MS–DRGs 

and Relative Weighting Factors Using 15 

Cost-to-Charge Ratios (Not Proposed)—FY 

2014 

Table 6G.—Proposed Additions to the CC 

Exclusions List—FY 2014 

Table 6H—Proposed Deletions from the CC 

Exclusions List—FY 2014 

Table 6I.—Proposed Major CC List—FY 

2014 

Table 6J.—Proposed Complete CC List—FY 

2014 

Table 6K.—Proposed Complete List of CC 

Exclusions—FY 2014 

Table 7A.—Medicare Prospective Payment 

System Selected Percentile Lengths of Stay: 

FY 2012 MedPAR Update—December 2012 

GROUPER V30.0 MS–DRGs 

Table 7B.—Medicare Prospective Payment 

System Selected Percentile Lengths of Stay: 

FY 2012 MedPAR Update—December 2012 

GROUPER V31.0 MS–DRGs 

Table 8A.—Proposed FY 2014 Statewide 

Average Operating Cost-to-Charge Ratios 

(CCRs) for Acute Care Hospitals (Urban and 

Rural) 

Table 8B.—Proposed FY 2014 Statewide 

Average Capital Cost-to-Charge Ratios (CCRs) 

for Acute Care Hospitals 

Table 9A.—Hospital Reclassifications and 

Redesignations—FY 2014 

Table 9C.—Hospitals Redesignated as 

Rural under Section 1886(d)(8)(E) of the 

Act—FY 2014 

Table 10.—Proposed New Technology 

Add-On Payment Thresholds 1 2 for 

Applications for FY 2015 

Table 15.—Proposed FY 2014 Proxy 

Readmissions Adjustment Factors 

Table 16.—Proposed Proxy Hospital 

Inpatient Value-Based Purchasing (VBP) 

Program Adjustment Factors for FY 2014 

The following LTCH PPS tables for this FY 

2014 proposed rule are available only 

through the Internet on the CMS Web site at 

http://www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/ 

LongTermCareHospitalPPS/index.html under 

the list item for Regulation Number CMS– 

1599–P. 

Table 8C.—Proposed FY 2014 Statewide 

Average Total Cost-to-Charge Ratios (CCRs) 

for LTCHs (Urban and Rural) 

Table 11.—Proposed MS–LTC–DRGs, 

Relative Weights, Geometric Average Length 

of Stay, Short-Stay Outlier (SSO) Threshold, 

and ‘‘IPPS Comparable Threshold’’ for 

Discharges Occurring from October 1, 2013 

through September 30, 2014 under the LTCH 

PPS 

Table 12A.—Proposed LTCH PPS Wage 

Index for Urban Areas for Discharges 

Occurring from October 1, 2013 through 

September 30, 2014 

Table 12B.—Proposed LTCH PPS Wage 

Index for Rural Areas for Discharges 

Occurring from October 1, 2013 through 

September 30, 2014 

Table 13A.—Proposed Composition of 

Low-Volume Quintiles for MS–LTC–DRGs— 

FY 2014 

Table 13B.—Proposed No-Volume MS– 

LTC–DRG Crosswalk for FY 2014 

TABLE 1A—PROPOSED NATIONAL ADJUSTED OPERATING STANDARDIZED AMOUNTS, LABOR/NONLABOR (69.6 PERCENT

LABOR SHARE/30.4 PERCENT NONLABOR SHARE IF WAGE INDEX IS GREATER THAN 1)—FY 2014 

Full update (1.8 percent) Reduced update (¥0.2 percent) 

Labor-related Nonlabor-related Labor-related Nonlabor-related 

$3,741.72 ............................................................................................................. $1,634.32 $3,668.21 $1,602.21 

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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 2014 

Full update (1.8 percent) Reduced update (¥0.2 percent) 

Labor-related Nonlabor-related Labor-related Nonlabor-related 

$3,333.14 ......................................................................................................... $2,042.90 $3,267.66 $2,002.76 

TABLE 1C—PROPOSED ADJUSTED OPERATING STANDARDIZED AMOUNTS FOR PUERTO RICO, LABOR/NONLABOR (NATIONAL: 62 PERCENT LABOR SHARE/38 PERCENT NONLABOR SHARE BECAUSE WAGE INDEX IS LESS THAN OR

EQUAL TO 1; PUERTO RICO: 63.2 PERCENT LABOR SHARE/36.8 PERCENT NONLABOR SHARE IF WAGE INDEX IS

GREATER THAN 1 OR 62 PERCENT LABOR SHARE/38 PERCENT NONLABOR SHARE IF WAGE INDEX IS LESS THAN OR

EQUAL TO 1—FY 2014 

Rates if wage index is greater than 1 Rates if wage index is less 

than or equal to 1 

Standardized amount Labor Nonlabor Labor Nonlabor 

National 1 ........................................ Not Applicable ................................ Not Applicable ................................ $3,333.14 $2,042.90 

Puerto Rico ..................................... $1,626.53 ....................................... $947.09 .......................................... 1,595.64 977.98 

1For FY 2014, there are no CBSAs in Puerto Rico with a proposed national wage index greater than 1. 

TABLE 1D—PROPOSED CAPITAL

STANDARD FEDERAL PAYMENT

RATE—FY 2014 

Rate 

National ................................. $432.03 

TABLE 1D—PROPOSED CAPITAL

STANDARD FEDERAL PAYMENT

RATE—FY 2014—Continued 

Rate 

Puerto Rico ........................... 212.50 

TABLE 1E—PROPOSED LTCH STANDARD FEDERAL PROSPECTIVE PAYMENT RATE—FY 2014 

Full update 

(1.8 percent) 

Reduced update* 

(¥0.2 percent) 

Standard Federal Rate .................................................................................................................................... $40,622.06 $39,823.99 

* For LTCHs that fail to submit quality reporting data for FY 2014 in accordance with the LTCH Quality Reporting Program, the proposed annual update is reduced by 2.0 percentage points as required by section 1886(m)(5) of the Act. 

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 2014 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 proposed payment changes in this 

proposed rule, would result in an estimated 

$110 million decrease in FY 2014 operating 

payments (or ¥0.1 percent change) and an 

estimated $101 million increase in FY 2014 

capital payments (or 1.1 percent change). 

These proposed changes are relative to 

payments made in FY 2013. The impact 

analysis of the proposed capital payments 

can be found in section I.K. of this Appendix. 

In addition, as described in section I.L. of 

this Appendix, LTCHs are expected to 

experience an increase in payments by $62 

million in FY 2014 relative to FY 2013. 

Our operating impact estimate includes the 

proposed ¥0.8 percent documentation and 

coding adjustment applied to the IPPS 

standardized amount, as part of the 

recoupment required under section 631 of 

the ATRA. It includes the proposed ¥0.2 

percent adjustment applied to the IPPS 

standardized amount, the hospital-specific 

rate, and the Puerto Rico-specific rate to 

offset the cost of the policy proposal on 

admission and medical review criteria for 

hospital inpatient services under Medicare 

Part A. In addition, our operating payment 

impact estimate includes the proposed 1.8 

percent hospital update to the standardized 

amount (which includes the estimated 2.5 

percent market basket update less 0.4 

percentage point for the proposed multifactor 

productivity adjustment and less 0.3 

percentage point required under the 

Affordable Care Act). The estimates of 

proposed IPPS operating payments to acute 

care hospitals do not reflect any changes in 

hospital admissions or real case-mix 

intensity, which will also affect overall 

payment changes. 

The analysis in this Appendix, in 

conjunction with the remainder of this 

document, demonstrates that this proposed 

rule is consistent with the regulatory 

philosophy and principles identified in 

Executive Orders 12866 and 13563, the RFA, 

and section 1102(b) of the Act. This proposed 

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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 proposed changes in this 

proposed rule would further each of these 

goals while maintaining the financial 

viability of the hospital industry and 

ensuring access to high quality health care 

for Medicare beneficiaries. We expect that 

these proposed changes will ensure that the 

outcomes of the prospective payment 

systems are reasonable and equitable while 

avoiding or minimizing unintended adverse 

consequences. 

D. Limitations of Our Analysis 

The following quantitative analysis 

presents the projected effects of our proposed 

policy changes, as well as statutory changes 

effective for FY 2014, on various hospital 

groups. We estimate the effects of individual 

proposed policy changes by estimating 

payments per case while holding all other 

payment policies constant. We use the best 

data available, but, generally, we do not 

attempt to make adjustments for future 

changes in such variables as admissions, 

lengths of stay, or case-mix. 

E. Hospitals Included in and Excluded From 

the IPPS 

The prospective payment systems for 

hospital inpatient operating and capitalrelated costs of acute care hospitals 

encompass most general short-term, acute 

care hospitals that participate in the 

Medicare program. There were 31 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, 

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 2013, there are 3,404 IPPS 

acute care hospitals included in our analysis. 

This represents approximately 55 percent of 

all Medicare-participating hospitals. The 

majority of this impact analysis focuses on 

this set of hospitals. There also are 

approximately 1,328 CAHs. These small, 

limited service hospitals are paid on the basis 

of reasonable costs rather than under the 

IPPS. IPPS-excluded hospitals and units 

include IPFs, IRFs, LTCHs, RNHCIs, 

children’s hospitals, and 11 cancer hospitals, 

which are paid under separate payment 

systems. Changes in the prospective payment 

systems for IPFs and IRFs are made through 

separate rulemaking. Payment impacts for 

these IPPS-excluded hospitals and units are 

not included in this proposed rule. The 

impact of the proposed update and proposed 

policy changes to the LTCH PPS for FY 2014 

is discussed in section I.L. of this Appendix. 

F. Effects on Hospitals and Hospital Units 

Excluded From the IPPS 

As of March 2013, there were 97 children’s 

hospitals, 11 cancer hospitals, and18 RNHCIs 

being paid on a reasonable cost basis subject 

to the rate-of-increase ceiling under § 413.40. 

(In accordance with § 403.752(a) of the 

regulation, RNHCIs are paid under § 413.40.) 

Among the remaining providers, 234 

rehabilitation hospitals and 898 

rehabilitation units, and 437 LTCHs, are paid 

the Federal prospective per discharge rate 

under the IRF PPS and the LTCH PPS, 

respectively, and 472 psychiatric hospitals 

and 1,155 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.L. of this Appendix. 

For children’s hospitals, the 11 cancer 

hospitals, and RNHCIs, the proposed update 

of the rate-of-increase limit (or target amount) 

is the estimated FY 2014 percentage increase 

in the IPPS operating market basket, 

consistent with section 1886(b)(3)(B)(ii) of 

the Act, and §§ 403.752(a) and 413.40 of the 

regulations. As discussed in section IV. of the 

preamble of this proposed rule, we are 

proposing to rebase the IPPS operating 

market basket to a FY 2010 base year. 

Therefore, we are proposing to use the 

percentage increase in the FY 2010-based 

IPPS operating market basket to update the 

target amounts for FY 2014 and subsequent 

years for children’s hospitals, the 11 cancer 

hospitals, and RNHCIs that are paid based on 

reasonable costs subject to the rate-ofincrease limits. Consistent with current law, 

based on IHS Global Insight, Inc.’s 2013 first 

quarter forecast of the proposed FY 2010- 

based market basket increase, we are 

estimating that the proposed FY 2014 update 

based on the IPPS operating market basket is 

2.5 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 0.4 percentage 

point) and a 0.3 percentage point reduction 

to the market basket update resulting in a 

proposed 1.8 percent applicable percentage 

increase for IPPS hospitals 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. Children’s hospitals, the 11 cancer 

hospitals, and RNCHIs that continue to be 

paid based on reasonable costs subject to 

rate-of-increase limits under § 413.40 of the 

regulations are not subject to the reductions 

in the applicable percentage increase 

required under the Affordable Care Act. 

Therefore, for RNHCIs, children’s hospitals, 

and the 11 cancer hospitals paid under 

§ 413.40 of the regulations, the proposed 

update is the proposed percentage increase in 

the FY 2014 IPPS operating market basket, 

estimated at 2.5 percent, without the 

reductions required under the Affordable 

Care Act. 

The impact of the proposed update in the 

rate-of-increase limit on those excluded 

hospitals depends on the cumulative cost 

increases experienced by each excluded 

hospital since its applicable base period. For 

excluded hospitals that have maintained 

their cost increases at a level below the rateof-increase limits since their base period, the 

major effect is on the level of incentive 

payments these excluded hospitals receive. 

Conversely, for excluded hospitals with cost 

increases above the cumulative update in 

their rate-of-increase limits, the major effect 

is the amount of excess costs that will not be 

paid. 

We note that, under § 413.40(d)(3), an 

excluded hospital that continues to be paid 

under the TEFRA system and whose costs 

exceed 110 percent of its rate-of-increase 

limit receives its rate-of-increase limit plus 

the lesser of: (1) 50 percent of its reasonable 

costs in excess of 110 percent of the limit, or 

(2) 10 percent of its limit. In addition, under 

the various provisions set forth in § 413.40, 

hospitals can obtain payment adjustments for 

justifiable increases in operating costs that 

exceed the limit. 

G. Quantitative Effects of the Proposed Policy 

Changes Under the IPPS for Operating Costs 

1. Basis and Methodology of Estimates 

In this proposed rule, we are announcing 

proposed policy changes and proposed 

payment rate updates for the IPPS for FY 

2014 for operating costs of acute care 

hospitals. The proposed FY 2014 updates to 

the capital payments to acute care hospitals 

are discussed in section I.K. of this 

Appendix. 

Based on the overall percentage change in 

payments per case estimated using our 

payment simulation model, we estimate that 

total FY 2014 operating payments will 

decrease by 0.1 percent compared to FY 

2013. In addition to the applicable 

percentage increase, this amount reflects the 

proposed FY 2014 recoupment adjustment 

for documentation and coding described in 

section II.D. of the preamble of this proposed 

rule and the proposed adjustment to offset 

the cost of the policy proposal on admission 

and medical review criteria for hospital 

inpatient services under Medicare Part A: a 

¥0.8 percent adjustment to the IPPS national 

standardized amounts for the proposed 

documentation and coding adjustment and a 

¥0.2 percent adjustment to the IPPS national 

standardized amount, the Puerto Ricospecific rate and the hospital-specific rate for 

the policy proposal on admission and 

medical review criteria. The impacts do not 

reflect changes in the number of hospital 

admissions or real case-mix intensity, which 

will also affect overall payment changes. 

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We have prepared separate impact analyses 

of the proposed changes to each system. This 

section deals with the proposed changes to 

the operating inpatient prospective payment 

system for acute care hospitals. Our payment 

simulation model relies on the most recent 

available data to enable us to estimate the 

impacts on payments per case of certain 

changes in this proposed rule. However, 

there are other proposed changes for which 

we do not have data available that will allow 

us to estimate the payment impacts using this 

model. For those proposed changes, we have 

attempted to predict the payment impacts 

based upon our experience and other more 

limited data. 

The data used in developing the 

quantitative analyses of proposed changes in 

payments per case presented below are taken 

from the FY 2012 MedPAR file and the most 

current Provider-Specific File (PSF) that is 

used for payment purposes. Although the 

analyses of the proposed changes to the 

operating PPS do not incorporate cost data, 

data from the most recently available hospital 

cost reports were used to categorize 

hospitals. Our analysis has several 

qualifications. First, in this analysis, we do 

not make adjustments for future changes in 

such variables as admissions, lengths of stay, 

or underlying growth in real case-mix. 

Second, due to the interdependent nature of 

the IPPS payment components, it is very 

difficult to precisely quantify the impact 

associated with each change. Third, we use 

various data sources to categorize hospitals 

in the tables. In some cases, particularly the 

number of beds, there is a fair degree of 

variation in the data from the different 

sources. We have attempted to construct 

these variables with the best available source 

overall. However, for individual hospitals, 

some miscategorizations are possible. 

Using cases from the FY 2012 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 

2014 are discussed in section I.K. of this 

Appendix. 

We discuss the following proposed 

changes below: 

• The effects of the application of the 

proposed documentation and coding 

adjustment, the proposed adjustment to offset 

the costs of the policy proposal on admission 

and medical review criteriaand the proposed 

applicable percentage increase (including the 

market basket update, the multifactor 

productivity adjustment and the applicable 

percentage reduction in accordance with the 

Affordable Care Act) to the standardized 

amount and hospital-specific rates. 

• The effects of the proposed changes to 

the relative weights and MS–DRG grouper, 

including the proposed methodology to 

calculate the MS–DRG cost based relative 

weights using 19 departmental CCRs instead 

of the current 15 departmental CCRs. 

• The effects of the proposed changes in 

hospitals’ wage index values reflecting 

updated wage data from hospitals’ cost 

reporting periods beginning during FY 2010, 

compared to the FY 2009 wage data and the 

proposed changes in the labor related share 

from 68.8 percent for FY 2013 to the 

proposed 69.6 percent for FY 2014 for 

hospitals with a wage index greater than 1.0. 

• 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 proposed wage and recalibration budget 

neutrality factors. 

• The effects of the geographic 

reclassifications by the MGCRB as of 

publication of this proposed rule that would 

be effective for FY 2014. 

• The effects of the proposed rural floor 

and imputed floor with the application of the 

national budget neutrality factor applied to 

the wage index. 

• The effects of the proposed frontier State 

wage index adjustment under the statutory 

provision that requires that hospitals located 

in States that qualify as frontier States cannot 

have a wage index less than 1.0. This 

provision is not budget neutral. 

• The effects of the proposed 

implementation of section 1886(d)(13) of the 

Act, as added by section 505 of Public Law 

108–173, which provides for an increase in 

a hospital’s wage index if the hospital 

qualifies by meeting a threshold percentage 

of residents of the county where the hospital 

is located who commute to work at hospitals 

in counties with higher wage indexes. 

• The effects of the proposed policies for 

implementation of the Hospital Readmissions 

Reduction Program under section 1886(q) of 

the Act, as added by section 3025 of the 

Affordable Care Act, that adjusts hospital’s 

base operating DRG amount by an adjustment 

factor to account for a hospital’s excess 

readmissions. 

• The effects of the expiration of the 

special payment status for MDHs under 

section 606 of the ATRA 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 2014. 

• The effects of the proposed 

implementation of section 3133 of the 

Affordable Care Act that reduces Medicare 

DSH payments to 25 percent of what 

hospitals had been previously paid under 

section 1886(d)(5)(F) of the Act and 

establishes an additional payment to be made 

to hospitals that receive DSH payments for 

their relative share of the total amount of 

uncompensated care. 

• The total estimated change in payments 

based on the proposed FY 2014 policies 

relative to payments based on FY 2013 

policies that include the applicable 

percentage increase of 1.8 percent (or 2.5 

percent market basket update with a 

proposed reduction of 0.4 percentage point 

for the multifactor productivity adjustment, 

and a 0.3 percentage point reduction, as 

required under the Affordable Care Act). 

To illustrate the impact of the proposed FY 

2014 changes, our analysis begins with a FY 

2013 baseline simulation model using: the 

proposed FY 2014 applicable percentage 

increase of 1.8 percent and the proposed 

documentation and coding adjustment of 0.8 

percent to the Federal standardized amount 

and the proposed adjustment 0.2 percent to 

the Federal standardized amount, the 

hospital-specific rate, and the Puerto Ricospecific rate for the policy proposal on 

admission and medical review criteria; the 

FY 2013 MS–DRG GROUPER (Version 30.0); 

the most current CBSA designations for 

hospitals based on OMB’s MSA definitions; 

the FY 2013 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 and 

each subsequent year, the update factor will 

include a reduction of 2.0 percentage points 

for any subsection (d) hospital that does not 

submit data on measures in a form and 

manner and at a time specified by the 

Secretary. (Beginning in FY 2015, the 

reduction is one-quarter of such applicable 

percentage increase determined without 

regard to section 1886(b)(3)(B)(ix), (xi), or 

(xii) of the Act.) At the time that this impact 

was prepared, 52 hospitals did not receive 

the full market basket rate-of-increase for FY 

2013 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 2014 using a 

reduced update for these 52 hospitals. 

However, we do not have enough 

information at this time to determine which 

hospitals will not receive the full update 

factor for FY 2014. 

Each proposed policy change, statutory or 

otherwise, is then added incrementally to 

this baseline, finally arriving at an FY 2014 

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 2013 to FY 2014. 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 2014 using a proposed 

applicable percentage increase of 1.8 percent. 

This includes our forecasted IPPS operating 

hospital market basket increase of 2.5 percent 

with a proposed reduction of 0.4 percentage 

point for the multifactor productivity 

adjustment and a 0.3 percentage point 

reduction as required under the Affordable 

Care Act. (Hospitals that fail to comply with 

the quality data submission requirements 

would receive a proposed update of ¥0.2 

percent (this proposed 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 updates to 

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the hospital-specific amounts for SCHs also 

are equal to the applicable percentage 

increase, or 1.8 percent. In addition, we are 

proposing to update the Puerto Rico-specific 

amount by an applicable percentage increase 

of 1.8 percent. 

A second significant factor that affects the 

changes in hospitals’ payments per case from 

FY 2013 to FY 2014 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 2013 that are no longer reclassified in FY 

2014. Conversely, payments may increase for 

hospitals not reclassified in FY 2013 that are 

reclassified in FY 2014. 

A third significant factor is that we 

currently estimate that actual outlier 

payments during FY 2013 will be 5.2 percent 

of total MS–DRG payments. When the FY 

2013 final rule was published, we projected 

FY 2013 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 2013 (as discussed in the 

Addendum to this proposed rule) are 

reflected in the analyses below comparing 

our current estimates of FY 2013 payments 

per case to estimated FY 2014 payments per 

case (with outlier payments projected to 

equal 5.1 percent of total MS–DRG 

payments). 

2. Analysis of Table I 

Table I displays the results of our analysis 

of the proposed changes for FY 2014. 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 3,404 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 2,481 hospitals 

located in urban areas included in our 

analysis. Among these, there are 1,367 

hospitals located in large urban areas 

(populations over 1 million), and 1,114 

hospitals in other urban areas (populations of 

1 million or fewer). In addition, there are 923 

hospitals in rural areas. The next two 

groupings are by bed-size categories, shown 

separately for urban and rural hospitals. The 

final groupings by geographic location are by 

census divisions, also shown separately for 

urban and rural hospitals. 

The second part of Table I shows hospital 

groups based on hospitals’ FY 2013 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 2,495; 

1,377; 1,118; and 909, respectively. 

The next three groupings examine the 

impacts of the proposed changes on hospitals 

grouped by whether or not they have GME 

residency programs (teaching hospitals that 

receive an IME adjustment) or receive 

Medicare DSH payments, or some 

combination of these two adjustments. There 

are 2,378 nonteaching hospitals in our 

analysis, 782 teaching hospitals with fewer 

than 100 residents, and 244 teaching 

hospitals with 100 or more residents. 

In the DSH categories, hospitals are 

grouped according to their DSH payment 

status, and whether they are considered 

urban or rural for DSH purposes. The next 

category groups together hospitals considered 

urban or rural, in terms of whether they 

receive the IME adjustment, the DSH 

adjustment, both, or neither. 

The next five rows examine the impacts of 

the proposed changes on rural hospitals by 

special payment groups (SCHs, RRCs, and 

former MDHs). There were 207 RRCs, 329 

SCHs, 192 former MDHs, and 124 hospitals 

that are both SCHs and RRCs, and 11 

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 2011 or FY 2010 Medicare cost 

reports. 

The next two groupings concern the 

geographic reclassification status of 

hospitals. The first grouping displays all 

urban hospitals that were reclassified by the 

MGCRB for FY 2014. The second grouping 

shows the MGCRB rural reclassifications. 

The final category shows the impact of the 

proposed policy changes on the 15 cardiac 

hospitals. 

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TABLE I—IMPACT

ANALYSIS OF

PROPOSED

CHANGES TO THE IPPS FOR

OPERATING

COSTS FOR FY 2014 

Number of 

hospitals 1

Proposed 

hospital rate 

update and 

documentation and 

coding adjustment 2

Proposed 

FY 2014 

weights and 

DRG 

changes 

with application of recalibration 

budget neutrality 3

Proposed 

FY 2014 

wage data 

with application of wage 

budget neutrality 4

Proposed 

FY 2014 

DRG, rel. 

wts., wage 

index 

changes 

with wage 

and recalibration 

budget neutrality 5

Proposed 

FY 2014 

MGCRB reclassifications 6

Proposed 

rural floor 

and imputed 

floor with 

application 

of national 

rural floor 

budget neutrality 7

Proposed 

application 

of the frontier wage 

index 8

Proposed 

FY 2014 

outmigration 

adjustment 9

Expiration of 

MDH status 10

Proposed 

hospital readmissions 

reduction 

program 11

Proposed 

changes to 

Medicare 

DSH 12

All proposed 

FY 2014 

changes 13

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) 

All Hospitals .................. 3,404 0 .8 0 0 0 .1 0 0 0 .1 0 ¥0 .1 ¥0 .2 ¥0 .9 ¥0 .1 

By Geographic Location 

Urban hospitals ............. 2481 0 .8 0 0 0 .1 ¥0 .2 0 0 .1 0 0 ¥0 .2 ¥0 .8 0 .1 Large urban areas ........ 1367 0 .8 0 0 .1 0 .2 ¥0 .3 0 0 0 0 ¥0 .2 ¥0 .7 0 .5 Other urban areas ........ 1114 0 .8 0 .1 ¥0 .1 0 ¥0 .1 0 .1 0 .2 0 ¥0 .1 ¥0 .1 ¥1 .1 ¥0 .4 Rural hospitals .............. 923 1 .2 ¥0 .5 ¥0 .2 ¥0 .6 1 .7 ¥0 .3 0 .1 0 .1 ¥1 .2 ¥0 .2 ¥0 .9 ¥1 .9 

Bed Size (Urban) 

0–99 beds ..................... 622 0 .8 0 .3 0 0 .3 ¥0 .4 0 .1 0 .2 0 ¥0 .4 ¥0 .1 0 .6 0 .9 100–199 beds ............... 762 0 .8 ¥0 .1 0 ¥0 .1 ¥0 .1 0 .3 0 .1 0 0 ¥0 .2 ¥1 .1 ¥0 .5 200–299 beds ............... 464 0 .8 ¥0 .1 0 0 0 0 0 .1 0 0 ¥0 .2 ¥0 .7 ¥0 .1 300–499 beds ............... 418 0 .8 0 .1 0 0 .1 ¥0 .2 0 0 .1 0 0 ¥0 .2 ¥0 .8 0 .1 500 or more beds ......... 215 0 .8 0 .2 0 .1 0 .4 ¥0 .2 ¥0 .1 0 0 0 ¥0 .2 ¥1 0 .4 

Bed Size (Rural) 

0–49 beds ..................... 339 1 .1 ¥0 .8 ¥0 .3 ¥1 0 .5 ¥0 .3 0 .1 0 .2 ¥2 ¥0 .3 0 .3 ¥2 .4 50–99 beds ................... 328 1 .2 ¥0 .7 ¥0 .2 ¥0 .8 1 .2 ¥0 .3 0 0 .2 ¥3 .3 ¥0 .3 ¥0 .1 ¥3 .3 100–149 beds ............... 151 1 .2 ¥0 .6 ¥0 .3 ¥0 .7 1 .9 ¥0 .3 0 .1 0 ¥0 .3 ¥0 .3 ¥1 ¥1 .1 150–199 beds ............... 59 1 .1 ¥0 .2 ¥0 .2 ¥0 .3 2 .2 ¥0 .4 0 .1 0 0 ¥0 .2 ¥1 .5 ¥1 .1 200 or more beds ......... 46 1 .2 ¥0 .1 ¥0 .3 ¥0 .2 2 .4 ¥0 .3 0 0 0 ¥0 .2 ¥1 .9 ¥1 .2 

Urban by Region 

New England ................ 120 0 .8 ¥0 .1 0 .4 0 .4 0 .7 4 .4 0 0 0 ¥0 .2 ¥1 .5 0 .2 Middle Atlantic .............. 318 0 .8 0 0 .7 0 .7 0 .3 ¥0 .3 0 0 0 ¥0 .3 ¥0 .1 1 .6 South Atlantic ................ 375 0 .8 0 ¥0 .4 ¥0 .3 ¥0 .4 ¥0 .4 0 0 ¥0 .1 ¥0 .1 ¥0 .4 0 East North Central ........ 395 0 .8 0 ¥0 .2 ¥0 .1 ¥0 .2 ¥0 .5 0 0 0 ¥0 .2 ¥0 .7 ¥0 .2 East South Central ....... 149 0 .8 0 .1 ¥0 .5 ¥0 .2 ¥0 .3 ¥0 .4 0 0 0 ¥0 .2 ¥0 .9 ¥0 .3 West North Central ....... 165 0 .8 0 .2 ¥0 .2 0 ¥0 .7 ¥0 .5 0 .8 0 ¥0 .1 ¥0 .1 ¥0 .8 ¥0 .2 West South Central ...... 371 0 .8 0 .1 ¥0 .3 0 ¥0 .6 ¥0 .5 0 0 0 ¥0 .1 ¥0 .8 ¥0 .1 Mountain ....................... 156 0 .9 0 .2 ¥0 .1 0 .1 ¥0 .1 0 0 .2 0 0 ¥0 .1 0 .8 1 .2 Pacific ........................... 381 0 .8 0 0 .5 0 .5 ¥0 .1 0 .7 0 0 0 ¥0 .1 ¥3 .2 ¥1 .5 Puerto Rico ................... 51 1 ¥0 .1 0 .2 0 .5 ¥0 .8 0 0 0 0 0 34 .5 35 .7 

Rural by Region 

New England ................ 23 1 ¥0 .3 0 .2 ¥0 .1 3 .2 ¥0 .5 0 0 ¥3 .9 0 ¥0 .8 ¥2 .9 Middle Atlantic .............. 69 1 .2 ¥0 .5 ¥0 .2 ¥0 .6 1 .6 ¥0 .3 0 0 .1 ¥2 .1 ¥0 .2 0 .3 ¥1 .2 South Atlantic ................ 165 1 .1 ¥0 .5 ¥0 .3 ¥0 .7 2 .1 ¥0 .4 0 0 .1 ¥1 ¥0 .3 ¥0 .9 ¥1 .8 East North Central ........ 119 1 .2 ¥0 .3 ¥0 .3 ¥0 .6 1 .3 ¥0 .3 0 0 .1 ¥2 .1 ¥0 .2 ¥0 .3 ¥1 .6 East South Central ....... 171 0 .9 ¥0 .4 ¥0 .5 ¥0 .7 2 .5 ¥0 .5 0 0 .1 ¥0 .6 ¥0 .4 ¥2 ¥3 .5 West North Central ....... 100 1 .4 ¥0 .3 0 .1 ¥0 .2 0 .4 ¥0 .1 0 .3 0 .1 ¥0 .8 ¥0 .1 ¥0 .7 ¥0 .4 West South Central ...... 181 1 ¥0 .6 ¥0 .5 ¥0 .9 2 .2 ¥0 .4 0 0 .1 ¥0 .4 ¥0 .4 ¥1 .2 ¥2 .7 Mountain ....................... 65 1 .5 ¥0 .4 ¥0 .1 ¥0 .4 0 .2 ¥0 .1 0 .4 0 ¥0 .1 ¥0 .1 ¥0 .9 0 Pacific ........................... 29 1 .4 ¥0 .6 0 .2 ¥0 .4 1 .1 ¥0 .2 0 0 ¥0 .1 ¥0 .1 ¥0 .7 ¥0 .3 Puerto Rico ................... 1 1 3 .3 ¥0 .5 3 .4 ¥0 .9 ¥0 .4 0 0 0 0 0 4 .6 

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By Payment Classification 

Urban hospitals ............. 2495 0 .8 0 0 0 .1 ¥0 .2 0 0 0 0 ¥0 .2 ¥0 .8 0 .1 Large urban areas ........ 1377 0 .8 0 0 .1 0 .2 ¥0 .2 0 0 0 0 ¥0 .2 ¥0 .7 0 .5 Other urban areas ........ 1118 0 .8 0 .1 ¥0 .1 0 0 0 .1 0 .1 0 0 ¥0 .1 ¥1 .1 ¥0 .4 Rural areas ................... 909 1 .2 ¥0 .4 ¥0 .2 ¥0 .6 1 .4 ¥0 .3 0 .2 0 .1 ¥1 .2 ¥0 .2 ¥0 .9 ¥1 .9 

Teaching Status 

Nonteaching .................. 2378 0 .9 ¥0 .1 ¥0 .1 ¥0 .2 0 .2 0 0 0 ¥0 .3 ¥0 .2 ¥0 .9 ¥0 .8 Fewer than 100 residents .......................... 782 0 .8 0 0 0 ¥0 .1 0 0 .1 0 0 ¥0 .1 ¥0 .9 ¥0 .1 100 or more residents .. 244 0 .8 0 .2 0 .2 0 .5 ¥0 .2 0 0 0 0 ¥0 .2 ¥0 .7 0 .8 

Urban DSH 

Non-DSH ....................... 706 0 .8 0 0 0 .1 0 .1 0 0 0 ¥0 .2 ¥0 .2 0 0 .2 100 or more beds ......... 1562 0 .8 0 .1 0 0 .1 ¥0 .2 0 0 0 0 ¥0 .2 ¥1 0 Less than 100 beds ...... 330 0 .9 ¥0 .4 0 .1 ¥0 .3 0 .2 0 .1 0 .2 0 ¥0 .5 ¥0 .2 1 .1 1 .2 

Rural DSH 

SCH .............................. 260 1 .5 ¥0 .8 0 ¥0 .8 0 .1 ¥0 .1 0 0 ¥0 .2 ¥0 .2 ¥0 .1 ¥1 .3 RRC .............................. 223 1 .2 ¥0 .3 ¥0 .2 ¥0 .4 2 ¥0 .3 0 .4 0 ¥0 .3 ¥0 .2 ¥1 .9 ¥1 .6 100 or more beds ......... 29 0 .8 ¥0 .5 ¥0 .3 ¥0 .6 1 .2 ¥0 .4 0 0 .1 ¥1 .5 ¥0 .3 1 .5 0 .2 Less than 100 beds ...... 294 0 .8 ¥0 .7 ¥0 .5 ¥0 .9 0 .8 ¥0 .5 0 0 .4 ¥4 .9 ¥0 .4 1 .1 ¥3 .6 

Urban teaching and DSH 

Both teaching and DSH 826 0 .8 0 .1 0 .1 0 .3 ¥0 .3 0 0 .1 0 0 ¥0 .2 ¥0 .9 0 .4 Teaching and no DSH .. 135 0 .8 0 0 .2 0 .2 0 .3 0 .1 0 0 0 ¥0 .2 0 0 .7 No teaching and DSH ... 1066 0 .8 ¥0 .1 ¥0 .1 ¥0 .1 0 0 .2 0 0 0 ¥0 .2 ¥1 .2 ¥0 .6 No teaching and no 

DSH ........................... 468 0 .8 0 .1 0 0 .1 ¥0 .2 ¥0 .1 0 .1 0 0 ¥0 .2 0 0 .3 

Special Hospital Types 

RRC .............................. 207 0 .8 ¥0 .1 ¥0 .1 ¥0 .1 2 .9 ¥0 .4 0 .5 0 .1 ¥0 .5 ¥0 .2 ¥1 .9 ¥1 .4 SCH .............................. 329 1 .5 ¥0 .6 0 ¥0 .6 0 ¥0 .1 0 0 ¥0 .1 ¥0 .2 ¥0 .2 ¥0 .5 Former MDH ................. 192 0 .8 ¥0 .7 ¥0 .6 ¥1 .1 1 .1 ¥0 .4 0 0 .3 ¥9 .9 ¥0 .5 0 .3 ¥8 .5 SCH and RRC .............. 124 1 .5 ¥0 .3 0 ¥0 .3 0 .5 ¥0 .1 0 0 0 ¥0 .2 ¥1 .1 ¥0 .1 Former MDH and RRC 11 0 .8 ¥0 .4 0 .3 0 2 ¥0 .6 0 0 .1 ¥15 .7 ¥0 .2 ¥0 .8 ¥12 .4 

Type of Ownership 

Voluntary ....................... 1944 0 .8 0 0 .1 0 .1 0 0 0 .1 0 ¥0 .1 ¥0 .2 ¥0 .9 ¥0 .1 Proprietary .................... 895 0 .8 0 .1 ¥0 .1 0 0 .1 0 0 .1 0 ¥0 .1 ¥0 .2 ¥1 .4 ¥0 .9 Government .................. 546 0 .9 0 ¥0 .2 ¥0 .1 ¥0 .1 ¥0 .1 0 0 ¥0 .1 ¥0 .1 0 .3 1 .1 

Medicare Utilization as a Percent of Inpatient Days 

0–25 .............................. 368 0 .8 0 .2 0 .3 0 .5 ¥0 .3 ¥0 .1 0 0 0 ¥0 .1 4 .4 6 25–50 ............................ 1807 0 .8 0 .1 0 0 .1 ¥0 .2 0 0 .1 0 0 ¥0 .2 ¥1 .5 ¥0 .6 50–65 ............................ 967 0 .9 ¥0 .2 ¥0 .1 ¥0 .2 0 .6 0 .1 0 0 ¥0 .4 ¥0 .2 ¥0 .9 ¥0 .8 Over 65 ......................... 171 1 ¥0 .4 ¥0 .3 ¥0 .7 0 .8 ¥0 .3 0 0 .1 ¥1 .6 ¥0 .4 ¥0 .6 ¥1 .9 

FY 2014 Reclassifications by the Medicare Geographic Classification Review Board 

All Reclassified Hospitals .......................... 762 0 .9 ¥0 .1 0 0 2 .1 0 .2 0 0 ¥0 .2 ¥0 .2 ¥1 .2 ¥0 .5 Non-Reclassified Hospitals .......................... 2642 0 .8 0 0 0 .1 ¥0 .7 ¥0 .1 0 .1 0 ¥0 .1 ¥0 .2 ¥0 .7 0 Urban Hospitals Reclassified .......................... 451 0 .8 0 0 .1 0 .1 1 .9 0 .4 0 0 0 ¥0 .2 ¥1 .1 ¥0 .2 Urban Nonreclassified 

Hospitals, FY 2014 .... 1990 0 .8 0 .1 0 0 .2 ¥0 .7 ¥0 .1 0 .1 0 0 ¥0 .2 ¥0 .8 0 .2 

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TABLE I—IMPACT

ANALYSIS OF

PROPOSED

CHANGES TO THE IPPS FOR

OPERATING

COSTS FOR FY 2014—Continued 

Number of 

hospitals 1

Proposed 

hospital rate 

update and 

documentation and 

coding adjustment 2

Proposed 

FY 2014 

weights and 

DRG 

changes 

with application of recalibration 

budget neutrality 3

Proposed 

FY 2014 

wage data 

with application of wage 

budget neutrality 4

Proposed 

FY 2014 

DRG, rel. 

wts., wage 

index 

changes 

with wage 

and recalibration 

budget neutrality 5

Proposed 

FY 2014 

MGCRB reclassifications 6

Proposed 

rural floor 

and imputed 

floor with 

application 

of national 

rural floor 

budget neutrality 7

Proposed 

application 

of the frontier wage 

index 8

Proposed 

FY 2014 

outmigration 

adjustment 9

Expiration of 

MDH status 10

Proposed 

hospital readmissions 

reduction 

program 11

Proposed 

changes to 

Medicare 

DSH 12

All proposed 

FY 2014 

changes 13

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) 

All Rural Hospitals Reclassified FY 2014 ..... 311 1 .1 ¥0 .3 ¥0 .3 ¥0 .5 2 .7 ¥0 .3 0 0 ¥0 .8 ¥0 .2 ¥1 .6 ¥1 .7 Rural Nonreclassified 

Hospitals FY 2014 ..... 552 1 .2 ¥0 .6 ¥0 .2 ¥0 .8 ¥0 .2 ¥0 .3 0 .1 0 .2 ¥1 .7 ¥0 .3 0 .2 ¥2 .2 

All Section 401 Reclassified Hospitals .......... 47 1 .3 ¥0 .4 ¥0 .3 ¥0 .6 ¥0 .3 0 2 .1 0 ¥2 .4 ¥0 .2 ¥0 .2 ¥1 .5 Other Reclassified Hospitals (Section 

1886(d)(8)(B)) ............ 61 1 ¥0 .8 ¥0 .7 ¥1 .3 4 .1 ¥0 .4 0 0 ¥3 .9 ¥0 .2 0 ¥2 .6 

Specialty Hospitals 

Cardiac specialty Hospitals .......................... 15 0 .8 1 .1 0 .3 1 .5 ¥0 .8 ¥0 .2 0 .7 0 0 ¥0 .1 ¥0 .1 1 .4 

1Because data necessary to classify some hospitals by category were missing, the total number of hospitals in each category may not equal the national total. Discharge data are from FY 2012, and hospital cost 

report data are from reporting periods beginning in FY 2010 and FY 2009. 2This column displays the payment impact of the proposed hospital rate update, the documentation and coding adjustment and the adjustment to offset the costs of the proposed inpatient status policy including the 1.8 percent adjustment to the national standardized amount (the estimated 2.5 percent market basket update reduced by the proposed 0.4 percentage point for the multifactor productivity adjustment and the 0.3 percentage point reduction under the Affordable Care Act) and the 0.8 percent documentation and coding adjustment to the national standardized amount and the 0.2 percent adjustment for the policy proposal on admission and medical review criteria applied to the national standardized amount, hospital-specific rate and the Puerto Rico-specific amount. 3This column displays the payment impact of the proposed changes to the Version 31.0 GROUPER, the proposed changes to the relative weight methodology that uses 19 CCRs as opposed to 15 CCRs, and the proposed recalibration of the MS–DRG weights based on FY 2012 MedPAR data in accordance with section 1886(d)(4)(C)(iii) of the Act. This column displays the application of the proposed recalibration budget neutrality factor of 0.997583 in accordance with section 1886(d)(4)(C)(iii) of the Act. 4This column displays the payment impact of the proposed update to wage index data using FY 2010 cost report data and proposed changes to the labor-related share. This column displays the payment impact of the proposed application of the wage budget neutrality factor, which is calculated separately from the recalibration budget neutrality factor, and is calculated in accordance with section 1886(d)(3)(E)(i) of the Act. The proposed wage budget neutrality factor is 0.999766 5This column displays the combined payment impact of the proposed changes in Columns 3 through 4 and the proposed cumulative budget neutrality factor for MS–DRG and wage changes in accordance with section 1886(d)(4)(C)(iii) of the Act and section 1886(d)(3)(E) of the Act. The proposed cumulative wage and recalibration budget neutrality factor of 0.99783 is the product of the proposed wage budget neutrality factor and the proposed recalibration budget neutrality factor. 6Shown here are the effects of geographic reclassifications by the Medicare Geographic Classification Review Board (MGCRB). The effects demonstrate the proposed FY 2014 payment impact of going from no reclassifications to the reclassifications scheduled to be in effect for FY 2014. Reclassification for prior years has no bearing on the payment impacts shown here. This column reflects the proposed geographic budget neutrality factor of 0.990971. 7This column displays the effects of the proposed rural floor and imputed floor. The Affordable Care Act requires the rural floor budget neutrality adjustment to be 100 percent national level adjustment. The proposed rural floor budget neutrality factor (which includes the proposed imputed floor) applied to the wage index is 0.990189. 8This column shows the impact of the policy required under section 10324 of the Affordable Care Act that hospitals located in frontier States have a wage index no less than 1.0. 

9This column displays the impact of section 1886(d)(13) of the Act, as added by 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. 

10This column displays the impact of the expiration of MDH status for FY 2014, a non-budget neutral payment provision. 11This column displays the impact of the implementation of the Hospital Readmissions Reduction Program, section 3025 of the Affordable Care Act, a non-budget neutral provision that adjusts a hospital’s payment 

for excess readmissions. 

12This column displays the impact of the implementation of section 3133 of the Affordable Care Act that reduces Medicare DSH payments by 75 percent and establishes an additional uncompensated care payment. 13This column shows the proposed changes in payments from FY 2013 to FY 2014. It reflects the impact of the proposed FY 2014 hospital update, the proposed adjustment for documentation and coding, and the 

proposed adjustment for the policy proposal on admission and medical review criteria. It also reflects proposed changes in hospitals’ reclassification status in FY 2014 compared to FY 2013. It incorporates all of the proposed changes displayed in Columns 2, 5, 6, 7, 8, 9, 10, 11 and 12 (the proposed changes displayed in Columns 3 and 4 are included in Column 5). The sum of these impacts may be different from the percentage changes shown here due to rounding and interactive effects. 

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a. Effects of the Proposed Hospital Update, 

Documentation and Coding Adjustment and 

Adjustment for the Policy Proposal on 

Admission and Medical Review Criteria 

(Column 2) 

As discussed in section II.D. of the 

preamble of this proposed rule, this column 

includes the proposed hospital update, 

including the proposed 2.5 percent market 

basket update, the proposed reduction of 0.4 

percentage point for the multifactor 

productivity adjustment, and the 0.3 

percentage point reduction in accordance 

with the Affordable Care Act. In addition, 

this column includes the proposed FY 2014 

documentation and coding recoupment 

adjustment of ¥0.8 percent on the national 

standardized amount as part of the 

recoupment required by section 631 of the 

ATRA. Finally, we are proposing a ¥0.2 

percent adjustment to offset the cost of the 

policy proposal on admission and medical 

review criteria for hospital inpatient services 

under Medicare Part A that is applied to the 

national standardized amount, the hospitalspecific rate, and the Puerto Rico specific 

rate. As a result, we are proposing to make 

a 0.8 percent update to the national 

standardized amount. 

This column also includes the proposed 

1.6 percent update to the hospital-specific 

rates, which includes the proposed 1.8 

percent for the hospital update and proposed 

¥0.2 percent adjustment to offset the cost of 

the policy proposal on admission and 

medical review criteria for hospital inpatient 

services under Medicare Part A. 

Overall, hospitals would experience a 0.8 

percent increase in payments primarily due 

to the effects of the hospital update and 

documentation and coding adjustment on the 

national standardized amount. Hospitals that 

are paid under the hospital-specific rate, 

namely SCHs, would experience a 1.6 

percent increase in payments; therefore, 

hospital categories with SCHs paid under the 

hospital-specific rate would experience 

increases in payments of more than 0.8 

percent. 

b. Effects of the Proposed Changes to the MS– 

DRG Reclassifications and Relative CostBased Weights With Recalibration Budget 

Neutrality (Column 3) 

Column 3 shows the effects of the 

proposed changes to the MS–DRGs and 

relative weights with the application of the 

proposed recalibration budget neutrality 

factor to the standardized amounts. Section 

1886(d)(4)(C)(i) of the Act requires us 

annually to make appropriate classification 

changes in order to reflect changes in 

treatment patterns, technology, and any other 

factors that may change the relative use of 

hospital resources. Consistent with section 

1886(d)(4)(C)(iii) of the Act, we are proposing 

to calculate a recalibration budget neutrality 

factor to account for the proposed changes in 

MS–DRGs and relative weights to ensure that 

the overall payment impact is budget neutral. 

As discussed in section II.E. of the 

preamble of this proposed rule, the FY 2014 

MS–DRG relative weights will be 100 percent 

cost-based and 100 percent MS–DRGs. For 

FY 2014, the MS–DRGs are calculated using 

the FY 2012 MedPAR data grouped to the 

Version 31.0 (FY 2014) MS–DRGs. In 

addition, for FY 2014, we are proposing to 

move from 15 departmental CCRs to 19 

departmental CCRs to calculate the costbased relative weights. The four additional 

CCRs of implantable devices, CT scan, MRI, 

and cardiac catheterization have generally 

increased the relative weight values for 

surgical MS–DRGs and decreased the relative 

weight values for medical MS–DRGs. The 

proposed methodology to calculate the 

relative weights and the proposed 

reclassification changes to the GROUPER are 

described in more detail in section II.H. of 

the preamble of this proposed rule. 

The ‘‘All Hospitals’’ line in Column 3 

indicates that proposed changes due to the 

MS–DRGs and relative weights would result 

in a 0.0 percent change in payments with the 

application of the proposed recalibration 

budget neutrality factor of 0.997583 on to the 

standardized amount. Hospital categories 

that generally treat more surgical cases than 

medical cases would experience increases in 

their payments due to the proposed changes 

to the relative weight methodology. Rural 

hospitals would experience a 0.5 percent 

decrease in payments because rural hospitals 

tend to treat fewer surgical cases than 

medical cases, while teaching hospitals with 

more than 100 residents would experience an 

increase in payments by 0.2 percent as those 

hospitals treat more surgical cases than 

medical cases. 

c. Effects of the Proposed Wage Index 

Changes (Column 4) 

Column 4 shows the impact of updated 

wage data and the proposed change to the 

labor-related share with the application of 

the proposed 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 proposed wage index for 

acute care hospitals for FY 2014 is based on 

data submitted for hospital cost reporting 

periods beginning on or after October 1, 2009 

and before October 1, 2010. The estimated 

impact of the updated wage data and the 

proposed labor-related 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 

proposed percentage change in payments 

when going from a model using the FY 2013 

wage index, based on FY 2009 wage data, the 

FY 2013 labor-related share of 68.8 percent 

and having a 100-percent occupational mix 

adjustment applied, to a model using the 

proposed FY 2014 pre-reclassification wage 

index with the proposed labor-related share 

of 69.6 percent, also having a 100-percent 

occupational mix adjustment applied, based 

on FY 2010 wage data (while holding other 

payment parameters such as use of the 

Version 31.0 MS–DRG GROUPER constant). 

The proposed occupational mix adjustment 

is based on the 2010 occupational mix 

survey. 

In addition, the column shows the impact 

of the application of the proposed wage 

budget neutrality to the proposed national 

standardized amount. In FY 2010, we began 

calculating separate wage budget neutrality 

and recalibration budget neutrality factors, in 

accordance with section 1886(d)(3)(E) of the 

Act, which specifies that budget neutrality to 

account for wage 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 

2014, we are proposing to calculate the wage 

budget neutrality factor to ensure that 

payments under updated wage data and the 

proposed labor-related share of 69.6 percent 

are budget neutral without regard to the 

lower labor-related share of 62 percent 

applied to hospitals with a wage index less 

than or equal to 1.0. In other words, the wage 

budget neutrality is calculated under the 

assumption that all hospitals receive the 

higher labor-related share of the standardized 

amount. The proposed wage budget 

neutrality factor is 0.999766, and the overall 

proposed payment change is zero percent. 

Column 4 shows the impacts of updating 

the wage data using FY 2010 cost reports. 

Overall, the new wage data and the proposed 

labor-related share, combined with the 

proposed wage budget neutrality adjustment, 

would lead to a 0.0 percent change for all 

hospitals as shown in Column 4. Among the 

regions, the largest increase is in the urban 

Middle Atlantic region, which would 

experience 0.7 percent increase. The largest 

decline from updating the wage data and the 

proposed change in the labor-related share to 

69.9 percent is seen in the rural West South 

Central region, rural East South Central, rural 

Puerto Rico and Urban East South Central 

(¥0.5 percent decrease). 

In looking at the wage data itself, the 

national average hourly wage increased 2.0 

percent compared to FY 2013. Therefore, the 

only manner in which to maintain or exceed 

the previous year’s wage index was to match 

or exceed the national 2.0 percent increase in 

average hourly wage. Of the 3,382 hospitals 

with wage data for both FYs 2013 and 2014, 

1,626, or 48.1 percent, would experience an 

average hourly wage increase of 2.0 percent 

or more. 

The following chart compares the shifts in 

proposed wage index values for hospitals due 

to changes in the average hourly wage data 

for FY 2014 relative to FY 2013. Among 

urban hospitals, none would experience an 

increase or decrease of more than 5 percent. 

Among rural hospitals, none would 

experience an increase or decrease of more 

than 5 percent. However, 918 rural hospitals 

would experience increases or decreases of 

less than 5 percent, while 2,464 urban 

hospitals would experience increases or 

decreases of less than 5 percent. These 

figures reflect proposed changes in the ‘‘prereclassified, occupational mix-adjusted wage 

index,’’ that is, the proposed wage index 

before the proposed application of 

geographic reclassification, the proposed 

rural and imputed floors, the proposed outmigration adjustment, and other proposed 

wage index exceptions and adjustments. (We 

refer readers to sections III.G.2. through III.I. 

of the preamble of this proposed rule for a 

complete discussion of the exceptions and 

adjustments to the wage index.) We note that 

the proposed ‘‘post-reclassified wage index’’ 

or ‘‘payment wage index,’’ the proposed wage 

index that includes all such exceptions and 

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adjustments (as reflected in Tables 2, 4A, 4B, 

4C, and 4F of the Addendum to this 

proposed rule, which are available via the 

Internet on the CMS Web site) is used to 

adjust the proposed labor-related share of a 

hospital’s standardized amount, either 69.6 

percent or 62 percent, depending upon 

whether a hospital’s wage index is greater 

than 1.0 or less than or equal to 1.0. 

Therefore, the proposed pre-reclassified wage 

index figures in the chart below may 

illustrate a somewhat larger or smaller 

change than would occur in a hospital’s 

payment wage index and total payment. 

The following chart shows the projected 

impact of changes in the average hourly wage 

data for urban and rural hospitals. 

Percentage change in proposed area wage index values 

Number of hospitals 

Urban Rural 

Increase more than 10 percent ............................................................................................................... 0 0 

Increase more than 5 percent and less than 10 percent ........................................................................ 0 0 

Increase or decrease less than 5 percent ............................................................................................... 2,464 918 

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 0.999766 and 

a proposed recalibration budget neutrality 

factor of 0.997583 (which is applied to the 

Puerto Rico-specific standardized amount 

and the hospital-specific rates). The product 

of the two proposed budget neutrality factors 

is the proposed cumulative wage and 

recalibration budget neutrality factor. The 

proposed cumulative wage and recalibration 

budget neutrality adjustment is 0.997350, or 

approximately ¥0.27 percent, which is 

applied to the proposed 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. In this proposed 

rule, we are estimating that the proposed 

changes in the MS–DRG relative weights and 

updated wage data with wage and budget 

neutrality applied would result in a 0.1 

percent 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 

and the proposed change in the labor-related 

share with budget neutrality applied would 

result in 0.1 percent increase in payments for 

urban hospitals and 0.6 percent decrease in 

payments for rural hospitals primarily due to 

the proposed changes to the relative weights. 

Urban Middle Atlantic hospitals would 

experience a 0.7 percent increase in 

payments due to proposed increases in their 

wages compared to the national average, 

while the rural West South Central area 

would experience a 0.9 percent decrease in 

payments because of below average increases 

in wages and due to the proposed changes to 

the relative weights. 

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 2014 which affect 

hospitals’ wage index area assignments. 

By Spring of each year, the MGCRB makes 

reclassification determinations that will be 

effective for the next fiscal year, which 

begins on October 1. The MGCRB may 

approve a hospital’s reclassification request 

for the purpose of using another area’s wage 

index value. Hospitals may appeal denials of 

MGCRB decisions to the CMS Administrator. 

Further, hospitals have 45 days from 

publication of the IPPS proposed rule in the 

Federal Register to decide whether to 

withdraw or terminate an approved 

geographic reclassification for the following 

year. 

The overall effect of geographic 

reclassification is required by section 

1886(d)(8)(D) of the Act to be budget neutral. 

Therefore, for purposes of this impact 

analysis, we are proposing to apply an 

adjustment of 0.990971 to ensure that the 

effects of the reclassifications under section 

1886(d)(10) of the Act are budget neutral 

(section II.A. of the Addendum to this 

proposed rule). Geographic reclassification 

generally benefits hospitals in rural areas. We 

estimate that the geographic reclassification 

would increase payments to rural hospitals 

by an average of 1.7 percent. By region, all 

the rural hospital categories, with the 

exception of one rural Puerto Rico hospital, 

would experience increases in payments due 

to MGCRB reclassifications. Rural hospitals 

in the New England region would experience 

a 3.2 percent increase in payments and rural 

hospitals in the Mountain region would 

experience a 0.2 percent increase in 

payments. Urban hospitals in New England 

and the Middle Atlantic would experience an 

increase in payments of 0.7 percent and 0.3 

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 on the CMS Web 

site reflects the reclassifications for FY 2014. 

f. Effects of the Proposed Rural and Imputed 

Floor, Including Application of Proposed 

National Budget Neutrality (Column 7) 

As discussed in section III.B. of the 

preamble of the FY 2009 IPPS final rule, the 

FY 2010 IPPS/RY 2010 LTCH PPS final rule, 

the FYs 2011, 2012, and 2013 IPPS/LTCH 

PPS final rules, 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 also included in 

the calculation of the budget neutrality 

adjustment to the wage index, was extended 

in FY 2012 for 2 additional years. In the past, 

only urban hospitals in New Jersey had been 

receiving the imputed floor. As discussed in 

the FY 2013 IPPS/LTCH PPS final rule (77 FR 

53369), we established an alternative 

temporary methodology for the imputed 

floor, which resulted in an imputed floor for 

Rhode Island for FY 2013. For FY 2014, we 

are proposing to extend the imputed rural 

floor, as calculated under the original 

methodology and the alternative 

methodology. 

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. We have calculated a proposed 

FY 2014 rural floor budget neutrality factor 

to be applied to the wage index of 0.990189, 

which will reduce wage indexes by 0.98 

percent. 

Column 7 shows the projected impact of 

the proposed rural floor and proposed 

imputed floor with the proposed national 

rural floor budget neutrality factor applied to 

the proposed wage index. The column 

compares the proposed post-reclassification 

FY 2014 wage index of providers before the 

rural floor and imputed floor adjustment and 

the proposed post-reclassification FY 2014 

wage index of providers with the proposed 

rural floor and imputed floor adjustment. 

Only urban hospitals can benefit from the 

rural and imputed floors. Because the 

provision is budget neutral, all other 

hospitals (that is, all rural hospitals and those 

urban hospitals to which the adjustment is 

not made) would experience a decrease in 

payments due to the proposed budget 

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neutrality adjustment that is applied 

nationally to their wage index. 

We estimate that 434 hospitals benefit from 

the proposed rural and imputed floors while 

the remaining 2,970 IPPS hospitals in our 

model have their proposed wage index 

reduced by the proposed rural floor budget 

neutrality adjustment of 0.990189 (or 0.98 

percent). We project that, in aggregate, rural 

hospitals would experience a 0.3 percent 

decrease in payments as a result of the 

application of the proposed rural floor budget 

neutrality because the rural hospitals do not 

benefit from the rural floor, but have their 

wage indexes downwardly adjusted to ensure 

that the application of the rural floor is 

budget neutral overall. We project hospitals 

located in other urban areas (populations of 

1 million or fewer) would 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 4.4 percent increase in payments 

primarily due to the application of the 

proposed rural floor in Massachusetts and 

Connecticut. All 60 urban providers in 

Massachusetts are expected to receive the 

proposed rural floor wage index value, 

including proposed rural floor budget 

neutrality, of 1.3108 increasing payments to 

Massachusetts by an estimated $169 million. 

During most past years, there have been no 

IPPS hospitals located in rural areas in 

Massachusetts. There was one urban IPPS 

hospital that was reclassified to rural 

Massachusetts (under section 1886(d)(8)(E) of 

the Act) which established the Massachusetts 

rural floor, but the wage index resulting from 

that hospital’s data was not high enough for 

any urban hospital to benefit from the rural 

floor policy. However, 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 would receive 

approximately a 5.6 percent increase in IPPS 

payments due to the application of the 

proposed rural floor. In addition, 27 out of 

32 hospitals in Connecticut would benefit 

from the proposed rural floor, which would 

increase payments to the State by an 

estimated $75 million. 

Urban Puerto Rico hospitals are expected 

to experience a 0.0 percent change in 

payments as a result of the application of a 

proposed Puerto Rico rural floor with the 

application of the proposed Puerto Rico rural 

floor budget neutrality adjustment. Urban 

Puerto Rico hospitals would receive a 

proposed rural floor as a result of a one IPPS 

hospital located in rural Puerto Rico setting 

the rural floor. We are proposing to apply a 

proposed rural floor budget neutrality factor 

to the Puerto Rico-specific wage index of 

0.990877 or ¥0.9 percent. The Puerto Ricospecific wage index adjusts the Puerto Ricospecific standardized amount, which 

represents 25 percent of payments to Puerto 

Rico hospitals. The increases in payments 

experienced by the urban Puerto Rico 

hospitals that benefit from a rural floor are 

offset by the decreases in payments by the 

nonrural floor urban Puerto Rico hospitals 

that have their wage indexes downwardly 

adjusted by the proposed rural floor budget 

neutrality adjustment. As a result, overall, 

urban Puerto Rico hospitals would 

experience a 0.0 percent change in payments 

due to the proposed application of the 

proposed rural floor with rural floor budget 

neutrality. 

There are 35 hospitals in New Jersey that 

benefit from the extension of the proposed 

imputed floor and would receive the 

proposed imputed floor wage index value, 

including the proposed rural floor budget 

neutrality, of 1.1144, which we estimate 

would increase their payments by 

approximately $15 million. Urban Middle 

Atlantic hospitals would experience a 0.3 

percent decrease in payments, which reflects 

the proposed increase in payments for New 

Jersey hospitals receiving the proposed 

imputed floor and a proposed decrease for 

other urban hospitals in the in the Middle 

Atlantic region. Four Rhode Island hospitals 

would benefit from the proposed imputed 

rural floor calculated under the alternative 

methodology and would receive an 

additional $3.5 million. 

In response to a public comment addressed 

in the FY 2012 IPPS/LTCH PPS final rule (76 

FR 51593), we are providing the payment 

impact of the proposed rural floor and 

imputed floor with budget neutrality at the 

State level. Column 1 of the table below 

displays the number of IPPS hospitals 

located in each State. Column 2 displays the 

number of hospitals in each State that would 

receive the proposed rural floor or imputed 

floor wage index for FY 2014. 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 postreclassification FY 2014 wage index of 

providers before the proposed rural floor and 

imputed floor adjustment and the proposed 

post-reclassification FY 2013 wage index of 

providers with the proposed rural floor and 

imputed floor adjustment. Column 4 displays 

the estimated payment amount that each 

State would gain or lose due to the 

application of the proposed rural floor and 

imputed floor with national budget 

neutrality. 

FY 2014 PROPOSED IPPS ESTIMATED PAYMENTS DUE TO PROPOSED RURAL FLOOR AND IMPUTED FLOOR WITH

NATIONAL BUDGET NEUTRALITY

State Number of 

hospitals 

Number of hospitals receiving 

proposed rural 

floor or imputed 

floor 

Percent change in 

payments due to 

application of proposed rural floor 

and imputed floor 

with budget 

neutrality 

Difference (in 

millions) 

(1) (2) (3) (4) 

Alabama ......................................................................................... 93 3 ¥0 .5 ¥$7.7 

Alaska ............................................................................................ 6 4 3 .3 4.7 

Arizona ........................................................................................... 57 7 ¥0 .4 ¥6.7 

Arkansas ........................................................................................ 45 0 ¥0 .5 ¥5.0 

California ........................................................................................ 308 178 0 .9 86.4 

Colorado ........................................................................................ 46 7 0 .1 1.5 

Connecticut .................................................................................... 32 27 4 .9 75.0 

Delaware ........................................................................................ 6 0 ¥0 .6 ¥2.3 

Washington, DC ............................................................................. 7 0 ¥0 .5 ¥2.5 

Florida ............................................................................................ 168 5 ¥0 .4 ¥29.6 

Georgia .......................................................................................... 107 0 ¥0 .5 ¥12.3 

Hawaii ............................................................................................ 14 0 ¥0 .4 ¥1.2 

Idaho .............................................................................................. 14 0 ¥0 .3 ¥1.0 

Illinois ............................................................................................. 127 5 ¥0 .6 ¥26.8 

Indiana ........................................................................................... 89 4 ¥0 .5 ¥12.9 

Iowa ............................................................................................... 34 0 ¥0 .5 ¥4.2 

Kansas ........................................................................................... 55 0 ¥0 .4 ¥3.7 

Kentucky ........................................................................................ 65 1 ¥0 .4 ¥7.6 

Louisiana ........................................................................................ 99 4 ¥0 .5 ¥6.5 

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FY 2014 PROPOSED IPPS ESTIMATED PAYMENTS DUE TO PROPOSED RURAL FLOOR AND IMPUTED FLOOR WITH

NATIONAL BUDGET NEUTRALITY—Continued 

State Number of 

hospitals 

Number of hospitals receiving 

proposed rural 

floor or imputed 

floor 

Percent change in 

payments due to 

application of proposed rural floor 

and imputed floor 

with budget 

neutrality 

Difference (in 

millions) 

(1) (2) (3) (4) 

Maine ............................................................................................. 20 0 ¥0 .5 ¥2.4 

Massachusetts ............................................................................... 61 60 5 .6 169.1 

Michigan ......................................................................................... 95 0 ¥0 .5 ¥22.1 

Minnesota ...................................................................................... 51 0 ¥0 .5 ¥9.0 

Mississippi ...................................................................................... 65 1 ¥0 .5 ¥5.1 

Missouri .......................................................................................... 77 0 ¥0 .4 ¥10.7 

Montana ......................................................................................... 12 4 ¥0 .1 ¥0.4 

Nebraska ........................................................................................ 23 0 ¥0 .4 ¥2.5 

Nevada ........................................................................................... 24 19 1 .6 10.9 

New Hampshire ............................................................................. 13 9 0 .8 3.6 

New Jersey .................................................................................... 64 35 0 .4 14.8 

New Mexico ................................................................................... 25 0 ¥0 .3 ¥1.5 

New York ....................................................................................... 166 2 ¥0 .6 ¥46.5 

North Carolina ................................................................................ 87 0 ¥0 .4 ¥15.2 

North Dakota .................................................................................. 6 1 ¥0 .3 ¥0.9 

Ohio ............................................................................................... 137 3 ¥0 .4 ¥17.7 

Oklahoma ....................................................................................... 86 2 ¥0 .4 ¥5.4 

Oregon ........................................................................................... 33 0 ¥0 .5 ¥4.5 

Pennsylvania .................................................................................. 157 6 ¥0 .5 ¥21.8 

Puerto Rico .................................................................................... 52 13 0 0.0 

Rhode Island .................................................................................. 11 4 0 .5 1.7 

South Carolina ............................................................................... 57 5 ¥0 .3 ¥5.0 

South Dakota ................................................................................. 19 0 ¥0 .3 ¥1.0 

Tennessee ..................................................................................... 97 11 ¥0 .3 ¥7.6 

Texas ............................................................................................. 322 3 ¥0 .5 ¥31.9 

Utah ............................................................................................... 32 0 ¥0 .4 ¥2.0 

Vermont ......................................................................................... 6 0 ¥0 .4 ¥0.8 

Virginia ........................................................................................... 78 1 ¥0 .4 ¥10.5 

Washington .................................................................................... 49 5 ¥0 .2 ¥3.6 

West Virginia .................................................................................. 30 3 ¥0 .3 ¥2.3 

Wisconsin ....................................................................................... 66 2 ¥0 .4 ¥7.3 

Wyoming ........................................................................................ 11 0 ¥0 .1 ¥0.2 

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 postreclassified 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 46 hospitals 

located in those States will receive a frontier 

wage index of 1.0000. 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 rural floor value of 

1.0256 was greater and, therefore, was the 

State’s minimum wage index for FY 2013. 

For FY 2014, its proposed postreclassification wage index is also above 

1.0000, hospitals located in Nevada would 

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 $63 million or 

approximately 0.1 percent. 

Urban hospitals located in the West North 

Central region and urban hospitals located in 

the Mountain region would receive an 

increase in payments by 0.8 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 would 

experience an increase in payments by 0.4 

percent and 0.3 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 would 

experience a 0.1 percent increase in 

payments as a result of the proposed outmigration wage adjustment. Rural DSH 

providers with less than 100 beds would 

experience a 0.4 percent increase in 

payments. There are 210 providers that 

would receive the proposed out-migration 

wage adjustment in FY 2014. This outmigration wage adjustment is not budget 

neutral, and we estimate the impact of these 

providers receiving the proposed outmigration increase to be approximately $17 

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. MDH status had previously 

expired for FY 2013 under section 3124 of 

the Affordable Care Act, but was extended for 

an additional year through FY 2013 under 

section 606 of the ATRA. Hospitals that 

qualified to be MDHs receive the higher of 

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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 

currently 192 MDHs, of which 134 are 

estimated to be paid under the blended 

payment of the Federal standardized amount 

and hospital-specific rate for FY 2013. 

Because those 134 MDHs will no longer 

receive the blended payment and will be 

paid only under the Federal standardized 

amount in FY 2014, it is estimated that those 

hospitals will experience an overall decrease 

in payments of approximately $127 million. 

MDHs were generally rural hospitals, so 

the expiration of the MDH program will 

result in an overall decrease in payments to 

rural hospitals of 1.2 percent. Rural New 

England hospitals can expect a decrease in 

payments of 3.9 percent because 8 out of the 

23 rural New England hospitals are MDHs 

that will lose this special payment status 

under the expiration of the program at the 

end of FY 2013. MDHs can expect a decrease 

in payments of 9.9 percent. 

j. Effects of the Proposed Reductions Under 

the Hospital Readmissions Reduction 

Program (Column 11) 

Column 11 shows our estimates of the 

effects of the proposed policies for reductions 

in payments under the Hospital 

Readmissions Reduction Program, which was 

established under section 3025 of the 

Affordable Care Act. The Hospital 

Readmissions Reduction Program requires a 

reduction to a hospital’s base operating DRG 

payments to account for excess readmissions, 

which 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 0.98 (or a 2.0 percent reduction) for FY 

2014. A hospital’s base operating DRG 

payment (that is, wage-adjusted DRG 

payment amount, as discussed in section 

V.G. of the preamble of this proposed rule) 

is the portion of the IPPS payment subject to 

the readmissions payment adjustment (DSH, 

IME, outliers and low-volume add-on 

payments are not subject to the readmissions 

adjustment). In this proposed rule, we 

estimate that 2,173 hospitals will have their 

base operating DRG payments reduced by 

their hospital-specific proposed readmissions 

adjustment, resulting in a 0.2 percent 

decrease, or approximately $175 million, in 

payments to hospitals overall for FY 2014 

relative to no provision. 

Urban hospitals in the Middle Atlantic, 

rural hospitals in the East South Central 

region, West South Central region, rural DSH 

hospitals and hospitals with Medicare 

utilization of over 65 percent would 

experience the highest decreases of 0.4 

percent among the different hospital 

categories. Rural New England hospitals 

would experience the no change in 

payments. Puerto Rico hospitals show a 0 

percent change in payments because they are 

exempt from the provision. 

k. Effects of the Proposed Changes to 

Medicare DSH Payments (Column 12) 

Column 12 shows the proposed effects of 

the implementation of adjustments to 

Medicare DSH payments made under section 

3133 of the Affordable Care Act. Under 

section 3133, hospitals that are eligible to 

receive Medicare DSH payments will receive 

25 percent of the amount they previously 

would have received under the current 

statutory formula for Medicare DSH 

payments. The remainder, equal to an 

estimate of 75 percent of what otherwise 

would have been paid as Medicare DSH 

payments, reduced to reflect changes in the 

percentage of individuals under age 65 who 

are uninsured and additional statutory 

adjustments, will become available to make 

additional payments to each hospital that 

qualifies for Medicare DSH payments. Each 

Medicare DSH hospital will receive an 

additional payment based on its estimated 

share of the total amount of uncompensated 

care for all Medicare DSHs. The reduction to 

Medicare DSH payments is not budget 

neutral. 

We are proposing that the amount to be 

distributed on the basis of uncompensated 

care, which is 75 percent of what otherwise 

would have been paid for Medicare DSH 

payment adjustments (that is, Factor 1), is 

adjusted to 88.8 percent of that amount for 

changes in the percentage of individuals 

under age 65 who are uninsured and 

additional statutory adjustments (that is, 

Factor 1 multiplied by Factor 2). As a result, 

we project that the reduction of Medicare 

DSH payments, together with the 

introduction of the new uncompensated care 

payment, will reduce payments overall by 0.9 

percent as compared to Medicare DSH 

payments prior to the implementation of 

section 3133 of the Affordable Care Act. The 

proposed uncompensated care payment has 

redistributive effects based on a 

disproportionate share hospital’s low income 

insured patient days (sum of Medicaid 

patient days and Medicare SSI patient days) 

relative to all disproportionate share 

hospitals Medicaid patient days and 

Medicare SSI patient days, and the payment 

amount is not tied to a hospital’s discharges. 

Urban hospitals located in the Pacific would 

experience the largest decreases in payments 

of 3.2 percent, as these hospitals have lower 

uncompensated care relative to other hospital 

categories. Hospitals with low Medicare 

utilization with Medicare days that are less 

than 25 percent of total inpatient days would 

experience a 4.4 percent increase in payment. 

l. Effects of All Proposed FY 2014 Changes 

(Column 13) 

Column 13 shows our estimate of the 

changes in payments per discharge from FY 

2013 and FY 2014, resulting from all 

proposed changes reflected in this proposed 

rule for FY 2014. It includes combined effects 

of the previous columns in the table. 

The proposed average decrease in 

payments under the IPPS for all hospitals is 

approximately 0.1 percent for FY 2014 

relative to FY 2013. As discussed in section 

II.D. of the preamble of this proposed rule, 

this column includes the proposed FY 2014 

documentation and coding adjustment of 

¥0.8 percent on the national standardized 

amount as part of the recoupment required 

under section 631 of the ATRA. In addition, 

this column includes the proposed annual 

hospital update of 1.8 percent to the national 

standardized amount. This annual hospital 

update includes the proposed 2.5 percent 

market basket update, the proposed 

reduction of 0.4 percentage point for the 

multifactor productivity adjustment, and the 

0.3 percentage point reduction under section 

3401 of the Affordable Care Act. Finally, it 

includes the proposed ¥0.2 percent 

adjustment of the national standardized 

amount, the hospital-specific payment rate, 

and the Puerto Rico-specific rate to offset the 

costs of the policy proposal on admission 

and medical review criteria for hospital 

inpatient services under Medicare Part A. As 

described in Column 2, the proposed annual 

hospital update, combined with the proposed 

documentation and coding adjustment and 

the adjustment to offset the cost of the policy 

proposal on admission and medical review 

criteria for hospital inpatient services under 

Medicare Part A, would result in a 0.8 

percent increase in payments in FY 2014 

relative to FY 2013. Column 5 shows an 

increase in payments by 0.1 percent due to 

the effects of the cumulative DRG and wage 

budget neutrality. 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 

606 of the ATRA. Column 11 shows the 

estimated 0.2 percent decrease in payments 

due to the proposed reductions in payments 

under the Hospital Readmissions Reduction 

Program, which reduce a hospital’s base 

operating DRG payments by a readmission 

adjustment factor based on a hospital’s 

performance on readmissions for specified 

conditions. Column 12 shows the estimated 

0.9 percent decrease in Medicare DSH 

payments due to the changes made under 

section 3133 of the Affordable Care Act, 

which reduces Medicare DSH payments by 

75 percent and redistributes the remainder, 

equal to an estimate of 75 percent of what 

otherwise would have been paid as Medicare 

DSH payments, reduced to reflect changes in 

the percentage of individuals under age 65 

who are uninsured, to each hospital that 

qualifies for Medicare DSH payments as an 

uncompensated care payment based on the 

hospital’s relative share of the total amount 

of uncompensated care. The impact of 

moving from our estimate of FY 2013 outlier 

payments, 5.2 percent, to the estimate of FY 

2014 outlier payments, 5.1 percent, would 

result in a decrease of 0.1 percent in FY 2014 

payments relative to FY 2013. There also 

might be interactive effects among the 

various factors comprising the payment 

system that we are not able to isolate. For 

these reasons, the values in Column 13 may 

not equal the sum of the estimated 

percentage changes described above. 

Overall payments to hospitals paid under 

the IPPS are estimated to decrease by 0.1 

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percent for FY 2014. The proposed payment 

decrease among the hospital categories is 

largely attributed to the reduction in 

Medicare DSH payment adjustments and the 

redistribution of a portion of the Medicare 

DSH payments as an additional payment for 

a hospital’s relative uncompensated care 

amount. Hospitals in urban areas would 

experience a 0.1 percent increase in 

payments per discharge in FY 2014 

compared to FY 2013. Hospital payments per 

discharge in rural areas are estimated to 

decrease by ¥1.9 percent in FY 2014 as 

compared to FY 2013 largely due to the 

expiration of MDH status and reductions to 

Medicare DSH payments. 

Among urban census divisions, the Urban 

Pacific hospitals would experience an 

estimated 1.5 percent decrease in payments, 

more than the national average, because 

many of the urban providers in this region 

would see reductions to their Medicare DSH 

payments. Urban hospitals in the Middle 

Atlantic would experience a 1.6 percent 

increase in payments. 

Among the rural regions, the hospitals in 

the East South Central region would 

experience the estimated decreases in 

payments of 3.5 percent, due to the 

expiration of MDH status and reductions to 

Medicare DSH payments. Rural hospitals in 

the Mountain region are estimated to 

experience no change in payments. 

Among special categories of hospitals, 

former MDHs would receive an estimated 

payment decrease of 8.5 percent due to the 

expiration of the MDH special payment 

status. SCHs are paid the higher of their 

Federal rate and the hospital-specific rate. 

Overall, SCHs are estimated to experience a 

payment decrease of 0.5 percent due to the 

proposed changes to the relative weights 

methodology and minor reductions under the 

rural floor budget neutrality and changes to 

Medicare DSH. 

Rural hospitals reclassified for FY 2014 

would receive an estimated 1.7 percent 

payment decrease. Rural hospitals that are 

not reclassifying are estimated to receive a 

payment decrease of 2.2 percent due to lower 

wage data, the application of the proposed 

rural floor budget neutrality and expiration of 

MDH status. Urban reclassified hospitals 

would experience an estimated payment 

decrease of 0.2 percent due to decreases in 

payments under the Medicare DSH changes. 

Urban nonreclassified hospitals would 

experience an estimated payment increase of 

0.2 percent. 

Cardiac hospitals are expected to 

experience a payment increase of 1.4 percent 

in FY 2014 relative to FY 2013 primarily due 

to the proposed changes in the relative 

weights and the proposed application of the 

frontier State wage index. 

3. Impact Analysis of Table II 

Table II presents the projected impact of 

the proposed changes for FY 2014 for urban 

and rural hospitals and for the different 

categories of hospitals shown in Table I. It 

compares the estimated average payments 

per discharge for FY 2013 with the average 

payments per discharge for FY 2014, as 

calculated under our models. Thus, this table 

presents, in terms of the average dollar 

amounts paid per discharge, the combined 

effects of the proposed changes presented in 

Table I. The estimated percentage changes 

shown in the last column of Table II equal 

the estimated percentage changes in average 

payments per discharge from Column 13 of 

Table I. 

TABLE II—IMPACT ANALYSIS OF PROPOSED CHANGES FOR FY 2014 ACUTE CARE HOSPITAL OPERATING PROSPECTIVE

PAYMENT SYSTEM

[Payments Per Discharge] 

Number of 

hospitals 

Proposed average FY 2013 

payment per 

discharge 

Proposed average FY 2014 

payment per 

discharge 

All proposed 

FY 2014 

changes 

(1) (2) (3) (4) 

All Hospitals ..................................................................................................... 3,404 10,891 10,880 ¥0.1 

By Geographic Location: 

Urban hospitals ......................................................................................... 2,481 11,305 11,315 0.1

Large urban areas .................................................................................... 1,367 11,978 12,033 0.5 

Other urban areas .................................................................................... 1,114 10,488 10,443 ¥0.4 

Rural hospitals .......................................................................................... 923 8,110 7,957 ¥1.9 

Bed Size (Urban): 

0–99 beds ................................................................................................. 622 8,742 8,825 0.9 

100–199 beds ........................................................................................... 762 9,538 9,488 ¥0.5 

200–299 beds ........................................................................................... 464 10,234 10,223 ¥0.1 

300–499 beds ........................................................................................... 418 11,637 11,653 0.1 

500 or more beds ..................................................................................... 215 13,815 13,870 0.4 

Bed Size (Rural): 

0–49 beds ................................................................................................. 339 6,537 6,379 ¥2.4 

50–99 beds ............................................................................................... 328 7,551 7,304 ¥3.3 

100–149 beds ........................................................................................... 151 7,859 7,772 ¥1.1 

150–199 beds ........................................................................................... 59 8,970 8,870 ¥1.1 

200 or more beds ..................................................................................... 46 9,829 9,710 ¥1.2 

Urban by Region: 

New England ............................................................................................ 120 12,354 12,376 0.2 

Middle Atlantic .......................................................................................... 318 12,367 12,560 1.6 

South Atlantic ........................................................................................... 375 10,289 10,288 0 

East North Central .................................................................................... 395 10,498 10,475 ¥0.2 

East South Central ................................................................................... 149 9,895 9,865 ¥0.3 

West North Central ................................................................................... 165 11,069 11,051 ¥0.2 

West South Central .................................................................................. 371 10,371 10,358 ¥0.1 

Mountain ................................................................................................... 156 11,613 11,751 1.2 

Pacific ....................................................................................................... 381 14,431 14,208 ¥1.5 

Puerto Rico ............................................................................................... 51 5,505 7,469 35.7 

Rural by Region: 

New England ............................................................................................ 23 10,960 10,642 ¥2.9 

Middle Atlantic .......................................................................................... 69 8,618 8,519 ¥1.2 

South Atlantic ........................................................................................... 165 7,771 7,628 ¥1.8 

East North Central .................................................................................... 119 8,310 8,180 ¥1.6 

East South Central ................................................................................... 171 7,452 7,193 ¥3.5 

West North Central ................................................................................... 100 8,610 8,574 ¥0.4 

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TABLE II—IMPACT ANALYSIS OF PROPOSED CHANGES FOR FY 2014 ACUTE CARE HOSPITAL OPERATING PROSPECTIVE

PAYMENT SYSTEM—Continued 

[Payments Per Discharge] 

Number of 

hospitals 

Proposed average FY 2013 

payment per 

discharge 

Proposed average FY 2014 

payment per 

discharge 

All proposed 

FY 2014 

changes 

(1) (2) (3) (4) 

West South Central .................................................................................. 181 7,047 6,858 ¥2.7 

Mountain ................................................................................................... 65 9,061 9,065 0 

Pacific ....................................................................................................... 29 10,996 10,961 ¥0.3 

Puerto Rico ............................................................................................... 1 2,799 2,927 4.6 

By Payment Classification: 

Urban hospitals ......................................................................................... 2,495 11,295 11,305 0.1

Large urban areas .................................................................................... 1,377 11,967 12,021 0.5 

Other urban areas .................................................................................... 1,118 10,468 10,424 ¥0.4 

Rural areas ............................................................................................... 909 8,241 8,087 ¥1.9 

Teaching Status: 

Nonteaching .............................................................................................. 2,378 9,128 9,057 ¥0.8 

Fewer than 100 residents ......................................................................... 782 10,676 10,670 ¥0.1 

100 or more residents .............................................................................. 244 15,902 16,036 0.8 

Urban DSH: 

Non-DSH .................................................................................................. 706 9,423 9,445 0.2 

100 or more beds ..................................................................................... 1,562 11,763 11,764 0 

Less than 100 beds .................................................................................. 330 8,061 8,157 1.2 

Rural DSH: 

SCH .......................................................................................................... 260 8,158 8,052 ¥1.3 

RRC .......................................................................................................... 223 9,048 8,902 ¥1.6 

100 or more beds ..................................................................................... 29 7,100 7,117 0.2 

Less than 100 beds .................................................................................. 294 6,414 6,187 ¥3.6 

Urban teaching and DSH: 

Both teaching and DSH ............................................................................ 826 12,856 12,902 0.4 

Teaching and no DSH .............................................................................. 135 10,466 10,543 0.7 

No teaching and DSH .............................................................................. 1,066 9,658 9,595 ¥0.6 

No teaching and no DSH ......................................................................... 468 9,036 9,062 0.3 

Special Hospital Types: 

RRC .......................................................................................................... 207 9,347 9,214 ¥1.4 

SCH .......................................................................................................... 329 8,825 8,782 ¥0.5 

Former MDH ............................................................................................. 192 6,817 6,236 ¥8.5 

SCH and RRC .......................................................................................... 124 9,924 9,918 ¥0.1 

Former MDH and RRC ............................................................................. 11 8,586 7,520 ¥12.4 

Type of Ownership: 

Voluntary ................................................................................................... 1,944 11,020 11,005 ¥0.1 

Proprietary ................................................................................................ 895 9,759 9,670 ¥0.9 

Government .............................................................................................. 546 11,776 11,902 1.1 

Medicare Utilization as a Percent of Inpatient Days: 

0–25 .......................................................................................................... 368 14,920 15,810 6 

25–50 ........................................................................................................ 1,807 11,442 11,378 ¥0.6 

50–65 ........................................................................................................ 967 8,932 8,861 ¥0.8 

Over 65 ..................................................................................................... 171 7,914 7,767 ¥1.9 

FY 2014 Reclassifications by the Medicare Geographic Classification Review Board: 

All Reclassified Hospitals ......................................................................... 762 10,510 10,454 ¥0.5 

Non-Reclassified Hospitals ....................................................................... 2,642 11,022 11,026 0 

Urban Hospitals Reclassified .................................................................... 451 11,271 11,252 ¥0.2 

Urban Nonreclassified Hospitals, FY 2014: ............................................. 1,990 11,336 11,356 0.2 

All Rural Hospitals Reclassified FY 2014: ................................................ 311 8,609 8,460 ¥1.7 

Rural Nonreclassified Hospitals FY 2014: ................................................ 552 7,439 7,275 ¥2.2 

All Section 401 Reclassified Hospitals: .................................................... 47 9,523 9,382 ¥1.5 

Other Reclassified Hospitals (Section 1886(d)(8)(B)) .............................. 61 7,754 7,549 ¥2.6 

Specialty Hospitals: 

Cardiac specialty Hospitals ...................................................................... 15 11,720 11,888 1.4 

H. Effects of Other Proposed Policy Changes 

In addition to those proposed policy 

changes discussed above that we are able to 

model using our IPPS payment simulation 

model, we are proposing to make various 

other changes in this proposed rule. 

Generally, we have limited or no specific 

data available with which to estimate the 

impacts of these proposed changes. Our 

estimates of the likely impacts associated 

with these other proposed changes are 

discussed below. 

1. Effects of Proposed Policy on 

MS–DRGs for Preventable HACs, Including 

Infections 

In section II.F. of the preamble of this 

proposed rule, we discuss our 

implementation of section 1886(d)(4)(D) of 

the Act, which requires the Secretary to 

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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. 

The HAC payment provision went into 

effect on October 1, 2008. Our savings 

estimates for the next 5 fiscal years are 

shown below: 

Year Savings 

(in millions) 

FY 2014 ............................ $26 

FY 2015 ............................ 28 

FY 2016 ............................ 30 

FY 2017 ............................ 33 

FY 2018 ............................ 36 

In section V.I. of the preamble of this 

proposed rule, we are proposing to 

implement the HAC Reduction Program. We 

refer readers to section I.H.6. of this 

Appendix A for a discussion of the impact 

of this proposed implementation. 

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 

2014, as well as the status of the four new 

technologies that were approved to receive 

new technology add-on payments in FY 

2013. 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 2014 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 2014. We 

note that if any of the five applications are 

found to be eligible for new technology addon payments for FY 2014, in the FY 2014 

IPPS/LTCH PPS final rule, we would discuss 

the estimated payment impact for FY 2014 in 

that final rule. 

In the preamble to this proposed rule, we 

are proposing to continue making new 

technology add-on payments in FY 2014 for 

three of the four new technologies 

(Voraxaze®, DificidTM and the Zenith® F. 

Graft) that were approved to receive new 

technology add-on payments in FY 2013. We 

note that new technology add-on payments 

per case are limited to the lesser of (1) 50 

percent of the costs of the new technology or 

(2) 50 percent of the amount by which the 

costs of the case exceed the standard MS– 

DRG payment for the case. Because it is 

difficult to predict the actual new technology 

add-on payment for each case, our estimates 

below are based on the increase in add-on 

payments for FY 2014 as if every claim that 

would qualify for a new technology add-on 

payment would receive the maximum add-on 

payment. For Voraxaze®, based on the 

applicant’s estimate from FY 2013, we 

currently estimate that new technology addon payments for Voraxaze® will increase 

overall FY 2014 payments by $6,300,000. For 

DificidTM, based on the applicant’s estimate 

from FY 2013, we currently estimate that 

new technology add-on payments for 

DificidTM will increase overall FY 2014 

payments by $34,839,784. For the Zenith® F. 

Graft, based on the applicant’s estimate from 

FY 2013, we currently estimate that new 

technology add-on payments for the Zenith®

F. Graft will increase overall FY 2014 

payments by $4,085,750. 

3. Effects of the Proposed Payment 

Adjustment for Low-Volume Hospitals for FY 

2014 

In section V.C. of the preamble to this 

proposed rule, we discuss the provisions of 

the ATRA (Pub. L. 112–240) which extended 

for an additional year, through FY 2013, the 

temporary changes to the low-volume 

hospital definition and methodology for 

determining the payment adjustment made 

by the Affordable Care Act for FYs 2011 and 

2012. In accordance with section 1886(d)(12) 

of the Act, beginning with FY 2014, the lowvolume hospital definition and payment 

adjustment methodology revert back to the 

statutory requirements that were in effect 

prior to the amendments made by the 

Affordable Care Act. Therefore, effective for 

FY 2014 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. 

Based on FY 2012 claims data (December 

2012 update of the MedPAR file), we 

estimate that approximately 600 hospitals 

qualify as a low-volume hospital in FY 2013, 

and with the statutory changes to the lowvolume hospital payment adjustment for FY 

2014, we estimate only approximately 6 

hospitals will continue to qualify as a lowvolume hospital in FY 2014. We project that 

the expiration of the temporary changes to 

the low-volume hospital definition and 

payment adjustment methodology made by 

the Affordable Care Act and extended by the 

ATRA will result in a decrease in payments 

of approximately $288 million in FY 2014 as 

compared to the payments these hospitals 

would have otherwise received in FY 2014 in 

the absence of the statutory changes to the 

low-volume hospital payment adjustment for 

FY 2014. This estimate accounts for our 

projection of the 6 IPPS low-volume 

hospitals remaining in FY 2014 that will 

continue to receive a low-volume hospital 

payment adjustment of an additional 25 

percent. 

4. Effects of Extension of the MDH Program 

Through FY 2013 

In section V.F. of the preamble of this 

proposed rule, we briefly discuss the 

statutory extension of the MDH program 

through FY 2013 made by section 606 of the 

ATRA. We refer readers to a March 7, 2013 

notice that we published in the Federal 

Register to announce the extension of the 

MDH program for FY 2013 in accordance 

with this ATRA provision, where we also 

stated the impact on Medicare expenditures 

of the statutory extension (78 FR 14689). 

5. Effects of Changes Under the FY 2014 

Hospital Value-Based Purchasing (VBP) 

Program 

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 that meet performance 

standards during the performance period for 

discharges occurring on or after October 1, 

2012. These incentive payments will be 

funded for FY 2014 through a reduction to 

the FY 2014 base operating MS–DRG 

payment for each discharge of 1.25 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 percent, 

for FY 2016 is 1.75 percent, and for FY 2017 

and subsequent years is 2 percent. We are 

required to ensure that the total amount 

available for value-based incentive payments 

is equal to the total amount of reduced 

payments for all hospitals for the fiscal year, 

as estimated by the Secretary. 

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We finalized numerous policies related to 

the FY 2014 Hospital VBP Program in the CY 

2012 OPPS/ASC final rule with comment 

period (76 FR 74527 through 74547) and the 

FY 2013 IPPS/LTCH PPS final rule (77 FR 

53567 through 53614), including an 

additional measure in the Clinical Process of 

Care domain, minimum numbers of cases 

and measures for the Outcome domain, 

performance and baseline periods for FY 

2014 measures, performance standards, 

domain weighting, and requirements for the 

review and corrections processes. We also 

refer readers to the Hospital Inpatient VBP 

Program final rule (76 FR 26495 through 

26511) where we finalized three 30-day 

mortality measures, to be placed in the new 

Outcome domain for the FY 2014 Hospital 

VBP Program. 

In section V.H. of the preamble of this 

proposed rule, we estimate the available pool 

of funds for value-based incentive payments 

in the FY 2014 Hospital VBP Program, 

which, in accordance with section 

1886(o)(7)(C)(ii) of the Act, will be 1.25 

percent of base operating DRG payments, or 

a total of approximately $1.1 billion. This 

estimated available pool for FY 2014 is based 

on the historical pool of hospitals that were 

eligible to participate in the FY 2013 Hospital 

VBP Program and the payment information 

from the December 2012 update to the FY 

2012 MedPAR file. We intend to provide an 

update to this estimate, which will be based 

on the March 2013 update to the FY 2012 

MedPAR file, in the FY 2014 IPPS/LTCH PPS 

final rule. 

The estimated impacts of the FY 2014 

Hospital VBP Program by hospital 

characteristic, found in the table below, are 

based on historical TPSs. We used the FY 

2013 Hospital VBP Program TPSs to calculate 

the proxy adjustment factors used for this 

impact analysis. These are the most recently 

available scores that hospitals were given an 

opportunity to review and correct. The proxy 

adjustment factors use estimated annual base 

operating DRG payment amounts derived 

from the March 2013 update to the FY 2012 

MedPAR file. The proxy adjustment factors 

can be found in Table 16 associated with this 

proposed rule (available on the CMS Web 

site). The impact analysis shows that, for the 

FY 2014 Hospital VBP Program, the number 

of hospitals that would receive an increase in 

base operating DRG payment amount is 

slightly higher than the number of hospitals 

that would receive a decrease. 

Approximately 44 percent of hospitals would 

have a change in base operating DRG 

payment amount that is between ¥0.2 

percent and +0.2 percent. Urban hospitals in 

the West South Central region and rural 

hospitals in the East North Central region 

would have the highest average increase in 

base operating DRG payment amount while 

both urban and rural hospitals in the Middle 

Atlantic and Pacific would receive an average 

decrease in base operating DRG payment 

amount. As the percent of disproportionate 

share (DSH) payments increases, we would 

see a decrease in base operating DRG 

payment amounts, while as the Medicare 

utilization (MCR) percent increases, we 

would see an increase in base operating DRG 

payment amount. Nonteaching hospitals 

would have an average positive adjustment to 

the base operating DRG payment amount, 

and teaching hospitals would have an 

average decrease in base operating DRG 

payment amount. 

IMPACT ANALYSIS OF BASE OPERATING DRG PAYMENT AMOUNT CHANGES RESULTING FROM THE FY 2014 HOSPITAL

VBP PROGRAM

Number of 

hospitals 

Case weighted 

average 

(in percent) 

BY GEOGRAPHIC LOCATION: 

All Hospitals .............................................................................................................................................. 2,984 0.000 

Large Urban ...................................................................................................................................... 1,226 ¥0.003 

Other Urban ....................................................................................................................................... 1,015 0.002 

Rural Area ......................................................................................................................................... 740 0.005 

Urban hospitals ......................................................................................................................................... 2,241 ¥0.001 

0–99 beds .......................................................................................................................................... 465 0.149 

100–199 beds .................................................................................................................................... 717 0.014 

200–299 beds .................................................................................................................................... 435 0.015 

300–499 beds .................................................................................................................................... 421 ¥0.010 

500 or more beds .............................................................................................................................. 203 ¥0.048 

Rural hospitals .......................................................................................................................................... 740 0.005 

0–49 beds .......................................................................................................................................... 162 0.049 

50–99 beds ........................................................................................................................................ 324 ¥0.029 

100–149 beds .................................................................................................................................... 150 0.027 

150–199 beds .................................................................................................................................... 57 ¥0.004 

200 or more beds .............................................................................................................................. 47 0.021 

BY REGION: 

Urban By Region ...................................................................................................................................... 2,241 ¥0.001 

New England ..................................................................................................................................... 113 ¥0.020 

Middle Atlantic ................................................................................................................................... 295 ¥0.066 

South Atlantic .................................................................................................................................... 356 0.049 

East North Central ............................................................................................................................. 373 0.024 

East South Central ............................................................................................................................ 129 0.019 

West North Central ............................................................................................................................ 155 0.002 

West South Central ........................................................................................................................... 314 0.042 

Mountain ............................................................................................................................................ 155 ¥0.013 

Pacific ................................................................................................................................................ 351 ¥0.078 

Rural By Region ....................................................................................................................................... 740 0.005 

New England ..................................................................................................................................... 21 ¥0.103 

Middle Atlantic ................................................................................................................................... 64 ¥0.115 

South Atlantic .................................................................................................................................... 143 0.021 

East North Central ............................................................................................................................. 117 0.104 

East South Central ............................................................................................................................ 114 0.064 

West North Central ............................................................................................................................ 85 ¥0.032 

West South Central ........................................................................................................................... 114 ¥0.053 

Mountain ............................................................................................................................................ 54 ¥0.017 

Pacific ................................................................................................................................................ 28 ¥0.100 

Puerto Rico ........................................................................................................................................ ............................ ............................

By MCR Percent: ............................ ............................

0–25 ................................................................................................................................................... 288 ¥0.082 

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IMPACT ANALYSIS OF BASE OPERATING DRG PAYMENT AMOUNT CHANGES RESULTING FROM THE FY 2014 HOSPITAL

VBP PROGRAM—Continued 

Number of 

hospitals 

Case weighted 

average 

(in percent) 

25–50 ................................................................................................................................................. 1,715 ¥0.003 

50–65 ................................................................................................................................................. 853 0.019 

Over 65 .............................................................................................................................................. 79 0.081 

BY DSH Percent: ............................ ............................

0–25 ................................................................................................................................................... 1,429 0.033 

25–50 ................................................................................................................................................. 1,257 ¥0.010 

50–65 ................................................................................................................................................. 157 ¥0.120 

Over 65 .............................................................................................................................................. 138 ¥0.187 

BY TEACHING STATUS: 

Teaching ................................................................................................................................................... 971 ¥0.031 

Non-Teaching ........................................................................................................................................... 2,010 0.033 

We intend to provide an updated impact 

analysis in the FY 2014 IPPS/LTCH PPS final 

rule. However, actual FY 2014 Hospital VBP 

Program TPSs will not be reviewed and 

corrected by hospitals until after the FY 2014 

IPPS/LTCH PPS final rule has been 

published. Therefore, the same historical 

universe of eligible hospitals and 

corresponding TPSs from the FY 2013 

Hospital VBP Program will be used for that 

updated impact analysis. The updated 

impact analysis for the final rule will reflect 

estimated annual base operating DRG 

payment amount changes based on the 

December 2012 update to the FY 2012 

MedPAR file. 

6. Effects of Proposed Implementation of the 

HAC Reduction Program 

In section V.I. of the preamble of this 

proposed rule, we are proposing measures, 

scoring, and risk adjustment methodology to 

implement the FY 2015 payment reduction 

under the HAC Reduction Program. Section 

1886(p) of the Act, as added under section 

3008(a) of the Affordable Care Act, 

establishes an adjustment to hospital 

payments for HACs, or a HAC Reduction 

program, under which payments to 

applicable hospitals are adjusted to provide 

an incentive to reduce HACs, effective for 

discharges beginning on October 1, 2014 and 

for subsequent program years. 

We note that there is no payment impact 

for FY 2014. For FY 2015, we are presenting 

the overall impact of the HAC Reduction 

Program provision along with other IPPS 

payment provision impacts in section I.G. of 

this Appendix A. The tables and analyses 

that we are presenting below show the 

distributional effect of the measures and 

scoring system for this program included in 

this proposed rule. 

The four tables below show the following 

data distribution: 

• The first table presents data on hospitals 

in the top (that is, worst performing) quartile 

for the Domain 

1-Proposed Approach and the Domain 

1-Alternative Approach scores, with hospital 

scores segregated by hospital types. 

• The second table presents data on 

hospitals in the top (that is, worst 

performing) quartile for Domain 2 scores, 

with hospital scores segregated by hospital 

types. 

• The third table presents data on 

hospitals in top (that is, worst performing) 

quartile for Total HAC Scores for the Domain 

1—Proposed Approach and the Domain 1— 

Alternative Approach, with hospital scores 

segregated by hospital types. 

• The fourth table presents data on (1) 

hospitals that have complete data for Domain 

1 (that is, data for at least three measures for 

the Domain 1—Proposed Approach or on 

hospitals that have enough data to calculate 

PSI 90 for the Domain 1—Alternative 

Approach), with hospital scores segregated 

by hospital type; and (2) hospitals that have 

complete data for Domain 2 (that is, at least 

one measure for Domain 2), with hospital 

scores segregated by hospital types. 

The data for these data tables are derived 

from 3,445 IPPS hospitals (minus CAHs) for 

the time period of July 1, 2009 to June 30, 

2011. The data source for Domain 1 is the 

Standard Analytic File (SAF) claims data, 

and the data source for Domain 2 is the chartabstracted data on CDC’s National Healthcare 

Safety Network (NHSN). The data used to 

determine teaching status and for-profit/notfor-profit/government-owned status in the 

fourth table is derived from American 

Hospital Association (AHA) 2010 Annual 

Survey of Hospital data, while the data used 

to determine DSH status in the fourth table 

is derived from the CMS FY 2013 IPPS 

Impact File. Maryland hospitals were 

excluded from the data in the fourth table 

because Maryland hospitals were not 

required to submit POA data in their claims 

and, therefore, no AHRQ measures could be 

calculated. Finally, the data source for the 

Region/Division categories of all four tables 

is the Citation of Region/Division data 

available on the Web site at https:// 

www.census.gov/geo/www/us_regdiv.pdf, 

and the data source for the Urban/Rural 

categories for all four tables is the Urban/ 

Rural data from the U.S. department of 

Agriculture’s Economic Research Service, 

which is available on the Web site at: http:// 

www.ers.usda.gov/data-products/ruralurban-continuum-codes.aspx. 

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HOSPITALS IN

TOP

QUARTILE (WORST

PERFORMING) FOR

DOMAIN 1—PROPOSED

APPROACH

SCORE

AND

DOMAIN 1—ALTERNATIVE

APPROACH

SCORE

Hospital category 

In top quartile 

Domain 1—proposed approach 

score 

Not in top quartile 

Domain 1—proposed approach 

score 

Domain 

1—proposed approach 

totals 

In Top quartile 

Domain 1—alternative approach 

score 

Not in top quartile 

Domain 1—alternative approach 

score 

Domain 

1—alternative approach 

totals 

Number 

of hospitals Percent of total Percent of hos- pital type Number of hos- pitals Percent of total Percent of hos- pital type Number of hos- pitals Percent of total Percent of hospital type Number of hos- pitals Percent of total Percent of hospital type 

Teaching status 

Teaching ........................................ 149 19.2 55.2 121 4.6 44.8 270 154 17.9 57 116 4 .5 43 270 Non-teaching ................................. 614 79 20.2 2,423 91.2 79.8 3,037 690 80.4 22 .7 2,347 91 .1 77 .3 3,037 No information ............................... 14 1.8 10.9 114 4.3 89.1 128 14 1.6 10 .9 114 4 .4 89 .1 128 

Total ........................................ 777 ................ 22.6 2,658 ................ ................ 3,435 858 ................ 25 2,577 .................. .................. 3,435 

DSH Status 

DSH ............................................... 639 82.2 24.2 2,002 75.3 75.8 2,641 703 81.9 26 .6 1,938 75 .2 73 .4 2,641 Non-DSH ....................................... 130 16.7 17.6 610 22.9 82.4 740 147 17.1 19 .9 593 23 80 .1 740 No information ............................... 8 1 14.8 46 1.7 85.2 54 8 0.9 14 .8 46 1 .8 85 .2 54 

Total ........................................ 777 ................ 22.6 2,658 ................ ................ 3,435 858 ................ 25 .1 2,577 .................. .................. 3,435 

Bed Size 

Under 50 ........................................ 60 7.7 9.1 596 22.4 90.9 656 73 8.5 11 .1 583 22 .6 88 .9 656 50–99 ............................................. 143 18.4 21.1 535 20.1 78.9 678 159 18.5 23 .5 519 20 .1 76 .5 678 100–199 ......................................... 190 24.5 21.5 694 26.1 78.5 884 224 26.1 25 .3 660 25 .6 74 .7 884 200–299 ......................................... 118 15.2 23.6 381 14.3 76.4 499 135 15.7 27 .1 364 14 .1 72 .9 499 300–399 ......................................... 90 11.6 34.2 173 6.5 65.8 263 90 10.5 34 .2 173 6 .7 65 .8 263 400–499 ......................................... 57 7.3 46 67 2.5 54 124 62 7.2 50 62 2 .4 50 124 500 or more ................................... 105 13.5 51.7 98 3.7 48.3 203 101 11.8 49 .8 102 4 50 .2 203 No information ............................... 14 1.8 10.9 114 4.3 89.1 128 14 1.6 10 .9 114 4 .4 89 .1 128 

Total ........................................ 777 ................ 22.6 2,658 ................ ................ 3,435 858 ................ 25 2,577 .................. .................. 3,435 

Ownership 

For-profit ........................................ 133 17.1 17.6 621 23.4 82.4 754 157 18.3 20 .8 597 23 .2 79 .2 754 Government ................................... 115 14.8 20.6 443 16.7 79.4 558 135 15.7 24 .2 423 16 .4 75 .8 558 Non-profit ....................................... 515 66.3 25.8 1,480 55.7 74.2 1,995 552 64.3 27 .7 1,443 56 72 .3 1,995 No infomation ................................ 14 1.8 10.9 114 4.3 89.1 128 14 1.6 10 .9 114 4 .4 89 .1 128 

Total ........................................ 777 ................ 22.6 2,658 ................ 858 3,435 858 ................ 25 2,577 .................. .................. 3,435 

Region/Division 

Northeast ....................................... 151 19.4 28.3 382 14.4 71.7 533 137 16 25 .7 396 15 .4 74 .3 533 

New England .......................... 37 4.8 25.9 106 4 74.1 143 37 4.3 25 .9 106 4 .1 74 .1 143 Mid-Atlantic ............................. 114 14.7 29.2 276 10.4 70.8 390 100 11.7 25 .6 290 11 .3 74 .4 390 

Midwest .......................................... 188 24.2 23.5 613 23.1 76.5 801 201 23.4 25 .1 600 23 .3 74 .9 801 

East North Central .................. 124 16 23.6 402 15.1 76.4 526 137 16 26 389 15 .1 74 526 West North Central ................. 64 8.2 23.3 211 7.9 76.7 275 64 7.5 23 .3 211 8 .2 76 .7 275 

South ............................................. 278 35.8 19.2 1,168 43.9 80.8 1,446 309 36 21 .4 1,137 44 .1 78 .6 1,446 

South Atlantic ......................... 117 15.16 21.2 434 16.3 78.8 551 140 16.3 25 .4 411 15 .9 74 .6 551 East South Central ................. 59 7.6 17.9 270 10.2 82.1 329 61 7.1 18 .5 268 10 .4 81 .5 329 West South Central ................ 102 13.1 18 464 17.5 82 566 108 12.6 19 .1 458 17 .8 80 .9 566 

West ............................................... 160 20.6 24.4 495 18.6 75.6 655 211 24.6 32 .2 444 17 .2 67 .8 655 

Mountain ................................. 58 7.5 24.2 182 6.8 75.8 240 82 9.6 34 .2 158 6 .1 65 .8 240 Pacific ..................................... 102 13.1 24.6 313 11.8 75.4 415 129 15 31 .1 286 11 .1 68 .9 415 

Total ................................ 777 ................ 22.6 2,658 ................ ................ 3,435 858 ................ .................. 2,577 .................. .................. 3,435 

Urban/Rural 

Urban ............................................. 601 77.3 24.4 1,860 70 75.6 2,461 689 80.3 28 1,772 68 .8 72 2,461 Rural .............................................. 176 22.7 18.3 788 29.6 81.7 964 168 19.7 17 .4 796 30 .9 82 .6 964 No information ............................... 0 0 0 10 0.4 100 10 1 0.1 10 9 0 .3 90 10 Total ............................................... 777 ................ 22.6 2,658 3,435 3,435 3,435 3,435 3,435 3,435 3,435 3,435 3,435 3,435 

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27804 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

The first table above shows the 

characteristics of the worst performing 

hospitals for the Domain 1—Proposed 

Approach score and for the Domain 1— 

Alternative Approach score. In the first table, 

of the hospitals in the top quartile for 

Domain 1—Proposed Approach, 19.2 percent 

were teaching hospitals, 79.0 percent were 

nonteaching hospitals, 82.2 percent were 

disportionate share hospitals, 16.7 percent 

were nondisportionate share hospitals, 50.6 

percent were hospitals with a bed size of 199 

or smaller, and 66.3 percent were nonprofit. 

In the first table, of the hospitals in the top 

quartile for Domain 1—Alternative 

Approach, 17.9 percent were teaching 

hospitals, 80.4 percent were nonteaching 

hospitals, 81.9 percent were disproportionate 

share hospitals, 17.1 percent were 

nondisproportionate share hospitals, 53.1 

percent were hospitals with a bed size of 199 

or smaller, and 64.3 percent were nonprofit. 

Altogether, 3,435 hospitals had complete 

data for the Domain 1—Proposed Approach 

score and the Domain 1—Alternative 

Approach score. Among these hospitals, the 

majority (3,037 for both approaches) were 

nonteaching hospitals, with the majority of 

these nonteaching hospitals (2,423, or 79.8 

percent, for the proposed approach, and 

2,347, or 77.3 percent, for the alternative 

approach) not in the top quartile score. A 

minority of the hospitals (270 for both 

approaches) were teaching hospitals; less 

than half of these hospitals (121, or 44.8 

percent, for the proposed approach, and 116, 

or 43.0 percent, for the alternative approach) 

were not in the top quartile score. Of those 

hospitals that were not in the top quartile 

score, the nonteaching hospitals were the 

majority (2,423, or 91.2 percent, for the 

proposed approach, and 2,347, or 91.1 

percent, for the alternative approach). Most 

of these hospitals were DSHs (2,641 for both 

approaches), with a minority being non-DSHs 

(40 for both approaches). The majority of the 

DSHs (2,002, or 75.8 percent, for the 

proposed approach, and 1,938, or 73.4 

percent, for the alternative approach) were 

not in the top quartile score. Slightly less 

than a quarter of the DSHs (639, or 24.2 

percent, for the proposed approach, and 703, 

or 26.6 percent, for the alternative approach) 

were in the top quartile (that is, worst 

performing) score. 

In terms of bed size for both the Domain 

1—Proposed Approach and the Domain 1— 

Alternative Approach, the majority of 

hospitals had less than 300 beds and the 

majority of these were not in the top quartile 

score. The majority (884 for both approaches) 

of hospitals with less than 300 beds were in 

the 100–199 bed size range. Of those 884 

hospitals, the majority (694, or 78.5 percent, 

for the proposed approach, and 600, or 74.7 

percent for the alternative approach) were 

not in the top quartile score. The minority of 

hospitals for both approaches had greater 

than 300 beds. The hospitals with 300–399 

bed size range (263 for both approaches) had 

a majority of hospitals (173, or 65.8 percent, 

for both approaches) not in the top quartile 

score. For the Domain 1—Proposed 

Approach, the hospitals with 400–499 bed 

size range (124) also had a majority of 

hospitals (67, or 54.0 percent) not in the top 

quartile score; however, hospitals with a 500 

or more bed size range (203) had a slight 

majority (105, or 51.7 percent) in the top 

quartile (that is, worst performing) score. For 

the Domain 1—Alternative Approach, 

hospitals with 400–499 bed size range (124) 

had an equal number of hospitals (62, or 50 

percent) in the top quartile (that is, worst 

performing) score as not in the top quartile 

score, while hospitals with a 500 or more bed 

size range had an extremely slight majority 

(102 or 50.2 percent) not in the top quartile 

score compared to hospitals in the top 

quartile (that is, worst performing) score 

(101, or 49.8 percent). 

In terms of ownership, for both the Domain 

1—Proposed Approach and the Domain 1— 

Alternative Approach, more than half of the 

total of these 3,435 hospitals were nonprofit 

(1,995). Of these nonprofit hospitals, the 

majority (1,480, or 74.2 percent for the 

proposed approach, and 1,443, or 72.3 

percent for the alternative approach) were 

not in top quartile score, while for-profit 

hospitals (754 for both approaches) also had 

a majority (621, or 82.4 percent, for the 

proposed approach, and 597, or 79.2 percent, 

for the alternative approach) not in top 

quartile score. 

In terms of region/division for both the 

Domain 1—Proposed Approach and the 

domain 1—Alternative Approach, of the total 

3,435 hospitals, the Northeast region had a 

total of 533 hospitals with a minority (143) 

in New England region and a majority (390) 

in Mid-Atlantic region. The Midwest region 

had a total of 801 hospitals, with a majority 

(526) in the East North Central region and the 

minority (275) in the West North Central 

region. The South region had the majority of 

hospitals by a region (1,446), with the South 

Atlantic region (551) and the West South 

Central region (566) having similar numbers 

of hospitals and the East South Central region 

having the minority of hospitals (329) of the 

South region. The West region had a total of 

655 hospitals, with a majority in the Pacific 

region (415) and the minority in the 

Mountain region (240). The South region had 

the largest number of hospitals (278, or 35.8 

percent for the proposed approach, and 309, 

or 36.0 percent, for the alternative approach) 

in the top quartile score. For the Domain 1— 

Proposed Approach, the Northeast New 

England region had the lowest number of 

hospitals (37, or 4.8 percent) in the top 

quartile score, with the Mountain region (58, 

or 7.5 percent) and the East South Central 

region (59, or 7.6 percent) having the next 

lowest number of hospitals in the top quartile 

score. For the Domain 1—Alternative 

Approach, the New England region had the 

lowest number of hospitals (37, or 4.3 

percent) in the top quartile score, with the 

East South Central region (61, or 7.1 percent) 

and the West North Central region (64, or 7.5 

percent) having the next lowest number of 

hospitals in the top quartile score. For both 

approaches, the South region had the largest 

number (1,168, or 43.9 for the proposed 

approach, and 1,137, or 44.1 percent for the 

alternative approach) not in the top quartile 

score, with the New England region having 

the lowest number of hospitals (106, or 4.0 

for the proposed alternative, and 106, or 4.1 

percent for the alternative approach) not in 

the top quartile score. The Mountain region 

(182, or 6.8 percent for the proposed 

approach, and 158, or 6.1 percent for the 

alternative approach) and the West North 

Central region (211, or 7.9 percent in the 

proposed approach, and 211, or 8.2 percent 

for the alternative approach) having the next 

lowest amount of hospitals not in the top 

quartile score. 

In terms of urban/rural location of the total 

3,435 hospitals, for the Domain 1—Proposed 

approach and the Domain 1—Alternative 

Approach, the majority of hospitals (2,461) 

were urban, and a minority of hospitals (964) 

being rural. Of the total urban hospitals 

(2,461), for the Domain 1—Proposed 

approach, there were 1,860 urban hospitals 

(75.6 percent) not in top quartile score; the 

1,860 urban hospitals also were the majority 

(70.0 percent) of hospitals not in top quartile 

score. There were 601 urban hospitals (24.4 

percent) in the top quartile score for the 

Domain 1—Proposed Approach; the 601 

urban hospitals also were the majority (77.3 

percent) of hospitals in the top quartile. For 

the Domain 1—Alternative Approach, there 

were 1,772 urban hospitals (72.0 percent) not 

in the top quartile score; the 1,772 urban 

hospitals also were the majority of hospitals 

(68.8 percent) not in the top quartile score. 

There were 689 urban hospitals (28.0 

percent) in the top quartile score for the 

Domain 1—Alternative Approach; the 689 

urban hospitals also were the majority of 

hospitals (80.3 percent) in the top quartile 

score. 

HOSPITALS IN TOP QUARTILE (WORST PERFORMING) FOR DOMAIN 2 SCORE

Hospital type 

In top quartile domain 2 score Not in top quartile domain 2 score 

Totals Number of 

Hospitals 

Percent of 

total 

Percent of 

hospital 

type 

Number of 

Hospitals 

Percent of 

total 

Percent of 

hospital 

type 

Teaching status 

Teaching ........................................... 104 14.9 38.5 166 6.0 61.5 270 

Non-teaching ..................................... 585 84.2 19.2 2,456 89.3 80.8 3,041 

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HOSPITALS IN TOP QUARTILE (WORST PERFORMING) FOR DOMAIN 2 SCORE—Continued 

Hospital type 

In top quartile domain 2 score Not in top quartile domain 2 score 

Totals Number of 

Hospitals 

Percent of 

total 

Percent of 

hospital 

type 

Number of 

Hospitals 

Percent of 

total 

Percent of 

hospital 

type 

No information .................................. 7 1.0 5.2 127 4.6 94.8 134 

Total .................................................. 696 ¥ 20.2 2,749 ¥ ¥ 3,445 

DSH Status 

DSH .................................................. 566 81.3 21.4 2,076 75.5 78.6 2,642 

Non-DSH ........................................... 129 18.5 17.4 612 22.3 82.6 741 

No information .................................. 1 0.1 1.6 61 2.2 98.4 62 

Total ........................................... 696 ¥ 20.2 2,749 ¥ ¥ 3,445 

Bed Size 

Under 50 ........................................... 17 2.4 2.6 641 23.3 97.4 658 

50–99 ................................................ 54 7.8 8.0 624 22.7 92.0 678 

100–199 ............................................ 208 29.9 23.5 676 24.6 76.5 884 

200–299 ............................................ 203 29.2 40.7 296 10.8 59.3 499 

300–399 ............................................ 96 13.8 36.4 168 6.1 63.6 264 

400–499 ............................................ 41 5.9 33.1 83 3.0 66.9 124 

500 or more ...................................... 70 10.1 34.3 134 4.9 65.7 204 

No information .................................. 7 1.0 5.2 127 4.6 94.8 134 

Total ........................................... 696 ¥ 20.2 2,749 ¥ ¥ 3,445 

Ownership 

For-profit ........................................... 138 19.8 18.3 617 22.4 81.7 755 

Government ...................................... 100 14.4 17.9 459 16.7 82.1 559 

Non-profit .......................................... 451 64.8 22.6 1,546 56.2 77.4 1,997 

No information .................................. 7 1.0 5.2 127 4.6 94.8 134 

Total ........................................... 696 ¥ 20.2 2,749 ¥ ¥ 3,445 

Region/Division 

Northeast .......................................... 145 20.8 27.1 391 14.2 72.9 536 

New England ............................. 34 4.9 23.8 109 4.0 76.2 143 

Mid-Atlantic ................................ 111 15.9 28.2 282 10.3 71.8 393 

Midwest ...................................... 129 18.5 16.1 673 24.5 83.9 802 

East North Central ..................... 97 13.9 18.4 430 15.6 81.6 527 

West North Central .................... 32 4.6 11.6 243 8.8 88.4 275 

South ................................................. 271 38.9 18.7 1,176 42.8 81.3 1,447 

South Atlantic ............................ 132 19.0 24.0 419 15.2 76.0 551 

East South Central .................... 50 7.2 15.2 280 10.2 84.8 330 

West South Central ................... 89 12.8 15.7 477 17.4 84.3 566 

West .................................................. 151 21.7 22.9 509 18.5 77.1 660 

Mountain .................................... 39 5.6 16.1 203 7.4 83.9 242 

Pacific ........................................ 112 16.1 26.8 306 11.1 73.2 418 

Total .................................... 696 ¥ 20.2 2,749 ¥ 79.8 3,445 

Urban/Rural 

Urban ................................................ 640 92.0 25.9 1,828 66.5 74.1 2,468 

Rural ................................................. 55 7.9 5.7 911 33.1 94.3 966 

No information .................................. 1 0.1 9.1 10 0.4 90.9 11 

Total ........................................... 696 ¥ 20.2 2,749 ¥ 79.8 3,445 

The second table above shows the 

characteristics of the worst performing 

hospitals for the Domain 2 score. In the 

second table, of the hospitals in the top 

quartile for the Domain 2 score, 14.9 percent 

were teaching hospitals, 84.2 percent were 

nonteaching hospitals, 81.3 percent were 

disproportionate share hospitals, 18.5 

percent were nondisproportionate share 

hospitals, 40.1 percent were hospitals with a 

bed size of 199 or smaller, and 64.8 percent 

were nonprofit. Altogether, 3445 hospitals 

had complete data for the Domain 2 score. 

Among these hospitals, the majority (3,041) 

were nonteaching hospitals, with the 

majority of these nonteaching hospitals 

(2,456, or 80.8 percent) not in the top quartile 

score. A minority of the hospitals (270) were 

teaching hospitals; more than half of these 

(166, or 61.5 percent) were not in the top 

quartile score for Domain 2. Of those 

hospitals not in the top quartile score, these 

nonteaching hospitals were the majority 

(2,456, or 89.3 percent). Most of the total 

3,445 hospitals were DSHs (2,642), with a 

minority of the hospitals being non-DSHs 

(741). The majority of the DSHs (2,076, or 

78.6 percent) were not in the top quartile for 

the Domain 2 score. While less than a quarter 

of DSHs (566, or 21.4 percent) were in the top 

quartile (that is, worst performing) Domain 2 

score. 

In terms of bed size, for the Domain 2 

score, the majority of hospitals had less than 

300 beds. The majority of these hospitals 

with less than 300 beds were not in the top 

quartile for the Domain 2 score. The majority 

of the hospitals (884) with less than 300 beds 

were in the 100–199 bed size range. Of those 

884 hospitals, the majority (676, or 76.5 

percent) were not in the top quartile of the 

Domain 2 score. The minority of hospitals 

had greater than 300 beds. The hospitals with 

300–399 bed size range (264) had a majority 

of hospitals (168, or 63.6 percent) not in the 

top quartile score, along with the hospitals 

with 400–499 bed size range (124) also 

having a majority of hospitals (83, or 66.9 

percent) not in the top quartile of the Domain 

2 score. Hospitals with a 500 or more bed 

size range (204) also had a majority not in the 

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27806 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

top quartile score (134, or 65.7 percent), with 

a double digit minority (70, or 34.3 percent) 

in the top quartile (that is, worst performing) 

Domain 2 score. 

In terms of ownership, for the Domain 2 

score, more than half of the total of the 3,445 

hospitals were nonprofit hospitals (1,997). Of 

these 1,997 nonprofit hospitals, the majority 

(1,546, or 77.4 percent) were not in the top 

quartile score, while the for-profit hospitals 

(755) also had a majority (617, or 81.7 

percent) not in the top quartile score for 

Domain 2. 

In terms of region/division of the total 

3,445 hospitals for Domain 2, the Northeast 

region had a total of 536 hospitals with a 

minority (143) in the New England region 

and a majority (393) in Mid-Atlantic region. 

The Midwest region had a total of 802 

hospitals, with a majority (527) in the East 

North Central region and the minority (275) 

in the West North Central region. The South 

region had the majority of hospitals by a 

region (1,447), with the South Atlantic region 

(551) and the West South Central region (566) 

having similar amounts of hospitals and the 

East South Central region having the 

minority of hospitals (330) of the South 

region. The West region had a total of 660 

hospitals, with a majority in the Pacific 

region (418) and the minority in the 

Mountain region (242). The South region had 

the largest number of hospitals (271, or 38.9 

percent) in the top quartile score of Domain 

2. The West North Central region had the 

lowest number of hospitals (32, or 4.6 

percent) in the top quartile score of Domain 

2, with the New England region (34, or 4.9 

percent) and the Mountain region (39, or 5.6 

percent) having the next lowest number of 

hospitals in the top quartile score of Domain 

2. The South region had the largest number 

of hospitals (1,176, or 42.8 percent) not in the 

top quartile of the Domain 2 score, with the 

New England region having the lowest 

number of hospitals (109, or 4.0 percent) not 

in the top quartile of the Domain 2 score. The 

Mountain region (203, or 7.4 percent) and the 

West North Central region (243, or 8.8 

percent) having the next lowest number of 

hospitals not in the top quartile of the 

Domain 2 score. 

In terms of urban/rural location of the total 

3,445 hospitals, for Domain 2, the majority of 

hospitals (2,468) were urban, with a minority 

of hospitals (966) being rural. Of the total 

2,468 urban hospitals, there were 1,828 urban 

hospitals (74.1 percent) not in top quartile of 

the Domain 2 score. The 1,828 urban 

hospitals also were the majority of hospitals 

(66.5 percent) not in top quartile of the 

Domain 2 score. There were 640 urban 

hospitals (25.9 percent) in the top quartile of 

the Domain 2 score. The 640 urban hospitals 

also were the majority of hospitals (92.0 

percent) in the top quartile of the Domain 2 

score. 

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HOSPITALS IN

TOP

QUARTILE (WORST

PERFORMING) FOR

TOTAL HAC SCORE—DOMAIN 1—PROPOSED

APPROACH AND

DOMAIN 1—ALTERNATIVE

APPROACH

Hospital type 

In top quartile for total HAC score 

for domain 1—proposed approach 

Not in top quartile for total HAC 

score for domain 1—proposed approach Domain 1 proposed 

approach 

totals 

In Top quartile for total HAC score 

for domain 1—alternative approach 

Not in top quartile for total HAC 

score for domain 1—alternative 

approach 

Domain 1 

alternative approach 

totals 

Number 

of hospitals Percent of total Percent of hos- pital type Number of hos- pitals Percent of total Percent of hos- pital type Number of hos- pitals Percent of total Percent of hos- pital type Number of hos- pitals Percent of total Percent of hos- pital type 

Teaching status 

Teaching .............................................. 153 17.8 56.7 117 4.5 43.3 270 138 16.5 51.1 132 5.1 48.9 270 Non-teaching ........................................ 691 80.5 22.8 2,346 91.0 77.2 3,037 687 82.2 22.6 2,350 90.4 77.4 3,037 No information ..................................... 14 1.6 10.9 114 4.4 89.1 128 11 1.3 8.6 117 4.5 91.4 128 

Total .............................................. 858 ................ 25.0 2,577 ................ ................ 3,435 836 ................ 24.3 2,599 ................ ................ 3,435 

DSH Status 

DSH ..................................................... 713 83.1 27.0 1,928 74.8 73.0 2,641 687 82.2 26.0 1,954 76.0 74.0 2,641Non-DSH .............................................. 140 16.3 18.9 600 23.3 81.1 740 144 17.2 20.2 569 22.1 79.8 713 No information ..................................... 5 0.6 9.3 49 1.9 90.7 54 5 0.6 9.3 49 1.9 90.7 54 

Total .............................................. 858 ................ 25.0 2,577 ................ ................ 3,435 836 ................ 24.5 2,572 ................ ................ 3,408 

Bed Size 

Under 50 .............................................. 47 5.5 7.2 609 23.6 92.8 656 69 8.3 10.5 587 22.6 89.5 656 50–99 ................................................... 105 12.2 15.5 573 22.2 84.5 678 144 17.2 21.2 534 20.5 78.8 678 100–199 ............................................... 237 27.6 26.8 647 25.1 73.2 884 234 28.0 26.5 650 25.0 73.5 884 200–299 ............................................... 186 21.7 37.3 313 12.1 62.7 499 148 17.7 29.7 351 13.5 70.3 499 300–399 ............................................... 105 12.2 39.9 158 6.1 60.1 263 86 10.3 32.7 177 6.8 67.3 263 400–499 ............................................... 59 6.9 47.6 65 2.5 52.4 124 57 6.8 46.0 67 2.6 54.0 124 500 or more ......................................... 105 12.2 51.7 98 3.8 48.3 203 87 10.4 42.9 116 4.5 57.1 203 No information ..................................... 14 1.6 10.9 114 4.4 89.1 128 11 1.3 8.6 117 4.5 91.4 128 

Total .............................................. 858 ................ 25.0 2,577 ................ ................ 3,435 836 ................ 24.3 2,599 ................ ................ 3,435 

Ownership 

For-profit .............................................. 166 19.3 22.0 588 22.8 78.0 754 162 19.4 21.5 592 22.8 78.5 754 Government ......................................... 136 15.9 24.4 422 16.4 75.6 558 139 16.6 24.9 419 16.1 75.1 558 Non-profit ............................................. 542 63.2 27.2 1,453 56.4 72.8 1,995 524 62.7 26.3 1,471 56.6 73.7 1,995 No information ..................................... 14 1.6 10.9 114 4.4 89.1 128 11 1.3 8.6 117 4.5 91.4 128 

Total .............................................. 858 ................ 25.0 2,577 ................ ................ 3,435 836 ................ 24.3 2,599 ................ ................ 3,435 

Region/Division 

Northeast ............................................. 168 19.6 31.5 365 14.2 68.5 533 155 18.5 29.1 378 14.5 70.9 533 

New England ................................ 41 4.8 28.7 102 4.0 71.3 143 39 4.7 27.3 104 4.0 72.7 143 Mid-Atlantic ................................... 127 14.8 32.6 263 10.2 67.4 390 116 13.9 29.7 274 10.5 70.3 390 

Midwest ................................................ 176 20.5 22.0 625 24.3 78.0 801 184 22.0 23.0 617 23.7 77.0 801 East North Central ............................... 127 14.8 24.1 399 15.5 75.9 526 130 15.6 24.7 396 15.2 75.3 526 West North Central .............................. 49 5.7 17.8 226 8.8 82.2 275 54 6.5 19.6 221 8.5 80.4 275 South ................................................... 326 38.0 22.5 1,120 43.5 77.5 1,446 303 36.2 21.0 1,143 44.0 79.0 1,446

South Atlantic ............................... 154 17.9 27.9 397 15.4 72.1 551 137 16.4 24.9 414 15.9 75.1 551 

East South Central .............................. 62 7.2 18.8 267 10.4 81.2 329 59 7.1 17.9 270 10.4 82.1 329 West South Central ............................. 110 12.8 19.4 456 17.7 80.6 566 107 12.8 18.9 459 17.7 81.1 566 West ..................................................... 188 21.9 28.7 467 18.1 71.3 655 149 23.2 29.6 461 17.7 70.4 655 

Mountain ....................................... 56 6.5 23.3 184 7.1 76.7 240 63 7.5 26.3 177 6.8 73.8 240 

Pacific .................................................. 132 15.4 31.8 283 11.0 68.2 415 131 15.7 31.6 284 10.9 68.4 415 

Total .............................................. 858 ................ 25.0 2,577 ................ 75.0 3,435 836 ................ ................ 2,599 ................ ................ 3,435 

Urban/Rural 

Urban ................................................... 731 85.2 29.7 1,730 67.1 70.3 2,461 691 82.7 28.1 1,770 68.1 71.9 2,461Rural .................................................... 127 14.8 13.2 837 32.5 86.8 964 145 17.3 15.0 819 31.5 85.0 964 No information ..................................... 0 0.0 0.0 10 0.4 100.0 10 0 0.0 0.0 10 0.4 100.0 10 

Total .............................................. 858 ................ 25.0 2,577 ................ 75.0 3,435 836 ................ 24.3 2,599 ................ 75.7 3,435 

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The third table above shows the 

characteristics of the worst performing 

hospitals by the Total HAC Score for Domain 

1—Proposed Approach and for Domain 1– 

Alternative Approach. In the third table, of 

the hospitals in the top quartile for total HAC 

score (Domain 1—Proposed Approach), 17.8 

percent were teaching hospitals, 80.5 percent 

were nonteaching hospitals, 83.1 percent 

were disproportionate share hospitals, 16.3 

percent were nondisproportionate share 

hospitals, 45.3 percent were hospitals with a 

bed size of 199 or smaller, and 63.2 percent 

were nonprofit. In the third table, of the 

hospitals in the top quartile for total HAC 

score (Domain 1—Alternative Approach), 

16.5 percent were teaching hospitals, 82.2 

percent were nonteaching hospitals, 82.2 

percent were disproportionate share 

hospitals, 17.2 percent were 

nondisproportionate share hospitals, 53.5 

percent were hospitals with a bed size of 199 

or smaller, and 62.7 percent were nonprofit. 

Altogether, 3,435 hospitals had complete 

data for both the Domain 1—Proposed 

Approach, and the Domain 1—Alternative 

Approach. Among these hospitals, the 

majority (3,037) were nonteaching hospitals, 

with the majority of these nonteaching 

hospitals (2,346, or 77.2 percent for the 

proposed approach, and 2,350, or 77.4 

percent for the alternative approach) not in 

the top quartile total HAC score. A minority 

of these hospitals (270) were teaching 

hospitals and slightly more than half of these 

hospitals (153, or 56.7 percent for the 

proposed approach, and 138, or 51.1 percent 

in the alternative approach) were in the top 

quartile (that is, worst performing) for the 

Domain 1—Proposed Approach Score and 

the Domain 1—Alternative Approach score. 

Of those hospitals not in the top quartile 

score, the nonteaching hospitals were the 

majority (2,346, or 91.0 percent for the 

proposed approach, and 2,350, or 90.4 

percent for the alternative approach). Of the 

total 3,435 hospitals, the majority were DSHs 

(2,641), with a minority being non-DSHs (740 

for the proposed approach and 713 for the 

alternative approach). The majority of the 

DSHs (1,928, or 73.0 for the proposed 

approach, and 1,954 or 74.0 percent for the 

alternative approach) were not in the top 

quartile for the total HAC score. While 

slightly more than a quarter of DSHs (713, or 

27.0 percent for the proposed approach, and 

687, or 26.0 percent for the alternative 

approach) were in the top quartile (that is, 

worst performing) for the total HAC score. 

In terms of bed size, for the Domain 1— 

Proposed Approach and the Domain 1— 

Alternative Approach, the majority of 

hospitals had less than 300 beds. The 

majority of these hospitals with less than 300 

beds were in not in the top quartile for the 

total HAC score. The majority of hospitals 

(884) with less than 300 beds were in the 

100–199 bed size range. Of those 884 

hospitals, the majority of hospitals (647, or 

73.2 percent for the proposed approach, and 

650, or 73.5 percent for the alternative 

approach) were not in the top quartile of total 

HAC score. The minority of hospitals had 

greater than 300 beds. Of those hospitals with 

greater than a 300-bed size range, the 

hospitals with the 300–399 bed size range 

(263) had a majority of hospitals (158, or 60.1 

percent for the proposed approach, and 177, 

or 67.3 percent, for the alternative approach) 

not in the top quartile of total HAC score. 

The hospitals with 400–499 bed size range 

(124) also had a slight majority of hospitals 

(65, or 52.4 percent, for the proposed 

approach, and 67, or 54.0 percent, for the 

alternative approach) not in the top quartile 

of the total HAC score. Hospitals with a 500 

or more bed size range (203) had a slight 

majority in the top quartile’ section (that is, 

worst performing) of 105 (or 51.7 percent) for 

the proposed approach, and 87 (or 42.9 

percent) of hospitals for the alternative 

approach, with a double digit minority (98, 

or 48.3 percent) not in the top quartile for the 

Domain 1—Proposed Approach total HAC 

score, and a slight majority (116, or 57.1 

percent) not in the top quartile for the 

Domain 1—Alternative Approach total HAC 

score. 

In terms of ownership, for the Domain 1— 

Proposed Approach and Domain 1— 

Alternative Approach total HAC score, more 

than half of the total 3435 hospitals were 

non-profit hospitals (1,995). Of these 1,995 

nonprofit hospitals, the majority (1,453, or 

72.8 percent, for the proposed approach, and 

1,471, or 73.7 percent for the alternative 

approach) were not in top quartile of the total 

HAC score, while the 754 for-profit hospitals 

also had a majority (588, or 78.0 percent, for 

the proposed approach, and 592, or 78.5 

percent for the alternative approach) not in 

the top quartile of the total HAC score. 

In terms of region/division of the total 

3,435 hospitals for Domain 1—Proposed 

Approach and the Domain 1—Alternative 

Approach, the Northeast region had a total of 

533 hospitals, with a minority (143) in the 

New England region and a majority (390) in 

Mid-Atlantic region. The Midwest region had 

a total of 801 hospitals, with a majority (526) 

in the East North Central region and the 

minority (275) in the West North Central 

region. The South region had the majority of 

hospitals by a region (1,446), with the South 

Atlantic region (551) and the West South 

Central region (566) having similar numbers 

of hospitals and the East South Central region 

having the minority of hospitals (329) of the 

South region. The West region had a total of 

655 hospitals, with a majority in the Pacific 

region (415) and the minority in the 

Mountain region (240). The South region had 

the largest number of hospitals (326, or 38.0 

percent, for the proposed approach, and 303, 

or 36.2 percent, for the alternative approach) 

in the top quartile of the total HAC score. The 

New England region had the lowest number 

of hospitals (41, or 4.8 percent, for the 

proposed approach, and 39, or 4.7 percent, 

for the alternative approach) in the top 

quartile for the total HAC score, with the 

West North Central region (49, or 5.7 percent 

for the proposed approach, and 54, or 6.5 

percent, for the alternative approach) and the 

Mountain region (56, or 6.5 percent) having 

the next lowest number of hospitals in the 

top quartile of the Domain 1—Proposed 

Approach total HAC score and the East South 

Central region (59 or 7.1 percent) having the 

next lowest number in the top quartile for the 

Domain 1—Alternative Approach total HAC 

score. The South region had the largest 

number of hospitals (1,120, or 43.5 percent, 

for the proposed approach, and 1,143, or 44.0 

percent, for the alternative approach) not in 

the top quartile of the total HAC score, with 

the New England region having the lowest 

number of hospitals (102, or 4.0 percent, for 

the proposed approach, and 104, or 4.0 

percent, for the alternative approach) not in 

the top quartile of the total HAC score. The 

Mountain region (184, or 7.1 percent, for the 

proposed approach, and 177, or 6.8 percent 

for the alternative approach) and the West 

North Central region (226, or 8.8 percent, for 

the proposed approach, and 221, or 8.5 

percent for the alternative approach) had the 

next lowest number of hospitals not in the 

top quartile of the total HAC score. 

In terms of urban/rural location of the total 

3,435 hospitals for the Domain 1—Proposed 

Approach total HAC score and the Domain 

1—Alternative Approach total HAC score, 

the majority of hospitals (2,461) were urban, 

with a minority of hospitals (964) being rural. 

Of the total 2,461 urban hospitals, there were 

1,730 urban hospitals (70.3 percent) not in 

the top quartile of the total HAC score for the 

Domain 1—Proposed Approach, and 1,770 

urban hospitals (71.9 percent) not in the top 

quartile of the total HAC score for the 

Domain 1—Alternative Approach. The 1,730 

urban hospitals also were the majority (67.1 

percent) of hospitals not in the top quartile 

of Domain 1—Proposed Approach total HAC 

score, and the 1,770 urban hospitals also 

were the majority (68.1 percent) of hospitals 

not in the top quartile of Domain 1— 

Alternative Approach total HAC score. There 

were 731 urban hospitals (29.7 percent) in 

the top quartile of the Domain 1—Proposed 

Approach total HAC score, with also a 

majority of hospitals (85.2 percent) in the top 

quartile. There were 691 urban hospitals 

(28.1 percent) in the top quartile of the 

Domain 1—Alternative Approach total HAC 

score, with also a majority of hospitals (82.7 

percent) in the top quartile. 

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193The reason that there were 3,435 hospitals 

with complete data for Domain 1, regardless of 

options, has to do with the minimum measure 

criterion for Domain 1, Option 1. In particular, a 

hospital had to have complete data for at least 3 

measures in Domain 1-Proposed Approach to have 

a Domain 1 score calculated. According to the data 

that CMS used to develop the scoring method for 

implementing section 3008 of the Affordable Care 

Act, 3,435 hospitals had complete data for at least 

3 measures in Domain 1-Proposed Approach to 

calculate a Domain 1 score. As for Domain 1- 

Alternative Approach, for hospitals that did not 

have enough cases to calculate any one of the eight 

component indicators for PSI 90, the rate for that 

component indicator was substituted by the 

national rate for that component indicator to 

calculate the hospital’s rate for PSI 90. 

194 Government hospitals include military 

hospitals, hospitals run by the U.S. Department of 

Veteran Affairs, U.S. Department of Justice, and the 

Indian Health Service. 

HOSPITALS’ COMPLETENESS OF DATA FOR DOMAINS 1 AND 2 

Hospital has complete data for Domain 1 (that 

is, data for at least 3 measures for the Domain 

1-Proposed Approach or enough data to 

calculate PSI 90 for the Domain 1-Alternative 

Approach) 

Hospital has complete data for Domain 2 (that is, has data for at least 1 measure for 

the domain) 

Total No. of 

hospitals by 

type 

Total 

percent by 

hospital 

type 

Yes No 

No. of 

hospitals 

Percent of 

total 

Percent of 

hospital 

type 

No. of 

hospitals 

Percent of 

total 

Percent of 

hospital 

type 

YES 

Teaching .................................................... 265 13.8 98.1 5 0.3 1.9 270 7.9 

Non-teaching .............................................. 1,643 85.3 54.1 1,394 92.4 45.9 3,037 88.4 

No information ............................................ 19 1.0 14.8 109 7.2 85.2 128 3.7 

Subtotal ............................................... 1,927 .................... .................... 1,508 .................... .................... 3,435 ....................

DSH ............................................................ 1,564 81.2 59.2 1,077 71.4 40.8 2,641 76.9 

Non-DSH .................................................... 359 18.6 48.5 381 25.3 51.5 740 21.5 

No information ............................................ 4 0.2 7.4 50 3.3 92.6 54 1.6 

Subtotal ............................................... 1,927 .................... .................... 1,508 .................... .................... 3,435 ....................

For-profit ..................................................... 365 18.9 48.4 389 25.8 51.6 754 22.0 

Government ............................................... 221 11.5 39.6 337 22.3 60.4 558 16.2 

Non-profit ................................................... 1,322 68.6 66.3 673 44.6 33.7 1995 58.1 

No information ............................................ 19 1.0 14.8 109 7.2 85.2 128 3.7 

Subtotal ............................................... 1,927 .................... .................... 1,508 .................... .................... 3,435 ....................

< 50 beds ................................................... 12 0.6 1.8 644 42.7 98.2 656 19.1 

50–99 beds ................................................ 164 8.5 24.2 514 34.1 75.8 678 19.7 

100–199 beds ............................................ 665 34.5 75.2 219 14.5 24.8 884 25.7 

200–299 beds ............................................ 486 25.2 97.4 13 0.9 2.6 499 14.5 

300–399 beds ............................................ 259 13.4 98.5 4 0.3 1.5 263 7.7 

400–499 beds ............................................ 121 6.3 97.6 3 0.2 2.4 124 3.6 

500+ beds .................................................. 201 10.4 99.0 2 0.1 1.0 203 5.9 

No information ............................................ 19 1.0 14.8 109 7.2 85.2 128 3.7 

Subtotal ............................................... 1,927 .................... .................... 1,508 .................... .................... 3,435 ....................

NO 

Teaching .................................................... 0 0.0 0.0 0 0.0 0.0 0 0.0 

Non-teaching .............................................. 0 0.0 0.0 4 40.0 100.0 4 40.0 

No information ............................................ 0 0.0 0.0 6 60.0 100.0 6 60.0 

Subtotal ............................................... 0 .................... .................... 10 .................... .................... 10 ....................

DSH ............................................................ 0 0.0 0.0 1 10.0 0.0 1 10.0 

Non-DSH .................................................... 0 0.0 0.0 1 10.0 100.0 1 10.0 

No information ............................................ 0 0.0 0.0 8 80.0 100.0 8 80.0 

Subtotal ............................................... 0 .................... .................... 10 .................... .................... 10 ....................

For-profit ..................................................... 0 0.0 0.0 1 10.0 100.0 1 10.0 

Government ............................................... 0 0.0 0.0 1 10.0 100.0 1 10.0 

Non-profit ................................................... 0 0.0 0.0 2 20.0 100.0 2 20.0 

No information ............................................ 0 0.0 0.0 6 60.0 100.0 6 60.0 

Subtotal ............................................... 0 .................... .................... 10 .................... .................... 10 ....................

< 50 beds ................................................... 0 0.0 0.0 2 20.0 100.0 2 20.0 

50–99 beds ................................................ 0 0.0 0.0 0 0.0 0.0 0 0.0 

100–199 beds ............................................ 0 0.0 0.0 0 0.0 0.0 0 0.0 

200–299 beds ............................................ 0 0.0 0.0 0 0.0 0.0 0 0.0 

300–399 beds ............................................ 0 0.0 0.0 1 10.0 100.0 1 10.0 

400–499 beds ............................................ 0 0.0 0.0 0 0.0 0.0 0 0.0 

500+ beds .................................................. 0 0.0 0.0 1 10.0 100.0 1 10.0 

No information ............................................ 0 0.0 0.0 6 60.0 100.0 6 60.0 

Subtotal ............................................... 0 0.0 0.0 10 .................... .................... 10 ....................

The fourth table above contains 

information on hospitals that had complete 

data for Domain 1 (that is, had complete data 

for at least 3 measures for the Domain 1- 

Proposed Approach or had enough data to 

calculate PSI 90 for the Domain 1-Alternative 

Approach) and hospitals that had complete 

data for Domain 2 (that is, had data for at 

least 1 measure for the domain). Altogether, 

3,435 hospitals had complete data for 

Domain 1, regardless of whether the 

proposed approach or the alternative 

approach was selected.193 Among these 

hospitals, 3,037 (88.4 percent) were 

nonteaching hospitals, while 270 (7.9 

percent) were teaching hospitals. Most of 

these hospitals were DSHs (2,641, or 76.9 

percent), slight more than a fifth (740, or 21.5 

percent) were non-DSHs. More than half of 

these 3,435 hospitals were non-profit (1,995, 

or 58.1 percent). For-profit hospitals 

accounted for slightly more than one-fifth 

(754, or 22 percent) of the 3,435 hospitals 

with complete data for Domain 1, while 16.2 

percent (558) were government hospitals.194

In terms of bed size, almost 40 percent of the 

3,435 hospitals were small facilities, with 

fewer than 100 beds. Slightly, more than a 

quarter (884, or 25.7 percent) had 100 to 199 

beds, while the remaining 31.7 percent had 

at least 200 beds. We have no information 

about the teaching status, ownership, or bed 

size for 128 of the 3,435 hospitals that had 

complete data for Domain 1, or the DSH 

status of 54 of these hospitals. 

Of the 3,435 hospitals with complete data 

for Domain 1, more than half (1,927, or 56.1 

percent) also had complete data for Domain 

2. Among the 1,927 hospitals with complete 

data for both domains, the majority were 

nonteaching hospitals (1,643, or 85.3 

percent), DSHs (1,564, or 81.2 percent), and 

nonprofit hospitals (1,322, or 68.6 percent). 

More than 40 percent of these 1,927 hospitals 

had fewer than 200 beds, a quarter (486, or 

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25.2 percent) had 200 to 299 beds, while 

more than 30 percent had 300 or more beds. 

Among the 1,508 hospitals with complete 

data for Domain 1 but not for Domain 2, the 

vast majority were nonteaching hospitals 

(1,394, or 92.4 percent); almost three-quarters 

of these hospitals were DSHs (1,077, or 71.4 

percent). Nonprofit hospitals (673, or 44.6 

percent) and small hospitals with fewer than 

50 beds (644, or 42.7 percent) accounted for 

a considerable minority among these 1,508 

hospitals. 

In addition, among the 3,435 hospitals 

with complete data for Domain 1, the 

proportion of teaching hospitals that also had 

complete data for Domain 2 far exceeded that 

of those that did not (98.1 percent versus 1.9 

percent). The proportion of nonteaching 

hospitals that had complete data was also 

higher than the proportion of those hospitals 

that did not, but the difference was smaller 

(54.1 percent versus 45.9 percent). DSHs 

were 18.4 percent more likely to have 

complete data for both domains than for only 

Domain 1; non-DSHs, on the other hand, 

were 3 percent more likely to have complete 

data for only Domain 1 than for both 

domains. For-profit and government 

hospitals were more likely to have complete 

data for Domain 1 only (51.6 percent and 

60.4 percent, respectively) than for both 

domains (48.4 percent and 39.6 percent, 

respectively), while nonprofit hospitals were 

less likely to have complete data for Domain 

1 only than for both domains (66.3 percent 

versus 33.7 percent). In terms of bed size, 

hospitals with more beds were more likely to 

have complete data for both domains, while 

those with fewer than 100 beds were more 

likely to have complete data for Domain 1 

only than for both domains. 

Among the 3,435 hospitals in our analysis, 

none had complete data for only Domain 2 

but not Domain 1. Ten of the 3,435 hospitals 

had no complete data for either Domain 1 or 

Domain 2. Among these 10 hospitals, none 

were teaching hospitals and 4 were 

nonteaching hospitals. One hospital was a 

DSH; another was not. One hospital was a 

for-profit hospital, one was a government 

hospital, and two were nonprofit hospitals. 

Two of the 10 hospitals had fewer than 50 

beds, 1 hospital had 300 to 399 beds, and 

another was a large hospital with at least 500 

beds. Of these 10 hospitals, there were 6 

hospitals for which we had no information 

about their teaching status, ownership, or bed 

size, and 8 hospitals for which we have no 

information about whether or not they were 

DSH. 

7. Effects of the Policy Changes Relating to 

Payments for GME and IME 

In section V.J.2. of the preamble of this 

proposed rule, we discuss our proposal to 

include labor and delivery days in the 

Medicare utilization calculation. We are 

proposing, consistent with the inpatient day 

counting rules for DSH as clarified in the FY 

2010 IPPS/RY 2010 LTCH PPS final rule, that 

effective for cost reporting periods beginning 

on or after October 1, 2013, for purposes of 

applying the Medicare utilization ratio, we 

would include labor and delivery inpatient 

days in the numerator (to the extent that 

there are any labor and delivery inpatient 

days associated with Medicare beneficiaries), 

and all labor and delivery inpatient days in 

the denominator (associated with all 

inpatients of the hospital). In addition to 

payments for direct GME, we believe this 

proposal also would affect other Medicare 

policies where either the number of inpatient 

days or a ratio of Medicare inpatient days to 

total inpatient days is used to determine 

eligibility or payment. However, this 

proposal would not impact Medicare 

payments calculated on a reasonable cost 

basis for routine inpatient services, which are 

apportioned in accordance with 42 CFR 

413.53(a)(1). We believe including labor and 

delivery days in the Medicare utilization 

calculation would result in a savings of 

approximately $15 million for FY 2014. 

In section V.J.3. of the preamble of this 

proposed rule, in accordance with section 

5506 of the Affordable Care Act which 

instructs the Secretary to establish a process 

to increase the FTE resident caps for other 

hospitals based upon the FTE resident caps 

in teaching hospitals that closed ‘‘on or after 

a date that is 2 years before the date of 

enactment’’ (that is March 23, 2008), we 

notify the public of the closure of one 

teaching hospital and the initiation of 

another round of the section 5506 application 

and selection process to redistribute FTE 

resident slots. We are initiating ‘‘Round 4’’ of 

section 5506, to redistribute the FTE resident 

slots of the Peninsula Hospital Center in Far 

Rockaway, NY, which closed on April 9, 

2012. We are merely using this proposed rule 

as a vehicle to initiate another round of the 

section 5506 application and selection 

process, which is an ongoing provision 

triggered each time a teaching hospital 

closes. Therefore, there is no impact for this 

provision. 

In section V.J.4. of the preamble of this 

proposed rule, we are proposing that another 

IPPS or IPPS-excluded hospital may not 

count the resident(s) training at the CAH for 

IME and/or direct GME purposes, even if that 

hospital is paying for the residents’ salary 

and fringe benefits. Specifically, we are 

proposing that, effective for portions of cost 

reporting periods occurring on or after 

October 1, 2013, a hospital may not claim the 

FTE residents that are training at a CAH for 

IME and/or direct GME purposes. However, 

under policies that were applicable prior to 

October 1, 2013 and that continue to apply 

on and after October 1, 2013, the CAH may 

incur the costs of training the FTE residents 

for the time that the FTE residents rotate to 

the CAH, and receive payment based on 101 

percent of its Medicare reasonable costs 

under 42 CFR 413.70. 

We do not believe that there is any 

financial impact of this proposed policy, as 

we are not precluding all Medicare payment 

for residents training at CAHs. Rather, we are 

precluding payment to one group of 

providers (that is, hospitals), but continuing 

to allow payment to another group (that is, 

CAHs). Under current policy, either a 

hospital could receive IME and direct GME 

payment for the time spent by residents 

training at a CAH if the hospital incurred the 

cost of that training, or the CAH could 

receive payment under § 413.70 if the CAH 

incurred the training cost. Under the 

proposed policy, hospitals would no longer 

be allowed to receive IME and direct GME 

payment for the costs associated with 

training residents at a CAH. However, CAHs 

could continue to receive payment under 

§ 413.70 for the allowable costs associated 

with training residents at a CAH in approved 

residency training programs. 

In section V.J.5. of the preamble of this 

proposed rule, we discuss the provisions of 

section 711 of the Medicare Modernization 

Act (Pub. L. 108–173) which amended 

section of 1886(h)(2)(D)(iv)(I) of the Act to 

freeze annual CPI–U updates to hospitalspecific PRAs for direct GME payment 

purposes for those PRAs that exceed the 

ceiling for FYs 2004 through 2013. Therefore, 

the ‘‘freeze’’ for PRAs that exceed the ceiling 

expires beginning in FY 2014. That is, for 

cost reporting periods beginning on or after 

October 1, 2013, the usual full CPI–U update, 

as determined under 42 CFR 413.77(c)(1) 

would apply to all PRAs for direct GME 

payment purposes. We note that we are not 

making any proposals related to this 

provision in this proposed rule. We are 

merely providing notice to the public that a 

statutory provision will no longer apply in 

FY 2014. 

8. Effects of Implementation of Rural 

Community Hospital Demonstration Program 

In section V.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 V.K. of the preamble of this proposed 

rule, in the IPPS final rules for each of the 

previous 9 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. The 

proposed adjustment to the national IPPS 

rates to account for estimated demonstration 

cost for FY 2014 for the 7 ‘‘pre-expansion’’ 

participating hospitals that are currently 

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Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 27811 

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 $46,515,865. In 

addition, in this FY 2014 proposed rule, we 

are proposing that if settled cost reports for 

all of the demonstration hospitals that 

participated in the applicable fiscal year 

(2007, 2008, 2009, or 2010) are made 

available prior to the FY 2014 IPPS/LTCH 

PPS final rule, we would incorporate into the 

FY 2014 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 estimated amount of 

$46,515,865 that we are proposing for FY 

2014 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 in the demonstration 

during those years also are not available at 

this time. 

9. Effects of the Extended Effective Date for 

Policy on Hospital Services Furnished Under 

Arrangements 

In section V.M. of the preamble of this 

proposed rule, we discuss our proposed 

change in the implementation date of our 

revised policy, as outlined in the FY 2012 

IPPS/LTCH PPS final rule (76 FR 51711) 

under which we limit the circumstances 

under which a hospital may furnish services 

to Medicare beneficiaries ‘‘under 

arrangements.’’ We are proposing to change 

the implementation date of the requirement 

to be effective for services provided on or 

after January 1, 2015 (instead of effective 

with cost reporting periods beginning on or 

after October 1, 2013). Because there are 

hospitals in the midst of significant building 

projects that, when completed, will enable 

the hospital to provide routine services in 

compliance with the requirements of this 

revised policy, we believe it is appropriate to 

further delay the effective date. We expect 

that, with the additional time before the 

revised ‘‘under arrangement’’ policy becomes 

effective, hospitals will complete the work 

needed to ensure compliance with the new 

requirement. Effective for services provided 

on or after January 1, 2015, all hospitals 

would need to be in full compliance with the 

revised policy for services furnished under 

arrangement. We have determined that the 

impact of this proposed effective date change 

would be negligible. 

I. Effects of Proposal Relating to the 

Furnishing of Acute Care Inpatient Services 

by CAHs 

In section VII.B.2. of the preamble of this 

proposed rule, we discuss our proposal to 

revise the requirements under the CoPs for 

CAHs to specify that CAHs must provide 

acute care inpatient services. We estimate 

that the costs to CAHs to implement this 

proposal would be minimal. The vast 

majority of CAHs, approximately 99 percent, 

already are providing acute care inpatient 

services. In fact, we believe that most CAHs 

would not consider the proposal a change in 

policy. We believe most CAHs will view this 

proposal as a clarification that confirms their 

usual and customary business practices. We 

welcome public comments on our 

assumptions and estimates. 

J. Effects of Proposed Changes to the CoPs for 

Hospitals Relating to the Administration of 

Pneumococcal Vaccines 

In section X. of the preamble of this 

proposed rule, we discuss our proposal to 

amend the standard under the CoPs for 

hospitals relating to the administration of 

pneumococcal vaccine by nursing staff. We 

are proposing to delete the term 

‘‘polysaccharide’’ vaccine in the standard to 

allow hospitals to include any type of 

pneumococcal vaccine as part of its 

physician-approved policy for administration 

by nurses without a prior practitioner order. 

While we expect this proposed change to 

have a positive effect on hospitals by 

providing them with additional regulatory 

flexibility in this area, it is difficult to 

estimate this positive effect in terms of actual 

cost savings for hospitals. We believe that the 

proposed change would carry the additional 

benefit of improving patient access to 

pneumococcal vaccines if hospitals choose to 

exercise the potential regulatory flexibility 

proposed and purchase and stock more than 

one type of pneumococcal vaccine as a result. 

This benefit would be particularly apparent 

if there were a shortage of one type of the 

pneumococcal vaccine in the future. In 

conclusion, while we cannot estimate any 

cost savings that would result from this 

proposed change, we are confident that it 

would not impose any burden on hospitals. 

K. Effects of Proposed Changes in the Capital 

IPPS 

1. General Considerations 

For the impact analysis presented below, 

we used data from the December 2012 update 

of the FY 2012 MedPAR file and the 

December 2012 update of the ProviderSpecific 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 2012 update of the 

most recently available hospital cost report 

data (FYs 2010 and 2011) to categorize 

hospitals. Our analysis has several 

qualifications. We use the best data available 

and make assumptions about case-mix and 

beneficiary enrollment as described below. 

Due to the interdependent nature of the 

IPPS, it is very difficult to precisely quantify 

the impact associated with each proposed 

change. In addition, we draw upon various 

sources for the data used to categorize 

hospitals in the tables. In some cases (for 

instance, the number of beds), there is a fair 

degree of variation in the data from different 

sources. We have attempted to construct 

these variables with the best available 

sources overall. However, it is possible that 

some individual hospitals are placed in the 

wrong category. 

Using cases from the December 2012 

update of the FY 2012 MedPAR file, we 

simulated payments under the capital IPPS 

for FY 2013 and FY 2014 for a comparison 

of total payments per case. Any short-term, 

acute care hospitals not paid under the 

general IPPS (for example, Indian Health 

Service hospitals and hospitals in Maryland) 

are excluded from the simulations. 

The methodology for determining a capital 

IPPS payment is set forth at § 412.312. The 

basic methodology for calculating capital 

IPPS payments in FY 2014 is as follows: 

(Standard Federal Rate) × (DRG weight) × 

(GAF) × (COLA for hospitals located in 

Alaska and Hawaii) × (1 + DSH Adjustment 

Factor + IME adjustment factor, if 

applicable). 

In addition to the other adjustments, 

hospitals may also receive outlier payments 

for those cases that qualify under the 

threshold established for each fiscal year. We 

modeled payments for each hospital by 

multiplying the capital Federal rate by the 

GAF and the hospital’s case-mix. We then 

added estimated payments for indirect 

medical education, disproportionate share, 

and outliers, if applicable. For purposes of 

this impact analysis, the model includes the 

following assumptions: 

• We estimate that the Medicare case-mix 

index would increase by 0.5 percent in both 

FYs 2013 and 2014. 

• We estimate that Medicare discharges 

would be approximately 12.3 million in FY 

2013 and 12.7 million in FY 2014. 

• 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 0.90 percent for FY 2014. 

• In addition to the proposed FY 2014 

update factor, the proposed FY 2014 capital 

Federal rate was calculated based on a 

proposed GAF/DRG budget neutrality 

adjustment factor of 0.9988, a proposed 

outlier adjustment factor of 0.9451, and a 

proposed adjustment factor of 0.9980 to offset 

the estimated additional IPPS expenditures 

that are projected to result from our policy 

proposal on admission and medical review 

criteria for hospital inpatient services under 

Medicare Part A, as discussed in section 

VI.C. of the preamble of this proposed rule. 

2. Results 

We used the actuarial model described 

above to estimate the potential impact of our 

proposed changes for FY 2014 on total 

capital payments per case, using a universe 

of 3,404 hospitals. As described above, the 

individual hospital payment parameters are 

taken from the best available data, including 

the December 2012 update of the FY 2012 

MedPAR file, the December 2012 update to 

the PSF, and the most recent cost report data 

from the December 2012 update of HCRIS. In 

Table III, we present a comparison of 

estimated total payments per case for FY 

2013 and estimated total payments per case 

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27812 Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 

for FY 2014 based on the proposed FY 2014 

payment policies. Column 2 shows estimates 

of payments per case under our model for FY 

2013. Column 3 shows estimates of payments 

per case under our model for FY 2014. 

Column 4 shows the proposed total 

percentage change in payments from FY 2013 

to FY 2014. The proposed change 

represented in Column 4 includes the 

proposed 0.90 percent update to the capital 

Federal rate and other proposed changes in 

the adjustments to the capital Federal rate. 

The comparisons are provided by: (1) 

Geographic location; (2) region; and (3) 

payment classification. 

The simulation results show that, on 

average, capital payments per case in FY 

2014 are expected to increase as compared to 

capital payments per case in FY 2013. The 

proposed capital Federal rate for FY 2014 

would increase approximately 1.5 percent as 

compared to the FY 2013 capital Federal rate. 

Overall, across all hospitals, the proposed 

changes to the GAFs are expected to have no 

net effect on capital payments. However, 

regionally, the effect of the proposed changes 

to the GAFs on capital payments are 

consistent with the projected changes in 

payments due to proposed changes in the 

wage index (and proposed policies affecting 

the wage index) as shown in Table I in 

section I.G. of this Appendix. 

We are estimating a slight decrease in 

outlier payments in FY 2014 as compared to 

FY 2013. This is primarily because of the 

proposed increase to the proposed outlier 

fixed-loss amount (discussed in section 

II.A.4.f. of the Addendum to this proposed 

rule). 

The net impact of these proposed changes 

is an estimated 1.1 percent change in capital 

payments per discharge from FY 2013 to FY 

2014 for all hospitals (as shown below in 

Table III). 

The geographic comparison shows that, on 

average, with the exception of one region, all 

hospitals are expected to experience an 

increase in capital IPPS payments per case in 

FY 2014 as compared to FY 2013. These 

expected increases are primarily due to the 

proposed increase in the capital Federal rate, 

but are somewhat offset by the projected 

decrease in payments because of the 

proposed GAFs, and the projected decrease 

in outlier payments. Capital IPPS payments 

per case for both large urban hospitals and 

other urban hospitals are estimated to 

increase 1.2 percent. Rural hospitals, on 

average, are expected to experience a 0.6 

percent increase in capital payments per 

discharge from FY 2013 to FY 2014. The 

factors contributing to the difference in the 

projected increase in capital IPPS payments 

per discharge for urban hospitals as 

compared to rural hospitals are a decrease in 

capital payments to rural hospitals due to 

proposed changes to the GAF, a relatively 

larger decrease in projected outlier payments 

to rural hospitals, and a relatively lower 

projected increase in capital payments to 

rural hospitals due to the proposed changes 

to the MS–DRG relative weights. 

The comparisons by region show that the 

estimated increases in capital payments per 

discharge from FY 2013 to FY 2014 in urban 

areas ranges from a 2.3 percent increase for 

the New England urban region to a 0.6 

percent increase for the Mountain urban 

region. Similarly, for rural regions, the New 

England rural region is expected to 

experience the largest increase in capital 

IPPS payments per discharge at 1.7 percent. 

Unlike most other urban and rural regions, 

for both the New England urban and rural 

region, a large part of the expected increase 

in capital IPPS payments per discharge is due 

to the proposed GAFs, which are consistent 

with the proposed changes in the wage index 

for hospitals located in the New England 

area, as discussed in section I. of this 

Appendix. 

Whereas all urban regions and most rural 

regions are estimated to experience an 

increase in capital IPPS payments per 

discharge, the Mountain rural region is 

expected to experience a 0.1 percent decrease 

in capital IPPS payments per discharge—the 

only region not expected to experience an 

increase. This is mainly due both to projected 

decreases in capital payments in FY 2014 

resulting from the proposed changes to the 

GAFs, as well as proposed changes to the 

outlier threshold. 

All but one of the hospitals located in 

Puerto Rico are in urban areas. Hospitals 

located in the Puerto Rico urban region are 

expected to experience a 2.1 percent increase 

in capital IPPS payments per discharge in FY 

2014 as compared to FY 2013. This larger 

than average projected increase in capital 

IPPS payments per discharge is mostly due 

to the proposed GAFs, which are consistent 

with the proposed changes in the wage index 

for hospitals located in the Puerto Rico urban 

areas, as discussed in section I. of this 

Appendix. 

Hospitals of all types of ownership (that is, 

voluntary hospitals, government hospitals, 

and proprietary hospitals) are estimated to 

experience an increase in capital payments 

per case from FY 2013 to FY 2014. The 

proposed increase in capital payments for 

both government and proprietary hospitals is 

estimated at 1.0 percent, and voluntary 

hospitals are estimated to experience a 1.3 

percent increase in capital payments per case 

from FY 2013 to FY 2014. 

Section 1886(d)(10) of the Act established 

the MGCRB. Hospitals may apply for 

reclassification for purposes of the wage 

index for FY 2014. Reclassification for wage 

index purposes also affects the GAFs because 

that factor is constructed from the hospital 

wage index. To present the effects of the 

hospitals being reclassified as of the 

publication of this proposed rule for FY 

2014, we show the average capital payments 

per case for reclassified hospitals for FY 

2014. Urban reclassified hospitals are 

expected to experience a 1.6 percent increase 

in capital payments, whereas urban 

nonreclassified hospitals are expected to 

experience an increase of 1.1 percent. The 

proposed estimated percentage increase for 

rural reclassified hospitals is 1.1 percent. 

However, rural nonreclassified hospitals are 

expected to experience a 0.2 percent decrease 

in capital payments per case. Other 

reclassified hospitals (that is, hospitals 

reclassified under section 1886(d)(8)(B) of the 

Act) are expected to experience a 1.3 percent 

increase in capital payments from FY 2013 to 

FY 2014. 

TABLE III—COMPARISON OF TOTAL PAYMENTS PER CASE

[FY 2013 Payments Compared To FY 2014 Payments] 

Number of 

hospitals 

Average FY 

2013 

payments/case 

Average FY 

2014 

payments/case 

Change 

By Geographic Location: 

All hospitals .............................................................................................. 3,404 816 826 1.1 

Large urban areas (populations over 1 million) ....................................... 1,367 903 914 1.2 

Other urban areas (populations of 1 million of fewer) ............................. 1,114 794 803 1.2 

Rural areas ............................................................................................... 923 564 568 0.6 

Urban hospitals ......................................................................................... 2,481 854 864 1.2 

0–99 beds .......................................................................................... 622 716 712 ¥0.5 

100–199 beds .................................................................................... 762 738 745 0.9 

200–299 beds .................................................................................... 464 786 795 1.2 

300–499 beds .................................................................................... 418 870 882 1.3 

500 or more beds .............................................................................. 215 1,016 1,031 1.5 

Rural hospitals .......................................................................................... 923 564 568 0.6 

0–49 beds .......................................................................................... 339 457 458 0.0 

50–99 beds ........................................................................................ 328 517 521 0.7 

100–149 beds .................................................................................... 151 559 562 0.5 

150–199 beds .................................................................................... 59 628 633 0.7 

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TABLE III—COMPARISON OF TOTAL PAYMENTS PER CASE—Continued 

[FY 2013 Payments Compared To FY 2014 Payments] 

Number of 

hospitals 

Average FY 

2013 

payments/case 

Average FY 

2014 

payments/case 

Change 

200 or more beds .............................................................................. 46 675 682 0.9 

By Region: 

Urban by Region ...................................................................................... 2,481 854 864 1.2 

New England ..................................................................................... 120 928 949 2.3 

Middle Atlantic ................................................................................... 318 900 920 2.2 

South Atlantic .................................................................................... 375 786 792 0.7 

East North Central ............................................................................. 395 818 825 0.9 

East South Central ............................................................................ 149 745 752 1.0 

West North Central ............................................................................ 165 851 860 1.0 

West South Central ........................................................................... 371 789 797 1.0 

Mountain ............................................................................................ 156 890 896 0.6 

Pacific ................................................................................................ 381 1,064 1,077 1.2 

Puerto Rico ........................................................................................ 51 380 388 2.1 

Rural by Region ........................................................................................ 923 564 568 0.6 

New England ..................................................................................... 23 765 778 1.7 

Middle Atlantic ................................................................................... 69 581 585 0.6 

South Atlantic .................................................................................... 165 544 547 0.5 

East North Central ............................................................................. 119 586 590 0.7 

East South Central ............................................................................ 171 517 519 0.4 

West North Central ............................................................................ 100 596 602 0.9 

West South Central ........................................................................... 181 504 507 0.4 

Mountain ............................................................................................ 65 617 617 ¥0.1 

Pacific ................................................................................................ 29 723 733 1.4 

Puerto Rico ........................................................................................ 1 198 210 6.2 

By Payment Classification: 

All hospitals .............................................................................................. 3,404 816 826 1.1 

Large urban areas (populations over 1 million) ....................................... 1,377 902 913 1.2 

Other urban areas (populations of 1 million of fewer) ............................. 1,118 794 803 1.2 

Rural areas ............................................................................................... 909 571 574 0.5 

Teaching Status: 

Non-teaching ............................................................................................ 2,378 699 704 0.7 

Fewer than 100 Residents ....................................................................... 782 803 814 1.3 

100 or more Residents ............................................................................. 244 1,148 1,166 1.6 

Urban DSH: 

100 or more beds ..................................................................................... 1,562 874 886 1.3 

Less than 100 beds .................................................................................. 330 615 622 1.1 

Rural DSH: 260 530 530 ¥0.2 

Sole Community (SCH/EACH).

Referral Center (RRC/EACH) ................................................................... 223 625 630 0.7 

Other Rural: 

100 or more beds .............................................................................. 29 523 521 ¥0.4 

Less than 100 beds ........................................................................... 294 460 461 0.3 

Urban teaching and DSH: 

Both teaching and DSH ............................................................................ 826 944 958 1.5 

Teaching and no DSH .............................................................................. 135 837 849 1.4 

No teaching and DSH .............................................................................. 1,066 737 745 1.0 

No teaching and no DSH ......................................................................... 468 770 771 0.1 

Rural Hospital Types: 

Non special status hospitals ..................................................................... 2,367 859 869 1.2 

RRC/EACH ............................................................................................... 76 770 791 2.7 

SCH/EACH ............................................................................................... 37 758 765 0.9 

SCH, RRC and EACH .............................................................................. 17 779 800 2.7 

Hospitals Reclassified by the Medicare Geographic Classification Review 

Board: 

FY2014 Reclassifications: 

All Urban Reclassified .............................................................................. 451 849 862 1.6 

All Urban Non-Reclassified ....................................................................... 1,990 858 867 1.1 

All Rural Reclassified ................................................................................ 311 601 607 1.1 

All Rural Non-Reclassified ........................................................................ 552 513 511 ¥0.2 

Other Reclassified Hospitals (Section 1886(d)(8)(B)) .............................. 53 553 560 1.3 

Type of Ownership: 

Voluntary ................................................................................................... 1,944 828 839 1.3 

Proprietary ................................................................................................ 895 741 748 1.0 

Government .............................................................................................. 546 853 861 1.0 

Medicare Utilization as a Percent of Inpatient Days: 

0–25 .......................................................................................................... 368 1,038 1,053 1.5 

25–50 ........................................................................................................ 1,807 857 867 1.2 

50–65 ........................................................................................................ 967 685 692 1.1 

Over 65 ..................................................................................................... 171 601 606 0.8 

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L. Effects of Proposed Payment Rate Changes 

and Policy Changes Under the LTCH PPS 

1. Introduction and General Considerations 

In section VIII. of the preamble of this 

proposed rule and section V. of the 

Addendum to this proposed rule, we set forth 

the proposed annual update to the payment 

rates for the LTCH PPS for FY 2014. In the 

preamble of this proposed rule, we specify 

the statutory authority for the proposed 

provisions that are presented, identify those 

proposed policies, and present rationales for 

our proposed decisions as well as 

alternatives that were considered. In this 

section of Appendix A to this proposed rule, 

we discuss the impact of the proposed 

changes to the payment rate, factors, and 

other payment rate policies related to the 

LTCH PPS that are presented in the preamble 

of this proposed rule in terms of their 

estimated fiscal impact on the Medicare 

budget and on LTCHs. 

Currently, there are 423 LTCHs included in 

this impacts analysis, which includes data 

for 78 nonprofit (voluntary ownership 

control) LTCHs, 327 proprietary LTCHs, and 

18 LTCHs that are government-owned and 

operated. (We note that although there are 

currently approximately 440 LTCHs, for 

purposes of this impact analysis, we 

excluded the data of all inclusive rate 

providers and the LTCHs that are paid in 

accordance with demonstration projects, 

consistent with the development of the 

proposed FY 2014 MS–LTC–DRG relative 

weights (discussed in section VIII.B.3.c. of 

the preamble of this proposed rule)). In the 

impact analysis, we used the proposed 

payment rate, factors, and policies presented 

in this proposed rule, including the proposed 

1.8 percent annual update for LTCHs that 

submit quality data in accordance with 

section 1886(m)(5)(C) of the Act, which is 

based on the full estimated increase of the 

LTCH PPS market basket and the reductions 

required by sections 1886(m)(3) and (m)(4) of 

the Act, the proposed second year phase of 

a one-time prospective adjustment factor of 

0.98734 (approximately –1.3 percent), the 

proposed update to the MS–LTC–DRG 

classifications and relative weights, the 

proposed update to the wage index values 

and labor-related share, and the best 

available claims and CCR data to estimate the 

change in payments for FY 2014. (As 

discussed in section IX.C. of the preamble of 

this proposed rule, in accordance with 

section 1886(m)(5)(C) of the Act, for LTCHs 

that fail to submit quality data, the proposed 

annual update to the LTCH PPS standard 

Federal rate is reduced by 2.0 percentage 

points beginning in FY 2014.) 

The standard Federal rate for FY 2013 is 

$40,397.96. However, consistent with the 

statute, the payment for FY 2013 discharges 

occurring on or before December 28, 2012 

does not reflect the one-time prospective 

adjustment under § 412.523(d)(3) of the 

regulations, and such discharges are paid 

based on a standard Federal rate of 

$40,915.95 (77 FR 53710) . For FY 2014, we 

are proposing to establish a standard Federal 

rate of $40,622.06, which reflects the 

proposed 1.8 percent annual update to the 

standard Federal rate, and the proposed area 

wage budget neutrality factor of 1.000433 to 

ensure that the proposed changes in the wage 

indexes and labor-related share do not 

influence aggregate payments, and the 

proposed second year of the phase-in of the 

one-time prospective adjustment factor of 

0.98734. We note that the proposed factors 

described above to determine the proposed 

FY 2014 standard Federal rate are applied to 

the FY 2013 Federal standard rate set forth 

under section § 412.523(c)(3)(ix)(A) (that is, 

$40,397.96). 

Based on the best available data for the 423 

LTCHs in our database, we estimate that the 

proposed annual update to the standard 

Federal rate for FY 2014 (discussed in section 

V.A.2. of the Addendum to this proposed 

rule) and the proposed changes to the area 

wage adjustment for FY 2014 (discussed in 

section V.B. of the Addendum to this 

proposed rule), in addition to an estimated 

increase in HCO payments would result in an 

increase in estimated payments from FY 2013 

of approximately $62 million. Based on the 

423 LTCHs in our database, we estimate that 

the FY 2014 LTCH PPS payments would be 

approximately $5.599 billion, as compared to 

estimated FY 2013 LTCH PPS payments of 

approximately $5.537 billion. Because the 

combined distributional effects and 

estimated changes to the Medicare program 

payments are over approximately $100 

million, this proposed rule is considered a 

major economic rule, as defined in this 

section. We note that the approximate $62 

million for the projected increase in 

estimated aggregate proposed LTCH PPS 

payments from FY 2013 to FY 2014 does not 

reflect changes in LTCH admissions or casemix intensity in estimated LTCH PPS 

payments, which also will affect overall 

payment changes. (We note that this impact 

does not include an estimate effect of the 2.0 

percentage points reduction to the proposed 

annual update to the LTCH PPS standard 

Federal rate for LTCHs that fail to submit 

quality data, as required by section 

1886(m)(5)(C) of the Act, because we have 

not determined at this time which, if any, 

LTCHs failed to submit the requisite quality 

data for FY 2014 under the LTCH Quality 

Reporting Program.) 

The projected 1.1 percent increase in 

estimated proposed payments per discharge 

from FY 2013 to FY 2014 is attributable to 

several factors, including the proposed 1.8 

percent annual update to the standard 

Federal rate, the proposed one-time 

prospective adjustment factor for FY 2014 of 

0.98734 (approximately –1.3 percent), and 

projected increases in estimated HCO 

payments. As Table IV shows, the change 

attributable solely to the proposed annual 

update to the standard Federal rate (1.8 

percent), including the proposed one-time 

prospective adjustment factor for FY 2014 

under the second year of the phase-in 

(approximately –1.3 percent), is projected to 

result in an increase of 0.5 percent in 

payments per discharge from FY 2013 to FY 

2014, on average, for all LTCHs. We note, the 

estimated change in payments solely 

attributable to the proposed annual update to 

the standard Federal rate does not take into 

account that the one-time prospective 

adjustment to the standard Federal rate for 

FY 2013 under § 412.523(d)(3) is not applied 

to payments for discharges occurring before 

December 29, 2012, consistent with the 

statute (and, therefore, are paid based on a 

relatively higher rate). The change in 

payments solely attributable to the proposed 

annual update to the standard Federal rate 

for FY 2014 would be a smaller increase in 

payments relative to the pre-December 29, 

2012 LTCH payment rates (approximately 0.2 

percent instead of 0.5 percent). In addition to 

the proposed 1.8 percent annual update for 

FY 2014 and the proposed ¥1.3 percent onetime prospective adjustment factor for FY 

2014, this estimated increase in aggregate 

LTCH PPS payments of 0.5 percent also 

includes estimated payments for SSO cases 

that are paid using special methodologies 

that are not affected by the annual update to 

the standard Federal rate. Therefore, for some 

hospital categories, the projected increase in 

payments based on the proposed standard 

Federal rate is less than the proposed 0.5 

percent annual update for FY 2014. 

Because we are proposing to apply an area 

wage level budget neutrality factor to the 

standard Federal rate, the proposed annual 

update to the wage data and labor-related 

share does not impact the increase in 

aggregate payments. In addition, we note that 

the updates to the standard Federal rate to 

determine the estimated effects described 

above were applied to the FY 2013 standard 

Federal rate set forth under section 

§ 412.523(c)(3)(ix)(A) (that is, $40,397.96). 

As discussed in section V.B. of the 

Addendum to this proposed rule, we are 

proposing to update the wage index values 

for FY 2014 based on the most recent 

available data. In addition, we are proposing 

to decrease the labor-related share from 

63.096 percent to 62.717 percent under the 

LTCH PPS for FY 2014, based on the most 

recent available data on the relative 

importance of the labor-related share of 

operating and capital costs based on the FY 

2009-based LTCH-specific market basket. We 

also are proposing to apply an area wage 

level budget neutrality factor of 1.000433, 

which increases the proposed standard 

Federal rate by approximately 0.04 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. 

Table IV below shows the impact of the 

proposed payment rate and the proposed 

policy changes on LTCH PPS payments for 

FY 2014 presented in this proposed rule by 

comparing estimated FY 2013 payments to 

estimated FY 2014 payments. The projected 

increase in payments per discharge from FY 

2013 to FY 2014 is 1.1 percent (shown in 

Column 9). This projected increase in 

payments is attributable to the impacts of the 

proposed change to the standard Federal rate 

(0.5 percent in Column 6) and the effect of 

the estimated increase in proposed payments 

for HCO cases and SSO cases (0.8 percent 

and 0.2 percent, respectively). That is, 

estimated total HCO payments are projected 

to increase from FY 2013 to FY 2014 in order 

to ensure that the estimated HCO payments 

would be 8 percent of the total estimated 

LTCH PPS payments in FY 2014. An analysis 

of the most recent available LTCH PPS claims 

data (that is, FY 2012 claims data from the 

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Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 27815 

December 2012 update of the MedPAR file) 

indicates that the FY 2013 HCO threshold of 

$15,408 (as established in the FY 2013 IPPS/ 

LTCH PPS final rule) may result in HCO 

payments in FY 2014 that fall below the 

estimated 8 percent. Specifically, we 

currently estimate that HCO payments would 

be approximately 7.2 percent of the estimated 

total LTCH PPS payments in FY 2013. We 

estimate that the impact of the increase in 

HCO payments would result in 

approximately a 0.8 percent increase in 

estimated payments from FY 2013 to FY 

2014, on average, for all LTCHs. Furthermore, 

in calculating the estimated increase in 

payments from FY 2013 to FY 2014 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 approximately 

0.2 percent relative to last year. The net 

result of these projected changes in HCO and 

SSO payments in FY 2014 is an estimated 

change in aggregate payments of 1.0 percent. 

We note that estimated payments for all SSO 

cases comprise approximately 12 percent of 

the estimated total LTCH PPS payments, and 

estimated payments for HCO cases comprise 

approximately 8 percent of the estimated 

total FY 2014 LTCH PPS payments. Payments 

for HCO cases are based on 80 percent of the 

estimated cost of the case above the HCO 

threshold, while the majority of the payments 

for SSO cases (approximately 57 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. 

2. Impact on Rural Hospitals 

For purposes of section 1102(b) of the Act, 

we define a small rural hospital as a hospital 

that is located outside of an urban area and 

has fewer than 100 beds. As shown in Table 

IV, we are projecting a 0.7 percent increase 

in estimated payments per discharge for FY 

2014 as compared to FY 2013 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 423 LTCHs) for 

which complete data were available. 

The estimated increase in LTCH PPS 

payments from FY 2013 to FY 2014 for rural 

LTCHs (0.7 percent) is less than the national 

average increase (1.1 percent). The estimated 

increase in LTCH PPS payments from FY 

2013 to FY 2014 for rural LTCHs is primarily 

due to the proposed increase to the standard 

Federal rate. However, rural LTCHs are 

experiencing slightly lower increases than 

the national average due to decreases in their 

wage index for FY 2014 compared to FY 

2013. 

3. Anticipated Effects of Proposed LTCH PPS 

Payment Rate Changes and Policy Changes 

a. Budgetary Impact 

Section 123(a)(1) of the BBRA requires that 

the PPS developed for LTCHs ‘‘maintain 

budget neutrality.’’ We believe that the 

statute’s mandate for budget neutrality 

applies only to the first year of the 

implementation of the LTCH PPS (that is, FY 

2003). Therefore, in calculating the FY 2003 

standard Federal rate under § 412.523(d)(2), 

we set total estimated payments for FY 2003 

under the LTCH PPS so that estimated 

aggregate payments under the LTCH PPS 

were estimated to equal the amount that 

would have been paid if the LTCH PPS had 

not been implemented. 

As discussed above in section I.L.1. of this 

Appendix, we project an increase in 

aggregate LTCH PPS payments in FY 2014 

relative to FY 2013 of approximately $62 

million based on the 423 LTCHs in our 

database. 

b. Expiration of Statutory Delay of Full 

Implementation of the ‘‘25-Percent 

Threshold’’ Payment Adjustment Policy and 

1-Year Extension 

As discussed in section VIII.D. of the 

preamble of this proposed rule, the statutory 

delay of the full application of the ‘‘25- 

percent threshold’’ payment adjustment for 

LTCHs under § 412.534 and § 412.536 

expired for cost reporting periods beginning 

on or after July 1, 2012, or October 1, 2012, 

as applicable. We established 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 (and for discharges occurring on or 

after October 1, 2012, through the end of the 

cost reporting period of LTCHs with cost 

reporting periods beginning on or after July 

1, 2012, and before September 30, 2012, as 

explained in section VIII.D. of the preamble 

of this proposed rule). The regulatory 

moratorium on the full application of the 

‘‘25-percent threshold’’ payment adjustment 

will expire for certain LTCHs for cost 

reporting periods beginning on or after 

October 1, 2013, and as discussed in section 

VIII.D. of the preamble of this proposed rule, 

we do not anticipate extending the regulatory 

moratorium of the full application of the 25- 

percent payment adjustment threshold 

further. We estimate that the expiration of 

this moratorium will result in a payment 

reduction of approximately $190 million to 

LTCHs. 

c. Impact on Providers 

The basic methodology for determining a 

per discharge LTCH PPS payment is set forth 

under § 412.515 through § 412.536. In 

addition to the basic MS–LTC–DRG payment 

(the standard Federal rate multiplied by the 

MS–LTC–DRG relative weight), we make 

adjustments for differences in area wage 

levels, the COLA for LTCHs located in Alaska 

and Hawaii, and SSOs. Furthermore, LTCHs 

may also receive HCO payments for those 

cases that qualify based on the threshold 

established each year. 

To understand the impact of the proposed 

changes to the LTCH PPS payments 

presented in this proposed rule on different 

categories of LTCHs for FY 2014, it is 

necessary to estimate payments per discharge 

for FY 2013 using the rates, factors (including 

the FY 2013 GROUPER (Version 30.0), and 

relative weights and the policies established 

in the FY 2013 IPPS/LTCH PPS final rule (77 

FR 53458 through 53502 and 53708 through 

53716). 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 

31.0) for FY 2014 (as discussed in section 

VIII. of the preamble of this proposed rule 

and section V. of the Addendum to this 

proposed rule). These estimates of FY 2013 

and FY 2014 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 2013 

payments to estimated FY 2014 payments (on 

a per discharge basis) for each category of 

LTCHs. We are proposing to establish a 

standard Federal rate for FY 2014 of 

$40,622.06 that includes the proposed 1.8 

percent annual update, the proposed area 

wage budget neutrality factor of 1.000433, 

and the proposed one-time prospective 

adjustment to the standard Federal rate for 

FY 2014 of 0.98734 (approximately ¥1.3 

percent). 

Hospital groups were based on 

characteristics provided in the OSCAR data, 

FY 2009 through FY 2011 cost report data in 

HCRIS, and PSF data. Hospital groups 

included the following: 

• Location: large urban/other urban/rural. 

• Participation date. 

• Ownership control. 

• Census region. 

• Bed size. 

To estimate the impacts of the proposed 

payment rates and policy changes among the 

various categories of existing providers, we 

used LTCH cases from the FY 2012 MedPAR 

file to estimate payments for FY 2013 and to 

estimate payments for FY 2014 for 423 

LTCHs. We believe that the discharges based 

on the FY 2012 MedPAR data for the 423 

LTCHs in our database, which includes 327 

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 2012 MedPAR files. For modeling 

estimated LTCH PPS payments for FY 2013, 

we used the FY 2013 standard Federal rate 

(that is, $40,915.95 used to make payments 

for LTCH discharges occurring on or after 

October 1, 2012 through December 28, 2012, 

and $40,397.96 for discharges occurring on or 

after December 29, 2012 through September 

30, 2013). 

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For modeling estimated LTCH PPS 

payments for FY 2014, we used the proposed 

FY 2014 standard Federal rate of $40,622.06, 

which includes the proposed one-time 

prospective adjustment of 0.98734 for FY 

2014 for the second year of the 3-year phasein. The proposed FY 2014 standard Federal 

rate of $40,622.06 includes the proposed 

application of an area wage level budget 

neutrality factor of 1.000433 (as discussed in 

section V.B.5. of the Addendum to this 

proposed rule). Furthermore, in modeling 

estimated LTCH PPS payments for both FY 

2013 and FY 2014 in this impact analysis, we 

applied the FY 2013 and the proposed FY 

2014 adjustments for area wage levels and 

the proposed COLA for LTCHs located in 

Alaska and Hawaii. Specifically, we adjusted 

for differences in area wage levels in 

determining estimated FY 2013 payments 

using the current LTCH PPS labor-related 

share of 63.096 percent (77 FR 53711) and 

the wage index values established in the 

Tables 12A and 12B listed in the Addendum 

to the FY 2013 IPPS/LTCH PPS final rule 

(which are available via the Internet (77 FR 

53717)). We also applied the FY 2013 COLA 

factors shown in the table in section V.C. of 

the Addendum to that final rule (77 FR 

53713) to adjust the FY 2013 nonlaborrelated share (36.904 percent) for LTCHs 

located in Alaska and Hawaii. Similarly, we 

adjusted for differences in area wage levels 

in determining the estimated FY 2014 

payments using the proposed FY 2014 LTCH 

PPS labor-related share of 62.717 percent and 

the proposed FY 2014 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 2014 COLA factors 

shown in the table in section V.C. of the 

Addendum to this proposed rule to the 

proposed FY 2014 nonlabor-related share 

(37.283 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 

2014, we applied an inflation factor of 4.8 

percent (determined by OACT) to estimate 

the costs of each case using the charges 

reported on the claims in the FY 2012 

MedPAR files and the best available CCRs 

from the December 2012 update of the PSF. 

Furthermore, in modeling estimated LTCH 

PPS payments for FY 2014 in this impact 

analysis, we used the proposed FY 2014 

fixed-loss amount of $14,139 (as discussed in 

section V.D. of the Addendum to this 

proposed rule). 

These impacts reflect the estimated 

‘‘losses’’ or ‘‘gains’’ among the various 

classifications of LTCHs from FY 2013 to FY 

2014 based on the proposed payment rates 

and policy changes presented in this 

proposed rule. Table IV illustrates the 

estimated aggregate impact of the LTCH PPS 

among various classifications of LTCHs. 

• The first column, LTCH Classification, 

identifies the type of LTCH. 

• The second column lists the number of 

LTCHs of each classification type. 

• The third column identifies the number 

of LTCH cases. 

• The fourth column shows the estimated 

payment per discharge for FY 2013 (as 

described above). 

• The fifth column shows the estimated 

payment per discharge for FY 2014 (as 

described above). 

• The sixth column shows the percentage 

change in estimated payments per discharge 

from FY 2013 to FY 2014 due to the proposed 

annual update to the standard Federal rate 

(as discussed in section V.A.2. of the 

Addendum to this proposed rule), including 

the second year of the phase-in of the onetime prospective adjustment factor for FY 

2014. (As noted previously, the estimate 

payment changes shown in this column do 

not take into account that the one-time 

prospective adjustment to the standard 

Federal rate for FY 2013 under 

§ 412.523(d)(3) is not applied to payments for 

discharges occurring before December 29, 

2012, consistent with the statute.) 

• The seventh column shows the 

percentage change in estimated payments per 

discharge from FY 2013 to FY 2014 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). 

• The eighth column shows the percentage 

change in estimated payments per discharge 

from FY 2013 (Column 4) to FY 2014 

(Column 5) for all proposed changes (and 

includes the effect of estimated proposed 

changes to HCO and SSO payments). 

TABLE IV—IMPACT OF PROPOSED PAYMENT RATE AND POLICY CHANGES TO LTCH PPS PAYMENTS FOR FY 2014 

(ESTIMATED FY 2013 PAYMENTS COMPARED TO ESTIMATED FY 2014 PAYMENTS *) 

LTCH Classification Number of 

LTCHs 

Number of 

LTCH PPS cases 

Average FY 

2013 LTCH 

PPS payment 

per case 

Average FY 

2014 LTCH 

PPS payment 

per case 1

Percent change 

in estimated 

payments per 

discharge from 

FY 2013 to 

proposed FY 

2014 for the 

proposed 

annual update 

to the Federal 

rate 2

Percent change 

in estimated 

payments per 

discharge from 

FY 2013 to FY 

2014 for 

proposed 

changes to the 

area wage level 

adjustment with 

proposed 

budget 

neutrality 3

Percent change 

in payments per 

discharge from 

FY 2013 to FY 

2014 for all 

proposed 

changes 4

(1) (2) (3) (4) (5) (6) (7) (8) 

ALL PROVIDERS ............................ 423 140,490 $39,417 $39,856 0.5 0.0 1.1 

BY LOCATION: 

RURAL ..................................... 27 6,504 35,149 35,382 0.5 ¥0.2 0.7 

URBAN ..................................... 396 133,986 39,624 40,073 0.5 0.0 1.1 

LARGE .............................. 197 77,541 41,615 42,133 0.4 0.1 1.2 

OTHER ............................. 199 56,445 36,889 37,244 0.5 ¥0.1 1.0 

BY PARTICIPATION DATE: 

BEFORE OCT. 1983 ............... 16 5,621 34,969 35,400 0.4 0.1 1.2 

OCT. 1983–SEPT. 1993 .......... 44 17,271 42,088 42,592 0.4 0.1 1.2 

OCT. 1993–SEPT. 2002 .......... 182 64,138 38,720 39,097 0.5 ¥0.1 1.0 

AFTER OCTOBER 2002 ......... 181 53,460 39,858 40,351 0.5 0.1 1.2 

BY OWNERSHIP TYPE: 

VOLUNTARY ........................... 78 19,042 39,558 40,137 0.4 0.0 1.5 

PROPRIETARY ....................... 327 118,366 39,259 39,677 0.5 0.0 1.1 

GOVERNMENT ....................... 18 3,082 44,603 45,012 0.4 ¥0.6 0.9 

BY REGION: 

NEW ENGLAND ...................... 14 7,266 34,984 35,448 0.4 0.2 1.3 

MIDDLE ATLANTIC ................. 30 8,374 41,646 42,311 0.5 0.5 1.6 

SOUTH ATLANTIC .................. 60 18,053 41,634 42,024 0.4 ¥0.2 0.9 

EAST NORTH CENTRAL ........ 70 20,431 40,664 41,119 0.5 ¥0.1 1.1 

EAST SOUTH CENTRAL ........ 31 8,792 39,386 39,843 0.5 ¥0.1 1.2 

WEST NORTH CENTRAL ....... 26 6,492 39,461 39,921 0.5 ¥0.2 1.2 

WEST SOUTH CENTRAL ....... 135 50,268 35,416 35,733 0.5 ¥0.1 0.9 

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TABLE IV—IMPACT OF PROPOSED PAYMENT RATE AND POLICY CHANGES TO LTCH PPS PAYMENTS FOR FY 2014 

(ESTIMATED FY 2013 PAYMENTS COMPARED TO ESTIMATED FY 2014 PAYMENTS *)—Continued 

LTCH Classification Number of 

LTCHs 

Number of 

LTCH PPS cases 

Average FY 

2013 LTCH 

PPS payment 

per case 

Average FY 

2014 LTCH 

PPS payment 

per case 1

Percent change 

in estimated 

payments per 

discharge from 

FY 2013 to 

proposed FY 

2014 for the 

proposed annual update to 

the Federal 

rate 2

Percent change 

in estimated 

payments per 

discharge from 

FY 2013 to FY 

2014 for 

proposed 

changes to the 

area wage level 

adjustment with 

proposed 

budget neutrality 3

Percent change 

in payments per 

discharge from 

FY 2013 to FY 

2014 for all 

proposed 

changes 4

(1) (2) (3) (4) (5) (6) (7) (8) 

MOUNTAIN .............................. 32 7,034 42,722 43,279 0.5 ¥0.1 1.3 

PACIFIC ................................... 25 13,780 48,552 49,246 0.4 0.3 1.4 

BY BED SIZE: 

BEDS: 0–24 ............................. 25 2,948 35,535 35,745 0.5 ¥0.3 0.6 

BEDS: 25–49 ........................... 202 47,094 38,578 38,960 0.5 0.0 1.0 

BEDS: 50–74 ........................... 116 38,180 40,303 40,834 0.5 0.1 1.3 

BEDS: 75–124 ......................... 43 20,917 41,248 41,725 0.5 0.0 1.2 

BEDS: 125–199 ....................... 24 17,017 38,624 38,991 0.5 ¥0.1 1.0 

BEDS: 200+ ............................. 13 14,334 38,882 39,342 0.5 0.1 1.2 

1Estimated FY 2014 LTCH PPS payments based on the proposed payment rate and policy changes presented in the preamble and the Addendum to this proposed rule. 2Percent change in estimated payments per discharge from FY 2013 to FY 2014 for the proposed annual update to the standard Federal rate and the proposed 

one-time prospective adjustment factor for FY 2014 as discussed in section V.A.2. of the Addendum to this proposed rule. Note, this column does not take into account that the one-time prospective adjustment to the standard Federal rate for FY 2013 under § 412.523(d)(3) is not applied to payments for discharges occurring 

before December 29, 2012, consistent with the statute (and therefore, are paid based on a relatively higher rate). 3Percent change in estimated payments per discharge from FY 2013 to FY 2014 for proposed changes to the area wage level adjustment under § 412.525(c) (as 

discussed in section V.B. of the Addendum to this proposed rule). 4Percent change in estimated payments per discharge from FY 2013 LTCH PPS (shown in Column 4) to FY 2014 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. 

e. Results 

Based on the most recent available data for 

423 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 1.1 

percent, on average, for all LTCHs from FY 

2013 to FY 2014 as a result of the proposed 

payment rate and policy changes presented 

in this proposed rule, including an estimated 

increase in HCO payments. This estimated 

1.1 percent increase in LTCH PPS payments 

per discharge from the FY 2013 to FY 2014 

for all LTCHs (as shown in Table IV) was 

determined by comparing estimated FY 2014 

LTCH PPS payments (using the proposed 

payment rate and policies discussed in this 

proposed rule) to estimated FY 2013 LTCH 

PPS payments (as described above in section 

I.L.1. of this Appendix). 

We are proposing to establish a standard 

Federal rate of $40,622.06 for FY 2014. 

Specifically, we are proposing to update the 

standard Federal rate for FY 2014 by 1.8 

percent, which is based on the latest estimate 

of the proposed LTCH PPS market basket 

increase (2.5 percent), the proposed 

reduction of 0.4 percentage point for the MFP 

adjustment, and the 0.3 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 factor for FY 2014 of 

0.98734 (approximately ¥1.3 percent) to the 

standard Federal rate for the second year of 

the 3-year phase-in. We note that consistent 

with the statute, the one-time prospective 

adjustment to the standard Federal rate for 

FY 2013 is not applied to payments for 

discharges occurring before December 29, 

2012. Therefore, payments for FY 2013 

discharges occurring on or before December 

28, 2012, are paid based on a standard 

Federal rate that does not reflect that 

adjustment (and, therefore, are paid based on 

a relatively higher rate). 

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 

0.5 percent in the proposed annual update to 

the standard Federal rate and the proposed 

application of the one-time prospective 

adjustment for FY 2014 of approximately 

¥1.3 percent for the second year of the 3- 

year phase-in is projected to result in 

approximately a 0.5 percent increase in 

estimated payments per discharge for all 

LTCHs from FY 2013 to FY 2014. (As noted 

previously, the estimate payment changes 

shown in this column were determined based 

on the FY 2013 standard Federal rate of 

$40,915.95, and do not take into account that 

the one-time prospective adjustment to the 

standard Federal rate for FY 2013 under 

§ 412.523(d)(3) is not applied to payments for 

discharges occurring before December 29, 

2012, consistent with the statute.) 

In addition, our estimate of the proposed 

changes in payments due to the proposed 

update to the standard Federal rate also 

reflects estimated payments for SSO cases 

that are paid using special methodologies 

that are not affected by the update to the 

standard Federal rate. For these reasons, we 

estimate that payments would increase by 

less than 0.5 percent for certain hospital 

categories due to the proposed annual update 

to the standard Federal rate and the proposed 

application of the second phase of the onetime prospective adjustment for FY 2014. 

(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 2013 to FY 2014 for all hospitals is 

1.1 percent for all proposed changes. For 

rural LTCHs, the percent change for all 

proposed changes is estimated to be 0.7 

percent, while for urban LTCHs, we estimate 

the increase would be 1.1 percent. Large 

urban LTCHs are projected to experience an 

increase of 1.2 percent in estimated payments 

per discharge from FY 2013 to FY 2014, 

while other urban LTCHs are projected to 

experience an increase of 1.0 percent in 

estimated payments per discharge from FY 

2013 to FY 2014, 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 

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categories of LTCHs with the largest 

percentage of LTCH cases (approximately 46 

percent) are in hospitals that began 

participating in the Medicare program 

between October 1993 and September 2002, 

and hospitals that began participating in the 

Medicare program after October 2002, and 

they are projected to experience a 1.0 and 1.2 

percent in estimated payments per discharge 

from FY 2013 to FY 2014, respectively, as 

shown in Table IV. 

Approximately 4 percent of LTCHs began 

participating in the Medicare program before 

October 1983, and these LTCHs are projected 

to experience a slightly higher than average 

percent increase (1.2 percent) in estimated 

payments per discharge from FY 2013 to FY 

2014, as shown in Table IV. Approximately 

10 percent of LTCHs began participating in 

the Medicare program between October 1983 

and September 1993. These LTCHs are also 

projected to experience a 1.2 percent increase 

in estimated payments from FY 2013 to FY 

2014. 

(3) Ownership Control 

LTCHs are grouped into three categories 

based on ownership control type: voluntary, 

proprietary, and government. Based on the 

most recent available data, approximately 18 

percent of LTCHs are identified as voluntary 

(Table IV). We expect that LTCHs in the 

voluntary category will experience a higher 

than the average increase (1.5 percent) in 

estimated FY 2014 LTCH PPS payments per 

discharge as compared to estimated 

payments in FY 2013 primarily because we 

project the estimated increase in HCO 

payments to be higher than the average 

increase for these LTCHs. The majority (over 

77 percent) of LTCHs are identified as 

proprietary and these LTCHs are projected to 

experience the national average increase (1.1 

percent) in estimated payments per discharge 

from FY 2013 to FY 2014. Finally, 

government-owned and operated LTCHs are 

also expected to experience an increase in 

payments of 0.9 percent in estimated 

payments per discharge from FY 2013 to FY 

2014. 

(4) Census Region 

Estimated payments per discharge for FY 

2014 are projected to increase for LTCHs 

located in all regions in comparison to FY 

2013. Of the 9 census regions, we project that 

the increase in estimated payments per 

discharge will have the largest positive 

impact on LTCHs in the Middle Atlantic and 

Pacific regions (1.6 percent and 1.4 percent, 

respectively as shown in Table IV). The 

estimated percent increase in payments per 

discharge from FY 2013 to FY 2014 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 South 

Atlantic and West South Central regions are 

projected to experience the smallest increase 

in estimated payments per discharge from FY 

2013 to FY 2014. The lower than average 

estimated increase in payments of 0.9 percent 

for LTCHs in the South Atlantic and West 

South Central regions is primarily due to 

estimated decreases in payments associated 

with the proposed changes to the area wage 

level adjustment. 

(5) Bed Size 

LTCHs are grouped into six categories 

based on bed size: 0–24 beds; 25–49 beds; 

50–74 beds; 75–124 beds; 125–199 beds; and 

greater than 200 beds. Most bed size 

categories are projected to receive either a 

slightly higher or slightly lower than average 

increase in estimated payments per discharge 

from FY 2013 to FY 2014. We project that 

small LTCHs (0–24 beds) would experience 

a 0.6 percent increase in payments, mostly 

due to decreases in the area wage level 

adjustment, while large LTCHs (200+ beds) 

would experience a 1.2 percent increase in 

payments. LTCHs with between 75 and 124 

beds are expected to experience an above 

average increase in payments per discharge 

from FY 2013 to FY 2014 (1.2 percent). 

4. Effect on the Medicare Program 

As noted previously, we project that the 

provisions of this proposed rule would result 

in an increase in estimated aggregate LTCH 

PPS payments in FY 2014 relative to FY 2013 

of approximately $62 million (or 

approximately 1.1 percent) for the 423 

LTCHs in our database. In addition, the 

effects of the expiration of the regulatory 

moratorium on the application of the ‘‘25- 

percent threshold’’ payment adjustment 

policy effective for cost reporting periods 

beginning or after October 1, 2013 (as 

discussed in section VIII.D. of the preamble 

of this proposed rule) would result in a 

payment reduction of approximately $190 

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. 

M. Effects of Proposed Requirements for 

Hospital Inpatient Quality Reporting (IQR) 

Program 

In section IX.A. of the preamble of this 

proposed rule, we discuss our proposed 

requirements for hospitals to report quality 

data under the Hospital IQR Program in order 

to receive the full annual percentage increase 

for the FY 2016 payment determination. 

Information is not available to determine the 

precise number of hospitals that would not 

meet the requirements to receive the full 

annual percentage increase for the FY 2016 

payment determination. We now estimate 

that approximately 200 hospitals may not 

receive the full annual percentage increase in 

any fiscal year. Based on historical 

information, we believe that increased 

reporting requirements for several new 

measure topics may contribute to an increase 

in the number of providers subject to 

payment reduction. However, historical 

information also indicates that reporting 

improves in subsequent years following an 

initial increase in the number of providers 

subject to payment reduction. We believe 

that this reporting improvement will offset 

increased proposed reporting requirements 

from newly added measures. Based on our 

current successful participation rate, we 

anticipate an increase in the number of 

hospitals that may not receive the full annual 

percentage increase—from approximately 95 

to approximately 200. At the time that the 

analysis was prepared, 66 hospitals did not 

receive the full annual percentage increase 

for the FY 2013 payment determination. 

We estimate that the total burden 

associated with the voluntary electronic 

quality measure reporting option will be 

similar to the burden outlined for hospitals 

in the Medicare EHR Incentive Program Stage 

2 final rule (77 FR 53968 through 54162). 

However, by allowing hospitals to submit 

data that could be used to satisfy the 

requirements for both programs, each 

hospital that participates in the proposed 

voluntary electronic quality measure 

reporting option could realize a reduction in 

burden of approximately 800 hours. This 

estimate assumes an annual collection 

burden for chart abstracted Stroke, VTE and 

PC–01 to be a combined 816 hours annually 

per hospital and an estimated 2.66 hours to 

submit those measures electronically for one 

quarter. Since the ED measures are a subset 

of the global measure set that also includes 

the Immunization measures, which will 

continue to be collected via chart abstraction, 

we do not believe there will be a significant 

reduction in burden for electronic 

submission of the ED–1 and ED–2 measures. 

If our proposals related to validation, 

including submission of and reimbursement 

for secure electronic versions of medical 

information for validation for the FY 2016 

payment determination and subsequent years 

are finalized, as described in the ICRs for the 

Hospital IQR Program, it will result in a cost 

savings to CMS of approximately $1.3 

million. 

The cost to the Federal Government 

associated with the collection and validation 

of the data are estimated at $14,550,000.00 

annually for the validation, and quality 

reporting support contracts. In addition, this 

program takes 3 CMS staff at a GS–13 level 

to operate. A GS–13 level approximate 

annual salary is $92,001 for an additional 

cost of $276,000. 

N. Effects of Proposals for the PPS-Exempt 

Cancer Hospital Quality Reporting (PCHQR) 

Program for FY 2014 

In section IX.B. of the preamble of this 

proposed rule, we discuss our proposed 

policies for FYs 2015 and 2016 for the quality 

data reporting program for PPS-exempt 

cancer hospitals (PCHs), which we refer to as 

the PCHQR Program. The PCHQR Program is 

authorized under section 1866(k) of the Act, 

which was added by section 3005 of the 

Affordable Care Act. The quality reporting 

requirements affect all PCHs participating in 

Medicare. In the FY 2013 IPPS/LTCH PPS 

final rule (77 FR 53556 through 53561), we 

adopted five quality measures for the FY 

2014 program and subsequent program years. 

In this proposed rule, we are proposing 

that PCHs submit data on 1 additional 

measure beginning with the FY 2015 program 

and 13 additional measures beginning with 

the FY 2016 program, for a total of 19 

measures. We are not proposing to make 

changes to the reporting requirements that 

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195Centers 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. 

we have previously finalized for the five 

measures we first adopted beginning with the 

FY 2014 program. 

The anticipated burden to these PCHs 

consists of the following: Training of 

appropriate staff members on how to use the 

NSHN for the reporting of the proposed SSI 

measure, CMS (QualityNet) for the reporting 

of the proposed SCIP measures, and the CMS 

Web Measures Tool for the reporting of the 

proposed clinical process/oncology care 

measures; the time required for collection 

and aggregation of data; and the time 

required for the reporting of data by the 

PCH’s representative. 

In addition, in order for a PCH to 

participate in the collection of HCAHPS data, 

a PCH must either: (1) Contract with an 

approved HCAHPS survey vendor that will 

conduct the survey and submit data on the 

PCH’s behalf to the QIO Clinical Warehouse; 

or (2) self-administer the survey without 

using a vendor, provided that the PCH 

attends HCAHPS training. Finally, all PCHS 

that do not already report data under the 

PCHQR Program will need to register with 

QualityNet, identify a QualityNet 

administrator, complete an online Notice of 

Participation form, and learn the CMS 

contractor’s and the CDC’s collection 

mechanism in order to submit data for those 

measures. 

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 displayed 

publicly and used to 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. 

We will share the information collected 

under 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 PCHQR Program 

measures and 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. 

O. Effects of Proposals for FY 2014 Relating 

to the LTCH Quality Reporting (LTCHQR) 

Program 

In section IX.C. 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 provides that, for rate year 2014 and 

each subsequent year, any LTCH that does 

not submit data to the Secretary in 

accordance with section 1886(m)(5)(C) of the 

Act will receive a 2.0 percentage point 

reduction to the annual update to the 

standard Federal rate for discharges for the 

hospital during the applicable fiscal year. 

The initial requirements for this LTCHQR 

Program were finalized in 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 

because they did not submit data under the 

LTCHQR Program. Data collection for the 

LTCHQR Program did not begin until 

October 1, 2012. We believe that the 

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 are now 

able to verify, following the first quarter 

(October 1, 2012-December 31, 2012) of data 

collection and submission for the LTCHQR 

Program, that a majority of CMS-certified 

LTCHs are submitting quality data to CMS. 

We believe this number will only increase 

between the date of publication of this 

proposed rule and the final deadline for the 

first quarter of data submission (October 1, 

2012—December 31, 2012) of May 15, 2013. 

We believe that a majority of LTCHs will 

continue to submit data for CY 2013 and 

sunsequent years because they will continue 

to view the LTCHQR Program as an 

important step in improving the quality of 

care patients receive in the LTCHs. 

As discussed in section VIII.D.3. of the 

preamble of the FY 2013 IPPS/LTCH PPS 

final rule, for FY 2015, we retained the three 

quality measures that were finalized for use 

in the LTCHQR Program in the FY 2012 

IPPS/LTCH PPS final rule, with some 

modifications . These measures are: (1) 

NHSN Catheter-Associated Urinary Tract 

Infections (CAUTI) Outcome Measure (NQF 

#0138); (2) NHSN Central Line CatheterAssociated Blood Stream Infection Event 

(CLABSI) Outcome Measure (NQF #0139); 

and (3) an Application of the Percent of 

Residents or Patients with Pressure Ulcers 

That Are New or Worsened (Short-Stay) 

(NQF #0678). In the FY 2012 IPPS/LTCH PPS 

final rule (76 FR 51780 through 51781), we 

estimated that the total yearly cost to all 

LTCHs 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) will be approximately $756,326. 

We adopted this same burden estimate in the 

FY 2013 IPPS/LTCH PPS final rule. 

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 PPS 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. In 

the FY 2013 IPPS/LTCH PPS final rule, we 

specified that the CAUTI and CLABSI 

measures will be adopted in their expanded 

form for the FY 2014 payment update 

determination and all subsequent fiscal year 

payment determinations. 

We did not believe that the total burden 

estimate of $756,326 that we made in the FY 

2012 IPPS/LTCH PPS final rule would be 

affected by the expansion of the CAUTI and 

CLABSI measures. We made this statement 

because these expanded measures are the 

same measures we adopted in the FY 2012 

IPPS/LTCH PPS final rule, except that the 

measure names have been changed and the 

scope of endorsement expanded so as to be 

applicable to the LTCH setting. The 

expanded CAUTI and CLABSI measures 

make no changes to the way that data are to 

be collected and reported by LTCHs. Thus, 

the 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 LTCHQR Program, subject to normal 

inflationary increases, such as increased 

labor wage rates. 

As discussed in section VIII.D.3.d. of the 

preamble of the FY 2013 IPPS/LTCH PPS 

final rule, for the FY 2016 LTCHQR Program, 

we added two additional quality measures to 

the LTCHQR Program. These quality 

measures are: (1) Percent of Residents or 

Patients Who Were Assessed and 

Appropriately Given the Seasonal Influenza 

Vaccine (Short-Stay) (NQF #0680); and (2) 

Influenza Vaccination Coverage Among 

Healthcare Personnel (NQF #0431). Data for 

the staff immunization measure will be 

reported by LTCHs to the CDC’s NHSN. 

Details related to the use of NHSN for data 

submission and information on definitions, 

numerator data, denominator data, data 

analyses, and measure specifications for the 

Influenza Vaccination Coverage among 

Healthcare Personnel (NQF #0431) measure 

can be found at http://www.cdc.gov/nhsn/ 

LTACH/hcp-flu-vac/index.html. 

Data for the patient influenza vaccination 

measure will be collected using the LTCH 

CARE Data Set, and we anticipate the new 

data item set will consist of 3 additional 

items added to the LTCH CARE Data Set. 

These items are harmonized with data 

elements (O0250: Influenza Vaccination 

Status) from the Minimum Data Set (MDS) 

3.0.195 The LTCH CARE Data Set Version 

2.01 is currently under review by the Office 

of Management and Budget (OMB) in 

accordance with the Paperwork Reduction 

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196The LTCH CARE Data Set Version 1.01 was 

approved on April 24, 2012 by OMB in accordance 

with the PRA. The OMB Control Number is 0938– 

1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956 published April 12, 2013 solicits 

public comment on additions and updates to the 

LTCH CARE Data Set. http://www.cms.gov/ 

Regulations-and-Guidance/Legislation/ 

PaperworkReductionActof1995/PRA-Listing-Items/ 

CMS1252160.html. 

197The LTCH CARE Data Set Version 1.01 was 

approved on April 24, 2012 by OMB in accordance 

with the PRA. The OMB Control Number is 0938– 

1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956 published April 12, 2013 solicits 

public comment on additions and updates to the 

LTCH CARE Data Set. http://www.cms.gov/ 

Regulations-and-Guidance/Legislation/ 

PaperworkReductionActof1995/PRA-Listing-Items/ 

CMS1252160.html. 

198The LTCH CARE Data Set Version 1.01 was 

approved on April 24, 2012 by OMB in accordance 

with the PRA. The OMB Control Number is 0938– 

1163. Expiration Date April 30, 2013. FRN 78 21955 

through 21956 published April 12, 2013 solicits 

public comment on additions and updates to the 

LTCH CARE Data Set. http://www.cms.gov/ 

Regulations-and-Guidance/Legislation/ 

PaperworkReductionActof1995/PRA-Listing-Items/ 

CMS1252160.html. 

Act (PRA).196 The LTCH CARE Data Set 

Version 1.01 was approved on April 24, 2012 

by OMB in accordance with the PRA. The 

OMB Control Number is 0938–1163. The 

specifications and data elements for this 

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. 

Because the LTCHQR Program is nearing 

the end of the submission timeframe first 

quarter of reporting, we have become more 

familiar with the burden of this program. We 

have now received feedback from LTCH 

providers about the time burden associated 

with the completion of the LTCH CARE Data 

Set. We have considered feedback from 

LTCH providers in the form of public 

comments to the most recent LTCH proposed 

rule (FY 2013 IPPS/LTCH PPS proposed 

rule), questions during Open Door forums, 

and LTCH helpdesk inquiries. LTCH 

providers have stated that we had 

underestimated the amount of time that is 

required of the LTCH staff to complete the 

LTCH CARE Data Set on each LTCH patient. 

In response to the feedback received, we 

have significantly revised our burden 

estimates. For example, in our previous PRA 

package burden estimate we estimated 

burden based solely on LTCH yearly 

discharges of Medicare beneficiaries, while 

the revised burden estimate includes yearly 

LTCH discharges of both Medicare and nonMedicare patients. Additionally, the original 

burden calculation only took one assessment 

per patient (admission) into account, while 

the revised estimate includes two assessment 

records per patient (admission and 

discharge). 

While the burden calculation for this PRA 

submission has increased significantly 

compared to our original calculation, we 

believe that the calculation now more 

accurately reflects the burden associated with 

implementing collection of the quality 

measures, as mandated by section 1886(m)(5) 

of the Act. For a complete discussion on the 

current LTCH CARE Data Set version 2.01 

burden estimate, we refer readers to the PRA 

package currently under review by OMB.197

In section IX.C.8.b. and c. of the preamble 

to this proposed rule, we are proposing to 

adopt four new quality measures for 

inclusion in the LTCHQR Program: (1) NHSN 

Facility-Wide Inpatient Hospital-Onset 

Methicillin-resistant Staphylococcus aureus 

(MRSA) Bacteremia Outcome Measure (NQF 

#1716); (2) NHSN Facility-Wide Inpatient 

Hospital-Onset Clostridium Difficile (C. 

Difficile) Outcome Measure (NQF #1717); (3) 

All-Cause Unplanned Readmission Measure 

for 30 Days Post-Discharge from Long-Term 

Care Hospitals; and (4) Application of 

Percent of Residents Experiencing One or 

More Falls with Major Injury (Long-Stay) 

(NQF #0674) The first three proposed 

measures would apply to the FY 2017 

payment update determination and 

subsequent payment determinations. The 

fourth proposed measure would apply to the 

FY 2018 payment update determination and 

subsequent payment determinations. 

Of the measures listed above, we believe 

that the first two measures (NHSN FacilityWide Inpatient Hospital-Onset Methicillinresistant Staphylococcus aureus (MRSA) 

Bacteremia Outcome Measure (NQF #1716) 

and NHSN Facility-Wide Inpatient HospitalOnset Clostridium Difficile (C. Difficile) 

Outcome Measure (NQF #1717)) will only 

minimally increase burden on LTCHs. These 

two measures are reported through the CDC’s 

NHSN. LTCHs will be familiar with the 

submission of quality data using this system 

as they began submitting required quality 

data through NHSN beginning October 1, 

2012 for CAUTI and CLABSI measures. The 

third measure (All-Cause Unplanned 

Readmission Measure for 30 Days PostDischarge from Long-Term Care Hospitals) is 

a claims-based measure, and it will not 

increase the reporting burden of LTCHs since 

it is a Medicare FFS claims-based measure. 

Lastly, we believe the fourth measure 

(application of Percent of Residents 

Experiencing One or More Falls with Major 

Injury (Long-Stay) (NQF #0674) will also 

have a minimal impact on the reporting 

burden as calculated for the LTCH CARE 

Data Set version 2.01 currently under review 

by the Office of Management and Budget 

(OMB) in accordance with the Paperwork 

Reduction Act (PRA).198 This measure will 

be collected using the LTCH CARE Data Set 

to which a total of two questions will be 

added in order to allow CMS to collect the 

data necessary to calculate this measure. 

P. Effects of Proposed Changes to the 

Requirements for the Inpatient Psychiatric 

Facilities Quality Reporting (IPFQR) Program 

In the FY 2013 IPPS/LTCH PPS final rule 

(77 FR 53644), we finalized policies to 

implement the Inpatient Psychiatric 

Facilities Quality Reporting (IPFQR) 

Program. One goal of the IPFQR Program is 

to implement the statutory requirements of 

section 1886(s)(4) of the Act, as added by 

sections 3401(f) and 10322(a) of the 

Affordable Care Act. In addition, 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 our objectives 

and goals. Health care organizations can use 

such health care quality data for many 

purposes such as in their risk management 

programs, patient safety and quality 

improvement initiatives and research and 

development of mental health programs, 

among others. 

In section IX.D. of the preamble of this 

proposed rule, we are proposing that, for the 

FY 2016 payment determination and 

subsequent years, IPFs must submit aggregate 

data on three additional measures, for a total 

of 9 measures. In addition, we are proposing 

a request for voluntary information. We are 

not proposing to make changes to the 

administrative, reporting or submission 

requirements for the existing six measures 

previously finalized in last year’s rule (77 FR 

53654 through 53657). However, there will 

be new reporting and submission 

requirements associated with the three 

proposed additional measures and proposed 

request for voluntary information for the FY 

2016 payment determination and subsequent 

years. 

We have estimated the burden associated 

with IPFs complying with the requirements 

of the IPFQR Program. In our burden estimate 

calculation, we have included the time that 

would be spent for (1) the submission of the 

voluntary information, (2) chart abstractions, 

and (3) training personnel on the collection 

of chart-abstracted data, aggregation of the 

data, and protocols to submit 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, including 30 minutes needed for 

the voluntary submission, is approximately 

1,030 hours a year for each IPF. Thus, the 

average hourly burden to each IPF is 

approximately 86 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 aggregate 

impact. 

II. Alternatives Considered 

This proposed rule contains a range of 

proposed policies. It also provides 

descriptions of the statutory provisions that 

are addressed, identifies the proposed 

policies, and presents rationales for our 

decisions and, where relevant, alternatives 

that were considered. 

III. Overall Conclusion 

1. Acute Care Hospitals 

Table I of section I.G. of this Appendix 

demonstrates the estimated distributional 

impact of the IPPS budget neutrality 

requirements for the proposed MS–DRG and 

wage index changes, and for the wage index 

reclassifications under the MGCRB. Table I 

also shows an overall decrease of 0.1 percent 

in operating payments. As discussed in 

section I.G. of this Appendix, we estimate 

that proposed operating payments will 

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decrease by approximately $110 million in 

FY 2014 relative to FY 2013. However, when 

we account for the impact of the changes in 

Medicare DSH payments and the impact of 

the new additional payments based on 

uncompensated care in accordance with 

section 3133 of the Affordable Care Act, 

based on estimates provided by the CMS 

Office of the Actuary, consistent with our 

proposal discussed in section V.E. of the 

preamble of this proposed rule, we estimate 

that proposed operating payments would 

increase by approximately $217 million 

relative to FY 2013. In addition, we estimate 

a savings of $26 million associated with the 

proposed HACs policies in FY 2014, which 

is an additional $2 million in savings as 

compared to FY 2013. We estimate that the 

expiration of the expansion of low-volume 

hospital payments in FY 2014 under section 

605 of the ATRA will result in a decrease in 

payments of approximately $288 million. We 

estimate new technology payments will 

increase payments by $45 million in FY 

2014, which is $1 million less than our 

estimate of new technology payments made 

in FY 2013. These estimates, combined with 

our proposed FY 2014 operating estimate of 

$217 million, result in an estimated decrease 

of approximately $74 million for FY 2014. 

We estimate that hospitals will experience a 

1.1 percent increase in capital payments per 

case, as shown in Table III of section I.I. of 

this Appendix. We project that there will be 

a $101 million increase in capital payments 

in FY 2014 compared to FY 2013. The 

proposed cumulative operating and capital 

payments would result in a net increase of 

approximately $27 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 2014. In the impact analysis, 

we are using the proposed rates, factors, and 

policies presented in this proposed rule, 

including proposed updated wage index 

values and relative weights, and the best 

available claims and CCR data to estimate the 

proposed change in payments under the 

LTCH PPS for FY 2014. Accordingly, based 

on the best available data for the 423 LTCHs 

in our database, we estimate that FY 2014 

LTCH PPS payments will increase 

approximately $62 million relative to FY 

2013 as a result of the proposed payment 

rates and factors presented in this proposed 

rule. In addition, we estimate that the 

expiration of the moratorium on the full 

application of the ‘‘25-percent threshold’’ 

payment adjustment policy under current 

law, beginning with cost reporting period 

beginning on or after October 1, 2013 as 

discussed in section VIII.D. of the preamble 

of this proposed rule, will result in a 

reduction in LTCH PPS payments of $190 

million. 

IV. Accounting Statements and Tables 

A. Acute Care Hospitals 

As required by OMB Circular A–4 

(available at http://www.whitehouse.gov/

omb/circulars/a004/a-4.pdf), in Table V 

below, we have prepared an accounting 

statement showing the classification of the 

expenditures associated with the provisions 

of this proposed rule as they relate to acute 

care hospitals. This table provides our best 

estimate of the proposed change in Medicare 

payments to providers as a result of the 

proposed changes to the IPPS presented in 

this proposed rule. All expenditures are 

classified as transfers to Medicare providers. 

The cost to the Federal Government 

associated with the policies in this proposed 

rule are estimated at $27 million. 

TABLE V—ACCOUNTING STATEMENT: 

CLASSIFICATION OF PROPOSED ESTIMATED EXPENDITURES UNDER THE

IPPS FROM FY 2013 TO FY 2014 

Category Transfers 

Annualized Monetized 

Transfers.

$27 million. 

From Whom to Whom Federal Government 

to IPPS Medicare 

Providers. 

Total ................... $27 million. 

B. LTCHs 

As discussed in section I.L. of this 

Appendix, the impact analysis of the 

proposed payment rates and factors 

presented in this proposed rule under the 

LTCH PPS, in conjunction with the estimated 

payment impact of the moratorium on the 

full application of the ‘‘25-percent threshold’’ 

payment adjustment policy under current 

law, is projected to result in a decrease in 

estimated aggregate LTCH PPS payments in 

FY 2014 relative to FY 2013 of approximately 

¥$128 million based on the data for 423 

LTCHs in our database that are subject to 

payment under the LTCH PPS. Therefore, as 

required by OMB Circular A–4 (available at 

http://www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in Table VI below, we have 

prepared an accounting statement showing 

the classification of the expenditures 

associated with the provisions of this 

proposed rule as they relate to the proposed 

changes to the LTCH PPS. Table VI provides 

our best estimate of the estimated decrease in 

Medicare payments under the LTCH PPS as 

a result of the proposed payment rates and 

factors and other provisions presented in this 

proposed rule based on the data for the 423 

LTCHs in our database. All expenditures are 

classified as transfers to Medicare providers 

(that is, LTCHs). 

The savings to the Federal Government 

associated with the proposed policies for 

LTCHs in this proposed rule is estimated at 

$128 million. 

TABLE VI—ACCOUNTING STATEMENT: 

CLASSIFICATION OF PROPOSED ESTIMATED EXPENDITURES FROM THE

FY 2013 LTCH PPS TO THE FY 

2014 LTCH PPS 

Category Transfers 

Annualized Monetized 

Transfers.

Negative transfer— 

Estimated decrease 

in expenditures: 

$128 million. 

V. Regulatory Flexibility Act (RFA) Analysis 

The RFA requires agencies to analyze 

options for regulatory relief of small entities. 

For purposes of the RFA, small entities 

include small businesses, nonprofit 

organizations, and small government 

jurisdictions. We estimate that most hospitals 

and most other providers and suppliers are 

small entities as that term is used in the RFA. 

The great majority of hospitals and most 

other health care providers and suppliers are 

small entities, either by being nonprofit 

organizations or by meeting the SBA 

definition of a small business (having 

revenues of less than $7.5 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.L. 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. Any public 

comments that we receive and our responses 

will be presented in the final rule. 

VI. Impact on Small Rural Hospitals 

Section 1102(b) of the Social Security Act 

requires us to prepare a regulatory impact 

analysis for any proposed or final rule that 

may have a significant impact on the 

operations of a substantial number of small 

rural hospitals. This analysis must conform 

to the provisions of section 603 of the RFA. 

With the exception of hospitals located in 

certain New England counties, for purposes 

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

small rural hospital as a hospital that is 

located outside of an urban area and has 

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fewer than 100 beds. Section 601(g) of the 

Social Security Amendments of 1983 (Pub. L. 

98–21) designated hospitals in certain New 

England counties as belonging to the adjacent 

urban area. Thus, for purposes of the IPPS 

and the LTCH PPS, we continue to classify 

these hospitals as urban hospitals. (We refer 

readers to Table I in section I.G. of this 

Appendix for the quantitative effects of the 

proposed policy changes under the IPPS for 

operating costs.) 

VII. Unfunded Mandates Reform Act 

Analysis 

Section 202 of the Unfunded Mandates 

Reform Act of 1995 (Pub. L. 104–4) also 

requires that agencies assess anticipated costs 

and benefits before issuing any rule whose 

mandates require spending in any 1 year of 

$100 million in 1995 dollars, updated 

annually for inflation. In 2013, that threshold 

level is approximately $141 million. This 

proposed rule will not mandate any 

requirements for State, local, or tribal 

governments, nor will it affect private sector 

costs. 

VIII. Executive Order 12866 

In accordance with the provisions of 

Executive Order 12866, the Executive Office 

of Management and Budget reviewed this 

proposed rule. 

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 2014, 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 2014 

A. Proposed FY 2014 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 

2014 as equal to the rate-of-increase in the 

hospital market basket for IPPS hospitals in 

all areas, subject to a reduction of 2.0 

percentage points if the hospital fails to 

submit quality 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 0.3 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 the 

application of the multifactor productivity 

adjustment and the additional FY 2014 

adjustment of 0.3 percentage point may result 

in the applicable percentage increase being 

less than zero. 

We note that, in compliance with section 

404 of the MMA, in this proposed rule, we 

are proposing to replace the FY 2006-based 

IPPS operating and capital market baskets 

with revised and rebased FY 2010-based IPPS 

operating and capital market baskets for FY 

2014. In accordance with section 

1886(b)(3)(B) of the Act, as amended by 

section 3401(a) of the Affordable Care Act, in 

section V.A.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 2014) of 0.4 percent. Therefore, based on 

IHS Global Insight Inc.’s (IGI’s) first quarter 

2013 forecast of the proposed FY 2010-based 

IPPS market basket, we are proposing an 

applicable percentage increase to the FY 

2013 operating standardized amount of 1.8 

percent (that is, the proposed FY 2014 

estimate of the market basket rate-of-increase 

of 2.5 percent less an adjustment of 0.4 

percentage point for economy-wide 

productivity and less 0.3 percentage point) 

for hospitals in all areas, provided the 

hospital submits quality data in accordance 

with section 1886(b)(3)(B)(viii) 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 ¥0.2 percent (that is, 

the FY 2014 estimate of the market basket 

rate-of-increase of 2.5 percent less 2.0 

percentage points for failure to submit 

quality data, less an adjustment of 0.4 

percentage point for economy-wide 

productivity, and less an additional 

adjustment of 0.3 percentage point). 

B. Proposed Update for SCHs for FY 2014 

Section 1886(b)(3)(B)(iv) of the Act 

provides that the FY 2014 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 1.8 percent for hospitals that submit 

quality data or ¥0.2 percent for hospitals 

that fail to submit quality data. 

C. Proposed FY 2014 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 

1.8 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 § 403.752(a) of 

the regulations, RNHCIs are paid under the 

provisions of § 413.40, which also use section 

1886(b)(3)(B)(ii) of the Act to update the 

percentage increase in the rate-of-increase 

limits. 

Currently, children’s hospitals, PPSexcluded cancer hospitals, and RNHCIs are 

among the remaining three types of hospitals 

still paid under the reasonable cost 

methodology, subject to the rate-of-increase 

limits. We are proposing that, for FY 2014 

and subsequent fiscal years, the rate-ofincrease percentage applicable to the target 

amount for children’s hospitals, PPSexcluded cancer hospitals, and RNHCIs is the 

percentage increase in the proposed revised 

and rebased FY 2010-based IPPS operating 

market basket. Accordingly, the FY 2014 rateof-increase percentage to be applied to the 

target amount for cancer hospitals, children’s 

hospitals, and RNHCIs would be the FY 2014 

percentage increase in the proposed revised 

and rebased FY 2010-based IPPS operating 

market basket. For this proposed rule, the 

current estimate of the FY 2014 IPPS 

operating market basket percentage increase 

is 2.5 percent. 

E. Proposed Update for LTCHs for FY 2014 

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 V.A. of the 

Addendum to this proposed rule, we are 

proposing to establish an update to the LTCH 

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Federal Register / Vol. 78, No. 91 / Friday, May 10, 2013 / Proposed Rules 27823 

PPS standard Federal rate for FY 2014 based 

on the full LTCH PPS market basket increase 

estimate (for this proposed rule, estimated to 

be 2.5 percent), subject to an adjustment 

based on changes in economy-wide 

productivity and an additional reduction 

required by sections 1886(m)(3)(A)(ii) and 

(m)(4)(D) of the Act, provided the LTCH 

submits quality data in accordance with 

section 1886(m)(5)(C) of the act and our 

rules. Beginning in FY 2014, in accordance 

with the LTCHQR Program under section 

1886(m)(5) of the Act, we are proposing to 

reduce the annual update to the LTCH PPS 

standard Federal rate by 2.0 percentage 

points for failure of a LTCH to submit quality 

data. The productivity adjustment described 

in section 1886(b)(3)(B)(xi)(ii) of the Act is 

currently estimated to be 0.4 percent for FY 

2014. In addition, section 1886(m)(3)(A)(ii) of 

the Act requires that any annual update for 

FY 2014 be reduced by the ‘‘other 

adjustment’’ at section 1886(m)(4)(D) of the 

Act, which is 0.3 percentage point. Therefore, 

based on IGI’s first quarter 2013 forecast of 

the FY 2014 market basket increase, we are 

proposing an annual update to the LTCH PPS 

standard Federal rate of 1.8 percent (that is, 

the current FY 2014 estimate of the market 

basket rate-of-increase of 2.5 percent less a 

proposed adjustment of 0.4 percentage point 

for economy-wide productivity and less 0.3 

percentage point), provided the LTCH 

submits quality data in accordance with the 

LTCHQR Program under section 

1886(m)(5)(C) of the Act. Accordingly, we are 

proposing to apply an update factor of 1.018 

in determining the LTCH PPS standard 

Federal rate for FY 2014 provided the LTCH 

submits quality data in accordance with 

section 1886(m)(5)(C) of the Act and our 

rules. For LTCHs that fail to submit quality 

data, we are proposing an annual update to 

the LTCH PPS standard Federal rate of ¥0.2 

percent (that is, the FY 2014 estimate of the 

market basket rate-of increase of 2.5 percent 

less a proposed adjustment of 0.4 percentage 

point for economy-wide productivity, less an 

additional adjustment of 0.3 percentage 

point, and less 2.0 percentage points for 

failure to submit quality data) by applying an 

update factor of 0.998 in determining the 

LTCH PPS standard Federal rate for FY 2014. 

Furthermore, we are proposing to make an 

adjustment for the second year of the 3-year 

phase-in of the one-time prospective 

adjustment to the standard Federal rate under 

§ 412.523(d)(3) by applying a factor of 

0.98734 (or approximately ¥1.3 percent) in 

FY 2014, consistent with current law. 

III. Secretary’s Recommendations 

MedPAC is recommending an inpatient 

hospital update equal to one percent for FY 

2014. 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 1.8 percent (that is, 

the FY 2014 estimate of the market basket 

rate-of-increase of 2.5 percent less a proposed 

adjustment of 0.4 percentage point for 

economy-wide productivity and less 0.3 

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 policies for these 

facilities, we are recommending an update 

for children’s hospitals, cancer hospitals, and 

RNHCIs of 2.5 percent. 

For FY 2014, consistent with policy set 

forth in section VIII. of the preamble of this 

proposed rule, we are recommending an 

update of 1.8 percent (that is, the current FY 

2014 estimate of the market basket rate-ofincrease of 2.5 percent less a proposed 

adjustment of 0.4 percentage point for 

economy-wide productivity and less 0.3 

percentage point) to the LTCH PPS standard 

Federal rate. 

IV. MedPAC Recommendation for Assessing 

Payment Adequacy and Updating Payments 

in Traditional Medicare 

In its March 2013 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 1.0 

percent. MedPAC expects Medicare margins 

to remain low in 2013. 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 2014 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 1 percent, for FY 

2014, 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 2014 applicable percentage increase. 

Therefore, we are proposing an applicable 

percentage increase for FY 2014 of 1.8 

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 2014 and MedPAC’s 

recommendation of a 1.0 percent update to 

gradually recover past 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 FY 2014 documentation and coding 

adjustment. We note that section 631 of the 

ATRA amended section 7(b)(1)(B) of Public 

Law 110–90 to require the Secretary to make 

a recoupment totaling $11 billion by 2017. 

This adjustment represents the amount of the 

increase in aggregate payments as a result of 

not completing the prospective adjustment 

authorized under section 7(b)(1)(A) of Public 

Law 110–90 until FY 2013. Our actuaries 

estimate that if CMS were to fully account for 

the $11 billion recoupment required by 

section 631 of the ATRA in FY 2014, a ¥9.3 

percent adjustment to the standardized 

amount would be necessary. MedPAC 

estimates that a ¥2.4 percent adjustment 

made in FY 2014, and not removed until FY 

2018, also would recover the required 

recoupment amount. It is often our practice 

to delay or phase in rate adjustments over 

more than 1 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, we are 

proposing a ¥0.8 percent adjustment to the 

standardized amount in FY 2014. 

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 proposed update to the 

capital rate is discussed in section III. of the 

Addendum to this proposed rule. 

[FR Doc. 2013–10234 Filed 4–26–13; 4:15 pm] 

BILLING CODE 4120–01–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 418 

[CMS–1449–P] 

RIN 0938–AR64 

Medicare Program; FY 2014 Hospice 

Wage Index and Payment Rate Update; 

Hospice Quality Reporting 

Requirements; and Updates on 

Payment Reform 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

update the hospice payment rates and 

the wage index for fiscal year (FY) 2014, 

and continue the phase out of the wage 

index budget neutrality adjustment 

factor (BNAF). Including the FY 2014 15 

percent BNAF reduction, the total 

BNAF reduction in FY 2014 will be 70 

percent. The BNAF phase-out will 

continue with successive 15 percent 

reductions in FY 2015 and FY 2016. 

This proposed rule would also clarify 

how hospices are to report diagnoses on 

hospice claims, and proposes changes in 

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